Dear Variable Annuity Owner:
The U.S. stock market has continued its unprecedented run of exceptional
performance, with double digit returns for the first six months of 1999.
Emerging international markets have come roaring back after some rough going in
1998 and the more established international markets, like those in Europe, also
saw positive returns in the first half of 1999. Results in the subaccounts of
MEMBERS(R) Variable Annuity reflect these market forces:
Percent change
in Unit Value from
Subaccount 12/31/98 through 6/30/99
- --------------------------------------------------------------------------------
Money Market 1.62%
Bond (1.02)%
Balanced 9.46%
Growth and Income Stock 19.77%
Capital Appreciation Stock 12.05%
International Stock 3.05%
- --------------------------------------------------------------------------------
Global Governments (3.58)%
Emerging Growth 12.03%
High Income 3.13%
Developing Markets 41.97%
The Mid-Cap Stock subaccount was added May 1, 1999. The percent change in unit
price from that date through June 30, 1999 was 4.50%.
This booklet is divided into several sections. Each section contains the
semiannual report for a component of the MEMBERS(R) Variable Annuity. The first
section contains the following reports for the CUNA Mutual Life Variable Annuity
Account:
Statements of Assets and Liabilities ....................... page 2
Statements of Operations ................................... page 4
Statements of Changes in Net Assets......................... page 5
Notes to the Financial Statements .......................... page 8
The CUNA Mutual Life Variable Annuity Account invests in mutual funds. The
returns shown above reflect the deduction of the separate account level charges.
Returns at the separate account level shown above are slightly lower than at the
mutual fund level as a result of these charges.
The remaining sections of this booklet cover the mutual funds and include
discussions of the funds' results and the managers' outlooks for (1) the Ultra
Series Fund which includes the Money Market Fund, Bond Fund, Balanced Fund,
Growth and Income Stock Fund, Capital Appreciation Stock Fund, and Mid-Cap Stock
Fund, (2) the International Stock Portfolio of the T. Rowe Price International
Series, Inc.; (3) the MFS(R) Global Governments SeriesSM and the MFS(R) Emerging
Growth SeriesSM of the MFS(R) Variable Insurance TrustSM, (4) the Oppenheimer
High Income Fund of the Oppenheimer Variable Account Funds; and (5) the
Templeton Developing Markets Fund of the Templeton Variable Products Series
Fund.
We appreciate the confidence you place in our company and our products. We look
forward to serving your long term asset accumulation needs through MEMBERS(R)
Variable Annuity. Thank you for giving us that opportunity.
Sincerely,
/s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA Mutual Life Insurance Company
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities
June 30, 1999
(Unaudited)
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ---------- ----------
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund,
30,709,803 shares at net asset value of
$1.00 per share (cost $30,709,803) $30,709,803 $ -- $ -- $ -- $ -- $ --
Bond Fund,
6,777,776 shares at net asset value of
$10.40 per share (cost $71,483,091) -- 70,487,388 -- -- -- --
Balanced Fund,
18,124,646 shares at net asset value of
$20.53 per share (cost $301,905,800) -- -- 372,110,234 -- -- --
Growth and Income Stock Fund,
15,339,065 shares at net asset value of
$36.60 per share (cost $374,860,175) -- -- -- 561,348,872 -- --
Capital Appreciation Stock Fund,
9,977,696 shares at net asset value of
$25.00 per share (cost $163,619,065) -- -- -- -- 249,449,157 --
Mid-Cap Stock Fund,
186,293,329 shares at net asset value of
$10.47 per share (cost 1,874,625) -- -- -- -- -- 1,950,407
---------- ---------- ---------- ---------- ---------- ---------
