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PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT [bullet] JUNE 30, 1998
Capital Appreciation Variable Account
Government Securities Variable Account
High Yield Variable Account
Managed Sectors Variable Account
Money Market Variable Account
Total Return Variable Account
World Governments Variable Account
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NOT FDIC INSURED MAY LOSE VALUE
NO BANK GUARANTEE
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Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life Assurance Company of Canada
<PAGE>
Letter From the Chairman
Dear Contract Owners:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a significant market correction is possible and that such a
correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive
than most fixed-income investments, while low inflation helps control
companies' costs, such as for raw materials, wages, and benefits. The near-term
outlook for a continuation of this environment appears relatively favorable.
However, this year has seen a marked slowdown in corporate earnings. This means
that as equity prices continue to rise, price-to-earnings (P/E) ratios, or the
amount an investor pays for a stock in relation to the company's earnings per
share, also go up. A year ago, the average P/E ratio for stocks in the
unmanaged Standard & Poor's 500 Composite Index stood at approximately 22; this
summer, the average P/E ratio was 32% higher, at about 29. In some cases, such
as with some of the newer companies associated with the Internet, P/E ratios
have soared to levels that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 4% to 6% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Internationally, the economic turmoil in Asia continues to be a concern to us,
and we believe the United States has yet to see the full impact of this crisis.
There have been brief periods when some Asian economies appeared to improve,
but the situation remains quite dynamic and could turn worse before getting
better. While the crisis has affected all countries in Asia, Japan was a major
factor behind the turmoil as excesses in its banking and real estate sectors
have led to severe currency problems. In the long run, Japan will be the engine
that drives the region's eventual recovery, thus it warrants closer investor
scrutiny. At the same time, the Asian turmoil has had the beneficial effect of
moderating U.S. growth and keeping inflation in check, which has helped
establish a favorable interest-rate environment.
Countering the situation in Asia has been the greater-than-expected strength of
European economies. As Europe moves toward economic union, these countries have
benefited from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses, while providing numerous investment opportunities in developed and
emerging European markets.
Given this reality, we believe it is prudent to remind investors of the need to
take a long-term view and to diversify their investments across a range of
asset classes. This includes portfolios
1
<PAGE>
Letter From the Chairman -- continued
that focus on bonds and international investments as well as on the U.S. stock
market. The likelihood of an eventual market correction also makes it important
for us to use original, bottom-up research to find companies that we think can
keep growing or gain market share in the face of the occasional downturn. To
help achieve this, and to provide the broadest possible coverage of industry
sectors and individual companies, MFS continues to increase its number of
full-time research analysts. These analysts thoroughly investigate each
company's earnings potential and position in its industry as well as the
overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of credit
issuers and companies. They also attend many presentations, closely follow
sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to
both the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
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
July 13, 1998
Management Review and Outlook
Capital Appreciation Variable Account
For the six months ended June 30, 1998, the Account provided a total return of
20.12%, compared to a return of 17.71% for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock total return
performance.
The Account was heavily invested in companies that were strong performers in
sectors that did quite well during the first half of the year. For example,
computer software, an area in which we are more heavily invested in comparison
to the S&P 500 (19.2% versus 3.7%), was up strongly in the first half. Holdings
such as Microsoft and BMC Software all performed quite well. We expect
continued growth from our technology holdings as worldwide demand for
technology products increases, spurred by the need for Europe and Asia to make
up for their historical lack of investment in the types of technology that can
boost business productivity. Regions outside the United States need to keep
pace technologically if they wish to compete effectively in the world economy.
Our investments in broadcast media stocks such as CBS and Clear Channel also
boosted the Account's return thanks to consolidation in the
2
<PAGE>
Management Review and Outlook -- continued
industry and strong advertising rates. We feel these companies should be able
to offer more comprehensive advertising packages to potential customers, thanks
to the consolidation wave currently taking place.
The conglomerates, special products/services sector, which includes large
conglomerates, is essentially comprised of Tyco International, which was up
about 40% for the period.
Other stocks that performed well include Colgate, which realized a 20% increase
boosted by its new Total toothpaste, while Clear Channel Communications' share
price rose 37% in the first part of 1998. The company is not only benefiting
from consolidation but also has good cash flow generation, strong earnings
growth, and strong management. Another impressive stock is McDonald's, which is
undertaking a corporate restructuring designed to improve efficiency and boost
product quality. So far, the program has resulted in increased revenue growth
per store and a share price increase of 44% since the end of 1997.
Even in a bull market, individual stocks can disappoint. Cendant, a hotel, real
estate, and consumer services company franchiser created by a merger of HFS and
CUC International, has been a major disappointment. Earlier this year the
company uncovered potential accounting fraud in the former CUC, and we're
closely monitoring the situation while the company reviews its accounting
practices and attempts to uncover the depth of the problem. IKON Office
Solutions, a provider of office products and computer and networking solutions,
also failed to meet its revenue and profitability targets and has performed
poorly as a result.
To help minimize the impact of the Asian economic turmoil on the Account, we've
eliminated or sharply reduced our holdings in companies that we felt had a
large exposure to the Asian troubles. This is most apparent in our
semiconductor holdings, which we underweighted in comparison to the S&P 500.
Most prominently, we reduced our Intel holding.
Among other major changes in the portfolio, we eliminated Philip Morris from
our top holdings. After meeting with corporate management earlier in the year,
we determined that there was little prospect for growth given the current
political situation surrounding tobacco companies. For the remainder of 1998,
we will continue to focus on earnings growth because we believe earnings drive
stock prices. At this time, we feel that stocks are at a high valuation level
and we anticipate limited upside in the values of stocks. In this type of
market, in which earnings missteps are severely punished by Wall Street, we
need to have a high degree of confidence in our portfolio companies' abilities
to generate consistent earnings. We're anticipating moderate gross domestic
product (GDP) growth and moderate inflation, a scenario that provides a good
backdrop for the stock market and should result in moderately positive earnings
growth.
Government Securities Variable Account
For the six months ended June 30, 1998, the Account provided a total return of
3.76%, compared to a return of 3.87% for the Lehman Brothers Government/
Mortgage Index (the Lehman Index), an unmanaged index of U.S. Treasury,
government-agency, and mortgage-backed securities.
To most investors, the surprise of this year has been that robust economic
growth, especially this
3
<PAGE>
Management Review and Outlook -- continued
late in the economic cycle, has coincided with a dramatic improvement in
inflation trends and an overall decline in interest rates. Even though economic
activity for much of the year exceeded a level that the Federal Reserve Board
(the Fed) would consider noninflationary, and in spite of the fact that the Fed
increased the federal funds rate to 5.50% in March of 1997, two trends have
worked in favor of the market and helped lower rates. The first was the sharp
decline in the U.S. government's borrowing needs. In fact, for the 12-month
period ended January 1998, the government was running a surplus of about $17
billion, and for the fiscal year ending this October the surplus may be
significantly higher. The second favorable trend was the decline in inflation.
Much to the surprise of most economists, inflation fell significantly over the
course of the year, with the Consumer Price Index, for example, declining to
1.70% in 1997 from 3.30% in 1996.
The fixed-income environment, although at times volatile, was generally
positive over the past six months. With the general decline in interest rates,
coupon income was augmented by opportunities for capital appreciation,
particularly in longer-maturity securities. For example, an investment in the
two-year sector would have returned 2.68%, whereas the total return in the
10-year sector was 3.69%. With household income, job growth, and consumer
confidence quite strong, the rally in shorter maturities was somewhat limited
by concerns that the Fed would again find it necessary to raise short-term
interest rates. The very favorable performance on the inflation and fiscal
fronts, however, provided a very positive underpinning for Treasuries, one from
which longer maturities were able to benefit. This environment benefited the
Account, given our overweighting in longer-maturity Treasury and agency
securities.
For most of this year, the Account's duration, or sensitivity to changes in
interest rates, has been 5% to 10% longer than those of the appropriate
benchmarks. Strength in employment and overall economic activity, along with
the risk that the Fed might raise interest rates, argued for caution. Thus, we
have not positioned duration more aggressively. The many positive underpinnings
to the market, however, did suggest that we should position the portfolio to
benefit from opportunities for capital appreciation as fears of Fed action
receded.
Looking ahead, the economic environment, especially prospects for the
fixed-income market, is especially positive. The supply-side nature of the
economic expansion (with growth in supply outstripping that of demand) and the
boom in global production capacity have helped suppress inflation. Declining
inflation at this stage of the economic expansion is remarkable, and any
slowdown in economic growth could quickly trigger even lower inflation
expectations. Investors have yet to embrace the idea that the economy is at or
close to price stability. Although the economy shows few signs of weakening,
interest rates will have considerable room to fall after economic activity
cools and the view that we are indeed close to the long-term objective of price
stability becomes more broadly accepted.
High Yield Variable Account
For the six months ended June 30, 1998, the Account provided a total return of
5.31%, compared to a return of 4.50% for the Lehman Brothers High Yield Bond
Index, an unmanaged index of noninvestment-grade corporate debt.
The high-yield market is experiencing an unprecedented period of growth and
strong
4
<PAGE>
Management Review and Outlook -- continued
performance and continues to be the best-performing domestic fixed-income asset
class. So far this year, a record $97 billion of high-yield bonds has been
issued by 422 companies, and the market has surpassed $570 billion in bonds
outstanding. Healthy economic growth has contributed to the market's
performance as companies have continued to post improved operating results.
The spread, or difference between yields on high-yield bonds and U.S. Treasury
notes, has widened recently as some global equity investors have sought the
security of the Treasury market following renewed concerns about economic
problems in Asia. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government if held to maturity.) As a result of this
flight to quality, the yield on Treasury notes fell slightly, to 5.4%, while
the yield on the Salomon Brothers High-Yield Bond Index, an unmanaged index of
noninvestment-grade U.S. corporate debt, remained at 9.2%. Given the low level
of interest rates, we believe the high-yield market remains attractively
valued, with the spread to Treasuries at 3.8%, its widest level in two-and-
a-half years.
While the economic slowdown in Asia could adversely affect the U.S. economy, we
do not think it will materially impact the credit quality of the high-yield
companies owned by the Account. The Account is primarily invested in the bonds
of domestic companies, and when the crisis in Southeast Asia developed last
fall we reduced our holdings in companies with high exports to that area.
We believe that many telecommunications issues continue to represent good
value, given their growth opportunities and the higher yields available in this
sector. The telecommunications sector is our largest industry weighting and has
been one of the best-performing sectors in the high-yield market over the past
12 months. The Account is also overweighted in the aerospace sector, in which
equipment suppliers such as BE Aerospace are benefiting from strong orders for
new commercial aircraft. Our portfolio is underweighted in the energy sector,
but we will look for investment opportunities in this area because recently
yields have risen in response to oil prices sinking to their lowest levels in
12 years.
Managed Sectors Variable Account
For the six months ended June 30, 1998, the Account provided a total return of
11.91%, compared to a return of 17.71% for the S&P 500.
The Account has had exposure to two sectors, energy and health care, that had
weak relative performance in the first half of this year. Also this year, oil
supplies increased while demand slackened, partially in Asia, and oil stocks
suffered as a result. We continue to have a positive outlook for companies in
the oil services sector, such as Cooper Cameron, EVI Weatherford, and Noble
Drilling, because of their strong balance sheets and strong managements.
In health care, while the Account's drug company holdings and retailers such as
CVS and Rite Aid have done well, stocks of nursing homes, health maintenance
organizations (HMOs), and providers of outpatient services have been under
pressure and have acted as a drag on the Account's performance. We believe the
difficulties these stocks have had thus far in 1998 are the result of confusion
and concern regarding the regulatory landscape and any potential impact on
pricing. In our view, the fundamental outlook for these companies is still
5
<PAGE>
Management Review and Outlook -- continued
promising. The prices of these stocks is attractive given their relative
valuations. We will continue to own them in the absence of any fundamental
changes.
Another important sector in the Account is technology. We've focused most
heavily on software companies and believe their growth will continue to be
driven by worldwide demand due to the critical role software plays in improving
corporate productivity and efficiency. Some of our brightest performers here
include Microsoft, EMC, Aspect Telecommunication, Cisco Systems, and BMC
Software.
The Account's largest holding is Tyco International, a conglomerate with a
strong management team and a leadership position in its four major industry
segments. The company is an aggressive acquirer with strong cash that it uses
to expand its operating efficiencies. It has rewarded the Account with strong
performance and, based on our expectations, we believe the company remains
attractive.
Major changes in the portfolio for the first half of the year include
reductions in stocks that had too much exposure to the Asian markets.
Specifically, we eliminated semiconductor holdings such as Atmel, Intel, and
Micron. These were replaced in the technology sector by those technology
companies mentioned previously.
We've added to our financial services holdings, particularly in stocks of what
we call "new emerging financial intermediaries," which are insurance companies
secondary and asset gatherers like Associates First Capital, Morgan Stanley,
and Lincoln National. The portfolio does not have a major focus on big banks.
Individual stock performance in this sector has been boosted by the continued
prospects for consolidation in the industry.
In the first half of this year, we reduced our holdings in hotel stocks,
particularly in low- and mid-tier companies, and gaming investments because we
anticipated less growth there due to a slowing U.S. economy and an expected
increase in the supply of hotel rooms. In gaming stocks, we saw no new
jurisdictional openings and an increase in the supply of hotel rooms in Las
Vegas which resulted in our expectation of weaker performances.
For the balance of 1998, we believe the market will continue to feel the impact
of the Asian turmoil. We are optimistic that the better-positioned companies in
the health care industry will rebound, and that energy companies will recover
from a weak first half as supply and demand become more balanced. Technology
will continue to be a mainstay of the Account, and performance there may
further benefit from increased worldwide demand as Europe and Asia step up
technology purchases to keep pace in the global economy.
Money Market Variable Account
Interest rates on short-term (90-day) securities remained stable during the
past six months. The Fed did not adjust monetary policy; thus, the federal
funds rate remained at 5.50% for the entire period. At the present time,
approximately 60% of the Account is invested in U.S. government or
government-guaranteed issues, with the balance in corporate and bank issues.
The average maturity of the Account on June 30, 1998, was 39 days, versus 42
days on December 31, 1997. We continue to limit the Account's investments to
securities issued or
6
<PAGE>
Management Review and Outlook -- continued
guaranteed by the U.S. Treasury or agencies or instrumentalities of the U.S.
government, as well as to the highest-quality corporate and bank issues, in
order to provide maximum security against credit risk. We expect short-term
rates to be flat 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 six months ended June 30, 1998, the Account provided a total return of
8.67%, compared to returns of 17.71% for the S&P 500 and 4.11% for the Lehman
Brothers Government Corporate Bond Index (the Lehman Index), an unmanaged,
market-value-weighted index of all debt obligations of the U.S. Treasury and
U.S. government agencies (excluding mortgage-backed securities) and
investment-grade U.S. corporate debt.
Given what we view as high valuations in the stock market, the Account has
maintained a fairly conservative weighting in equities. Currently,
approximately 58% of assets are invested in common stocks, convertibles, and
preferred securities, which is below the allocation for the balanced-fund peer
group.
In stocks, the Account's largest sector weighting is financial services, an
industry in which valuations and earnings growth is higher than that are
attractive of the average company. Earnings growth for these companies are in
the double digits, and their yields are good. Also, consolidation has made this
sector more attractive as these companies are able to cut costs and reduce
overlapping operations. Holdings here include National City and PNC in banking
and Lincoln National and Chubb in insurance.
Another large sector is utilities and communications, in which we see some
attractive opportunities. On the electric side, we think growth is modest but
valuations are attractive compared to the S&P 500. This is the case in
telecommunications, in which there is also ongoing consolidation and growth,
both of which we think could enhance capital appreciation.
We continue to shy away from the technology sector. Given our objective to
provide consistent returns with low volatility, we have not seen much
opportunity in this sector.
As the year progresses, we believe it will become more difficult to make money
in the equity markets because prices continue to rise while corporate earnings
are slowing.
Based on our outlook for interest rates remaining low, the duration, or
sensitivity to changes in interest rates, of the Account's bond allocation is
slightly longer than that of the Lehman Index. Most of this allocation is in
the corporate sector because we believe that as long as the economy remains
sound and inflation low, corporate bonds should continue to perform well. About
20% of this allocation is in high-yield corporates. Healthy economic growth has
contributed to the high-yield market's performance as more companies have
posted improved operating results and have had little trouble making their debt
payments. The biggest high-yield sector is media and entertainment and includes
Time Warner, News Corp., and Telecommunications, Inc. This industry continues
to benefit from consolidation and cost-cutting resulting from the 1996
Telecommunications Act.
7
<PAGE>
Management Review and Outlook -- continued
World Governments Variable Account
For the six months ended June 30, 1998, the Account provided a total return of
1.55%, compared to a return of 2.78% for the Salomon Brothers World Government
Bond Index (the Salomon Index), an unmanaged index of complete universes of
government bonds with remaining maturities of at least five years. The Account
is replacing the J.P. Morgan Global Government Bond Index (an aggregate of
actively traded government bonds issued by 13 countries, including the United
States, with remaining values of less than one year) with the Salomon Index
because we feel the Salomon Index better reflects the universe in which the
Account invests.
For the past six months, the Asian economic crisis has been the largest factor
in determining the global environment for bond investing. The slowdown in
growth resulting from the Asian problem, combined with a lack of inflation, has
resulted in a very positive environment for almost all bond markets in
developed countries. Given these conditions, we had expected that the three
major central banks -- those in the United States, Germany, and Japan -- would
leave interest rates unchanged. This proved to be the case, and we believe
that, absent inflationary signs, the Fed will continue to defer from raising
rates as long as economic turmoil exists in Southeast Asia.
By the end of June, the Japanese appeared to be getting closer to addressing
their severe banking problems as well as offering badly needed income tax cuts
in order to stimulate their depressed economy. However, markets will remain
skeptical until firm policies are put in place and acted upon. Meanwhile,
Western Europe continues to prepare itself for the initial phase of European
monetary union, which is set to begin in January 1999. This will be a huge and
significant undertaking that will take years to fully implement.
Year-to-date returns for all bond markets in the Salomon Brothers Index
registered positive returns when measured in local terms (not adjusted for
currency differences). The better performers have been Sweden and the United
Kingdom, and Japan has been the worst. The Account has benefited from being
overweight the United Kingdom and underweight Japan. Performance relative to
the index was hurt by being overweight the U.S., which underperformed at the
beginning of the year.
Our views have not dramatically changed from the beginning of the year. The
global inflation outlook, fiscal progress in several regions of the world in
lowering budget deficits, and increasing global competition are very favorable
factors that we believe will continue to lower global interest rates. Many of
the bond markets have already discounted these positive developments. In order
for interest rates to drop significantly from current levels, the Southeast
Asian economies would have to continue unraveling, thereby causing central
banks to ease monetary policy and put more currency into their respective
economies. However, we do not foresee this happening in the near future.
Meanwhile, the direction of both the Japanese economy and the yen will be
critical for most fixed-income markets in the months ahead. We continue to
believe that bond markets with the highest real and nominal interest rates will
perform well. Consequently, we expect to maintain our overweighted position in
the U.S. bloc, with underweightings in both the European and Japanese blocs.
8
<PAGE>
Management Review and Outlook -- continued
---------------------
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
Investment Objectives
Capital Appreciation Variable Account (CAVA) seeks capital appreciation by
investing in securities of all types, with a major emphasis on common stocks.
Government Securities Variable Account (GSVA) seeks current income and
preservation of capital by investing in U.S. government and government-related
securities.
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.
Six-month performance through June 30, 1998
<TABLE>
<CAPTION>
Compass 2 (U.S.) Compass 3 (U.S.)
<S> <C> <C>
Capital Appreciation
Variable Account 19.36% 19.30%
Government Securities
Variable Account 3.08% 3.02%
High Yield Variable Account 4.64% 4.59%
Managed Sectors Variable
Account 11.23% 11.14%
Money Market Variable
Account 1.83% 1.78%
Total Return Variable
Account 8.03% 7.95%
World Governments Variable
Account 0.94% 0.86%
</TABLE>
These performance results reflect any applicable contract or surrender charges.
Past performance is no guarantee of future results.