Total assets 30,709,803 70,487,388 372,110,234 561,348,872 249,449,157 1,950,407
---------- ---------- ---------- ---------- ---------- ---------
Liabilities:
Accrued adverse mortality and
expense charges 34,737 77,940 409,279 613,967 274,946 1,408
Other accrued expenses 4,169 9,353 49,113 73,676 32,993 169
---------- ---------- ---------- ---------- ---------- ---------
Total liabilities 38,906 87,293 458,392 687,643 307,939 1,577
---------- ---------- ---------- ---------- ---------- ---------
Net assets $30,670,897 $70,400,095 $371,651,842 $560,661,229 $249,141,218 $1,948,830
========== ========== ========== ========== ========== =========
Contract owners' equity:
Contracts in accumulation period 30,660,283 70,393,895 371,465,713 560,296,094 249,095,833 1,948,830
Contracts in annuity payment period
(note 2) 10,614 6,200 186,129 365,135 45,385 --
---------- ---------- ---------- ---------- ---------- ---------
Total contract owners' equity 30,670,897 70,400,095 371,651,842 560,661,229 249,141,218 1,948,830
========== ========== ========== ========== ========== =========
Total units outstanding
(note 5 and note 6) 2,576,113 5,558,747 20,205,265 20,205,839 9,300,235 186,569
========== ========== ========== ========== ========== =========
Net asset value per unit $11.91 $12.66 $18.39 $27.75 $26.79 $10.45
========== ========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities
June 30, 1999
(Unaudited)
International Global Emerging High Developing
Stock Governments Growth Income Markets
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
<S> <C> <C> <C> <C> <C>
Investments in T. Rowe Price
International Fund, Inc.:
International Stock Portfolio,
4,949,301shares at net asset value of
$15.07 per share (cost $61,683,061) $74,585,973 $ -- $ -- $ -- $ --
Investments in MFS(R) Variable
Insurance TrustSM:
Global Governments Series,
1,240,336 shares at net asset value of
$9.99 per share (cost $12,773,759) -- 12,390,963 -- -- --
Investments in MFS(R) Variable
Insurance TrustSM:
Emerging Growth Series,
4,170,945shares at net asset value of
$24.22 per share (cost $66,195,766) -- -- 101,020,304 -- --
Investments in Oppenheimer
Variable Account Funds:
High Income Series,
4,427,923 shares at net asset value of
$10.67 per share (cost $49,689,416) -- -- -- 47,245,935 --
Investments in Templeton
Variable Products Series Fund:
Developing Markets Series,
931,194shares at net asset value of
$7.21 per share (cost $6,534,134) -- -- -- -- 6,713,912
---------- ---------- ---------- ---------- ---------
Total assets 74,585,973 12,390,963 101,020,304 47,245,935 6,713,912
---------- ---------- ---------- ---------- ---------
Liabilities
Accrued adverse mortality and
expense charges 83,897 13,965 108,205 53,004 18,967
Other accrued expenses 10,068 1,676 12,985 6,360 2,276
---------- ---------- ---------- ---------- ---------
Total liabilities 93,965 15,641 121,190 59,364 21,243
---------- ---------- ---------- ---------- ---------
Net assets $74,492,008 $12,375,322 $100,899,114 $47,186,571 $6,692,669
========== ========== ========== ========== =========
Contract owners' equity:
Contracts in accumulation period
(note 6) 74,463,755 12,373,295 100,856,497 47,159,834 6,692,669
Contracts in annuity payment period
(note 2) 28,253 2,027 42,617 26,737 --
---------- ---------- ---------- ---------- ----------
Total contract owners' equity 74,492,008 12,375,322 100,899,114 47,186,571 6,692,669
========== ========== ========== ========== ==========
Total units outstanding
(note 5 and note 6) 5,014,648 1,067,732 5,615,402 4,211,149 911,774
========== ========== ========== ========== =========
Net asset value per unit $14.85 $11.59 $17.97 $11.21 $7.34
========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Operations
June 30, 1999
(Unaudited)
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $635,863 $931,420 $2,143,160 $1,421,957 $69,686 $ --