9
<PAGE>
Portfolio of Investments -- June 30, 1998
Capital Appreciation Variable Account
Stocks -- 97.1%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 95.2%
Aerospace -- 1.7%
United Technologies Corp. .............................................. 134,400 $ 12,432,000
------------
Automotive -- 0.5%
Federal Mogul Corp. .................................................... 55,200 $ 3,726,000
------------
Banks and Credit Companies -- 0.8%
Bank of New York, Inc. ................................................. 68,600 $ 4,163,163
BankBoston Corp. ....................................................... 25,200 1,401,750
------------
$ 5,564,913
------------
Business Machines -- 0.8%
Affiliated Computer Services, Inc., "A"*................................ 66,400 $ 2,556,400
Xerox Corp. ............................................................ 34,200 3,475,575
------------
$ 6,031,975
------------
Business Services -- 3.4%
AccuStaff, Inc.* ....................................................... 201,200 $ 6,287,500
Computer Sciences Corp. ................................................ 112,200 7,180,800
DST Systems, Inc.* ..................................................... 86,500 4,844,000
Galileo International, Inc. ............................................ 129,000 5,813,063
Ikon Office Solutions, Inc. ............................................ 29,300 426,681
------------
$ 24,552,044
------------
Computer Hardware --
Systems -- 1.3%
EMC Corp.* ............................................................. 203,900 $ 9,137,269
------------
Computer Software --
Personal Computers -- 7.6%
Dell Computer Corp.* ................................................... 90,800 $ 8,427,375
Microsoft Corp.* ....................................................... 424,400 45,994,350
------------
$ 54,421,725
------------
Computer Software -- Systems -- 11.6%
BMC Software, Inc.* .................................................... 354,100 $ 18,391,069
Cadence Design Systems, Inc.* .......................................... 573,400 17,918,750
Computer Associates International,
Inc. .................................................................. 391,250 21,738,828
Compuware Corp.* ....................................................... 76,100 3,890,612
Oracle Corp.* .......................................................... 585,075 14,370,905
Peoplesoft, Inc.* ...................................................... 24,200 1,137,400
Synopsys, Inc.* ........................................................ 113,000 5,169,750
------------
$ 82,617,314
------------
Issuer Shares Value
Consumer Goods and
Services -- 11.4%
Clorox Co. ............................................................. 38,600 $ 3,681,475
Colgate-Palmolive Co. .................................................. 150,900 13,279,200
Gillette Co. ........................................................... 163,300 9,257,069
Revlon, Inc., "A"* ..................................................... 78,300 4,022,662
Service Corp. International ............................................ 45,000 1,929,375
Tyco International Ltd. ................................................ 778,500 49,045,500
------------
$ 81,215,281
------------
Defense Electronics -- 1.6%
Loral Space & Communications Corp.* .................................... 406,700 $ 11,489,275
------------
Electrical Equipment -- 1.2%
General Electric Co. ................................................... 96,700 $ 8,799,700
------------
Electronics -- 1.8%
Altera Corp.* .......................................................... 111,200 $ 3,287,350
Analog Devices, Inc.* .................................................. 108,700 2,669,944
Microchip Technology, Inc.* ............................................ 138,500 3,618,312
Xilinx, Inc.* .......................................................... 89,300 3,036,200
------------
$ 12,611,806
------------
Entertainment -- 7.2%
CBS Corp. .............................................................. 129,000 $ 4,095,750
Clear Channel Communications, Inc.* .................................... 97,384 10,627,029
Harrah's Entertainment, Inc.* .......................................... 60,600 1,408,950
Hearst-Argyle Television, Inc.* ........................................ 32,600 1,304,000
Heftel Broadcasting Corp., "A"* ........................................ 91,800 4,108,050
Jacor Communications, Inc.* ............................................ 110,500 6,519,500
Mirage Resorts, Inc.* .................................................. 190,700 4,064,294
Time Warner, Inc. ...................................................... 65,300 5,579,068
Univision Communications, Inc., "A"*.................................... 112,000 4,172,000
Viacom, Inc., "B"* ..................................................... 169,100 9,850,075
------------
$ 51,728,716
------------
Financial Institutions -- 6.5%
Associates First Capital Corp., "A" .................................... 141,900 $ 10,908,562
CIT Group, Inc., "A" ................................................... 101,500 3,806,250
Federal Home Loan Mortgage Corp. ....................................... 209,900 9,878,419
Financial Federal Corp. * .............................................. 118,150 3,167,897
Finova Group, Inc. ..................................................... 133,800 7,576,425
Franklin Resources, Inc. ............................................... 126,900 6,852,600
Morgan Stanley, Dean Witter & Co. ...................................... 44,900 4,102,738
------------
$ 46,292,891
------------
</TABLE>
10 - CAVA
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Financial Services -- 0.7%
SunAmerica, Inc. ....................................................... 86,650 $ 4,976,959
------------
Insurance -- 0.6%
Annuity and Life Re Holdings Ltd.* ..................................... 2,600 $ 57,525
Lincoln National Corp. ................................................. 44,200 4,038,775
------------
$ 4,096,300
------------
Machinery -- 0.2%
Lear Corp.* ............................................................ 33,300 $ 1,708,706
------------
Medical and Health Products -- 2.7%
Biomet, Inc. ........................................................... 60,200 $ 1,990,363
Boston Scientific Corp.* ............................................... 47,100 3,373,537
Bristol-Myers Squibb Co. ............................................... 122,000 14,022,375
------------
$ 19,386,275
------------
Medical and Health Technology
and Services -- 6.5%
Cardinal Health, Inc. .................................................. 47,500 $ 4,453,125
Columbia/HCA Healthcare Corp. .......................................... 188,800 5,498,800
Health Management Associates, Inc., "A"* ............................... 98,000 3,276,875
HealthSouth Corp.* ..................................................... 289,200 7,718,025
Lincare Holdings, Inc.* ................................................ 52,300 2,199,869
Scherer R P Corp.* ..................................................... 19,000 1,683,875
Total Renal Care Holdings, Inc.* ....................................... 94,800 3,270,600
United Healthcare Corp. ................................................ 248,500 15,779,750
Wellpoint Health Networks, Inc., "A"*................................... 31,600 2,338,400
------------
$ 46,219,319
------------
Metals and Minerals -- 0.8%
Minerals Technologies, Inc. ............................................ 116,100 $ 5,906,588
------------
Oil Services -- 0.7%
Cooper Cameron Corp.* .................................................. 35,400 $ 1,805,400
Diamond Offshore Drilling, Inc. ........................................ 44,800 1,792,000
EVI Weatherford, Inc.* ................................................. 32,000 1,188,000
------------
$ 4,785,400
------------
Oils -- 1.0%
USX-Marathon Group ..................................................... 207,500 $ 7,119,844
------------
Pollution Control -- 0.6%
Waste Management, Inc. ................................................. 112,100 $ 3,923,500
------------
Printing and Publishing -- 0.2%
Scripps (E.W.) Howard, Inc. ............................................ 25,200 $ 1,381,275
------------
Railroads -- 0.1%
Wisconsin Central Transportation Corp.*................................. 30,400 $ 665,000
------------
Issuer Shares Value
Restaurants and Lodging -- 6.3%
Cavanaughs Hospitality Corp.* .......................................... 2,600 $ 33,963
Cendant Corp.* ......................................................... 1,285,692 26,838,820
McDonalds Corp. ........................................................ 103,600 7,148,400
Promus Hotel Corp.* .................................................... 294,631 11,343,294
------------
$ 45,364,477
------------
Stores -- 7.0%
CompUSA, Inc.* ......................................................... 75,000 $ 1,354,687
Corporate Express, Inc.* ............................................... 103,050 1,307,447
CVS Corp. .............................................................. 541,900 21,100,231
Linens 'N Things, Inc.* ................................................ 14,900 455,381
Office Depot, Inc.* .................................................... 431,100 13,606,594
Rite Aid Corp. ......................................................... 291,200 10,938,200
Staples, Inc.* ......................................................... 39,700 1,148,819
------------
$ 49,911,359
------------
Supermarkets -- 2.1%
Meyer (Fred), Inc.* .................................................... 60,000 $ 2,550,000
Safeway, Inc.* ......................................................... 314,000 12,775,875
------------
$ 15,325,875
------------
Telecommunications -- 6.6%
Cisco Systems, Inc.* ................................................... 176,750 $ 16,272,047
Global TeleSystems Group, Inc.* ........................................ 141,100 6,878,625
Hyperion Telecommunications, Inc.,
"A"* .................................................................. 6,000 94,125
Intermedia Communications, Inc.* ....................................... 44,700 1,874,606
L-3 Communications Holding, Inc.* ...................................... 1,300 42,494
Metromedia Fiber Network, Inc., "A"*.................................... 4,100 191,163
Nextlink Communications, Inc., "A"* .................................... 42,000 1,590,750
Qwest Communications International,
Inc.* ................................................................. 102,549 3,576,396
Tel-Save Holdings, Inc.##* ............................................. 89,500 1,320,125
Tel-Save Holdings, Inc.* ............................................... 63,200 932,200
Tellabs, Inc.* ......................................................... 53,900 3,860,587
WorldCom, Inc.* ........................................................ 210,380 10,190,281
------------
$ 46,823,399
------------
Utilities -- Electric -- 1.7%
AES Corp.* ............................................................. 144,500 $ 7,595,281
CalEnergy Co., Inc.* ................................................... 161,000 4,840,063
------------
$ 12,435,344
------------
Total U.S. Stocks ........................................................................... $680,650,529
============
</TABLE>
11 - CAVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- 1.9%
Bermuda -- 0.5%
Ace Ltd. (Insurance) ..................................................... 93,600 $ 3,650,400
------------
Canada -- 0.4%
Canadian National Railway Co.
(Railroads) ............................................................. 56,500 $ 3,001,562
------------
United Kingdom -- 1.0%
British Petroleum PLC, ADR (Oils) ........................................ 80,539 $ 7,107,567
Total Foreign Stocks ............................................................. $ 13,759,529
------------
Total Stocks (Identified Cost, $476,765,772) ..................................... $694,410,058
------------
Short-Term Obligations -- 2.5%
<CAPTION>
Principal Amount
(000 Omitted)
Federal Home Loan Mortgage Corp.,
due 8/21/98 ............................................................ $ 7,200 $ 7,144,512
Ford Motor Credit Corp., due 7/01/98..................................... 10,370 10,370,000
------------
Total Short-Term Obligations, at Amortized Cost .................................. $ 17,514,512
------------
Total Investments (Identified Cost, $494,280,284) ................................ $711,924,570
Other Assets,
Less Liabilities -- 0.4% ......................................................... 2,582,625
------------
Net Assets -- 100% ............................................................. $714,507,195
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- June 30, 1998
Government Securities Variable Account
Bonds -- 97.9%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Federal
Agencies -- 29.4%
Federal Home Loan Mortgage Corp.,
6.288s, 2027 .......................................................... $ 4,657 $ 4,700,715
Federal Home Loan Mortgage Corp.,
6.5s, 2028 ............................................................ 9,405 9,378,478
Federal Housing Authority, 7.43s, 2022 ................................. 3,390 3,401,252
Federal National Mortgage Assn.,
6.5s, 2012 - 2013 ..................................................... 4,459 4,483,722
Federal National Mortgage Assn.,
7.109s, 2020 .......................................................... 179 177,666
Federal National Mortgage Assn.,
7.27s, 2005 ........................................................... 3,896 3,987,031
Federal National Mortgage Assn.,
7.5s, 2000 ............................................................ 2,033 2,043,051
Federal National Mortgage Assn.,
8.5s, 2007 ............................................................ 172 179,740
Federal National Mortgage Assn.,
10s, 2018 ............................................................. 3,249 3,586,241
Financing Corp., 9.8s, 2018 ............................................ 5,000 7,191,400
Resolution Funding Corp., 8.875s, 2020 ................................. 3,700 5,085,761
Tennessee Valley Authority, 0s, 2042 ................................... 7,250 3,331,883
U.S. Department of Veterans Affairs,
7.5s, 2009 ............................................................ 3,400 3,678,358
U.S. Department of Veterans Affairs,
7.75s, 2014 ........................................................... 2,745 2,767,919
------------
$ 53,993,217
------------
U.S. Government
Guaranteed -- 68.5%
Government National Mortgage
Association -- 22.1%
GNMA, 6.5s, 2027 - 2028 ................................................ $ 3,451 $ 3,442,982
GNMA, 7s, 2008 - 2012 .................................................. 2,250 2,301,097
GNMA, 7.5s, 2008 - 2027 ................................................ 21,594 22,208,984
GNMA, 8s, 2025 - 2028 .................................................. 11,569 11,988,606
GNMA, 11s, 2010 - 2019 ................................................. 508 576,064
GNMA, 12.5s, 2015 ...................................................... 54 63,020
GNMA, 14s, 2014 - 2015 ................................................. 35 41,134
------------
$ 40,621,887
------------
</TABLE>
12 - GSVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Small Business
Administration -- 1.9%
SBA, 8.2s, 2005 .......................................................... $ 1,010 $ 1,055,891
SBA, 8.4s, 2007 .......................................................... 302 317,141
SBA, 8.7s, 2009 .......................................................... 1,228 1,324,054
SBA, 10.05s, 2009 ........................................................ 643 712,065
------------
$ 3,409,151
------------
U.S. Treasury Obligations -- 44.5%
U.S. Treasury Notes, 5.5s, 2003 .......................................... $ 3,700 $ 3,697,114
U.S. Treasury Notes, 5.625s, 2008 ........................................ 2,900 2,939,411
U.S. Treasury Bonds, 6.125s, 2027 ........................................ 11,600 12,430,096
U.S. Treasury Notes, 6.5s,
2002 - 2006 ............................................................. 17,400 18,247,818
U.S. Treasury Notes, 8s, 2001 ............................................ 18,000 19,164,420
U.S. Treasury Bonds, 8s, 2021 ............................................ 2,208 2,846,244
U.S. Treasury Notes, 8.5s, 2000 .......................................... 6,700 7,004,649
U.S. Treasury Bonds, 9.875s, 2015 ........................................ 4,700 6,845,832
U.S. Treasury Bonds, 10.375s, 2012 ....................................... 6,300 8,436,078
------------
$ 81,611,662
------------
Total U.S. Government Guaranteed .......................................................... $125,642,700
------------
Total Bonds (Identified Cost, $172,251,167) ............................................... $179,635,917
------------
Repurchase Agreement -- 1.4%
Goldman Sachs, dated 6/30/98, due
07/01/98, total to be received
$2,569,407 (secured by various
U.S. Treasury and Federal Agency
obligations in a jointly traded
account), at Cost ....................................................... $ 2,569 $ 2,569,000
------------
Total Investments (Identified Cost, $174,820,167) ......................................... $182,204,917
Other Assets,
Less Liabilities -- 0.7% .................................................................. 1,280,888
------------
Net Assets - 100.0% ....................................................................... $183,485,805
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- June 30, 1998
High Yield Variable Account
Bonds -- 91.2%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 82.2%
Aerospace -- 4.6%
Airplane Pass-Through Trust,
10.875s, 2019+ ........................................................ $ 750 $ 847,162
Argo Tech Corp., 8.625s, 2007 .......................................... 1,000 1,015,000
B E Aerospace, 8s, 2008 ................................................ 575 573,563
K & F Industries, Inc., 9.25s, 2007 .................................... 1,400 1,414,000
L-3 Communications Corp.,
10.375s, 2007 ......................................................... 500 552,500
L-3 Communications Corp., 8.5s, 2008 ................................... 525 526,969
MOOG, Inc., 10s, 2006 .................................................. 1,870 2,000,900
Stellex Industries, Inc., 9.5s, 2007 ................................... 475 466,688
United Defense Industries, Inc.,
8.75s, 2007 ........................................................... 655 663,187
------------
$ 8,059,969
------------
Building -- 2.4%
AAF-McQuay, Inc., 8.875s, 2003 ......................................... $ 1,325 $ 1,306,781
Nortek, Inc., 9.25s, 2007 .............................................. 1,000 1,020,000
UDC Homes, Inc., 0s, 2000 .............................................. 3 1,465
Williams Scotsman, Inc., 9.875s, 2007 .................................. 1,850 1,924,000
------------
$ 4,252,246
------------
Business Services -- 2.4%
Anacomp, Inc., 10.875s, 2004 ........................................... $ 650 $ 682,500
Convergent Communications, Inc.,
13s, 2008## ........................................................... 900 873,000
Iron Mountain, Inc., 8.75s, 2009 ....................................... 750 765,000
Pierce Leahy Corp., 11.125s, 2006 ...................................... 43 48,160
Pierce Leahy Corp., 9.125s, 2007 ....................................... 1,250 1,281,250
Zilog, Inc., 9.5s, 2005## .............................................. 725 514,750
------------
$ 4,164,660
------------
Chemicals -- 0.3%
Sterling Chemicals, Inc., 11.25s, 2007.................................. $ 475 $ 465,500
------------
Coal -- 0.5%
P & L Coal Holdings Corp.,
9.625s, 2008## ........................................................ $ 900 $ 924,750
------------
</TABLE>
13 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Consumer Goods and Services -- 4.8%
American Safety Razor Co.,
9.875s, 2005 .......................................................... $ 1,000 $ 1,070,000
Boyds Collection Ltd., 9s, 2008## ...................................... 500 500,000
Galey & Lord, Inc., 9.125s, 2008 ....................................... 515 495,688
General Binding Corp., 9.375s, 2008##................................... 575 583,625
Kindercare Learning Centers, Inc.,
9.5s, 2009 ............................................................ 850 854,250
Polymer Group, Inc., 9s, 2007 .......................................... 750 763,125
Reeves Industries, Inc., 11s, 2002** ................................... 287 287,014
Reeves, Inc., 13s, 2004 ................................................ 279 139,720
Remington Products Co. LLC,
11s, 2006 ............................................................. 825 756,937
Revlon Consumer Products Corp.,
8.625s, 2008 .......................................................... 1,400 1,400,000
Samsonite, Inc., 10.75s, 2008## ........................................ 525 519,750
Synthetic Industries, Inc., 9.25s, 2007................................. 1,125 1,164,375
------------
$ 8,534,484
------------
Container, Forest and
Paper Products -- 5.7%
Atlantis Group, Inc., 11s, 2003 ........................................ $ 1,300 $ 1,371,500
Florida Coast Paper Co. LLC,
12.75s, 2003 .......................................................... 1,000 1,120,000
Gaylord Container Corp., 9.75s, 2007 ................................... 1,070 1,053,950
Gaylord Container Corp., 9.875s, 2008 .................................. 1,070 1,037,900
Graham Packaging Co./GPC Capital,
8.75s, 2008## ......................................................... 650 646,750
Pacific Lumber Co., 10.5s, 2003 ........................................ 160 164,800
Silgan Holdings, Inc., 9s, 2009 ........................................ 800 828,000
Speciality Paperboard, Inc.,
9.375s, 2006 .......................................................... 1,400 1,470,000
U.S. Can Corp., 10.125s, 2006 .......................................... 950 999,875
U.S. Timberlands, 9.625s, 2007 ......................................... 1,160 1,174,500
Uniforet, Inc., 11.125s, 2006 .......................................... 200 192,000
------------
$ 10,059,275
------------
Energy -- 1.0%
AEI Holdings, Inc., 10s, 2007## ........................................ $ 250 $ 246,875
Gulfmark Offshore, 8.75s, 2008## ....................................... 600 582,000
Petsec Energy, Inc., 9.5s, 2007 ........................................ 850 858,500
------------
$ 1,687,375
------------
Principal Amount
Issuer (000 Omitted) Value
Entertainment -- 1.2%
AMC Entertainment, Inc., 9.5s, 2009 .................................... $ 500 $ 505,000
Cinemark USA, Inc., 9.625s, 2008 ....................................... 1,250 1,287,500
Hollywood Theaters, Inc., 10.625s,
2007[dbldag][dbldag] .................................................. 375 406,406
------------
$ 2,198,906
------------
Finance -- 0.5%
Merrill Lynch Mortgage Investors, Inc.,
8.161s, 2022## ........................................................ $ 1,000 $ 967,656
------------
Food and Beverage Products -- 2.9%
Delta Beverage Group, Inc.,
9.75s, 2003 ........................................................... $ 1,000 $ 1,047,500
Fage Dairy Industries SA, 9s, 2007 ..................................... 375 364,688
Friendly Ice Cream Corp., 10.5s, 2007................................... 575 606,625
Planet Hollywood, 12s, 2005 ............................................ 800 720,000
Purina Mills, Inc., 9s, 2010## ......................................... 500 513,750
Specialty Foods Corp., 10.25s, 2001 .................................... 1,950 1,891,500
------------
$ 5,144,063
------------
Gaming and Lodging -- 5.1%
Boyd Gaming Corp., 9.5s, 2007[dbldag][dbldag] .......................... $ 1,500 $ 1,560,000
Casino America, Inc., 12.5s, 2003 ...................................... 800 904,000
Coast Hotels & Casinos, Inc.,
13s, 2002 ............................................................. 750 868,125
Eldorado Resorts LLC, 10.5s, 2006 ...................................... 1,800 1,980,000
Grand Casinos, Inc., 10.125s, 2003 ..................................... 425 463,250
Prime Hospitality Corp., 9.75s, 2007 ................................... 200 212,500
Red Roof Inns, Inc., 9.625s, 2003 ...................................... 1,950 2,008,500
Santa Fe Hotel, Inc., 11s, 2000 ........................................ 1,065 1,054,350
------------
$ 9,050,725
------------
Industrial -- 9.4%
Clark-Schwebel, Inc., 10.5s, 2006 ...................................... $ 950 $ 1,050,937
Columbus Mckinnon Corp.,
8.5s, 2008## .......................................................... 850 835,125
Day International Group, Inc.,
11.125s, 2005 ......................................................... 750 817,500
Envirosource, Inc., 9.75s, 2003 ........................................ 650 654,875
Furon Co., 8.125s, 2008## .............................................. 800 799,000
Grove Worldwide LLC, 9.25s, 2008##...................................... 350 343,000
Hayes Wheels International, Inc.,
9.125s, 2007 .......................................................... 900 940,500
</TABLE>
14 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Industrial -- continued
Haynes International, Inc.,
11.625s, 2004 ......................................................... $ 1,425 $ 1,603,125
IMO Industries, Inc., 11.75s, 2006 ..................................... 920 1,035,000
Interlake Corp., 12s, 2001 ............................................. 1,200 1,308,000
Interlake Corp., 12.125s, 2002 ......................................... 250 255,000
International Knife & Saw, Inc.,
11.375s, 2006 ......................................................... 300 321,000
Johnstown America Industries, Inc.,
11.75s, 2005 .......................................................... 750 830,625
Newcor, Inc., 9.875s, 2008## ........................................... 1,100 1,111,000
Numatics, Inc., 9.625s, 2008## ......................................... 320 323,600
Oxford Automotive, Inc., 10.125s, 2007.................................. 1,100 1,133,000
Simonds Industries, Inc., 10.25s, 2008 ................................. 225 225,000
Stanadyne Automotive Corp.,
10.25s, 2007## ........................................................ 185 189,163
Talon Automotive Group, Inc.,
9.625s, 2008## ........................................................ 525 519,750
Thermadyne Holdings, 0s to 2003,
12.5s to 2008## ....................................................... 1,300 721,500
Thermadyne Manufacturing,
9.875s, 2008## ........................................................ 800 806,000
Venture Holdings Trust, 9.75s, 2004 .................................... 750 757,500
------------
$ 16,580,200
------------
Media -- 11.9%
Acme Television LLC, 0s to 2000,
10.875s to 2004 ....................................................... $ 950 $ 776,625
Big Flower Press Holdings, Inc.,
8.875s, 2007 .......................................................... 775 788,562
Chancellor Media Corp., 8.75s, 2007 .................................... 800 834,000
Charter Communications Southeast LP,
11.25s, 2006 .......................................................... 1,200 1,323,000
CSC Holdings, Inc., 9.25s, 2005 ........................................ 400 428,000
CSC Holdings, Inc., 8.125s, 2009 ....................................... 100 107,250
Cumulus Media, Inc., 10.375s, 2008 ..................................... 250 253,438
EchoStar Communications Corp.,
0s to 1999, 12.875s to 2004 ........................................... 1,100 1,069,750
EchoStar Satellite Broadcasting Corp.,
Principal Stripped, 0s to 2000,
13.125s to 2004 ....................................................... 1,425 1,309,219
Fox/Liberty Networks LLC, Inc.,
8.875s, 2007 .......................................................... 1,700 1,734,000
Issuer Principal Amount
(000 Ommitted) Value
Media -- continued
FrontierVision Holding LP, 0s to 2001,
11.87s to 2007 ........................................................ $ 500 $ 395,000
Frontiervision Operating Partnership
LP, 11s, 2006 ......................................................... 375 415,312
Golden Books Publishing, Inc.,
7.65s, 2002 ........................................................... 750 585,000
Granite Broadcasting Corp.,
10.375s, 2005 ......................................................... 750 787,500
Granite Broadcasting Corp.,
8.875s, 2008## ........................................................ 885 894,956
Hollinger International Publishing, Inc.,
9.25s, 2007 ........................................................... 1,085 1,144,675
Intermedia Capital Partners IV, LP,
11.25s, 2006 .......................................................... 1,000 1,117,500
Jacor Communications Co., 8s, 2010 ..................................... 200 200,000
Lenfest Communications, Inc.,
10.5s, 2006 ........................................................... 575 669,875
Liberty Group Operating, Inc.,
9.375s, 2008 .......................................................... 755 773,875
LIN Holdings Corp., 0s to 2003,
10s to 2008## ......................................................... 200 134,000
LIN Television Corp., 8.375s, 2008## ................................... 750 765,000
Marvel Holdings, Inc., 0s, 1998** ...................................... 1,165 43,688
NTL, Inc., 0s to 2003,
9.75s to 2008## ....................................................... 1,350 877,500
Outdoor Systems, Inc., 8.875s, 2007 .................................... 800 833,000
Renaissance Media Louisiana LLC, 0s
to 2003, 10s to 2008## ................................................ 475 280,250
Rogers Cablesystems, Inc.,
10.125s, 2012 ......................................................... 1,750 1,903,125
United International Holdings, Inc.,
0s to 2003, 10.75s to 2008 ............................................ 1,075 663,812
------------
$ 21,107,912
------------
Medical and Health
Products -- 2.2%
Beverly Enterprises, Inc., 9s, 2006 .................................... $ 1,000 $ 1,042,500
Insight Health Services Corp.,
9.625s, 2008## ........................................................ 350 347,813
Mediq, Inc., 11s, 2008## ............................................... 600 615,000
Oxford Health Plans, Inc., 11s, 2005## ................................. 350 355,688
Pharmerica, Inc., 8.375s, 2008## ....................................... 525 526,312
</TABLE>
15 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Medical and Health
Products -- continued
Prime Medical Services, Inc.,
8.75s, 2008## ......................................................... $ 1,015 $ 1,004,850
------------
$ 3,892,163
------------
Metals and Minerals -- 4.7%
Acme Metals, Inc., 10.875s, 2007## ..................................... $ 375 $ 315,000
Alaska Steel Holdings Corp.,
9.125s, 2006 .......................................................... 305 318,725
Commonwealth Aluminum Corp.,
10.75s, 2006 .......................................................... 600 618,000
Doe Run Resources Corp.,
11.25s, 2005## ........................................................ 700 707,000
Kaiser Aluminum & Chemical Corp.,
10.875s, 2006 ......................................................... 1,700 1,827,500
Keystone Consolidated Industries, Inc.,
9.625s, 2007 .......................................................... 700 719,250
Metal Management, Inc., 10s, 2008##..................................... 900 884,250
Schuff Steel Co., 10.5s, 2008## ........................................ 825 820,875
WCI Steel, Inc., 10s, 2004 ............................................. 900 924,750
Wheeling Pittsburgh Corp.,
9.25s, 2007 ........................................................... 550 561,000
WHX Corp., 10.5s, 2005 ................................................. 525 526,313
------------
$ 8,222,663
------------
Retail -- 2.5%
Affinity Group Holding, Inc., 11s, 2007 ................................ $ 500 $ 531,875
Cole National Group, Inc.,
9.875s, 2006 .......................................................... 500 540,000
Cole National Group, Inc.,
8.625s, 2007 .......................................................... 1,000 1,010,000
Finlay Enterprises, Inc., 9s, 2008 ..................................... 550 552,750
Finlay Fine Jewelry Corp.,
8.375s, 2008 .......................................................... 550 552,750
J Crew Operating Corp.,
10.375s, 2007 ......................................................... 250 238,750
Musicland Group, Inc., 9.875s, 2008 .................................... 1,050 1,044,750
------------
$ 4,470,875
------------
Supermarkets -- 0.1%
Jitney-Jungle Stores of America, Inc.,
12s, 2006 ............................................................. $ 200 $ 225,000
------------
Principal Amount
Issuer (000 Omitted) Value
Telecommunications -- 19.5%
Allegiance Telecom, Inc., 0s to 2003,
11.75s to 2008## ...................................................... $ 1,150 $ 612,375
American Mobile Satellite Corp.,
12.25s, 2008## ........................................................ 925 860,250
American Cellular Corp., 10.5s, 2008## ................................. 700 700,000
Bell Technology Group Ltd., 13s, 2005##. ............................... 250 253,125
Dialog Corporation PLC, 11s, 2007 ...................................... 1,325 1,464,125
Digital Teleport Holdings, Inc., 0s to
2003, 12.5s to 2008 ................................................... 1,450 783,000
Dolphin Telecom PLC, 0s to 2003,
11.5s to 2008## ....................................................... 1,500 847,500
Esat Holdings Ltd., 0s to 2002,
12.5s to 2007 ......................................................... 550 404,250
Esat Telecom Group PLC, 0s to 2002,
12.5s to 2007 ......................................................... 800 590,000
Esprit Telecom Group PLC,
10.875s, 2008## ....................................................... 850 841,500
Exodus Communications, Inc.,
11.25s, 2008## ........................................................ 1,325 1,329,969
Flag Ltd., 8.25s, 2008## ............................................... 800 806,000
GCI, Inc., 9.75s, 2007 ................................................. 1,550 1,619,750
Global Crossing Holdings Ltd.,
9.625s, 2008## ........................................................ 1,075 1,120,687
GlobalStar LP / Capital,
11.375s, 2004## ...................................................... 1,075 1,042,750
ICG Holdings, Inc., 0s to 2001,
12.5s to 2006 ......................................................... 875 695,625
Intermedia Communications, Inc., 0s
to 2002, 11.25s to 2007 ............................................... 1,200 876,000
Intermedia Communications, Inc.,
8.875s, 2007 .......................................................... 100 102,250
ITC Deltacom, Inc., 11s, 2007 .......................................... 569 637,280
Level 3 Commerce, Inc.,
9.125s, 2008## ........................................................ 1,000 972,500
McCaw International Ltd., 0s to 2002,
13s to 2007 ........................................................... 700 463,750
Metronet Communications Corp., 0s to
2003, 9.95s to 2008## ................................................. 1,775 1,098,281
MJD Communications, Inc.,
9.5s, 2008## .......................................................... 625 639,063
Nextel Communications, Inc., 0s to
2002, 9.75s to 2007 ................................................... 235 153,337
</TABLE>
16 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Telecommunications -- continued
Nextel Communications, Inc. 0s to
2003, 9.95s to 2008## ................................................. $ 2,850 $ 1,816,875
Nextel International, Inc., 0s to 2003,
12.125s to 2008## ..................................................... 1,700 977,500
Nextlink Communications, Inc.,
9.625s, 2007 .......................................................... 875 892,500
Onepoint Communications Corp.,
14.5s, 2008## ......................................................... 275 258,500
Orbital Imaging Corp., 11.625s, 2005 ................................... 470 479,400
Pagemart Wireless, Inc., 0s to 2003,
11.25s to 2008 ........................................................ 1,075 645,000
Pathnet, Inc., 12.25s, 2008## .......................................... 900 954,000
Pinnacle Holdings, Inc., 0s to 2003,
10s to 2008## ......................................................... 1,350 884,250
Psinet, Inc., 10s, 2005 ................................................ 350 357,000
RCN Corp., 0s to 2002,
11.25s to 2007 ........................................................ 775 497,938
Rhythms Netconnections, Inc., 0s to
2003, 13.5s to 2008## ................................................. 225 110,250
Rural Cellular Corp., 9.625s, 2008## ................................... 450 450,000
Spectrasite Holdings, Inc., 0s to 2003,
12s to 2008## ......................................................... 1,600 888,000
Telesystem International Wireless, Inc.,
0s to 2002, 10.5s to 2007 ............................................. 530 318,662
Telesystem International Wireless, Inc.,
0s to 2002, 13.25s to 2007 ............................................ 1,200 798,000
Triton PCS, Inc., 0s to 2003,
11s to 2008## ......................................................... 1,725 1,009,125
Verio, Inc., 10.375s, 2005## ........................................... 400 412,000
Versatel Telecom B V, 13.25s, 2008## ................................... 1,100 1,155,000
Viatel, Inc., 0s to 2003, 12.5s to 2008## .............................. 875 529,375
Viatel, Inc., 11.25s, 2008## ........................................... 775 813,750
Western Wireless Corp., 10.5s, 2007 .................................... 1,250 1,343,750
------------
$ 34,504,242
------------
Transportation -- 0.3%
Moran Transportation Co., 11.75s, 2004 ................................. $ 500 $ 556,250
------------
Utilities -- Electric -- 0.2%
Esi Tractebel, 7.99s, 2011## ........................................... $ 350 $ 346,938
------------
Total U.S. Bonds .......................................................................... $145,415,852
------------
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- 9.0%
Bulgaria -- 0.3%
Bulgaria National Republic, 0s to
1999, 2.25s to 2012 ................................................... $ 1,000 $ 603,800
------------
Canada -- 2.8%
Acetex, Inc., 9.75s, 2003 (Chemicals)................................... $ 650 $ 668,687
CHC Helicopter Corp., 11.5s, 2002
(Transportation) ...................................................... 700 743,750
Clearnet Communications, Inc., 0s to
2000, 14.75s to 2005
(Telecommunications) .................................................. 100 83,500
International Utility Strcts, Inc.,
10.75s, 2008 (Utility)## .............................................. 325 332,719
Metronet Communications Corp., 0s to
2002, 10.75s to 2007
(Telecommunications) .................................................. 1,000 665,000
Metronet Communications Corp.,
12s, 2007 (Telecommunications) ........................................ 600 690,000
Repap New Brunswick, Inc., 9s,
2004 (Forest and Paper Products)## .................................... 350 351,750
Repap New Brunswick, Inc., 10.625s,
2005 (Forest and Paper Products) ...................................... 1,365 1,378,650
------------
$ 4,914,056
------------
China -- 0.3%
Dao Heng Bank Ltd., 7.75s, 2007
(Financial)## ......................................................... $ 550 $ 467,429
------------
Luxembourg -- 0.5%
Millicom International Cellular
Communications Corp., 0s to 2001,
13.5s to 2006 (Telecommunications) .................................... $ 1,225 $ 955,500
------------
Mexico -- 0.4%
Satelites Mexicanos S A De C V,
10.125s, 2004 (Telecommunications)## .................................. $ 700 $ 684,250
------------
Netherlands -- 0.2%
Ptc International Finance BV, 0s, 2007
(Financial) ........................................................... $ 500 $ 340,000
------------
Russia -- 0.9%
Ministry of Finance, Russia, 10s, 2007 ................................. $ 660 $ 495,000
Ministry of Finance, Russia,
12.75s, 2028## ........................................................ 290 259,550
</TABLE>
17 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Russia -- continued
Vnesheconombank, 6.625s,
2015 (Financial) ........................................................ $ 1,400 $ 775,250
------------
$ 1,529,800
------------
South Korea -- 0.4%
Republic of Korea, 8.875s, 2008 .......................................... $ 750 $ 678,338
------------
Thailand -- 0.3%
Jasmine Submarine Telecom Ltd.,
8.483s, 2011 (Industrial)## ............................................. $ 539 $ 483,929
------------
United Kingdom -- 2.9%
Colt Telecommunications Group PLC,
0s to 2001, 12s to 2006
(Telecommunications) .................................................... $ 2,700 $ 2,700,000
Colt Telecommunications Group PLC,
0s to 2006, 12s to 2006
(Telecommunications) .................................................... 300 237,000
HMV Media Group PLC, 10.25s, 2008
(Media)## ............................................................... 775 786,625
Middleweb PLC Bankers Trust Lux,
10.5s, 2008 (Financial)## ............................................... 400 665,532
Newsquest Capital PLC, 11s, 2006
(Printing and Publishing) ............................................... 750 847,500
------------
$ 5,236,657
------------
Total Foreign Bonds ......................................................................... $ 15,893,759
------------
Total Bonds (Identified Cost, $158,041,460) ................................................. $161,309,611
------------
Stocks -- 0.1%
Shares
U.S. Stocks
Apparel and Textiles
Ithaca Industries, Inc.* ................................................. 10,900 $ 37,474
------------
Consumer Goods and Services -- 0.1%
Ranger Industries, Inc.* ................................................. 123,210 $ 69,367
------------
Industrial
Envirosource, Inc.* ...................................................... 238 $ 4,165
------------
Real Estate Investment Trusts
Atlantic Gulf Communities Corp.+* ........................................ 150 $ 310
------------
Total Stocks (Identified Cost, $3,093,067) .................................................. $ 111,316
------------
</TABLE>
Preferred Stock -- 3.4%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Consumer Goods and Services -- 0.8%
CSC Holdings, Inc. ..................................................... 12,891 $1,459,906
Renaissance Cosmetics, Inc., 14s* ...................................... 974 9,740
----------
$1,469,646
----------
Entertainment -- 0.6%
Time Warner, Inc., 10.25 ............................................... 959 $1,074,080
----------
Media -- 0.8%
Primedia, Inc. ......................................................... 13,500 $1,309,500
----------
Oils -- 0.3%
Clark USA, Inc. ........................................................ 528 $ 557,040
----------
Telecommunications -- 0.9%
E Spire Communications, Inc. ........................................... 98 $ 106,575
GlobalStar Telecommunications* ......................................... 1,075 118,250
ICG Funding LLC ........................................................ 3,750 277,500
NEXTEL Communications, Inc., 13s* ...................................... 109 122,080
Rural Cellular Corp.## ................................................. 925 929,625
----------
$1,554,030
----------
Total Preferred Stock (Identified Cost, $5,991,670) ............................ $5,964,296
----------
Convertible Preferred
Stock -- 0.3%
Telecommunications
ICG Funding LLC, 6.75%##*
(Identified Cost, $350,000) ........................................... 7,000 $ 567,000
----------
Warrants -- 0.2%
Allegiance Telecom, Inc.* .............................................. 1,150 $ 287
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
ICO, Inc.* ............................................................. 375,000 228,750
Knology Holdings, Inc.##* .............................................. 500 1,250
McCaw International Ltd.##* ............................................ 700 875
Metronet Communications Corp.##* ....................................... 600 24,000
Orbital Imaging Corp.* ................................................. 470 21,150
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, $320,502) ..................................... $ 327,570
----------
</TABLE>
18 - HYVA
<PAGE>
Short-Term Obligations -- 4.4%
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
Ford Motor Credit Corp., due 7/01/98,
at amortized cost .................. $ 7,800 $ 7,800,000
------------
Total Investments (Identified Cost, $175,596,699) .. $176,079,793
Other Assets, Less Liabilities -- 0.4% ................ 783,801
------------
Net Assets - 100.0% ................................ $176,863,594
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- June 30, 1998
Managed Sectors Variable Account
Stocks -- 97.8%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Energy -- 9.1%
BJ Services Co.* ......................................................... 58,800 $ 1,708,875
Camco International, Inc. ................................................ 23,800 1,853,425
Cooper Cameron Corp.* .................................................... 49,600 2,529,600
EVI Weatherford, Inc.* ................................................... 52,000 1,930,500
Noble Drilling Corp.* .................................................... 109,500 2,634,844
Occidental Petroleum Corp. ............................................... 48,800 1,317,600
------------
$ 11,974,844
------------
Financial Institutions -- 10.7%
Ace, Ltd., (Bermuda) ..................................................... 42,700 $ 1,665,300
Associates First Capital Corp., "A" ...................................... 43,000 3,305,625
Beneficial Corp. ......................................................... 10,500 1,608,469
Federal Home Loan Mortgage Corp. ......................................... 17,200 809,475
Lincoln National Corp. ................................................... 21,500 1,964,562
Morgan Stanley, Dean Witter, & Co. ....................................... 17,500 1,599,062
PNC Bank Corp. ........................................................... 23,500 1,264,594
ReliaStar Financial Corp. ................................................ 8,100 388,800
Transamerica Corp. ....................................................... 12,500 1,439,063
------------
$ 14,044,950
------------
Leisure -- 14.9%
Aerial Communications, Inc.* ............................................. 60,500 $ 378,125
Cellular Communications International,
Inc.* ................................................................... 30,750 1,533,656
Cendant Corp.* ........................................................... 32,000 668,000
Century Telephone Enterprises, Inc. ...................................... 25,800 1,183,575
Citadel Communications Corp. ............................................. 1,200 19,200
Gannett Co., Inc. ........................................................ 11,600 824,325
Harrah's Entertainment, Inc.* ............................................ 167,800 3,901,350
Hilton Hotels Corp. ...................................................... 50,000 1,425,000
Promus Hotel Corp.* ...................................................... 37,000 1,424,500
Qwest Communications International,
Inc.* ................................................................... 37,500 1,307,813
Sprint Corp. ............................................................. 24,000 1,692,000
Telephone & Data Systems, Inc. ........................................... 131,900 5,193,562
------------
$ 19,551,106
------------
Medical and Health Technology
and Services -- 20.2%
American Home Products Corp. ............................................. 42,000 $ 2,173,500
Bristol-Myers Squibb Co. ................................................. 19,000 2,183,812
Columbia/HCA Healthcare Corp. ............................................ 53,000 1,543,625
</TABLE>
19 - MSVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Medical and Health Technology
and Services -- continued
CVS Corp. .............................................................. 45,000 $ 1,752,187
Genesis Health Ventures, Inc.* ......................................... 85,000 2,125,000
HealthSouth Corp.* ..................................................... 97,300 2,596,694
MedPartners, Inc.* ..................................................... 220,000 1,760,000
Mid Atlantic Medical Services, Inc.* ................................... 119,300 1,371,950
Oxford Health Plans, Inc.* ............................................. 85,000 1,301,563
Rite Aid Corp. ......................................................... 88,000 3,305,500
United Healthcare Corp. ................................................ 69,000 4,381,500
Wellpoint Health Networks, Inc.* ....................................... 27,500 2,035,000
------------
$ 26,530,331
------------
Technology -- 22.4%
Analog Devices, Inc.* .................................................. 96,700 $ 2,375,194
Aspect Telecommunications Corp.* ....................................... 61,500 1,683,563
BMC Software, Inc.* .................................................... 41,000 2,129,437
Cisco Systems, Inc.* ................................................... 28,900 2,660,606
Compaq Computer Corp. .................................................. 49,100 1,393,213
Computer Associates International, Inc. ................................ 86,000 4,778,375
Computer Sciences Corp. ................................................ 27,800 1,779,200
EMC Corp.* ............................................................. 37,500 1,680,469
Global TeleSystems Group, Inc.* ........................................ 10,000 487,500
International Business Machines Corp. .................................. 21,400 2,456,987
Microsoft Corp.* ....................................................... 25,900 2,806,912
Oracle Corp.* .......................................................... 172,000 4,224,750
Teradyne, Inc.* ........................................................ 38,300 1,024,525
------------
$ 29,480,731
------------
Other -- 20.5%
Gulfstream Aerospace Corp.* ............................................ 33,500 $ 1,557,750
Intermedia Communications, Inc.* ....................................... 36,000 1,509,750
Jefferson Smurfit Corp.* ............................................... 55,500 872,391
Meyer (Fred), Inc.* .................................................... 36,500 1,551,250
Safeway, Inc.* ......................................................... 54,000 2,197,125
Sears, Roebuck & Co. ................................................... 44,000 2,686,750
Stone Container Corp.* ................................................. 100,000 1,562,500
Tyco International Ltd. ................................................ 202,500 12,757,500
Union Pacific Corp. .................................................... 20,000 882,500
Wisconsin Central Transportation Corp.* ................................ 58,600 1,281,875
------------
$ 26,859,391
------------
Total Stocks (Identified Cost, $109,684,933) ................................... $128,441,353
------------
</TABLE>
Convertible Preferred Stock -- 0.6%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Union Pacific Capital Trust
(Transportation) ##*
(Identified Cost, $785,000) ......... $15,700 $ 733,975
------------
Short-Term Obligations -- 1.7%
General Electric Co., due 7/01/98, at
amortized cost ...................... $ 2,190 $ 2,190,000
------------
Total Investments (Identified Cost, $112,659,933) ... $131,365,328
Other Assets, Less Liabilities -- (0.1)% ............... (106,961)
Net Assets - 100.0% ................................. $131,258,367
============
</TABLE>
See portfolio footnotes and notes to financial statements
20 - MSVA
<PAGE>
Portfolio of Investments -- June 30, 1998
Money Market Variable Account
Commercial Paper -- 40.3%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Ameritech Corp., due 7/06/98 ........................................... $ 3,500 $ 3,497,341
Archer-Daniels-Midland Co.,
due 8/05/98 ........................................................... 3,500 3,481,353
Bellsouth Telecomm, Inc.,
due 7/28/98 ........................................................... 4,000 3,983,500
Coca-Cola Co., due 7/17/98 ............................................. 2,000 1,995,164
Duke Power Co., due 7/20/98 ............................................ 3,000 2,991,339
Ford Motor Credit Corp., due 7/23/98.................................... 3,000 2,989,917
General Reinsurance Corp.,
due 8/21/98 ........................................................... 3,500 3,472,729
Lucent Technologies, Inc., due 8/27/98 ................................. 3,500 3,469,687
Merrill Lynch & Co., Inc., due 9/16/98.................................. 3,500 3,458,751
Morgan (J.P.) & Co., Inc., due 8/10/98 ................................. 4,000 3,975,511
Motorola, Inc., due 7/10/98 ............................................ 4,000 3,994,540
National Rural Utilities Cooperative
Finance Corp., due 8/06/98 ............................................ 4,000 3,978,040
Nationsbank Corp., due 10/05/98 ........................................ 3,000 2,956,720
Pitney Bowes Credit Corp., due 7/01/98 ................................. 3,000 3,000,000
Shell Oil Co., due 7/30/98 ............................................. 3,500 3,484,578
Southern California Edison Co.,
due 7/14/98 ........................................................... 2,000 1,996,028
------------
Total Commercial Paper, at amortized
cost and value ....................................................................... $ 52,725,198
------------
U.S. Government and Agency
Obligations -- 59.7%
Federal Farm Credit Bank, due 10/14/98.................................. $ 4,000 $ 3,938,050
Federal Home Loan Bank,
due 7/01/98 - 11/27/98 ................................................ 20,146 20,142,779
Federal Home Loan Mortgage Corp.,
due 7/02/98 - 8/25/98 ................................................. 20,200 20,130,490
Federal National Mortgage Assn.,
due 7/07/98 - 12/23/98 ................................................ 21,400 21,075,223
Student Loan Marketing Assn.,
due 7/01/98 ........................................................... 8,820 8,820,000
Tennessee Valley Authority, due 7/24/98................................. 4,000 3,986,226
------------
Total U.S. Government and Agency Obligations,
at amortized cost and value .......................................................... $ 78,092,768
------------
Total Investments, at amortized cost and value ........................................ $130,817,966
Other Assets, Less Liabilities ........................................................... (19,067)
------------
Net Assets - 100.0% ................................................................... $130,798,899
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- June 30, 1998
Total Return Variable Account
Stocks -- 57.7%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 49.4%
Aerospace -- 3.3%
Allied Signal, Inc. ...................................................... 90,900 $ 4,033,687
General Dynamics Corp. ................................................... 27,800 1,292,700
Goodrich (B.F.) Co. ...................................................... 19,900 987,538
Lockheed-Martin Corp. .................................................... 18,500 1,958,687
Raytheon Co., "A" ........................................................ 13,344 768,948
Raytheon Co., "B" ........................................................ 25,100 1,484,038
United Technologies Corp. ................................................ 4,400 407,000
------------
$ 10,932,598
------------
Automotive -- 1.2%
Ford Motor Co. ........................................................... 18,900 $ 1,115,100
TRW, Inc. ................................................................ 49,800 2,720,325
------------
$ 3,835,425
------------
Banks and Credit Companies -- 4.4%
Bank of New York, Inc. ................................................... 35,000 $ 2,124,062
Fleet Financial Group, Inc. .............................................. 8,000 668,000
National City Corp. ...................................................... 57,600 4,089,600
NationsBank Corp. ........................................................ 24,000 1,836,000
Northern Trust Corp. ..................................................... 14,700 1,120,875
Norwest Corp. ............................................................ 38,300 1,431,463
PNC Bank Corp. ........................................................... 59,000 3,174,937
------------
$ 14,444,937
------------
Business Machines -- 1.1%
Compaq Computer Corp. .................................................... 4,536 $ 128,709
International Business Machines Corp. .................................... 31,800 3,651,037
------------
$ 3,779,746
------------
Cellular Telephones -- 0.2%
Telephone & Data Systems, Inc. ........................................... 16,400 $ 645,750
------------
Chemicals -- 0.6%
Air Products & Chemicals, Inc. ........................................... 40,600 $ 1,624,000
Dow Chemical Co. ......................................................... 3,800 367,413
------------
$ 1,991,413
------------
Conglomerate -- 0.1%
Eastern Enterprises ...................................................... 5,800 $ 248,675
------------
Consumer Goods and Services -- 2.0%
Colgate-Palmolive Co. .................................................... 3,000 $ 264,000
Kimberly-Clark Corp. ..................................................... 18,800 862,450
Philip Morris Cos., Inc. ................................................. 49,500 1,949,062
Rubbermaid, Inc. ......................................................... 40,400 1,340,77500
</TABLE>
21 - TRVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Consumer Goods and
Services -- continued
Service Corp. International .............................................. 23,000 $ 986,125
Tyco International Ltd. .................................................. 18,300 1,152,900
------------
$ 6,555,312
------------
Electrical Equipment -- 2.2%
Cooper Industries, Inc. .................................................. 28,900 $ 1,587,694
General Electric Co. ..................................................... 46,200 4,204,200
Hubbell, Inc. ............................................................ 32,000 1,332,000
------------
$ 7,123,894
------------
Electronics -- 0.4%
Analog Devices, Inc.* .................................................... 16,000 $ 393,000
Morgan (J.P.) & Co. ...................................................... 8,100 948,713
------------
$ 1,341,713
------------
Entertainment -- 0.7%
Viacom, Inc., "B"* ....................................................... 42,600 $ 2,481,450
------------
Financial Institutions -- 2.6%
American Express Co. ..................................................... 9,000 $ 1,026,000
Associates First Capital Corp., "A" ...................................... 17,670 1,358,381
Beneficial Corp. ......................................................... 3,600 551,475
Edwards (A.G.), Inc. ..................................................... 19,900 849,481
Federal Home Loan Mortgage Corp. ......................................... 37,400 1,760,138
Federal National Mortgage Assn. .......................................... 15,600 947,700
Federated Investors, Inc., "A"* .......................................... 2,000 37,000
First Union Corp. ........................................................ 16,160 941,320
Morgan Stanley, Dean Witter & Co. ........................................ 12,400 1,133,050
------------
$ 8,604,545
------------
Food and Beverage Products -- 1.0%
Archer-Daniels-Midland Co. ............................................... 89,700 $ 1,737,937
General Mills, Inc. ...................................................... 13,600 929,900
McCormick & Co., Inc. .................................................... 16,400 585,788
------------
$ 3,253,625
------------
Forest and Paper Products -- 1.1%
Champion International Corp. ............................................. 34,100 $ 1,677,294
Weyerhaeuser Co. ......................................................... 42,500 1,962,969
------------
$ 3,640,263
------------
Insurance -- 6.0%
Chubb Corp. .............................................................. 41,900 $ 3,367,713
CIGNA Corp. .............................................................. 38,000 2,622,000
Conseco, Inc. ............................................................ 140 6,545
Equitable Cos., Inc. ..................................................... 29,200 2,188,175
Jefferson Pilot Corp. .................................................... 30,350 1,758,403
Issuer Shares Value
Insurance -- continued
Lincoln National Corp. ................................................... 42,800 $ 3,910,850
Provident Cos., Inc. ..................................................... 38,000 1,311,000
Torchmark Corp. .......................................................... 57,900 2,648,925
Transamerica Corp. ....................................................... 17,000 1,957,125
------------
$ 19,770,736
------------
Machinery -- 0.5%
Deere & Co. .............................................................. 11,200 $ 592,200
Lear Corp.* .............................................................. 10,800 554,175
York International Corp. ................................................. 11,100 483,544
------------
$ 1,629,919
------------
Medical and Health Products -- 2.7%
American Home Products Corp. ............................................. 52,700 $ 2,727,225
Baxter International, Inc. ............................................... 9,600 516,600
Bristol-Myers Squibb Co. ................................................. 49,800 5,723,887
------------
$ 8,967,712
------------
Medical and Health Technology
and Services -- 0.9%
Columbia/HCA Healthcare Corp. ............................................ 67,900 $ 1,977,588
United Healthcare Corp. .................................................. 17,400 1,104,900
------------
$ 3,082,488
------------
Metals and Minerals -- 0.4%
Aluminum Cos. of America ................................................. 21,500 $ 1,417,656
------------
Oil Services -- 0.3%
Baker Hughes, Inc. ....................................................... 15,000 $ 518,438
Schlumberger Ltd. ........................................................ 8,500 580,656
------------
$ 1,099,094
------------
Oils -- 3.7%
Amoco Corp. .............................................................. 20,200 $ 840,825
Atlantic Richfield Co. ................................................... 22,800 1,781,250
Exxon Corp. .............................................................. 26,000 1,854,125
Mobil Corp. .............................................................. 11,200 858,200
Occidental Petroleum Corp. ............................................... 36,000 972,000
Texaco, Inc. ............................................................. 44,900 2,679,969
Unocal Corp. ............................................................. 33,800 1,208,350
USX-Marathon Group ....................................................... 63,400 2,175,412
------------
$ 12,370,131
------------
Photographic Products -- 0.2%
Eastman Kodak Co. ........................................................ 9,600 $ 701,400
------------
Pollution Control -- 0.6%
Browning Ferris Industries, Inc. ......................................... 56,500 $ 1,963,375
------------
</TABLE>
22 - TRVA
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Railroads -- 0.2%
Norfolk Southern Corp. ................................................... 22,900 $ 682,706
------------
Real Estate Investment Trusts -- 1.1%
Arden Realty, Inc. ....................................................... 27,200 $ 703,800
Boston Properties, Inc. .................................................. 16,800 579,600
Hospitality Properties Trust ............................................. 25,400 815,975
Prime Group Realty Trust ................................................. 39,200 671,300
TriNet Corporate Realty Trust, Inc. ...................................... 25,100 853,400
------------
$ 3,624,075
------------
Stores -- 2.5%
Penney (J.C.), Inc. ...................................................... 33,800 $ 2,444,162
Rite Aid Corp. ........................................................... 86,700 3,256,669
Sears, Roebuck & Co. ..................................................... 39,700 2,424,181
------------
$ 8,125,012
------------
Supermarkets -- 0.5%
Meyer (Fred), Inc.* ...................................................... 18,200 $ 773,500
Safeway, Inc.* ........................................................... 25,000 1,017,188
------------
$ 1,790,688
------------
Telecommunications -- 3.6%
AT&T Corp. ............................................................... 33,900 $ 1,936,538
Bell Atlantic Corp. ...................................................... 28,000 1,277,500
BellSouth Corp. .......................................................... 4,800 322,200
GTE Corp. ................................................................ 66,500 3,699,062
SBC Communications, Inc. ................................................. 52,544 2,101,760
Sprint Corp. ............................................................. 35,600 2,509,800
------------
$ 11,846,860
------------
Utilities -- Electric -- 3.2%
Carolina Power & Light Co. ............................................... 52,500 $ 2,277,187
Cinergy Corp. ............................................................ 33,000 1,155,000
CMS Energy Corp. ......................................................... 22,300 981,200
FPL Group, Inc. .......................................................... 7,900 497,700
GPU, Inc. ................................................................ 18,400 695,750
New Century Energies, Inc. ............................................... 28,000 1,272,250
Pacificorp ............................................................... 42,501 961,585
Pinnacle West Capital Corp. .............................................. 29,600 1,332,000
Southern Co. ............................................................. 55,000 1,522,813
------------
$ 10,695,485
------------
Utilities -- Gas -- 2.1%
Coastal Corp. ............................................................ 48,100 $ 3,357,981
Columbia Energy Group .................................................... 33,150 1,843,969
Marketspan Corp.* ........................................................ 30,000 898,125
Issuer Shares Value
Utilities -- Gas -- continued
UGI Corp. ................................................................ 26,000 $ 646,750
Williams Cos., Inc. ...................................................... 8,500 286,875
------------
$ 7,033,700
------------
Total U.S. Stocks ..................................................................... $163,680,383
------------
Foreign Stocks -- 8.3%
Canada -- 0.3%
Canadian National Railway Co.