Adverse mortality and expense charges
(note 3) (177,472) (398,505) (2,064,180) (3,038,778) (1,387,950) (1,704)
Administrative charges (21,297) (47,820) (247,701) (364,653) (166,554) (205)
---------- ---------- ---------- --------- --------- ---------
Net investment income (loss) 437,094 485,095 (168,721) (1,981,474) (1,484,818) (1,909)
---------- ---------- ---------- --------- --------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- 933 -- 1,948,559 122,548 --
Proceeds from sale of securities 18,276,851 813,278 1,485,552 2,714,109 1,688,982 144,205
Cost of securities sold (18,276,851) (810,339) (1,227,183) (1,932,093) (1,157,050) (66,424)
---------- ---------- ---------- --------- --------- ---------
Net realized gain (loss) on security
transactions -- 3,872 258,369 2,730,575 654,480 77,781
Net change in unrealized appreciation
or depreciation on investments -- (1,116,569) 30,093,271 88,164,498 26,716,549 75,782
---------- ---------- ---------- --------- --------- ---------
Net gain (loss) on investments -- (1,112,697) 30,351,640 90,895,073 27,371,029 153,563
---------- ---------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $437,094 ($627,602) $30,182,919 $88,913,599 $25,886,211 $151,654
========== ========== ========== ========= ========= =========
International World Emerging High Developing
Stock Governments Growth Income Markets
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
Dividend income $ -- $704,569 $ -- $2,912,591 $59,822
Adverse mortality and expense charges
(note 3) (449,083) (79,842) (557,798) (271,040) (32,968)
Administrative charges (53,890) (9,581) (66,936) (32,525) (3,956)
--------- -------- ---------- -------- --------
Net investment income (loss) (502,973) 615,146 (624,734) 2,609,026 22,898
--------- -------- ---------- -------- --------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- --
Proceeds from sale of securities 2,113,757 880,914 1,001,181 642,477 350,625
Cost of securities sold (1,776,573) (855,578) (681,232) (667,874) (414,961)
--------- -------- ---------- -------- --------
Net realized gain (loss) on security
transactions 337,184 25,336 319,949 (25,397) (64,336)
Net change in unrealized appreciation
or depreciation on investments 2,396,006 (1,099,156) 10,785,692 (1,363,678) 1,993,593
--------- -------- ---------- -------- --------
Net gain (loss) on investments 2,733,190 (1,073,820) 11,156,641 (1,389,075) 1,929,257
--------- -------- ---------- -------- --------
Net increase (decrease) in net assets
resulting from operations $2,230,217 ($458,674) $10,480,907 $1,219,951 $1,952,155
========= ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Six Months Ended June 30, 1999 and the Year Ended December 31, 1998
(Unaudited)
MONEY MARKET SUBACCOUNT BOND SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) $437,094 $703,868 $485,095 $2,254,028
Net realized gain (loss) on
security transactions -- -- 3,872 57,978
Net change in unrealized appreciation
or depreciation on investments -- -- (1,116,569) (318,903)
----------- ----------- ----------- -----------
Change in net assets from operations 437,094 703,868 (627,602) 1,993,103
----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sales of units 50,814,862 94,301,939 36,076,211 54,431,468
Cost of units repurchased (47,322,102) (85,815,933) (23,275,863) (31,471,803)
Actuarial adjustments for mortality
experience on annuities in payment period 169 -- 525 --
Annuity benefit payments (392) (376) (72) --
----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions 3,492,537 8,485,630 12,800,801 22,959,665
----------- ----------- ----------- -----------
Increase (decrease) in net assets 3,929,631 9,189,498 12,173,199 24,952,768
Net assets:
Beginning of period 26,741,266 17,551,768 58,226,896 33,274,128
----------- ----------- ----------- -----------