(Railroads) ............................................................. 19,700 $ 1,046,563
------------
France -- 0.4%
Alcatel Alsthom Compagnie, ADR
(Telecommunications) .................................................... 29,900 $ 1,216,556
------------
Germany -- 1.2%
Henkel KGaA (Chemicals) .................................................. 27,900 $ 2,756,795
Hoechst AG (Chemicals) ................................................... 25,000 1,255,881
------------
$ 4,012,676
------------
Netherlands -- 2.4%
Akzo Nobel N.V. (Chemicals) .............................................. 16,600 $ 3,685,990
ING Groep N.V. (Financial Services) ...................................... 41,586 2,719,988
Royal Dutch Petroleum Co., ADR
(Oils) .................................................................. 24,800 1,359,350
------------
$ 7,765,328
------------
Sweden -- 0.6%
Volvo AB, ADR (Automotive) ............................................... 68,000 $ 2,010,250
------------
Switzerland -- 0.6%
Nestle SA (Food and Beverage
Products) ............................................................... 900 $ 1,927,045
------------
United Kingdom -- 2.8%
British Petroleum PLC, ADR (Oils) ........................................ 66,143 $ 5,837,120
Diageo PLC (Food and Beverage
Products) ............................................................... 54,476 645,149
Glaxo Wellcome PLC, ADR
(Medical and Health Products) ........................................... 31,200 1,866,150
SmithKline-Beecham PLC, ADR
(Medical and Health Products) ........................................... 15,200 919,600
------------
$ 9,268,019
------------
Total Foreign Stocks .................................................................. $ 27,246,437
------------
Total Stocks (Identified Cost, $145,255,674) .......................................... $190,926,820
------------
</TABLE>
23 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- 39.4%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 29.9%
Aerospace -- 0.4%
K & F Industries, Inc., 9.25s, 2007 .................................... $1,000 $ 1,010,000
Northrup Grumman Corp.,
9.375s, 2024 .......................................................... 225 275,346
------------
$ 1,285,346
------------
Airlines -- 0.6%
Continental Airlines, Inc., 9.5s, 2001 ................................. $1,025 $ 1,090,344
Northwest Airlines, Inc., 7.625s, 2005 ................................. 548 550,143
Northwest Airlines, Inc., 8.7s, 2007 ................................... 270 283,443
------------
$ 1,923,930
------------
Apparel and Textiles -- 0.1%
Burlington Industries, Inc. 7.25s, 2027 $ 240 $ 247,594
------------
Automotive -- 0.5%
Federal Mogul Corp., 7.5s, 2004 ........................................ $ 410 $ 409,176
Federal Mogul Corp., 7.75s, 2006 ....................................... 140 139,949
Ford Motor Co., 8.9s, 2032 ............................................. 580 742,232
Ford Motor Credit Co., 6.125s, 2003 .................................... 450 450,032
------------
$ 1,741,389
------------
Banks and Credit Companies -- 2.0%
Beaver Valley Funding Corp., 9s, 2017................................... $ 932 $ 1,065,789
BT Institutional Capital Trust,
7.75s, 2026## ......................................................... 400 421,416
Capital One Financial Corp.,
7.25s, 2003 ........................................................... 400 405,004
Colonial Capital II, 8.92s, 2027 ....................................... 235 264,046
First Chicago NBD Institutional Capital,
7.95s, 2026## ......................................................... 250 271,383
Fleet Financial Group, Inc., 6.375s,
2008 .................................................................. 500 501,000
MBNA Capital, 8.278s, 2026 ............................................. 1,200 1,301,052
Providian National Bank, 6.7s, 2003 .................................... 500 505,500
Riggs National Corp., 8.5s, 2006 ....................................... 200 209,442
Socgen Real Estate Co., 7.64s, 2049## .................................. 800 804,888
State Street Bank & Trust I,
7.94s, 2026## ......................................................... 350 386,788
Washington Mutual Capital I,
8.375s, 2027 .......................................................... 540 609,174
------------
$ 6,745,482
------------
Principal Amount
Issuer (000 Omitted) Value
Building -- 0.4%
American Standard, Inc., 7.625s, 2010 $ 152 $ 148,960
Mcdermott, Inc., 9.375s, 2002 .......................................... 580 621,041
Owens Corning Fiberglass Corp.,
8.875s, 2002 .......................................................... 200 213,326
Owens Corning Fiberglass Corp.,
9.9s, 2015## .......................................................... 186 205,273
------------
$ 1,188,600
------------
Business Machines -- 0.2%
Xerox Corp., 5s, 2018## ................................................ $1,180 $ 672,600
------------
Cellular Telephones -- 0.2%
Airtouch Communications, Inc.,
6.65s, 2008 ........................................................... $ 600 $ 604,638
------------
Chemicals -- 0.1%
Solutia, Inc., 7.375s, 2027 ............................................ $ 470 $ 487,263
------------
Conglomerates -- 0.3%
News America Holdings, Inc.,
6.625s, 2008 .......................................................... $ 285 $ 284,575
News America Holdings, Inc.,
7.75s, 2045 ........................................................... 100 107,321
News America Holdings, Inc., 8s, 2016 .................................. 540 594,956
------------
$ 986,852
------------
Construction Services -- 0.4%
Georgia Pacific Corp., 9.875s, 2021 .................................... $1,150 $ 1,296,326
------------
Consumer Goods and Services -- 0.6%
HealthSouth Corp., 6.875s, 2005## ...................................... $ 700 $ 700,259
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 440 439,613
Hilfiger (Tommy) USA Inc.,
6.85s, 2008 ........................................................... 337 336,649
Revlon Consumer Products Corp.,
8.625s, 2008 .......................................................... 500 500,000
------------
$ 1,976,521
------------
Containers
Gaylord Container Corp., 9.75s, 2007 ................................... $ 75 $ 73,875
------------
</TABLE>
24 - TRVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Corporate Asset Backed -- 7.1%
AT&T Universal Card Master Trust,
5.788s, 2003 .......................................................... $3,500 $ 3,502,170
AT&T Universal Card Master Trust,
5.789s, 2004 .......................................................... 2,000 2,002,500
Banamex Credit Card Merchant
Voucher, 6.25s, 2003## ................................................ 500 499,844
BCF LLC, 7.75s, 2026## ................................................. 194 191,289
Beneficial Home Equity Loan Trust,
5.768s, 2037 .......................................................... 2,193 2,190,548
Charming Shoppes Master Trust,
7s, 1999 .............................................................. 588 591,857
Contimortgage Home Equity,
6.13s, 2013 ........................................................... 1,000 1,001,250
Continental Airlines Pass-Through
Trust, 6.41s, 2007 .................................................... 125 125,125
Continental Airlines Pass-Through
Trust, Inc., 6.648s, 2017 ............................................. 420 428,560
Continental Airlines Pass-Through
Trust, Inc., 7.461s, 2015 ............................................. 99 107,248
Continental Airlines, Inc., 9.5s, 2013 ................................. 144 168,600
Continental Airlines, Inc., 10.22s, 2014 617 751,265
Criimi Mae Commercial Mortgage
Trust, 7s, 2011+ ...................................................... 320 313,700
Ford Credit Auto Owner Trust,
5.8s, 2000 ............................................................ 741 740,763
Jet Equipment Trust, 8.64s, 2012## ..................................... 235 265,426
Jet Equipment Trust, 9.41s, 2010## ..................................... 330 399,485
Jet Equipment Trust, 10.69s, 2015## .................................... 250 332,615
Jet Equipment Trust, 11.44s, 2014## .................................... 300 410,523
MBNA Master Credit Card Trust II,
5.766s, 2005 .......................................................... 600 600,372
Partners First Credit Card Master
Trust, 5.756s, 2027 ................................................... 2,500 2,500,000
Peoples Bank Credit Card Master
Trust, 5.776s, 2004 ................................................... 1,213 1,222,476
Slm Student Loan Trust, 5.823s, 2007.................................... 2,000 2,000,000
Time Warner Pass-Through Asset
Trust, 6.1s, 2001## ................................................... 2,100 2,089,752
United Airlines Pass-Through Trust,
7.27s, 2013+ .......................................................... 1,163 1,215,391
------------
$ 23,650,759
------------
Principal Amount
Issuer (000 Omitted) Value
Electrical Equipment
Honeywell, Inc., 6.625s, 2028 .......................................... $ 145 $ 146,833
------------
Entertainment -- 1.9%
Circus Circus Enterprises, Inc.,
7s, 2036 .............................................................. $ 700 $ 677,726
Hearst Argyle Television, Inc., 7s, 2018 ............................... 200 203,354
Hearst Argyle Television, Inc.,
7.5s, 2027 ............................................................ 477 508,120
Time Warner, Inc., 0s to 2016, 8.3s to
2036 .................................................................. 1,367 444,781
Time Warner, Inc., 9.125s, 2013 ........................................ 1,908 2,322,131
Time Warner, Inc., 9.15s, 2023 ......................................... 1,147 1,446,092
Viacom, Inc., 6.75s, 2003* ............................................. 580 585,794
------------
$ 6,187,998
------------
Financial Institutions -- 3.0%
Bear Stearns Cos., Inc., 6.2s, 2003 .................................... $ 656 $ 657,404
Capital One Bank Medium Term
Senior, 6.7s, 2008 .................................................... 860 869,082
Donaldson Lufkin & Jenrette,
6.5s, 2008 ............................................................ 360 359,971
First Empire Capital Trust I,
8.234s, 2027 .......................................................... 845 925,765
First Merchants Acceptance Corp.,
9.5s, 2006** .......................................................... 160 64,000
Goldman Sachs Group LP, 5.9s, 2003## .................................. 590 582,212
Greenpoint Capital Trust I, 9.1s, 2027 ................................. 200 225,862
Lehman Brothers, Inc., 6.5s, 2008 ...................................... 1,605 1,613,314
Lehman Brothers, Inc., 7.5s, 2026 ...................................... 697 777,336
Leucadia Capital Trust, 8.65s, 2027 .................................... 310 340,923
Natexis Ambs Co. LLC, 8.44s, 2049## .................................... 565 563,079
Nationwide Mutual Life Insurance Co.,
7.5s, 2024## .......................................................... 750 777,570
Paine Webber Group, Inc., 6.55s, 2008 .................................. 200 198,670
Riggs Capital II, 8.875s, 2027 ......................................... 450 501,187
Salomon, Inc., 7.2s, 2004 .............................................. 180 188,833
Salton Sea Funding Corp., 7.37s, 2005 .................................. 361 370,323
Salton Sea Funding Corp., 7.84s, 2010 .................................. 400 435,364
Salton Sea Funding Corp., 8.3s, 2011.................................... 200 221,934
United Cos. Financial Corp., 7.7s, 2004 ................................ $ 200 $ 197,926
------------
$ 9,870,755
------------
Financial Services
Contifinancial Corp., 7.5s, 2002 ....................................... $ 170 $ 169,218
------------
</TABLE>
25 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Food Products -- 0.1%
Nabisco, Inc., 6.375s, 2035 ............................................ $ 290 $ 288,135
------------
Forest and Paper Products -- 0.4%
Boise Cascade Co., 7.43s, 2005 ......................................... $ 250 $ 255,965
Georgia Pacific Corp., 7.25s, 2028 ..................................... 585 596,653
Waterford 3 Funding Corp.,
8.09s, 2017 ........................................................... 390 404,251
------------
$ 1,256,869
------------
Industrial -- 1.0%
Hayes Wheels International, Inc.,
9.125s, 2007 .......................................................... $ 75 $ 78,375
Lowes Cos., Inc., 6.875s, 2028 ......................................... 170 175,175
Owens Illinois, Inc., 7.35s, 2008 ...................................... 900 911,196
Owens Illinois, Inc., 7.5s, 2010 ....................................... 800 811,176
Owens Illinois, Inc., 7.8s, 2018 ....................................... 1,156 1,185,605
------------
$ 3,161,527
------------
Insurance -- 2.0%
Atlantic Mutual Insurance Co.,
8.15s, 2028## ......................................................... $ 930 $ 961,248
Conseco, Inc., 6.4s, 2001 .............................................. 500 499,680
Equitable Life Assurance Society,
7.7s, 2015## .......................................................... 833 918,949
Fairfax Financial Holdings Limited,
7.375s, 2018 .......................................................... 394 404,173
Providian Capital I, 9.525s, 2027## .................................... 850 981,113
Safeco Capital Trust I, 8.072s, 2037 ................................... 1,925 2,057,074
Travelers Capital III, 7.75s, 2036 ..................................... 790 827,825
------------
$ 6,650,062
------------
Medical and Health Products -- 0.2%
Tenet Healthcare Corp., 7.625s, 2008## ................................. $ 575 $ 581,469
------------
Medical and Health Technology
and Services -- 0.5%
Columbia/HCA Healthcare Corp.,
6.5s, 1999 ............................................................ $ 250 $ 248,785
Columbia/HCA Healthcare Corp.,
6.875s, 2001 .......................................................... $ 165 $ 161,789
Columbia/HCA Healthcare Corp.,
6.91s, 2005 ........................................................... 305 296,237
Columbia/HCA Healthcare Corp.,
7.69s, 2025 ........................................................... 835 806,769
------------
$ 1,513,580
------------
Principal Amount
Issuer (000 Omitted) Value
Metals -- 0.3%
Metals USA, Inc., 8.625s, 2008## ....................................... $1,000 $ 970,000
------------
Metals and Minerals -- 0.2%
Kaiser Aluminum & Chemical Corp.,
10.875s, 2006 ......................................................... $ 500 $ 537,500
------------
Oil Services -- 0.3%
Clark Refining & Marketing, Inc.,
8.375s, 2007 .......................................................... $ 165 $ 165,825
KCS Energy, Inc., 8.875s, 2008 ......................................... 165 156,750
Ultramar Diamond Shamrock Corp.,
7.2s, 2017 ............................................................ 395 410,745
Vintage Petroleum, Inc., 8.625s, 2009................................... 165 166,650
------------
$ 899,970
------------
Oils -- 0.8%
Belco Oil & Gas Corp., 8.875s, 2007 .................................... $ 165 $ 159,225
Cliffs Drilling Co., 10.25s, 2003 ...................................... 165 176,550
Gulf Canada, 9.25s, 2004 ............................................... 260 271,770
Lasmo USA, Inc., 7.125s, 2003 .......................................... 267 273,341
Lasmo USA, Inc., 7.3s, 2027 ............................................ 382 380,858
Petroleum Geo Services A/S,
7.125s, 2028 .......................................................... 685 693,247
Synder Oil Corp., 8.75s, 2007 .......................................... 80 80,400
Transocean Offshore, Inc., 8s, 2027 .................................... 305 346,090
Wiser Oil Co. Delaware, 9.5s, 2007 ..................................... 165 155,100
------------
$ 2,536,581
------------
Restaurants and Lodging -- 0.1%
Circus Circus Enterprises, Inc.,
6.7s, 2096 ............................................................ $ 300 $ 291,006
Hilton Hotels Corp., 7.95s, 2007 ....................................... 190 198,563
------------
$ 489,569
------------
Retail
Cole National Group, Inc.,
8.625s, 2007 .......................................................... $ 85 $ 85,850
------------
Special Products and Services
Polymer Group, Inc., 9s, 2007 .......................................... $ 50 $ 50,875
------------
Telecommunications -- 1.6%
Continental Cablevision, Inc.,
11s, 2007 ............................................................. 400 436,716
EchoStar Communications Corp.,
0s to 1999, 12.875s to 2004 ........................................... 75 72,938
</TABLE>
26 - TRVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Telecommunications -- continued
Fox/Liberty Networks LLC, Inc.,
8.875s, 2007## ........................................................ $ 170 $ 173,400
Intermedia Communications, Inc.,
0s to 2002, 11.25s to 2007 ............................................ 100 73,000
ITC Deltacom, Inc., 11s, 2007 .......................................... 65 72,800
Level 3 Commerce, Inc.,
9.125s, 2008## ........................................................ 70 68,075
LIN Television Corp., 8.375s, 2008## ................................... 75 76,500
Nextel Communications, Inc., 0s to
1999, 9.75s to 2004 ................................................... 1,000 972,500
NTL, Inc., 0s to 2003, 9.75s to 2008## ................................. 60 39,000
TCI Communications Financing III,
9.65s, 2027 ........................................................... 700 857,479
TCI Communications, Inc.,
6.375s, 2003 .......................................................... 395 397,903
TCI Communicatios, Inc., 8s, 2005 ...................................... 240 262,056
Tele-Communications, Inc.,
6.34s, 2002 ........................................................... 610 607,749
Tele-Communications, Inc.,
7.49s, 2003 ........................................................... 650 686,238
Turner Broadcasting Systems, Inc.,
8.375s, 2013 .......................................................... 175 200,581
WorldCom, Inc., 8.875s, 2006 ........................................... 320 348,118
------------
$ 5,345,053
------------
Transportation -- 0.1%
Federal Express Corp., 7.65s, 2014 ..................................... $ 246 $ 267,001
------------
U.S. Federal Agencies -- 1.6%
Federal National Mortgage
Association -- 1.6%
FNMA, 6.5s, 2012 - 2013 ................................................ $5,230 $ 5,259,206
------------
Total U.S. Federal Agencies .............................................................. $ 5,259,206
------------
U.S. Government Guaranteed
-- 6.8%
Government National Mortgage
Association -- 2.7%
GNMA, 7s, 2028 ......................................................... $1,227 $ 1,246,474
GNMA, 7.5s, 2026 - 2027 ................................................ 2,841 2,919,977
GNMA, 8s, 2025 - 2026 .................................................. 4,524 4,680,703
------------
$ 8,847,154
------------
Principal Amount
Issuer (000 Omitted) Value
U.S. Treasury Obligations -- 4.1%
U.S. Treasury Bonds, 6.125s, 2027 ...................................... $ 66 $ 70,723
U.S. Treasury Notes, 5.625s, 2008 ...................................... 1,806 1,830,544
U.S. Treasury Notes, 6.25s, 2002 ....................................... 2,355 2,416,442
U.S. Treasury Notes, 6.5s, 2006 ........................................ 3,732 3,962,899
U.S. Treasury Notes, 6.625s, 2002 ...................................... 400 414,312
U.S. Treasury Notes, 7.875s, 2004 ...................................... 1,315 1,476,903
U.S. Treasury Notes, 8.5s, 2000 ........................................ 2,286 2,389,944
U.S. Treasury Notes, 9.125s, 1999 ...................................... 950 978,794
------------
$ 13,540,561
------------
Total U.S. Government Guaranteed ......................................................... $ 22,387,715
------------
Utilities -- Electric -- 3.9%
CalEnergy Co., Inc., 7.63s, 2007 ....................................... $ 200 $ 201,068
Cleveland Electric Illuminating Co.,
7.88s, 2017## ......................................................... 640 698,566
Cleveland Electric Illuminating Co.,
9s, 2023 .............................................................. 450 497,340
Comed Financing II, 8.5s, 2027 ......................................... 300 321,174
Commonwealth Edison Co.,
7.625s, 2007 .......................................................... 830 882,315
Connecticut Light & Power Co.,
7.75s, 2002 ........................................................... 600 615,078
Connecticut Light & Power Co.,
7.875s, 2024 .......................................................... 500 510,150
Connecticut Light & Power Co.,
8.59s, 2003 ........................................................... 600 606,750
Edison Mission Energy, 7.33s, 2008##.................................... 100 106,016
El Paso Electric Co., 8.9s, 2006 ....................................... 125 140,998
First PV Funding Corp., 10.15s, 2016 ................................... 146 155,517
First PV Funding Corp., 10.3s, 2014 .................................... 245 261,060
GGIB Funding Corp., 7.43s, 2011 ........................................ 1,163 1,168,919
Long Island Lighting Co., 8.2s, 2023 ................................... 350 391,132
Long Island Lighting Co., 9s, 2022 ..................................... 365 416,315
Midland Cogeneration Venture Corp.,
10.33s, 2002 .......................................................... 370 400,091
Midland Funding Corp. II, "A",
11.75s, 2005 .......................................................... 540 649,588
Montana Power Co., 7.875s, 2026 ........................................ 750 869,002
Niagara Mohawk Power Corp.,
7.75s, 2006 ........................................................... 365 390,506
Niagara Mohawk Power Corp.,
8.5s, 2023 ............................................................ 285 315,361
</TABLE>
27 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Utilities -- Electric -- continued
Niagara Mohawk Power Corp.,
8.75s, 2022 ........................................................... $ 300 $ 329,982
Niagara Mohawk Power Corp.,
8.77s, 2018 ........................................................... 607 649,478
North Atlantic Energy, 9.05s, 2002 ..................................... 228 234,359
Seabrook Station -- Unit 1, 7.83s, 2019 ................................ 366 389,239
Texas & New Mexico Power Co.,
12.5s, 1999 ........................................................... 278 286,376
Texas Utilities Co., 6.375s, 2008 ...................................... 710 695,765
Toledo Edison Co., 7.875s, 2004 ........................................ 500 526,930
United Illuminating Co., 6.25s, 2002 ................................... 200 198,634
------------
$ 12,907,709
------------
Utilities -- Gas -- 0.6%
Coastal Corp., 6.95s, 2028 ............................................. $ 420 $ 405,749
Coastal Corp., 7.42s, 2037 ............................................. 170 177,733
Consumers Energy Co., 6.375s, 2008## ................................... 240 236,261
Louis Dreyfus Natural Gas Corp.,
6.875s, 2007 .......................................................... 430 432,404
Tennessee Gas Pipeline Co.,
7.625s, 2037 .......................................................... 400 432,948
Texas Gas Transmission Corp.,
7.25s, 2027 ........................................................... 400 416,220
------------
$ 2,101,315
------------
Total U.S. Bonds ......................................................................... $126,545,965
------------
Foreign Bonds -- 1.1%
Argentina -- 0.1%
Hidroelectrica Alicura
(Utilities - Electric), 8.375s, 1999## ................................ $ 500 $ 497,500
------------
Canada
Rogers Cantel, Inc., 9.375s, 2008
(Telecommunications) .................................................. $ 75 $ 78,000
------------
Chile -- 0.1%
Empresa Nacional de Electric
(Utilities - Electric), 7.325s, 2037 .................................. $ 379 $ 370,302
------------
Colombia -- 0.1%
Republic of Colombia (Govenment),
8.75s, 1999 ........................................................... $ 250 $ 255,000
------------
Principal Amount
Issuer (000 Omitted) Value
Finland -- 0.2%
Upm Kymmene Corp. (Forest and
Paper Products), 7.45s, 2027## ........................................ $ 500 $ 529,535
------------
Mexico -- 0.2%
Banco Commercial S.A.