End of period $30,670,897 $26,741,266 $70,400,095 $58,226,896
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) ($168,721) $4,495,569 ($1,981,474) ($729,501)
Net realized gain (loss) on
security transactions 258,369 301,386 2,730,575 16,746,571
Net change in unrealized appreciation
or depreciation on investments 30,093,271 22,339,305 88,164,498 36,859,343
----------- ----------- ---------- ----------
Change in net assets from operations 30,182,919 27,136,260 88,913,599 52,876,413
----------- ----------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 128,447,479 201,714,553 153,824,245 259,442,954
Cost of units repurchased (84,436,473) (116,470,212) (112,324,223) (164,894,635)
Actuarial adjustments for mortality
experience on annuities in payment period 188,062 4,797 358,912 21,919
Annuity benefit payments (7,764) (5,344) (16,511) (15,863)
----------- ----------- ---------- ----------
Change in net assets from capital
unit transactions 44,191,304 85,243,794 41,842,423 94,554,375
----------- ----------- ---------- ----------
Increase (decrease) in net assets 74,374,223 112,380,054 130,756,022 147,430,788
Net assets:
Beginning of period 297,277,619 184,897,565 429,905,207 282,474,419
----------- ----------- ---------- ----------
End of period $371,651,842 $297,277,619 $560,661,229 $429,905,207
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Six Months Ended June 30, 1999 and the Year Ended December 31, 1998
(Unaudited)
CAPITAL APPRECIATION STOCK SUBACCOUNT MID-CAP STOCK SUBACCOUNT
<S> <C> <C> <C>
Operations: 1999 1998 1999*
---- ---- -----
Net investment income (loss) ($1,484,818) ($1,822,377) $(1,909)
Net realized gain (loss) on
security transactions 654,480 5,406,078 77,781
Net change in unrealized appreciation
or depreciation on investments 26,716,549 26,215,883 75,782
---------- ---------- ----------
Change in net assets from operations 25,886,211 29,799,584 151,654
---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sales of units 85,476,285 144,718,325 1,816,962
Cost of units repurchased (67,605,194) (104,156,130) (19,786)
Actuarial adjustments for mortality
experience on annuities in payment period 43,976 934 --
Annuity benefit payments (1,801) (865) --
---------- ---------- ----------
Change in net assets from capital
unit transactions 17,913,266 40,562,264 1,797,176
---------- ---------- ----------
Increase (decrease) in net assets 43,799,477 70,361,848 1,948,830
Net assets:
Beginning of period 205,341,741 134,979,893 --
---------- ---------- ----------
End of period $249,141,218 $205,341,741 $1,948,830
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL STOCK SUBACCOUNT GLOBALGOVERNMENTS SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) ($502,973) $217,383 $615,146 ($20,398)
Net realized gain (loss) on
security transactions 337,184 179,367 25,336 26,108
Net change in unrealized appreciation
or depreciation on investments 2,396,006 7,712,376 (1,099,156) 812,043
---------- ---------- ---------- ----------
Change in net assets from operations 2,230,217 8,109,126 (458,674) 817,753
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 36,116,187 69,558,237 6,442,451 12,632,836
Cost of units repurchased (35,271,468) (61,390,267) (6,842,652) (14,130,975)
Actuarial adjustments for mortality
experience on annuities in payment period 67 362 9 160
Annuity benefit payments (1,246) (481) (95) (31)
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 843,540 8,167,851 (400,287) (1,498,010)
---------- ---------- ---------- ----------
Increase (decrease) in net assets 3,073,757 16,276,977 (858,961) (680,257)
Net assets:
Beginning of period 71,418,251 55,141,274 13,234,283 13,914,540
---------- ---------- ---------- ----------
End of period $74,492,008 71,418,251 $12,375,322 $13,234,283
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
*The data is for the period beginning May 1, 1999 (date of initial activity).