(Financial Services), 8.25s, 2007## ................................... $ 280 $ 276,416
Corporacion Andina De Fomento
(Banks and Credit Cos.), 7.1s, 2003 ................................... 212 217,385
Satelites Mexicanos S A De C V
(Telecommunications),
10.125s, 2004## ....................................................... 75 73,313
------------
$ 567,114
------------
Panama -- 0.1%
Republic of Panama (Government),
8.25s, 2008 ........................................................... $ 390 $ 380,250
------------
Thailand -- 0.1%
Jasmine Submarine Telecom Ltd.
(Industrial), 8.483s, 2011## .......................................... $ 333 $ 298,841
------------
Venezuela -- 0.2%
Cerro Negro Finance Ltd.
(Financial Institutions), 7.9s, 2020## ............................... $ 666 $ 652,680
------------
Total Foreign Bonds ...................................................................... $ 3,629,222
------------
Total Bonds (Identified Cost, $127,438,766) .............................................. $130,175,187
------------
Municipal Bonds -- 0.1%
Utilities -- Electric -- 0.1%
Long Island Power Authority New York
Electric, 5.125s, 2022
(Identified Cost $393,348) ............................................ $ 400 $ 394,268
------------
</TABLE>
28 - TRVA
<PAGE>
Preferred Stock -- 0.3%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Banks and Credit Companies -- 0.1%
NB Capital Corp., 8.35%* ................................................. 400 $ 432,400
------------
Media
Primedia, Inc., 8.625%* .................................................. 750 $ 72,750
------------
Utilities -- Gas -- 0.2%
El Paso Tennessee Pipeline Co.,
8.25% ................................................................... 4,000 $ 222,250
Marketspan Corp.* ........................................................ 20,000 535,000
------------
$ 757,250
------------
Total Preferred Stock (Identified Cost, $1,163,150)....................................... $ 1,262,400
------------
Principal Amount
(000 Omitted)
Short-Term Obligations -- 2.2%
Federal Home Loan Mortgage Corp.,
due 7/01/98 ............................................................. $2,780 $ 2,780,000
Federal National Mortgage Assn., due
7/06/98 ................................................................. 2,000 1,998,455
General Electric Co., due 7/01/98 ........................................ 2,525 2,525,000
------------
Total Short-Term Obligations, at amortized cost .......................................... $ 7,303,455
------------
Total Investments (Identified Cost, $281,554,393) ........................................ $330,062,130
------------
Other Assets, Less Liabilities -- 0.3% ..................................................... 979,640
------------
Net Assets -- 100.0% ..................................................................... $331,041,770
------------
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- June 30, 1998
World Governments Variable Account
Bonds -- 101.6%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 64.3%
Government National Mortgage
Association -- 15.4%
GNMA, 6.5s, 2027 ...................................................... $ 3,038 $ 3,031,519
------------
U.S. Treasury Obligations -- 41.6%
U.S. Treasury Notes, 5.5s, 2003 ....................................... $ 2,400 $ 2,398,128
U.S. Treasury Notes, 6.625s, 2002 ..................................... 2,790 2,892,449
U.S. Treasury Notes, 6.5s, 2005 ....................................... 2,760 2,913,097
------------
$ 8,203,674
------------
Federal National Mortgage
Association -- 7.3%
FNMA, 2.125s, 2007 .................................................... JPY $190,000 $ 1,431,497
------------
Total U.S. Bonds ......................................................................... $ 12,666,690
------------
Foreign Bonds -- 37.3%
Germany -- 13.3%
Federal Republic of Germany,
6.25s, 2006 .......................................................... DEM 964 $ 586,191
Federal Republic of Germany,
6s, 2007 ............................................................. 3,410 2,047,132
------------
$ 2,633,323
------------
Italy -- 7.2%
Republic of Italy, 5.75s, 2002 ........................................ ITL 1,230,000 $ 719,955
Republic of Italy, 6.75s, 2007 ........................................ 1,095,000 692,084
------------
$ 1,412,039
------------
New Zealand -- 2.1%
Government of New Zealand,
8s, 2004 ............................................................. NZD 760 $ 418,698
------------
Sweden -- 2.5%
Kingdom of Sweden, 6s, 2005 ........................................... SEK 3,700 $ 494,276
------------
United Kingdom -- 12.2%
United Kingdom Treasury,
7.25s, 2007 .......................................................... GBP 1,309 $ 2,400,663
------------
Total Foreign Bonds ...................................................................... $ 7,358,999
------------
Total Bonds (Identified Cost, $19,915,992) ............................................... $ 20,025,689
------------
</TABLE>
29 - WGVA
<PAGE>
Portfolio of Investments -- continued
Put Options Purchased
<TABLE>
<CAPTION>
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
<S> <C> <C>
Australian Dollars/December/0.71
Premiums Paid, $3,674) $1,431 $ 839
------------
Total Investments (Identified Cost, $19,919,666) $ 20,026,528
------------
Put Options Written -- (0.2)%
Description/Expiration Month/Strike Price
Canadian Dollars/July/1.43
(Premiums Received, $5,664)............. CAD 1,514 $ (28,566)
Call Options Written
Description/Expiration Month/Strike Price
Japanese Yen/Deutsche Marks/
August/66.52
(Premiums Received, $64,172)............ JPY 275,940 $ (276)
Other Assets, Less
Liabilities -- (1.4)% ..................................... (284,693)
-----------
Net Assets - 100.0% ...................................... $19,712,993
-----------
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio Footnotes:
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
[dbldag][dbldag] Inverse floating rate 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 JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
GBP = British Pounds NZD = New Zealand Dollars
ITL = Italian Lire SEK = Swedish Kronor
30 - WGVA
<PAGE>
Statements of Assets and Liabilities -- June 30, 1998
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High
Appreciation Securities Yield
Variable Variable Variable
Account Account Account
Assets: -------------- ------------ ----------
<S> <C> <C> <C>
Investments --
Identified cost ................................... $494,280 $174,820 $175,597
Unrealized appreciation ........................... 217,645 7,385 483
-------- -------- --------
Total investments, at value ...................... $711,925 $182,205 $176,080
Cash ............................................... 15 22 12
Net receivable for forward foreign currency
exchange contracts to purchase .................... -- -- --
Receivable for investments sold .................... 8,077 4 373
Receivable for units sold .......................... 260 29 12
Interest and dividends receivable .................. 181 1,712 3,085
Receivable from sponsor ............................ -- -- 22
Other assets ....................................... 4 1 1
-------- -------- --------
Total assets ..................................... $720,462 $183,973 $179,585
-------- -------- --------
Liabilities:
Cash overdraft ..................................... $ -- $ -- $ --
Payable for investments purchased .................. 4,267 -- 2,304
Payable for units surrendered ...................... 868 250 373
Written options outstanding, at value
(premiums received $70) .......................... -- -- --
Payable for forward foreign currency exchange
contracts to sell ................................. -- -- --
Payable for foreign currency exchange contracts
closed or subject to master netting agreement ..... -- -- --
Payable to affiliates --
Investment adviser ................................ 41 8 11
Administrative fee ................................ 1 -- --
Sponsor ........................................... 722 193 --
Accrued expenses and other liabilities ............. 56 36 33
-------- -------- ---------
Total liabilities ................................ $ 5,955 $ 487 $ 2,721
-------- -------- ---------
Net assets ....................................... $714,507 $183,486 $176,864
======== ======== =========
<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 ................................... $112,660 $130,818 $281,554 $19,920
Unrealized appreciation ........................... 18,705 -- 48,508 107
-------- -------- -------- -------
Total investments, at value ...................... $131,365 $130,818 $330,062 $20,027
Cash ............................................... 5 10 1 --
Net receivable for forward foreign currency
exchange contracts to purchase .................... -- -- -- 83
Receivable for investments sold .................... 658 -- 1,501 --
Receivable for units sold .......................... 64 416 17 --
Interest and dividends receivable .................. 67 -- 2,304 243
Receivable from sponsor ............................ -- -- 510 --
Other assets ....................................... 1 13 19 --
-------- -------- -------- -------
Total assets ..................................... $132,160 $131,257 $334,414 $20,353
-------- -------- -------- -------
Liabilities:
Cash overdraft ..................................... $ -- $ -- $ -- $ 7
Payable for investments purchased .................. 629 -- 2,922 --
Payable for units surrendered ...................... 232 264 385 7
Written options outstanding, at value
(premiums received $70) ........................... -- -- -- 29
Payable for forward foreign currency exchange
contracts to sell ................................. -- -- -- 396
Payable for foreign currency exchange contracts
closed or subject to master netting agreement ..... -- -- -- 150
Payable to affiliates --
Investment adviser ................................ 8 5 20 1
Administrative fee ................................ -- -- 1 --
Sponsor ........................................... 9 161 -- 22
Accrued expenses and other liabilities ............. 24 28 44 28
-------- -------- -------- -------
Total liabilities ................................ $ 902 $ 458 $ 3,372 $ 640
-------- -------- -------- -------
Net assets ....................................... $131,258 $130,799 $331,042 $19,713
======== ======== ======== =======
</TABLE>
See notes to financial statements
31
<PAGE>
Statements of Assets and Liabilities -- June 30, 1998 -- continued
(000 Omitted except for unit values)
<TABLE>
<CAPTION>
Capital Government
Appreciation Securities
Unit Variable Variable
Units Value Account Account
------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Net assets applicable to contract owners:
Capital Appreciation
Variable Account --
Compass 2 ......................... 7,693 $ 66.1138 $508,757
Compass 3 ......................... 2,710 43.8747 118,899
Compass 3 - Level 2 ............... 4,425 18.0875 80,035
Government Securities
Variable Account --
Compass 2 ......................... 5,093 $ 28.3840 $144,574
Compass 3 ......................... 984 19.9552 19,630
Compass 3 - Level 2 ............... 1,409 11.5739 16,305
High Yield
Variable Account --
Compass 2 ......................... 4,084 $ 34.1595
Compass 3 ......................... 869 25.2611
Compass 3 - Level 2 ............... 948 13.3904
Managed Sectors
Variable Account --
Compass 2 ......................... 716 $ 50.5550
Compass 3 ......................... 1,115 50.1255
Compass 3 - Level 2 ............... 2,401 16.0891
Money Market
Variable Account --
Compass 2 ......................... 4,360 $ 18.0703
Compass 3 ......................... 1,395 14.8978
Compass 3 - Level 2 ............... 2,733 11.0604
Total Return
Variable Account --
Compass 2 ......................... 3,755 $ 32.5765
Compass 3 ......................... 3,500 32.0739
Compass 3 - Level 2 ............... 6,066 15.3582
World Governments
Variable Account --
Compass 2 ......................... 332 $ 18.4515
Compass 3 ......................... 351 18.1660
Compass 3 - Level 2 ............... 669 10.5535
-------- --------
Net assets applicable to owners of deferred contracts .. 707,691 180,509
Reserve for variable annuities --
Compass 2 Contracts .................................. 5,988 2,776
Compass 3 Contracts .................................. 154 71
Compass 3 - Level 2 Contracts ........................ 674 130
-------- --------
Net assets ......................................... $714,507 $183,486
======== ========
<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 ......................... $139,491
Compass 3 ......................... 21,944
Compass 3 - Level 2 ............... 12,699
Managed Sectors
Variable Account --
Compass 2 ......................... $ 36,242
Compass 3 ......................... 55,918
Compass 3 - Level 2 ............... 38,650
Money Market
Variable Account --
Compass 2 ......................... $ 78,747
Compass 3 ......................... 20,760
Compass 3 - Level 2 ............... 30,227
Total Return
Variable Account --
Compass 2 ......................... $122,347
Compass 3 ......................... 112,233
Compass 3 - Level 2 ............... 93,177
World Governments
Variable Account --
Compass 2 ......................... $ 6,131
Compass 3 ......................... 6,377
Compass 3 - Level 2 ............... 7,059
------- ------- ------- ------- ----------
Net assets applicable to owners of 174,134 130,810 129,734 327,757 19,567
deferred contracts
Reserve for variable annuities --
Compass 2 Contracts ............ 2,714 222 1,063 2,843 59
Compass 3 Contracts ............ 16 119 1 191 --
Compass 3 - Level 2 Contracts .. -- 107 1 251 87
-------- -------- -------- -------- -----------
Net assets ................... $176,864 $131,258 $130,799 $331,042 $ 19,713
======== ======== ======== ======== ===========
</TABLE>
See notes to financial statements
32
<PAGE>
Statements of Operations -- Six Months Ended June 30, 1998
(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 ........................................................... $ 281 $ 6,204 $ 8,992
Dividends .......................................................... 1,308 -- 263
Foreign taxes withheld ............................................. (4) -- --
--------- --------- ---------
Total investment income .......................................... $ 1,585 $ 6,204 $ 9,255
--------- --------- ---------
Expenses --
Mortality and expense risk charges ................................. $ 4,301 $ 1,179 $ 1,222
Management fees .................................................... 2,418 517 731
Administrative fees ................................................ 51 14 15
Custodian fees ..................................................... 93 2 19
Distribution expense charges ....................................... 85 15 20
Auditing fees ...................................................... 18 22 24
Legal fees ......................................................... 1 -- --
Boards of Managers fees and expenses ............................... 4 4 4
Printing ........................................................... 24 -- 5
Miscellaneous ...................................................... -- -- 19
--------- --------- ---------
Total expenses ................................................... $ 6,995 $ 1,753 $ 2,059
Fees paid indirectly ............................................... (12) (1) (30)
--------- --------- ---------
Net expenses ..................................................... $ 6,983 $ 1,752 $ 2,029
--------- --------- ---------
Net investment income (expense) ................................ $ (5,398) $ 4,452 $ 7,226
========= ========= =========
Realized and unrealized gains (losses) on investments:
Realized gains (losses)(identified cost basis) --
Investment transactions ........................................... $ 68,381 $ 1,809 $ 5,510
Written option transactions ....................................... -- -- --
Futures contracts ................................................. -- (166) --
Foreign currency transactions ..................................... (3) -- --
--------- --------- ---------
Net realized gains on investments and foreign
currency transactions ........................................... $ 68,378 $ 1,643 $ 5,510
--------- --------- ---------
Change in unrealized appreciation (depreciation) --
Investments ........................................................ $ 57,710 $ (384) $ (3,459)
Written options .................................................... -- -- --
Futures contracts .................................................. -- 27 --
Translation of assets and liabilities in foreign currencies ........ -- -- --
--------- --------- ---------
Net unrealized gains (losses) on investments and foreign
currency translation ............................................. $ 57,710 $ (357) $ (3,459)
--------- --------- ---------
Net realized and unrealized gains (losses) on
investments and foreign currency ................................ $ 126,088 $ 1,286 $ 2,051
--------- --------- ---------
Increase in net assets from operations .......................... $ 120,690 $ 5,738 $ 9,277
========= ========= =========
<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 ........................................................... $ 89 $ 3,196 $ 4,706 $ 628
Dividends .......................................................... 272 -- 2,161 --
Foreign taxes withheld ............................................. -- -- (30) --
-------- -------- -------- --------
Total investment income .......................................... $ 361 $ 3,196 $ 6,837 $ 628
-------- -------- -------- --------
Expenses --
Mortality and expense risk charges ................................. $ 791 $ 726 $ 1,985 $ 130
Management fees .................................................... 482 288 1,206 81
Administrative fees ................................................ 10 9 24 2
Custodian fees ..................................................... 19 18 56 7
Distribution expense charges ....................................... 42 14 86 5
Auditing fees ...................................................... 21 15 20 19
Legal fees ......................................................... -- 1 1 1
Boards of Managers fees and expenses ............................... 4 4 4 2
Printing ........................................................... 5 5 12 4
Miscellaneous ...................................................... -- 1 8 1
-------- -------- -------- --------
Total expenses ................................................... $ 1,374 $ 1,081 $ 3,402 $ 252
Fees paid indirectly ............................................... (7) (2) (4) (1)
-------- -------- -------- --------
Net expenses ..................................................... $ 1,367 $ 1,079 $ 3,398 $ 251
-------- -------- -------- --------
Net investment income (expense) ................................ $ (1,006) $ 2,117 $ 3,439 $ 377
======== ======== ======== ========
Realized and unrealized gains (losses) on investments:
Realized gains (losses)(identified cost basis) --
Investment transactions ........................................... $ 8,375 $ -- $ 27,808 $ 318
Written option transactions ....................................... 264 -- -- 53
Futures contracts ................................................. -- -- -- --
Foreign currency transactions ..................................... -- -- (4) (136)
-------- -------- -------- --------
Net realized gains on investments and foreign
currency transactions ........................................... $ 8,639 $ -- $ 27,804 $ 235
-------- -------- -------- --------
Change in unrealized appreciation (depreciation) --
Investments ........................................................ $ 4,682 $ -- $ (6,235) $ 160
Written options .................................................... 979 -- -- 18
Futures contracts .................................................. -- -- -- --
Translation of assets and liabilities in foreign currencies ........ -- -- 1 (574)
-------- -------- -------- --------
Net unrealized gains (losses) on investments and foreign
currency translation ............................................. $ 5,661 $ -- $ (6,234) $ (396)
-------- -------- -------- --------
Net realized and unrealized gains (losses) on
investments and foreign currency ................................ $ 14,300 $ -- $ 21,570 $ (161)
-------- -------- -------- --------
Increase in net assets from operations .......................... $ 13,294 $ 2,117 $ 25,009 $ 216
======== ======== ======== ========
</TABLE>
See notes to financial statements
33
<PAGE>
Statements of Changes in Net Assets
(000 Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Government Securities
Variable Account Variable Account
--------------------------- ---------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) ................ $ (5,398) $ (8,785) $ 4,452 $ 11,258
Net realized gains on investments and
foreign currency transactions ................. 68,378 103,141 1,643 2,424
Net unrealized gains (losses) on investments
and foreign currency translation .............. 57,710 23,047 (357) 1,022
--------- --------- --------- ---------
Increase in net assets from operations ....... $ 120,690 $ 117,403 $ 5,738 $ 14,704
--------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 12,565 $ 22,456 $ 2,247 $ 4,669
Net transfers between variable and fixed
accumulation accounts ......................... (2,088) (2,471) (3,584) (14,669)
Withdrawals, surrenders, annuitizations and
contract charges .............................. (43,854) (66,782) (15,039) (38,745)
--------- --------- --------- ---------
Net accumulation activity .................... $ (33,377) $ (46,797) $ (16,376) $ (48,745)
--------- --------- --------- ---------
Annuitization activity:
Annuitizations ................................. $ 419 $ 329 $ 512 $ 165
Annuity payments and contract charges .......... (469) (855) (220) (503)
Net transfers among accounts for annuity
reserves ...................................... (17) 8 -- --
Adjustments to annuity reserves ................ (27) (175) (103) 33
--------- --------- --------- -----------
Net annuitization activity ................... $ (94) $ (693) $ 189 $ (305)
--------- --------- --------- -----------
Decrease in net assets from participant
transactions .................................. $ (33,471) $ (47,490) $ (16,187) $ (49,050)
--------- --------- --------- -----------
Total increase (decrease) in net assets ...... $ 87,219 $ 69,913 $ (10,449) $ (34,346)
Net assets:
At beginning of period .......................... 627,288 557,375 193,935 228,281
--------- --------- --------- -----------
At end of period ................................ $ 714,507 $ 627,288 $ 183,486 $ 193,935
========= ========= ========= ===========
<CAPTION>
High Yield
Variable Account
---------------------------
Six Months
Ended Year Ended
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) ................ $ 7,226 $ 14,304
Net realized gains on investments and
foreign currency transactions ................. 5,510 7,106
Net unrealized gains (losses) on investments
and foreign currency translation .............. (3,459) 1,659
--------- ---------
Increase in net assets from operations ....... $ 9,277 $ 23,069
--------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 2,183 $ 4,121
Net transfers between variable and fixed
accumulation accounts ......................... (25,701) (2,934)
Withdrawals, surrenders, annuitizations and
contract charges .............................. (11,202) (19,891)
--------- ---------
Net accumulation activity .................... $ (34,720) $ (18,704)
--------- ---------
Annuitization activity:
Annuitizations ................................. $ 51 $ 150
Annuity payments and contract charges .......... (211) (472)
Net transfers among accounts for annuity
reserves ...................................... -- --
Adjustments to annuity reserves ................ (66) 28
--------- ---------
Net annuitization activity ................... $ (226) $ (294)
--------- ---------
Decrease in net assets from participant
transactions .................................. $ (34,946) $ (18,998)
--------- ---------
Total increase (decrease) in net assets ...... $ (25,669) $ 4,071
Net assets:
At beginning of period .......................... 202,533 198,462
--------- ---------
At end of period ................................ $ 176,864 $ 202,533
========= =========
</TABLE>
See notes to financial statements
34
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Managed Sectors Money Market
Variable Account Variable Account
--------------------------- --------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) ....................................... $ (1,006) $ (1,791) $ 2,117 $ 4,675
Net realized gains on investments and foreign currency
transactions ......................................................... 8,639 20,564 -- --
Net unrealized gains on investments and foreign currency
translation .......................................................... 5,661 4,407 -- --
--------- --------- --------- ---------
Increase in net assets from operations .............................. $ 13,294 $ 23,180 $ 2,117 $ 4,675
--------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ............................................ $ 4,715 $ 8,634 $ 1,716 $ 3,864
Net transfers between variable and fixed accumulation accounts ........ (1,002) 6,155 31,364 6,235
Withdrawals, surrenders, annuitizations and contract charges .......... (7,557) (13,689) (16,679) (29,189)
--------- --------- --------- ---------
Net accumulation activity ............................................ $ (3,844) $ 1,100 $ 16,401 $ (19,090)
--------- --------- --------- ---------
Annuitization activity:
Annuitizations ........................................................ $ 64 $ 237 $ -- $ 70
Annuity payments and contract charges ................................. (47) (54) (117) (284)
Net transfers among accounts for annuity reserves ..................... -- 9 1 --
Adjustments to annuity reserves ....................................... 52 (15) (50) 168
--------- --------- --------- ---------
Net annuitization activity ........................................... $ 69 $ 177 $ (166) $ (46)
--------- --------- --------- ---------
Increase (decrease) in net assets from participant transactions ....... $ (3,775) $ 1,277 $ 16,235 $ (19,136)
--------- --------- --------- ---------
Total increase (decrease) in net assets .............................. $ 9,519 $ 24,457 $ 18,352 $ (14,461)
Net assets:
At beginning of period ................................................. 121,739 97,282 112,447 126,908
--------- --------- --------- ---------
At end of period ....................................................... $ 131,258 $ 121,739 $ 130,799 $ 112,447
========= ========= ========= =========
</TABLE>
See notes to financial statements
35
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Total Return World Governments
Variable Account Variable Account
--------------------------- ----------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income ................................................. $ 3,439 $ 7,000 $ 377 $ 1,065
Net realized gains (losses) on investments and foreign currency
transactions ......................................................... 27,804 33,815 235 (1,721)
Net unrealized gains (losses) on investments and foreign currency
translation .......................................................... (6,234) 14,739 (396) (92)
--------- --------- --------- ---------
Increase (decrease) in net assets from operations ................... $ 25,009 $ 55,554 216 $ (748)
--------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ............................................ $ 8,077 $ 15,730 $ 547 $ 1,455
Net transfers between variable and fixed accumulation accounts ........ 1,883 4,273 (3,165) (2,759)
Withdrawals, surrenders, annuitizations and contract charges .......... (20,577) (43,721) (1,984) (5,510)
--------- --------- --------- ---------
Net accumulation activity ........................................... $ (10,617) $ (23,718) $ (4,602) $ (6,814)
--------- --------- --------- ---------
Annuitization activity:
Annuitizations ........................................................ $ -- $ 170 $ 9 $ 6
Annuity payments and contract charges ................................. (355) (492) (6) (58)
Net transfers among accounts for annuity reserves ..................... 17 (18) -- 1
Adjustments to annuity reserves ....................................... 82 162 (1) 25
--------- --------- --------- ---------
Net annuitization activity .......................................... $ (256) $ (178) $ 2 $ (26)
--------- --------- --------- ---------
Decrease in net assets from participant transactions .................. $ (10,873) $ (23,896) $ (4,600) $ (6,840)
--------- --------- --------- ---------
Total increase (decrease) in net assets ............................. $ 14,136 $ 31,658 $ (4,384) $ (7,588)
Net assets:
At beginning of period ................................................. 316,906 285,248 24,097 31,685
--------- --------- --------- ---------
At end of period ....................................................... $ 331,042 $ 316,906 $ 19,713 $ 24,097
========= ========= ========= =========
</TABLE>
See notes to financial statements
36
<PAGE>
Per Unit and Other Data
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------
Compass 2
-------------------------------------
Six Months Year Ended
Ended December 31,
June 30, ----------------
1998 1997
-------------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ........................ $55.3902 $45.4107
-------- --------
Investment income ............................................. $ 0.1472 $ 0.3241
Expenses ...................................................... 0.6433 1.0741
-------- --------
Net investment loss ......................................... $(0.4961) $(0.7500)
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ............................ 11.2197 10.7295
-------- --------
Net increase (decrease) in unit value ......................... $10.7236 $ 9.9795
-------- --------
Unit value:
Net asset value -- end of period .............................. $66.1138 $55.3902
======== ========
Ratios (to average net assets):
Expenses+## ................................................... 0.76%++ 0.77%
Net investment loss ........................................... (1.57)%++ (1.45)%
Portfolio turnover ............................................. 42% 60%
Number of units outstanding at end of year (000 omitted) ....... 7,693 8,173
<CAPTION>
Capital Appreciation Variable Account
---------------------------------------------------
Compass 2
---------------------------------------------------
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ........................ $37.7151 $28.0107 $32.9053
-------- -------- --------
Investment income ............................................. $ 0.2861 $ 0.3624 $ 0.4277
Expenses ...................................................... 0.8695 0.6989 0.6325
-------- -------- --------
Net investment loss ......................................... $(0.5834) $(0.3365) $(0.2048)
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ............................ 8.2790 10.0409 (4.6898)
-------- -------- --------
Net increase (decrease) in unit value ......................... $ 7.6956 $ 9.7044 $(4.8946)
-------- -------- --------
Unit value:
Net asset value -- end of period .............................. $45.4107 $37.7151 $28.0107
======== ======== ========
Ratios (to average net assets):
Expenses+## ................................................... 0.78% 0.80% 0.79%
Net investment loss ........................................... (1.41)% (1.02)% (0.69)%
Portfolio turnover ............................................. 66% 96% 95%
Number of units outstanding at end of year (000 omitted) ....... 9,004 10,014 11,310
<CAPTION>
Capital
Appreciation
Variable Account
-----------------
Compass 2
----------------
Year Ended
December 31,
----------------
1993
----------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period ....................... $29.2712
--------
Investment income ............................................ $ 0.3914
Expenses ..................................................... 0.6436
--------
Net investment loss ........................................ $(0.2522)
Net realized and unrealized gains (losses) on investments
and foreign currency transactions ........................... 3.8863
--------
Net increase (decrease) in unit value ........................ $ 3.6341
--------
Unit value:
Net asset value -- end of period ............................. $32.9053
========
Ratios (to average net assets):
Expenses+## .................................................. 0.78%
Net investment loss .......................................... (0.83)%
Portfolio turnover ............................................ 56%
Number of units outstanding at end of year (000 omitted) ...... 13,833
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## For 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>
Capital Appreciation
Variable Account
--------------------
Compass 3 - Level 2
--------------------
Six Months
Ended
June 30, 1998
--------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $15.1500
--------
Investment income ............................................... 0.0377
Expenses ........................................................ 0.1651
--------
Net investment loss ........................................... $(0.1274)
Net realized and unrealized gains on investments and
foreign currency transactions .................................. 3.0649
--------
Net increase in unit value ...................................... $ 2.9375
--------
Unit value:
Net asset value -- end of period ................................ $18.0875
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.76%++
Net investment loss ............................................. (1.57)%++
Portfolio turnover ............................................... 42%
Number of units outstanding at end of year (000 omitted) ......... 4,425
<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 period ........................... $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 on investments and
foreign currency transactions ................................... 2.9378 2.2670 0.3374
-------- -------- --------
Net increase in unit value ....................................... $ 2.7357 $ 2.109 $ 0.3053
-------- -------- --------
Unit value:
Net asset value -- end of period ................................. $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%
Number of units outstanding at end of year (000 omitted) .......... 3,971 2,494 955
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
38
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------
Compass 3
-------------------------------------
Year Ended
Six Months December 31,
Ended -----------------
June 30, 1998 1997
-------------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $36.7764 $30.1803
-------- --------
Investment income ............................................... 0.0965 $ 0.2107
Expenses ........................................................ 0.4425 0.7383
-------- --------
Net investment loss ........................................... $(0.3460) $(0.5276)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 7.4443 7.1237
-------- --------
Net increase (decrease) in unit value ........................... $ 7.0983 $ 6.5961
-------- --------
Unit value:
Net asset value -- end of period ................................ $43.8747 $36.7764
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.76%++ 0.77%
Net investment loss ............................................. (1.57)%++ (1.45)%
Portfolio turnover ............................................... 42% 60%
Number of units outstanding at end of year (000 omitted) ......... 2,710 2,953
<CAPTION>
Capital Appreciation Variable Account
---------------------------------------------------
Compass 3
---------------------------------------------------
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $25.0907 $18.6531 $21.9341
-------- -------- --------
Investment income ............................................... $ 0.1893 $ 0.2402 $ 0.2870
Expenses ........................................................ 0.6053 0.4847 0.4421
-------- -------- --------
Net investment loss ........................................... $(0.4160) $(0.2445) $(0.1551)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 5.5056 6.6821 (3.1259)
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 5.0896 $ 6.4376 $(3.2810)
-------- -------- --------
Unit value:
Net asset value -- end of period ................................ $30.1803 $25.0907 $18.6531
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.78% 0.80% 0.79%
Net investment loss ............................................. (1.41)% (1.02)% (0.69)%
Portfolio turnover ............................................... 66% 96% 95%
Number of units outstanding at end of year (000 omitted) ......... 3,721 4,272 4,686
<CAPTION>
Capital
Appreciation
Variable Account
-----------------
Compass 3
----------------
Year Ended
December 31,
----------------
1993
----------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $19.5311
--------
Investment income ............................................... $ 0.2617
Expenses ........................................................ 0.4498
--------
Net investment loss ........................................... $(0.1881)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.5911
--------
Net increase (decrease) in unit value ........................... $ 2.4030
--------
Unit value:
Net asset value -- end of period ................................ $21.9341
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.78%
Net investment loss ............................................. (0.83)%
Portfolio turnover ............................................... 56%
Number of units outstanding at end of year (000 omitted) ......... 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.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
39
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities Variable
Account
--------------------------------
Compass 2
--------------------------------
Six Months Year Ended
Ended December 31,
June 30, -------------
1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $27.5372 $25.6724
-------- --------
Investment income ............................................... $ 0.9549 $ 1.9396
Expenses ........................................................ 0.2681 0.5159
-------- --------
Net investment income ......................................... $ 0.6868 $ 1.4237
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.1600 0.4411
-------- --------
Net increase (decrease) in unit value ........................... $ 0.8468 $ 1.8648
-------- --------
Unit value:
Net asset value -- end of period ................................ $28.3840 $27.5372
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.60%++ 0.66%
Net investment income ........................................... 4.70%++ 5.31%
Portfolio turnover ............................................... 74% 168%
Number of units outstanding at end of year (000 omitted) ......... 5,093 5,613
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------
Compass 2
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $25.5791 $22.0031 $22.7120 $21.1172
-------- -------- -------- --------
Investment income ............................................... $ 1.9022 $ 1.7836 $ 1.5648 $ 1.5732
Expenses ........................................................ 0.4873 0.4564 0.4229 0.4238
-------- -------- -------- --------
Net investment income ......................................... $ 1.4149 $ 1.3272 $ 1.1419 $ 1.1494
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (1.3216) 2.2488 (1.8508) 0.4454
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 0.0933 $ 3.5760 $(0.7089) $ 1.5948
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $25.6724 $25.5791 $22.0031 $22.7120
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.63% 0.61% 0.61%
Net investment income ........................................... 5.53% 5.51% 5.09% 5.11%
Portfolio turnover ............................................... 39% 80% 41% 81%
Number of units outstanding at end of year (000 omitted) ......... 7,255 8,361 11,308 12,679
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
40
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government
Securities Variable
Account
------------------
Compass 3 - Level 2
-------------------
Six Months
Ended
June 30, 1998
------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $11.2258
--------
Investment income ............................................... $ 0.3733
Expenses ........................................................ 0.1037
--------
Net investment income ......................................... $ 0.2696
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.0785
--------
Net increase (decrease) in unit value ........................... $ 0.3481
--------
Unit value:
Net asset value -- end of period ................................ $11.5739
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.60%++
Net investment income ........................................... 4.70%++
Portfolio turnover ............................................... 74%
Number of units outstanding at end of year (000 omitted) ......... 1,409
<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 period .......................... $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 period ................................ $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
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
41
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities Variable
Account
--------------------------------
Compass 3
--------------------------------
Year Ended
Six Months December 31,
Ended --------------
June 30, 1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $19.3693 $18.0755
-------- --------
Investment income ............................................... $ 0.6754 $ 1.3696
Expenses ........................................................ 0.2009 0.3848
-------- --------
Net investment income ......................................... $ 0.4745 $ 0.9848
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.1114 0.3090
-------- --------
Net increase (decrease) in unit value ........................... $ 0.5859 $ 1.2938
-------- --------
Unit value:
Net asset value -- end of period ................................ $19.9552 $19.3693
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.60%++ 0.66%
Net investment income ........................................... 4.70%++ 5.31%
Portfolio turnover ............................................... 74% 169%
Number of units outstanding at end of year (000 omitted) ......... 984 1,129
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------
Compass 3
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $18.0278 $15.5227 $16.0387 $14.9267
-------- -------- -------- --------
Investment income ............................................... $ 1.3222 $ 1.2529 $ 1.1028 $ 1.1064
Expenses ........................................................ 0.3586 0.3385 0.3146 0.3154
-------- -------- -------- --------
Net investment income ......................................... $ 0.9636 $ 0.9144 $ 0.7882 $ 0.7910
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.9159) 1.5907 (1.3042) 0.3210
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 0.0477 $ 2.5051 $(0.5160) $ 1.1120
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $18.0755 $18.0278 $15.5227 $16.0387
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.63% 0.61% 0.61%
Net investment income ........................................... 5.53% 5.51% 5.09% 5.11%
Portfolio turnover ............................................... 39% 80% 41% 81%
Number of units outstanding at end of year (000 omitted) ......... 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.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
42
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
--------------------------------
Compass 2
--------------------------------
Six Months Year Ended
Ended December 31,
June 30, -------------
1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $32.6450 $29.0656
-------- --------
Investment income ............................................... $ 1.6545 $ 3.0237
Expenses ........................................................ 0.3600 0.6627
-------- --------
Net investment income ......................................... $ 1.2945 $ 2.3610
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.2200 1.2184
-------- --------
Net increase (decrease) in unit value ........................... $ 1.5145 $ 3.5794
-------- --------
Unit value:
Net asset value -- end of period ................................ $34.1595 $32.6450
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.83%++ 0.86%
Net investment income ........................................... 7.35%++ 7.47%
Portfolio turnover ............................................... 82% 164%
Number of units outstanding at end of year (000 omitted) ......... 4,084 4,424
<CAPTION>
High Yield Variable Account
-------------------------------------------------------
Compass 2
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $26.1493 $22.6776 $23.3591 $19.7156
-------- -------- -------- --------
Investment income ............................................... $ 2.7199 $ 2.5137 $ 2.2324 $ 2.0867
Expenses ........................................................ 0.6035 0.5356 0.5062 0.4797
-------- -------- -------- --------
Net investment income ......................................... $ 2.1164 $ 1.9781 $ 1.7262 $ 1.6070
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.7999 1.4936 (2.4077) 2.0365
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 2.9163 $ 3.4717 $(0.6815) $ 3.6435
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $29.0656 $26.1493 $22.6776 $23.3591
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.88% 0.88% 0.91% 0.86%
Net investment income ........................................... 7.59% 7.91% 7.41% 6.97%
Portfolio turnover ............................................... 108% 88% 77% 67%
Number of units outstanding at end of year (000 omitted) ......... 4,956 5,649 6,433 7,564
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
43
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable
Account
------------------
Compass 3 - Level 2
-------------------
Six Months
Ended
June 30, 1998
------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $12.7936
--------
Investment income ............................................... $ 0.8175
Expenses ........................................................ 0.1772
--------
Net investment income ......................................... $ 0.6403
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.0435)
--------
Net increase in unit value ...................................... $ 0.5968
--------
Unit value:
Net asset value -- end of period ................................ $13.3904
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.83%++
Net investment income ........................................... 7.35%++
Portfolio turnover ............................................... 82%
Number of units outstanding at end of year (000 omitted) ......... 948
<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 period .......................... $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 in unit value ...................................... $ 1.4084 $ 1.1475 $ 0.2377
-------- -------- --------
Unit value:
Net asset value -- end of period ................................ $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
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
44
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
--------------------------------
Compass 3
--------------------------------
Year Ended
Six Months December 31,
Ended --------------
June 30, 1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $24.1529 $21.5259
-------- --------
Investment income ............................................... $ 1.3254 $ 2.2363
Expenses ........................................................ 0.3035 0.5196
-------- --------
Net investment income ......................................... $ 1.0219 $ 1.7167
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.0863 0.9103
-------- --------
Net increase (decrease) in unit value ........................... $ 1.1082 $ 2.6270
-------- --------
Unit value:
Net asset value -- end of period ................................ $25.2611 $24.1529
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.83%++ 0.86%
Net investment income ........................................... 7.35%++ 7.47%
Portfolio turnover ............................................... 82% 164%
Number of units outstanding at end of year (000 omitted) ......... 869 1,209
<CAPTION>
High Yield Variable Account
-------------------------------------------------------
Compass 3
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $19.3854 $16.8283 $17.3543 $14.6589
-------- -------- -------- --------
Investment income ............................................... $ 1.9450 $ 1.8912 $ 1.5336 $ 1.5179
Expenses ........................................................ 0.4432 0.4253 0.3711 0.3671
-------- -------- -------- --------
Net investment income ......................................... $ 1.5018 $ 1.4659 $ 1.1625 $ 1.1508
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.6387 1.0912 (1.6885) 1.5446
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 2.1405 $ 2.5571 $(0.5260) $ 2.6954
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $21.5259 $19.3854 $16.8283 $17.3543
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.88% 0.88% 0.91% 0.86%
Net investment income ........................................... 7.59% 7.91% 7.41% 6.97%
Portfolio turnover ............................................... 108% 88% 77% 67%
Number of units outstanding at end of year (000 omitted) ......... 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.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
45
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
-------------------------------------
Compass 2
-------------------------------------
Six Months Year Ended
Ended December 31,
June 30, ----------------
1998 1997
-------------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $45.4522 $36.5900
-------- --------
Investment income ............................................... $ 0.1397 $ 0.2406
Expenses ........................................................ 0.5123 0.8842
-------- --------
Net investment loss ........................................... $(0.3726) $(0.6436)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 5.4754 9.5058
-------- --------
Net increase (decrease) in unit value ........................... $ 5.1028 $ 8.8622
-------- --------
Unit value:
Net asset value -- end of period ................................ $50.5550 $45.4522
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.84%++ 0.85%
Net investment loss ............................................. (1.55)%++ (1.60)%
Portfolio turnover ............................................... 61% 103%
Number of units outstanding at end of year (000 omitted) ......... 716 736
<CAPTION>
Managed Sectors Variable Account
---------------------------------------------------
Compass 2
---------------------------------------------------
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $31.3870 $23.9044 $24.7295
-------- -------- --------
Investment income ............................................... $ 0.2838 $ 0.3277 $ 0.3066
Expenses ........................................................ 0.7089 0.6066 0.5155
-------- -------- --------
Net investment loss ........................................... $(0.4251) $(0.2789) $(0.2089)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 5.6281 7.7615 (0.6162)
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 5.2030 $ 7.4826 $(0.8251)
-------- -------- --------
Unit value:
Net asset value -- end of period ................................ $36.5900 $31.3870 $23.9044
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.85% 0.87% 0.90%
Net investment loss ............................................. (1.36)% (1.07)% (0.97)%
Portfolio turnover ............................................... 64% 115% 111%
Number of units outstanding at end of year (000 omitted) ......... 729 788 800
<CAPTION>
Managed Sectors
Variable Account
-----------------
Compass 2
----------------
Year Ended
December 31,
----------------
1993
----------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $23.8070
--------
Investment income ............................................... $ 0.1822
Expenses ........................................................ 0.4994
--------
Net investment loss ........................................... $(0.3172)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 1.2397
--------
Net increase (decrease) in unit value ........................... $ 0.9225
--------
Unit value:
Net asset value -- end of period ................................ $24.7295
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.91%
Net investment loss ............................................. (1.49)%
Portfolio turnover ............................................... 122%
Number of units outstanding at end of year (000 omitted) ......... 878
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
46
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors
Variable Account
--------------------
Compass 3 - Level 2
--------------------
Six Months
Ended
June 30, 1998
--------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $14.4652
--------
Investment income ............................................... $ 0.0456
Expenses ........................................................ 0.1652
--------
Net investment loss ............................................ $(0.1196)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 1.7435
--------
Net increase (decrease) in unit value ........................... $ 1.6239
--------
Unit value:
Net asset value -- end of period ................................ $16.0891
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.84%++
Net investment loss ............................................. (1.55)%++
Portfolio turnover ............................................... 61%
Number of units outstanding at end of year (000 omitted) ......... 2,401
<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 period .......................... $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 period ................................ $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%
Number of units outstanding at end of year (000 omitted) ......... 2,156 1,204 418
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
47
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
-------------------------------------
Compass 3
-------------------------------------
Year Ended
Six Months December 31,
Ended -----------------
June 30, 1998 1997
-------------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $45.0995 $36.3604
-------- --------
Investment income ........................................... $ 0.1374 $ 0.2328
Expenses .................................................... 0.5464 0.9264
-------- --------
Net investment loss ....................................... $(0.4090) $(0.6936)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .............................. 5.4350 9.4327
-------- --------
Net increase (decrease) in unit value ....................... $ 5.0260 $ 8.7391
-------- --------
Unit value:
Net asset value -- end of period ............................ $50.1255 $45.0995
======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.84%++ 0.85%
Net investment loss ......................................... (1.55)%++ (1.60)%
Portfolio turnover ........................................... 61% 103%
Number of units outstanding at end of year (000 omitted) ..... 1,115 1,258
<CAPTION>
Managed Sectors Variable Account
-------------------------------------------------------------------
Compass 3
-------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------
1996 1995 1994 1993
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $31.2371 $23.8258 $24.6849 $23.8007
-------- -------- -------- --------
Investment income ........................................... $ 0.2830 $ 0.3259 $ 0.3031 $ 0.1817
Expenses .................................................... 0.7511 0.6452 0.5452 0.5313
-------- -------- -------- --------
Net investment loss ....................................... $(0.4681) $(0.3193) $(0.2421) $(0.3496)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .............................. 5.5914 7.7306 (0.6170) 1.2338
-------- -------- -------- --------
Net increase (decrease) in unit value ....................... $ 5.1233 $ 7.4113 $(0.8591) $ 0.8842
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ............................ $36.3604 $31.2371 $23.8258 $24.6849
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.85% 0.87% 0.90% 0.91%
Net investment loss ......................................... (1.36)% (1.07)% (0.97)% (1.49)%
Portfolio turnover ........................................... 64% 115% 111% 122%
Number of units outstanding at end of year (000 omitted) ..... 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.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
48
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
--------------------------------
Compass 2
--------------------------------
Six Months Year Ended
Ended December 31,
June 30, -------------
1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $17.7451 $17.1109
-------- --------
Investment income ........................................... $ 0.4914 $ 0.9600
Expenses .................................................... 0.1662 0.3258
-------- --------
Net investment income ..................................... $ 0.3252 $ 0.6342
-------- --------
Net increase in unit value .................................. $ 0.3252 $ 0.6342
-------- --------
Unit value:
Net asset value -- end of period ............................ $18.0703 $17.7451
======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.59%++ 0.59%
Net investment income ....................................... 3.64%++ 3.56%
Number of units outstanding at end of year (000 omitted) ..... 4,360 4,639
<CAPTION>
Money Market Variable Account
-------------------------------------------------------
Compass 2
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $16.5213 $15.8699 $15.5003 $15.2976
-------- -------- -------- --------
Investment income ........................................... $ 0.9058 $ 0.9560 $ 0.6615 $ 0.4864
Expenses .................................................... 0.3162 0.3046 0.2919 0.2837
-------- -------- -------- --------
Net investment income ..................................... $ 0.5896 $ 0.6514 $ 0.3696 $ 0.2027
-------- -------- -------- --------
Net increase in unit value .................................. $ 0.5896 $ 0.6514 $ 0.3696 $ 0.2027
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ............................ $17.1109 $16.5213 $15.8699 $15.5003
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.58% 0.58% 0.58% 0.36%
Net investment income ....................................... 3.49% 4.00% 2.37% 1.30%
Number of units outstanding at end of year (000 omitted) ..... 5,208 6,501 6,851 6,418
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
49
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market
Variable Account
------------------
Compass 3 - Level 2
-------------------
Six Months
Ended
June 30, 1998
------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $10.8587
--------
Investment income ............................................... $ 0.2776
Expenses ........................................................ 0.0759
--------
Net investment income ......................................... $ 0.2017
--------
Net increase in unit value ...................................... $ 0.2017
--------
Unit value:
Net asset value -- end of period ................................ $11.0604
========
Ratios (to average net assets):
Expenses+## ..................................................... 0.59%++
Net investment income ........................................... 3.64%++
Number of units outstanding at end of year (000 omitted) ......... 2,733
<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 period .......................... $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 period ................................ $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
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
50
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
--------------------------------
Compass 3
--------------------------------
Year Ended
Six Months December 31,
Ended --------------
June 30, 1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $14.6369 $14.1277
-------- --------
Investment income ........................................... $ 0.4004 $ 0.7782
Expenses .................................................... 0.1395 0.2690
-------- --------
Net investment income ..................................... $ 0.2609 $ 0.5092
-------- --------
Net increase in unit value .................................. $ 0.2609 $ 0.5092
-------- --------
Unit value:
Net asset value -- end of period ............................ $14.8978 $14.6369
======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.59%++ 0.59%
Net investment income ....................................... 3.64%++ 3.56%
Number of units outstanding at end of year (000 omitted) ..... 1,395 1,160
<CAPTION>
Money Market Variable Account
-------------------------------------------------------
Compass 3
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ...................... $13.6545 $13.1291 $12.8359 $12.6806
-------- -------- -------- --------
Investment income ........................................... $ 0.7437 $ 0.7885 $ 0.5688 $ 0.4065
Expenses .................................................... 0.2705 0.2631 0.2756 0.2512
-------- -------- -------- --------
Net investment income ..................................... $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553
-------- -------- -------- --------
Net increase in unit value .................................. $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ............................ $14.1277 $13.6545 $13.1291 $12.8359
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ................................................. 0.58% 0.58% 0.58% 0.36%
Net investment income ....................................... 3.49% 4.00% 2.37% 1.30%
Number of units outstanding at end of year (000 omitted) ..... 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.
++ Annualized.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
51
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable Account
--------------------------------
Compass 2
--------------------------------
Six Months Year Ended
Ended December 31,
June 30, -------------
1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $30.1563 $25.0444
-------- --------
Investment income ............................................... $ 0.7027 $ 1.3666
Expenses ........................................................ 0.3380 0.6070
-------- --------
Net investment income ......................................... $ 0.3647 $ 0.7596
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.0555 4.3523
-------- --------
Net increase (decrease) in unit value ........................... $ 2.4202 $ 5.1119
-------- --------
Unit value:
Net asset value -- end of period ................................ $32.5765 $30.1563
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82%++ 0.83%
Net investment income ........................................... 2.10%++ 2.32%
Portfolio turnover ............................................... 61% 111%
Number of units outstanding at end of year (000 omitted) ......... 3,755 3,956
<CAPTION>
Total Return Variable Account
-------------------------------------------------------
Compass 2
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $22.2577 $17.4729 $18.0043 $15.9891
-------- -------- -------- --------
Investment income ............................................... $ 1.1203 $ 1.0394 $ 0.8583 $ 0.8513
Expenses ........................................................ 0.4844 0.4118 0.3704 0.3616
-------- -------- -------- --------
Net investment income ......................................... $ 0.6359 $ 0.6276 $ 0.4879 $ 0.4897
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.1508 4.1572 (1.0193) 1.5255
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 2.7867 $ 4.7848 $(0.5314) $ 2.0152
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $25.0444 $22.2577 $17.4729 $18.0043
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82% 0.83% 0.82% 0.76%
Net investment income ........................................... 2.59% 2.99% 2.60% 2.43%
Portfolio turnover ............................................... 140% 105% 63% 89%
Number of units outstanding at end of year (000 omitted) ......... 4,414 4,801 5,410 5,889
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
52
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
Six Months --------------------------- Period Ended
Ended December 31,
June 30, 1998 1997 1996 1995#
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 14.2173 $ 11.8074 $ 10.4938 $ 10.0000
---------- --------- --------- ---------
Investment income ............................................... $ 0.3051 $ 0.5718 $ 0.5280 $ 0.1247
Expenses ........................................................ 0.1482 0.2715 0.2317 0.0525
---------- --------- --------- ---------
Net investment income ......................................... $ 0.1569 $ 0.3003 $ 0.2963 $ 0.0722
Net realized and unrealized gains on investments and foreign
currency transactions .......................................... 0.9840 2.1096 1.0173 0.4216
---------- --------- --------- ---------
Net increase in unit value ...................................... $ 1.1409 $ 2.4099 $ 1.3136 $ 0.4938
---------- --------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 15.3582 $ 14.2173 $ 11.8074 $ 10.4938
========== ========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82%++ 0.83% 0.82% 0.83%
Net investment income ........................................... 2.10%++ 2.32% 2.59% 2.99%
Portfolio turnover ............................................... 61% 111% 140% 105%
Number of units outstanding at end of year (000 omitted) ......... 6,066 5,260 3,717 1,637
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
53
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable Account
--------------------------------
Compass 3
--------------------------------
Year Ended
Six Months December 31,
Ended --------------
June 30, 1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $29.7131 $24.7133
-------- --------
Investment income ............................................... $ 0.6735 $ 1.1487
Expenses ........................................................ 0.3515 0.5870
-------- --------
Net investment income ......................................... $ 0.3220 $ 0.5617
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.0388 4.4381
-------- --------
Net increase (decrease) in unit value ........................... $ 2.3608 $ 4.9998
-------- --------
Unit value:
Net asset value -- end of period ................................ $32.0739 $29.7131
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82%++ 0.83%
Net investment income ........................................... 2.10%++ 2.32%
Portfolio turnover ............................................... 61% 111%
Number of units outstanding at end of year (000 omitted) ......... 3,500 4,024
<CAPTION>
Total Return Variable Account
-------------------------------------------------------
Compass 3
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $21.9966 $17.2937 $17.8462 $15.8723
-------- -------- -------- --------
Investment income ............................................... $ 1.0817 $ 1.0122 $ 0.8371 $ 0.8304
Expenses ........................................................ 0.5068 0.4358 0.3904 0.3829
-------- -------- -------- --------
Net investment income ......................................... $ 0.5749 $ 0.5764 $ 0.4467 $ 0.4475
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.1418 4.1265 (0.9992) 1.5264
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 2.7167 $ 4.7029 $(0.5525) $ 1.9739
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $24.7133 $21.9966 $17.2937 $17.8462
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82% 0.83% 0.82% 0.76%
Net investment income ........................................... 2.59% 2.99% 2.60% 2.43%
Portfolio turnover ............................................... 140% 105% 63% 89%
Number of units outstanding at end of year (000 omitted) ......... 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.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
54
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable
Account
--------------------------------
Compass 2
--------------------------------
Six Months Year Ended
Ended December 31,
June 30, -------------
1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $18.2798 $18.6786
-------- --------
Investment income ............................................... $ 0.5658 $ 1.1566
Expenses ........................................................ 0.2339 0.4192
-------- --------
Net investment income ......................................... $ 0.3319 $ 0.7374
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.1602) (1.1362)
-------- --------
Net increase (decrease) in unit value ........................... $ 0.1717 $(0.3988)
-------- --------
Unit value:
Net asset value -- end of period ................................ $18.4515 $18.2798
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 1.07%++ 1.05%
Net investment income ........................................... 3.48%++ 3.95%
Portfolio turnover ............................................... 191% 338%
Number of units outstanding at end of year (000 omitted) ......... 332 435
<CAPTION>
World Governments Variable Account
-------------------------------------------------------
Compass 2
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $18.1095 $15.8337 $16.9056 $14.4420
-------- -------- -------- --------
Investment income ............................................... $ 1.2469 $ 1.3112 $ 1.0805 $ 1.1460
Expenses ........................................................ 0.4084 0.3863 0.3565 0.3704
-------- -------- -------- --------
Net investment income ......................................... $ 0.8385 $ 0.9249 $ 0.7240 $ 0.7756
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.2694) 1.3509 (1.7959) 1.6880
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 0.5691 $ 2.2758 $(1.0719) $ 2.4636
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $18.6786 $18.1095 $15.8337 $16.9056
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 1.00% 1.00% 1.00% 0.94%
Net investment income ........................................... 4.54% 5.25% 4.45% 4.12%
Portfolio turnover ............................................... 397% 330% 256% 202%
Number of units outstanding at end of year (000 omitted) ......... 588 824 983 1,092
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
55
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
Six Months --------------------------- Period Ended
Ended December 31,
June 30, 1998 1997 1996 1995#
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 10.4553 $ 10.6836 $ 10.3582 $ 10.0000
---------- --------- --------- ---------
Investment income ............................................... $ 0.3112 $ 0.6710 $ 0.7308 $ 0.1819
Expenses ........................................................ 0.1193 0.2440 0.2391 0.0554
---------- --------- --------- ---------
Net investment income ......................................... $ 0.1919 $ 0.4270 $ 0.4917 $ 0.1265
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.0937) (0.6553) (0.1663) 0.2317
---------- --------- --------- ---------
Net increase (decrease) in unit value ........................... $ 0.0982 $ (0.2283) $ 0.3254 $ 0.3582
---------- --------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 10.5535 $ 10.4553 $ 10.6836 $ 10.3582
========== ========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 1.07%++ 1.05% 1.00% 1.00%
Net investment income ........................................... 3.48%++ 3.95% 4.54% 5.25%
Portfolio turnover ............................................... 191% 338% 397% 330%
Number of units outstanding at end of year (000 omitted) ......... 669 670 563 316
</TABLE>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
56
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable
Account
--------------------------------
Compass 3
--------------------------------
Year Ended
Six Months December 31,
Ended --------------
June 30, 1998 1997
------------------ -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $18.0103 $18.4308
-------- --------
Investment income ............................................... $ 0.5670 $ 1.1298
Expenses ........................................................ 0.2259 0.4390
-------- --------
Net investment income ......................................... $ 0.3411 $ 0.6908
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.1854) (1.1113)
-------- --------
Net increase (decrease) in unit value ........................... $ 0.1557 $(0.4205)
-------- --------
Unit value:
Net asset value -- end of period ................................ $18.1660 $18.0103
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 1.07%++ 1.05%
Net investment income ........................................... 3.48%++ 3.95%
Portfolio turnover ............................................... 191% 338%
Number of units outstanding at end of year (000 omitted) ......... 351 500
<CAPTION>
World Governments Variable Account
-------------------------------------------------------
Compass 3
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $17.8962 $15.6705 $16.7563 $14.3365
-------- -------- -------- --------
Investment income ............................................... $ 1.2367 $ 1.3045 $ 1.0666 $ 1.1293
Expenses ........................................................ 0.4322 0.4086 0.3760 0.3890
-------- -------- -------- --------
Net investment income ......................................... $ 0.8045 $ 0.8959 $ 0.6906 $ 0.7403
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (0.2699) 1.3298 (1.7764) 1.6795
-------- -------- -------- --------
Net increase (decrease) in unit value ........................... $ 0.5346 $ 2.2257 $(1.0858) $ 2.4198
-------- -------- -------- --------
Unit value:
Net asset value -- end of period ................................ $18.4308 $17.8962 $15.6705 $16.7563
======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 1.00% 1.00% 1.00% 0.94%
Net investment income ........................................... 4.54% 5.25% 4.45% 4.12%
Portfolio turnover ............................................... 397% 330% 256% 202%
Number of units outstanding at end of year (000 omitted) ......... 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.
++ Annualized.
## Expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
57
<PAGE>
Notes to Financial Statements
(1) Organization
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, Managed Sectors Variable Account, Money Market
Variable Account, Total Return Variable Account, and World Governments Variable
Account are separate accounts established by Sun Life Assurance Company of
Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and
Compass 3 combination fixed/variable annuity contracts. Capital Appreciation
Variable Account, Government Securities Variable Account, Money Market Variable
Account, and Total Return Variable Account operate as open-end, diversified
management investment companies, and High Yield Variable Account, Managed
Sectors Variable Account, and World Governments Variable Account operate as
open-end, non-diversified management investment companies as those terms are
defined in the Investment Company Act of 1940, as amended.
(2) Significant Accounting Policies
General
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Investments in foreign
securities are vulnerable to the effects of changes in the relative values of
the local currency and the U.S. dollar and to the effects of changes in each
country's legal, political, and economic environment.
Investment Valuations
Equity securities listed on securities exchanges or reported through the NASDAQ
system are reported at market value using last sale prices. Unlisted equity
securities or listed equity securities for which last sale prices are not
available are reported at market value using last quoted bid prices. Debt
securities (other than short-term obligations which mature in 60 days or less),
including listed issues and forward contracts, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith approximates market
value. The Account's use of amortized cost is subject to the Account's
compliance with certain conditions as specified under Rule 2a-7 of the
Investment Company Act of 1940. Futures contracts, options, and options on
futures contracts listed on commodities exchanges are reported at market value
using closing settlement prices. Over-the-counter options on securities are
valued by brokers. Over-the-counter currency options are valued through the use
of a pricing model which takes into account foreign currency exchange spot and
forward rates, implied
58
<PAGE>
volatility, and short-term repurchase rates. Securities for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Boards of Managers.
Repurchase Agreements
Certain Variable Accounts may enter into repurchase agreements with
institutions that the Variable Account's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. Such Variable
Accounts require that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Account to
obtain those securities in the event of a default under the repurchase
agreement. The investment adviser monitors, on a daily basis, the value of the
collateral to ensure that 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. The Variable
Accounts, along with other affiliated entities of Massachusetts Financial
Services Company (MFS), may utilize a joint trading account for the purpose of
entering into one or more repurchase agreements.
Foreign Currency Translation
Investment valuations, other assets, and liabilities initially expressed in
foreign currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investments, income, and
expenses are converted into U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. Gains and losses
attributable to foreign currency exchange rates on sales of securities are
recorded for financial statement purposes as net realized gains and losses on
investments. Gains and losses attributable to foreign exchange rate movements
on income and expenses are recorded for financial statement purposes as foreign
currency transaction gains and losses. That portion of both realized and
unrealized gains and losses on investments that results from fluctuations in
foreign currency exchange rates is not separately disclosed.
Written Options
Certain Variable Accounts may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Account realizes a gain equal to the premium received. When a
written call option is exercised or closed, the premium received is offset
against the proceeds to determine the realized gain or loss. When a written put
option is exercised, the premium reduces the cost basis of the security
purchased by the Account. The Account, as writer of an option may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options
may also be used as part of an income producing strategy reflecting the view of
the Variable Account's management on the direction of interest rates.
59
<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 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 premium and discount is amortized or
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Certain of the Variable Accounts use the effective interest method for
reporting interest income on payment-in-kind (PIK) bonds. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance
the value of high-yield debt securities, are reported as additions to the cost
basis of the security. Costs that are incurred to negotiate the terms or
conditions of capital infusions or that are expected to result in a plan of
reorganization are reported as realized losses. Ongoing costs incurred to
protect or enhance an investment, or costs incurred to pursue other claims or
legal actions, are expensed.
60
<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.
61
<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
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:
<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 period ended June 30, 1998, 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 .......... $285,849,600 $334,105,613
High Yield Variable Account .................... 152,763,158 179,802,673
Managed Sectors Variable Account ............... 77,344,692 76,553,458
Money Market Variable Account* ................. 441,698,614 424,668,993
Total Return Variable Account .................. 149,877,561 129,098,825
World Governments Variable Account ............. 16,701,605 20,299,791
</TABLE>
62
<PAGE>
For the period ended June 30, 1998, 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 .......... $ 133,319,434 $ 138,257,798
Managed Sectors Variable Account ................ 762,420 --
Money Market Variable Account* .................. 2,137,047,778 2,139,013,028
Total Return Variable Account ................... 64,889,975 69,479,443
World Governments Variable Account .............. 23,136,297 20,299,791
</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.
Written Option Transactions
Managed Sectors Variable Account
<TABLE>
<CAPTION>
1998 Calls
-----------
Contracts Premiums
----------- -----------
<S> <C> <C>
Outstanding, beginning of period .................... 1,971 $273,732
Options written .................................... -- --
Options terminated in closing transactions ......... 390 9,974
Options expired .................................... 1,581 263,758
Outstanding, end of period .......................... -- --
</TABLE>
At June 30, 1998, the Managed Sectors Variable Account had sufficient cash
and/or securities at least equal to the value of the written options.
63
<PAGE>
Notes to Financial Statements -- continued
World Governments Variable Account
<TABLE>
<CAPTION>
1998 Calls 1998 Puts
---------------------------------- -------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
------------------- ------------ ------------------ ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year --
Japanese Yen .................................. 296,310 $ 46,762 -- $ --
Options written --
Japanese Yen/Deutsche Marks ................... 275,940 64,172 -- --
Canadian Dollars .............................. -- -- 1,514 5,664
Options expired--
Japanese Yen .................................. (296,310) (46,762) -- --
-------- --------- ----- ---------
Outstanding, end of period ..................... $ 64,172 $ 5,664
========= =========
Options outstanding at end of period consist of:
Japanese Yen/Deutsche Marks ................... 275,940 $ 64,172 -- $ --
Canadian Dollars .............................. -- -- 1,514 5,664
-------- --------- ----- ---------
Outstanding, end of period ..................... $ 64,172 $ 5,664
========= =========
</TABLE>
At June 30, 1998, the World Governments Variable Account had sufficient cash
and/or securities at least equal to the value of the written options.
64
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts at In Exchange Appreciation
Account Transaction Settlement Date Deliver/Receive Value For (Depreciation)
- ------------------------------------ ------------- ---------------- ----------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
World Governments Variable Account Sales 09/25/98 CAD 1,836,345 $ 1,251,644 $ 1,248,832 (2,812)
09/25/98 JPY 522,273,637 3,826,845 3,913,017 86,172
----------- ----------- ----------
$ 5,078,489 $ 5,161,849 $ 83,360
=========== =========== ==========
Purchases
09/25/98 CAD 4,308,217 2,936,461 3,009,729 (73,268)
09/25/98 JPY 1,035,774,858 7,589,412 7,912,507 (323,095)
09/25/98 NLG 2,811 1,387 1,414 (27)
----------- ----------- ----------
$10,527,260 $10,923,650 $ (396,390)
=========== =========== ==========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
for the World Governments Variable Account excluded above amounted to a net
payable of $81,584 with Swiss bank, $35,293 with Deutsche Bank, and $110,925
with Merrill Lynch, and a net receivable of $28,035 with Banker's Trust, and
$49,886 with First Boston.
At June 30, 1998, the World Governments Variable Account had sufficient cash
and/or securities to cover any commitments under these contracts.
See page 30 for an explanation of abbreviations used to indicate amounts shown
in currencies other than the U.S. dollar.
65
<PAGE>
Notes to Financial Statements -- continued
(8) Restricted Securities
Certain of the Variable Accounts may invest in securities which are subject to
legal or contractual restrictions on resale. At June 30, 1998, High Yield
Variable Account and Total Return Variable Account owned the following
restricted securities (consisting of 0.5% and 0.5% of the Account's net assets,
respectively) which may not be publicly sold without registration under the
Securities Act of 1933. The Variable Account does not have the right to demand
that such securities be registered. The value of these securities is determined
by valuations 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 Airplane Pass Through Trust 3/13/96 $750,000 $ 750,000 $ 847,162
Atlantic Gulf Communities Corp. 9/25/95 150 -- 310
Total Return Variable Account Criimi Mae Commercial Mortgage 5/6/98 320 310,650 313,700
Trust, 7s, 2011
United Airlines Pass Through Trust 1/30/96 1,163 1,156,243 1,215,391
---------- ----------
$2,216,893 $2,376,563
========== ==========
</TABLE>
66
<PAGE>
(9) Participant Transactions
The changes in net assets from changes in numbers of outstanding units were as
follows:
<TABLE>
<CAPTION>
Period ended June 30, 1998 (000 Omitted)
------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations,
Payments Accumulation and Contract
Received Account Charges
----------------- ------------------------ -----------------------
Units Dollars Units Dollars Units Dollars
------- --------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts .................. 57 $ 3,609 (28) $ (2,962) (509) $ (31,648)
Compass 3 Contracts .................. 193 7,992 (309) (12,649) (127) (5,225)
Compass 3 Level 2 Contracts .......... 57 964 805 13,523 (408) (6,981)
------- --------- ---------
$12,565 $ (2,088) $ (43,854)
======= ========= =========
Government Securities Variable Account
Compass 2 Contracts .................. 38 $ 1,054 (124) $ (3,481) (434) $ (12,117)
Compass 3 Contracts .................. 52 1,023 (118) (2,310) (79) (1,557)
Compass 3 Level 2 Contracts .......... 15 170 195 2,207 (120) (1,365)
------- --------- ---------
$ 2,247 $ (3,584) $ (15,039)
======= ========= =========
High Yield Variable Account
Compass 2 Contracts .................. 28 $ 942 (87) $ (2,982) (281) $ (9,475)
Compass 3 Contracts .................. 43 1,089 (346) (8,734) (37) (919)
Compass 3 Level 2 Contracts .......... 11 152 (1,044) (13,985) (61) (808)
------- --------- ---------
$ 2,183 $ (25,701) $ (11,202)
======= ========= =========
Managed Sectors Variable Account
Compass 2 Contracts .................. 9 $ 427 12 $ 605 (41) $ (2,048)
Compass 3 Contracts .................. 76 3,747 (166) (7,829) (53) (2,622)
Compass 3 Level 2 Contracts .......... 34 541 396 6,222 (185) (2,887)
------- --------- ---------
$ 4,715 $ (1,002) $ (7,557)
======= ========= =========
Money Market Variable Account
Compass 2 Contracts .................. 27 $ 482 369 $ 6,673 (675) $ (12,101)
Compass 3 Contracts .................. 76 1,108 342 5,041 (183) (2,689)
Compass 3 Level 2 Contracts .......... 12 126 1,789 19,650 (172) (1,889)
------- --------- ---------
$ 1,716 $ 31,364 $ (16,679)
======= ========= =========
Total Return Variable Account
Compass 2 Contracts .................. 27 $ 877 51 $ 1,643 (278) $ (8,799)
Compass 3 Contracts .................. 197 6,148 (541) (16,877) (180) (5,672)
Compass 3 Level 2 Contracts .......... 70 1,052 1,144 17,117 (408) (6,106)
------- --------- ---------
$ 8,077 $ 1,883 $ (20,577)
======= ========= =========
World Governments Variable Account
Compass 2 Contracts .................. 3 $ 56 (61) $ (1,116) (45) $ (823)
Compass 3 Contracts .................. 22 399 (145) (2,622) (27) (481)
Compass 3 Level 2 Contracts .......... 9 92 55 573 (64) (680)
------- --------- ---------
$ 547 $ (3,165) $ (1,984)
======= ========= =========
<CAPTION>
Period ended June 30, 1998 (000 Omitted)
---------------------------------------------------------
Net Net Net
Accumulation Annuitization Increase
Activity Activity (Decrease)
------------------------- --------------- ---------------
Units Dollars Dollars Dollars
----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts .................. (480) $ (31,001) $(524) $(31,525)
Compass 3 Contracts .................. (243) (9,882) (43) (9,925)
Compass 3 Level 2 Contracts .......... 454 7,506 473 7,979
--------- ----- --------
$ (33,377) $ (94) $(33,471)
========= ===== ========
Government Securities Variable Account
Compass 2 Contracts .................. (520) $ (14,544) $ 205 $(14,339)
Compass 3 Contracts .................. (145) (2,844) (10) (2,854)
Compass 3 Level 2 Contracts .......... 90 1,012 (6) 1,006
--------- ----- --------
$ (16,376) $ 189 $(16,187)
========= ===== ========
High Yield Variable Account
Compass 2 Contracts .................. (340) $ (11,515) $(226) $(11,741)
Compass 3 Contracts .................. (340) (8,564) -- (8,564)
Compass 3 Level 2 Contracts .......... (1,094) (14,641) -- (14,641)
--------- ----- --------
$ (34,720) $(226) $(34,946)
========= ===== ========
Managed Sectors Variable Account
Compass 2 Contracts .................. (20) $ (1,016) $ (21) $ (1,037)
Compass 3 Contracts .................. (143) (6,704) (28) (6,732)
Compass 3 Level 2 Contracts .......... 245 3,876 118 3,994
--------- ----- --------
$ (3,844) $ 69 $ (3,775)
========= ===== ========
Money Market Variable Account
Compass 2 Contracts .................. (279) $ (4,946) $(165) $ (5,111)
Compass 3 Contracts .................. 235 3,460 (1) 3,459
Compass 3 Level 2 Contracts .......... 1,629 17,887 -- 17,887
--------- ----- --------
$ 16,401 $(166) $ 16,235
========= ===== ========
Total Return Variable Account
Compass 2 Contracts .................. (200) $ (6,279) $(232) $ (6,511)
Compass 3 Contracts .................. (524) (16,401) (22) (16,423)
Compass 3 Level 2 Contracts .......... 806 12,063 (2) 12,061
--------- ----- --------
$ (10,617) $(256) $(10,873)
========= ===== ========
World Governments Variable Account
Compass 2 Contracts .................. (103) $ (1,883) $ (4) $ (1,887)
Compass 3 Contracts .................. (150) (2,704) (1) (2,705)
Compass 3 Level 2 Contracts .......... 0 (15) 7 (8)
--------- ----- -----------
$ (4,602) $ 2 $ (4,600)
========= ===== ==========
</TABLE>
67
<PAGE>
Notes to Financial Statements -- continued
Participant Transactions -- continued
The changes in net assets from changes in numbers of outstanding units were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 (000 Omitted)
--------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations,
Payments Accumulation and Contract
Received Account Charges
----------------- ------------------------ -------------------------
Units Dollars Units Dollars Units Dollars
------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ..................... 128 $ 6,572 (40) $ (623) (919) $ (47,471)
Compass 3 Contracts ..................... 432 14,656 (888) (29,853) (312) (10,658)
Compass 3 Level 2 Contracts ............. 87 1,228 2,003 28,005 (612) (8,653)
------- --------- ---------
$22,456 $ (2,471) $ (66,782)
======= ========= =========
Government Securities Variable Account
Compass 2 Contracts ..................... 80 $ 2,089 (495) $ (13,383) (1,226) $ (32,195)
Compass 3 Contracts ..................... 124 2,290 (340) (6,302) (204) (3,785)
Compass 3 Level 2 Contracts ............. 27 290 474 5,016 (260) (2,765)
------- --------- ---------
$ 4,669 $ (14,669) $ (38,745)
======= ========= =========
High Yield Variable Account
Compass 2 Contracts ..................... 59 $ 1,814 (91) $ (2,578) (500) $ (15,376)
Compass 3 Contracts ..................... 90 2,051 (233) (5,243) (86) (1,947)
Compass 3 Level 2 Contracts ............. 21 256 415 4,887 (213) (2,568)
------- --------- ---------
$ 4,121 $ (2,934) $ (19,891)
======= ========= =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... 20 $ 854 74 $ 3,128 (86) $ (3,586)
Compass 3 Contracts ..................... 172 7,114 (325) (12,759) (140) (5,834)
Compass 3 Level 2 Contracts ............. 50 666 1,223 15,786 (320) (4,269)
------- --------- ---------
$ 8,634 $ 6,155 $ (13,689)
======= ========= =========
Money Market Variable Account
Compass 2 Contracts ..................... 64 $ 1,121 353 $ 6,088 (986) $ (17,174)
Compass 3 Contracts ..................... 180 2,583 (528) (7,682) (422) (6,047)
Compass 3 Level 2 Contracts ............. 15 160 753 7,829 (561) (5,968)
------- --------- ---------
$ 3,864 $ 6,235 $ (29,189)
======= ========= =========
Total Return Variable Account
Compass 2 Contracts ..................... 67 $ 1,867 182 $ 5,026 (707) $ (19,474)
Compass 3 Contracts ..................... 456 12,335 (1,178) (31,595) (431) (11,669)
Compass 3 Level 2 Contracts ............. 118 1,528 2,405 30,842 (980) (12,578)
------- --------- ---------
$15,730 $ 4,273 $ (43,721)
======= ========= =========
World Governments Variable Account
Compass 2 Contracts ..................... 10 $ 173 (55) $ (1,004) (106) $ (1,932)
Compass 3 Contracts ..................... 64 1,155 (278) (4,982) (75) (1,344)
Compass 3 Level 2 Contracts ............. 12 127 311 3,227 (216) (2,234)
------- --------- ---------
$ 1,455 $ (2,759) $ (5,510)
======= ========= =========
<CAPTION>
Year Ended December 31, 1997 (000 Omitted)
-------------------------------------------------------
Net Net Net
Accumulation Annuitization Increase
Activity Activity (Decrease)
------------------------- --------------- -------------
Units Dollars Dollars Dollars
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ..................... (831) $ (41,522) $(619) $ (42,141)
Compass 3 Contracts ..................... (768) (25,855) (255) (26,110)
Compass 3 Level 2 Contracts ............. 1,478 20,580 181 20,761
--------- ----- ---------
$ (46,797) $(693) $ (47,490)
========= ===== =========
Government Securities Variable Account
Compass 2 Contracts ..................... (1,641) $ (43,489) $(265) $ (43,754)
Compass 3 Contracts ..................... (420) (7,797) (16) (7,813)
Compass 3 Level 2 Contracts ............. 241 2,541 (24) 2,517
--------- ----- ---------
$ (48,745) $(305) $ (49,050)
========= ===== =========
High Yield Variable Account
Compass 2 Contracts ..................... (532) $ (16,140) $(291) $ (16,431)
Compass 3 Contracts ..................... (229) (5,139) (3) (5,142)
Compass 3 Level 2 Contracts ............. 223 2,575 0 2,575
--------- ----- ---------
$ (18,704) $(294) $ (18,998)
========= ===== =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... 8 $ 396 $ 45 $ 441
Compass 3 Contracts ..................... (293) (11,479) 82 (11,397)
Compass 3 Level 2 Contracts ............. 953 12,183 50 12,233
--------- ----- ---------
$ 1,100 $ 177 $ 1,277
========= ===== =========
Money Market Variable Account
Compass 2 Contracts ..................... (569) $ (9,965) $ (40) $ (10,005)
Compass 3 Contracts ..................... (770) (11,146) (4) (11,150)
Compass 3 Level 2 Contracts ............. 207 2,021 (2) 2,019
--------- ----- ---------
$ (19,090) $ (46) $ (19,136)
========= ===== =========
Total Return Variable Account
Compass 2 Contracts ..................... (458) $ (12,581) $(127) $ (12,708)
Compass 3 Contracts ..................... (1,153) (30,929) (185) (31,114)
Compass 3 Level 2 Contracts ............. 1,543 19,792 134 19,926
--------- ----- ---------
$ (23,718) $(178) $ (23,896)
========= ===== =========
World Governments Variable Account
Compass 2 Contracts ..................... (151) $ (2,763) $ (9) $ (2,772)
Compass 3 Contracts ..................... (289) (5,171) (12) (5,183)
Compass 3 Level 2 Contracts ............. 107 1,120 (5) 1,115
--------- ----- ---------
$ (6,814) $ (26) $ (6,840)
========= ===== =========
</TABLE>
68
<PAGE>
(10) Detailed Statements of Operations -- Six Months Ended June 30, 1998 (000
Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................... $ 204 $ 3 $ 49 $--
Dividends ................................... 935 12 219 1
-------- ------ ------- ---
Total investment income ................... $ 1,139 $ 15 $ 268 $ 1
Expenses ..................................... 5,018 25 1,231 1
-------- ------ ------- ---
Net investment loss ........................ $ (3,879) $ (10) $ (963) $--
-------- ------ ------- ---
Realized and unrealized gains (losses)
on investments:
Net realized gains ......................... $ 49,085 $ 648 $11,465 $29
Net unrealized gains (losses) .............. 41,887 527 9,675 25
-------- ------ ------- ---
Net realized and unrealized gains (losses)
on investments .............................. $ 90,972 $1,175 $21,140 $54
-------- ------ ------- ---
Increase (decrease) in net assets from
operations .................................. $ 87,093 $1,165 $20,177 $54
======== ====== ======= ===
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ------------
<S> <C> <C> <C>
Investment income:
Interest .................................... $ 25 $ -- $ 281
Dividends ................................... 136 1 1,304
------- ------ --------
Total investment income ................... $ 161 $ 1 $ 1,585
Expenses ..................................... 707 1 6,983
------- ------ --------
Net investment loss ........................ $ (546) $ -- $ (5,398)
------- ------ --------
Realized and unrealized gains (losses)
on investments:
Net realized gains ......................... $ 7,120 $ 31 $ 68,378
Net unrealized gains (losses) .............. 5,790 (194) 57,710
------- ------ --------
Net realized and unrealized gains (losses)
on investments .............................. $12,910 $ (163) $126,088
------- ------ --------
Increase (decrease) in net assets from
operations .................................. $12,364 $ (163) $120,690
======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $4,918 $ 90 $ 670 $ 6
------ ----- ----- ---
Total investment income ................. $4,918 $ 90 $ 670 $ 6
Expenses ................................... 1,398 8 200 --
------ ----- ----- ---
Net investment income .................... $3,520 $ 82 $ 470 $ 6
------ ----- ----- ---
Realized and unrealized gains (losses)
on investments:
Net realized gains ....................... $1,305 $ 23 $ 183 $ 1
Net unrealized losses .................... (269) (31) (38) --
------ ----- ----- ---
Net realized and unrealized gains
(losses) on investments ................... $1,036 $ (8) $ 145 $ 1
------ ----- ----- ---
Increase in net assets from operations ..... $4,556 $ 74 $ 615 $ 7
====== ===== ===== ===
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ---------
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 516 $ 4 $6,204
----- --- ------
Total investment income ................. $ 516 $ 4 $6,204
Expenses ................................... 146 -- 1,752
----- --- ------
Net investment income .................... $ 370 $ 4 $4,452
----- --- ------
Realized and unrealized gains (losses)
on investments:
Net realized gains ........................ $ 130 $ 1 $1,643
Net unrealized losses ..................... (19) -- (357)
----- --- ------
Net realized and unrealized gains
(losses) on investments ................... $ 111 $ 1 $1,286
----- --- ------
Increase in net assets from operations ..... $ 481 $ 5 $5,738
===== === ======
</TABLE>
69
<PAGE>
Notes to Financial Statements -- continued
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 6,585 $ 124 $1,254 $ 1
Dividends ................................. 195 4 35 --
--------- ----- ------ ---
Total investment income ................. $ 6,780 $ 128 $1,289 $ 1
Expenses ................................... 1,492 11 295 ---
--------- ----- ------ ---
Net investment income .................... $ 5,288 $ 117 $ 994 $ 1
--------- ----- ------ ---
Realized and unrealized gains (losses)
on investments:
Net realized gains ....................... $ 4,050 $ 77 $ 757 $ 1
Net unrealized losses .................... (2,741) (53) (427) --
--------- ----- ------ ---
Net realized and unrealized gains on
investments ............................... $ 1,309 $ 24 $ 330 $ 1
--------- ----- ------ ---
Increase in net assets from operations ..... $ 6,597 $ 141 $1,324 $ 2
========= ===== ====== ===
<CAPTION>
High Yield Variable Account
-------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $1,028 $-- $ 8,992
Dividends ................................. 29 -- 263
------ --- ---------
Total investment income ................. $1,057 $-- $ 9,255
Expenses ................................... 231 -- 2,029
------ --- ---------
Net investment income .................... $ 826 $-- $ 7,226
------ --- ---------
Realized and unrealized gains (losses)
on investments:
Net realized gains ....................... $ 625 $-- $ 5,510
Net unrealized losses .................... (238) -- (3,459)
------ --- ---------
Net realized and unrealized gains on
investments ............................... $ 387 $-- $ 2,051
------ --- ---------
Increase in net assets from operations ..... $1,213 $-- $ 9,277
====== === =========
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................... $ 24 $-- $ 39 $--
Dividends ................................... 75 $ 2 $ 119 $--
------ --- ------ ---
Total investment income ................... $ 99 $ 2 $ 158 $--
Expenses ..................................... 369 2 628 --
------ --- ------ ---
Net investment loss ...................... . $ (270) $-- $ (470) $--
------ --- ------ ---
Realized and unrealized gains (losses) on
investments:
Net realized gains ......................... $2,418 $23 $3,902 $13
Net unrealized gains (losses) .............. 1,710 9 2,437 (1)
------ --- ------ ---
Net realized and unrealized gains (losses)
on investments .............................. $4,128 $32 $6,339 $12
------ --- ------ ---
Increase (decrease) in net assets from
operations .................................. $3,858 $32 $5,869 $12
====== === ====== ===
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................... $ 26 $ -- $ 89
Dividends ................................... $ 76 $ -- $ 272
------ ----- --------
Total investment income ................... $ 102 $ -- $ 361
Expenses ..................................... 368 -- 1,367
------ ----- --------
Net investment loss ........................ $ (266) $ -- $ (1,006)
------ ----- --------
Realized and unrealized gains (losses) on
investments:
Net realized gains ......................... $2,280 $ 3 $ 8,639
Net unrealized gains (losses) .............. 1,568 (62) 5,661
------ ----- --------
Net realized and unrealized gains (losses)
on investments .............................. $3,848 $ (59) $ 14,300
------ ----- --------
Increase (decrease) in net assets from
operations .................................. $3,582 $ (59) $ 13,294
====== ===== ========
</TABLE>
70
<PAGE>
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest ................................... $2,125 $ 34 $518 $--
------ ---- ---- ---
Total investment income .................. $2,125 $ 34 $518 $--
Expenses .................................... 720 4 184 --
------ ---- ---- ---
Net investment income ..................... $1,405 $ 30 $334 $--
------ ---- ---- ---
Realized and unrealized gains (losses) on
investments ................................ $ 5 $ (5) $ -- $--
------ ---- ---- ---
Increase in net assets from operations ...... $1,410 $ 25 $334 $--
====== ==== ==== ===
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest ................................... $519 $-- $3,196
---- --- ------
Total investment income .................. $519 $-- $3,196
Expenses .................................... 171 -- 1,079
---- --- ------
Net investment income ..................... $348 $-- $2,117
---- --- ------
Realized and unrealized gains (losses) on
investments ................................ $ -- $-- $ --
---- --- ------
Increase in net assets from operations ...... $348 $-- $2,117
==== === ======
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 1,753 $ 35 $ 1,690 $ 4
Dividends ................................. 794 16 768 2
-------- ----- -------- ---
Total investment income ................. $ 2,547 $ 51 $ 2,458 $ 6
Expenses ................................... 1,240 10 1,285 1
-------- ----- -------- ---
Net investment income .................... $ 1,307 $ 41 $ 1,173 $ 5
-------- ----- -------- ---
Realized and unrealized gains on
investments:
Net realized gains ....................... $ 10,356 $ 207 $ 10,027 $23
Net unrealized (losses) .................. (2,313) (44) (2,113) (1)
-------- ----- -------- ---
Net realized and unrealized gains on
investments ............................... $ 8,043 $ 163 $ 7,914 $22
-------- ----- -------- ---
Increase in net assets from operations ..... $ 9,350 $ 204 $ 9,087 $27
======== ===== ======== ===
<CAPTION>
Total Return Variable Account
-------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 1,221 $ 3 $ 4,706
Dividends ................................. 550 1 2,131
--------- --- --------
Total investment income ................. $ 1,771 $ 4 $ 6,837
Expenses ................................... 861 1 3,398
--------- --- --------
Net investment income .................... $ 910 $ 3 $ 3,439
--------- --- --------
Realized and unrealized gains on
investments:
Net realized gains ....................... $ 7,175 $16 $ 27,804
Net unrealized (losses) .................. (1,760) (3) (6,234)
--------- --- --------
Net realized and unrealized gains on
investments ............................... $ 5,415 $13 $ 21,570
--------- --- --------
Increase in net assets from operations ..... $ 6,325 $16 $ 25,009
========= === ========
</TABLE>
71
<PAGE>
Notes to Financial Statements -- continued
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................... $ 199 $ 2 $ 221 $ 1
------ ---- ------ ----
Total investment income ................... $ 199 $ 2 $ 221 $ 1
Expenses ..................................... 83 -- 88 --
------ ---- ------ ----
Net investment income ...................... $ 116 $ 2 $ 133 $ 1
------ ---- ------ ----
Realized and unrealized gains (losses) on
investments:
Net realized losses ........................ $ 77 $ 1 $ 87 $ --
Net unrealized (losses) .................... (122) (1) (144) (1)
------ ----- ------ -----
Net realized and unrealized gains (losses)
on investments .............................. $ (45) $ -- $ (57) $ (1)
------ ---- ------ ----
Increase in net assets from operations ....... $ 71 $ 2 $ 76 $ --
====== ==== ====== ====
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................... $ 203 $ 2 $ 628
------ ---- ------
Total investment income ................... $ 203 $ 2 $ 628
Expenses ..................................... 80 -- 251
------ ---- ------
Net investment income ...................... $ 123 $ 2 $ 377
------ ---- ------
Realized and unrealized gains (losses) on
investments:
Net realized losses ........................ $ 69 $ 1 $ 235
Net unrealized (losses) .................... (127) (1) (396)
------ ----- ------
Net realized and unrealized gains (losses)
on investments .............................. $ (58) $ -- $ (161)
------ ---- ------
Increase in net assets from operations ....... $ 65 $ 2 $ 216
====== ==== ======
</TABLE>
(11) Line of Credit
The Accounts and other affiliated funds participate in a $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Account shares. Interest is charged to each Account, based on its borrowings,
at a rate equal to the bank's base rate. In addition, a commitment fee based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter.
72
<PAGE>
Independent Auditors' Report
To the Participants in and the Board of Managers of Capital Appreciation
Variable Account, Government Securities Variable Account, High Yield Variable
Account, Managed Sectors Variable Account, Money Market Variable Account, Total
Return Variable Account, and World Governments Variable Account and the Board of
Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Capital Appreciation Variable
Account, Government Securities Variable Account, High Yield Variable Account,
Managed Sectors Variable Account, Money Market Variable Account, Total Return
Variable Account, and World Governments Variable Account (the "Variable
Accounts") as of June 30, 1998, the related statements of operations for the
six month period then ended, the statements of changes in net assets for the
six month period ended June 30, 1998 and the year ended December 31, 1997 and
the per unit and other data for the six month period ended June 30, 1998, and
each of the years in the five-years 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 June 30, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and per unit and other data present
fairly, in all material respects, the financial position of the Variable
Accounts at June 30, 1998, the results of their operations, the changes in
their net assets, and their per unit and other data for each of the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 7, 1998
--------------------------------
This Compass semiannual report is prepared for the general information of
contract owners. It is authorized for distribution to prospective purchasers
only when preceded by an effective prospectus.
73
<PAGE>
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-3 8/98 96.5M