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Six Months Ended June 30, 1999 and Year Ended December 31, 1998
(Unaudited)
EMERGING GROWTH SUBACCOUNT HIGH INCOME SUBACCOUNT
<S> <C> <C> <C> <C>
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) ($624,734) ($360,514) $2,609,026 $522,625
Net realized gain (loss) on
security transactions 319,949 201,695 (25,397) (32,367)
Net change in unrealized appreciation
or depreciation on investments 10,785,692 17,967,979 (1,363,678) (1,183,574)
---------- --------- --------- ---------
Change in net assets from operations 10,480,907 17,809,160 1,219,951 (693,316)
---------- --------- --------- ---------
Capital unit transactions (note 5):
Proceeds from sales of units 42,298,021 66,116,408 20,676,678 40,076,476
Cost of units repurchased (33,573,187) (47,709,272) (13,417,468) (14,247,012)
Actuarial adjustments for mortality
experience on annuities in payment period 120 1,367 1,040 596
Annuity benefit payments (1,602) (854) (925) (532)
---------- --------- --------- ---------
Change in net assets from capital
unit transactions 8,723,352 18,407,649 7,259,325 25,829,528
---------- --------- --------- ---------
Increase (decrease) in net assets 19,204,259 36,216,809 8,479,276 25,136,212
Net assets:
Beginning of period 81,694,855 45,478,046 38,707,295 13,571,083
---------- --------- --------- ---------
End of period $100,899,114 $81,694,855 $47,186,571 $38,707,295
========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DEVELOPING MARKETS SUBACCOUNT
<S> <C> <C>
Operations: 1999 1998
---- ----
Net investment income (loss) $22,898 $28,189
Net realized gain (loss) on
security transactions (64,336) (254,209)
Net change in unrealized appreciation
or depreciation on investments 1,993,593 (665,933)
---------- ---------
Change in net assets from operations 1,952,155 (891,953)
---------- ---------
Capital unit transactions (note 5):
Proceeds from sales of units 1,994,867 4,921,625
Cost of units repurchased (1,748,005) (2,583,701)
Actuarial adjustments for mortality
experience on annuities in payment period -- --
Annuity benefit payments -- --
---------- ---------
Change in net assets from capital
unit transactions 246,862 2,337,924
---------- ---------
Increase (decrease) in net assets 2,199,017 1,445,971
Net assets:
Beginning of period 4,493,652 3,047,681
---------- ---------
End of period $6,692,669 $4,493,652
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements
(1) Organization
The CUNA Mutual Life Variable Annuity Account (the Variable Account) is a
unit investment trust registered under the Investment Company Act of 1940
with the Securities and Exchange Commission (SEC). The Variable Account was
established as a separate investment account within CUNA Mutual Life
Insurance Company (the Company) to receive and invest net premiums paid
under variable annuity contracts (Contracts).
Although the assets in the Variable Account are the property of the
Company, the assets in the Variable Account attributable to the Contracts
are not chargeable with liabilities arising out of any other business which
the Company may conduct. The assets of the Variable Account are available
to cover the general liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising under the
Contracts. The Company has the right to transfer to the general account any
assets of the Variable Account which are in excess of reserves and other
contract liabilities. All obligations arising under the Contracts are
general corporate obligations of the Company.
(2) Significant Accounting Policies
Investments
The Variable Account currently is divided into eleven subaccounts but may,
in the future, include additional subaccounts. Each subaccount invests
exclusively in shares of a single underlying fund. (The term fund is used
to mean an investment portfolio sometimes called a fund, i.e., Ultra Series
Fund (Class Z shares), T. Rowe Price International Fund, Inc., MFS(R)
Variable Insurance TrustSM,* Oppenheimer Variable Account Funds, Templeton
Variable Products Series Fund, or any other open-end management investment
company or unit investment trust in which a subaccount invests.) The
income, gains and losses, realized or unrealized, from the assets allocated
to each subaccount are credited to or charged against that subaccount
without regard to income, gains or losses from any other subaccount.
The Variable Account invests in shares of Ultra Series Fund, T. Rowe Price
International Fund, Inc., MFS(R) Variable Insurance TrustSM,* Oppenheimer
Variable Account Funds, and Templeton Variable Products Series Fund. Each
is a management investment company of the series type with one or more
funds. Each is registered with the SEC as an open-end, management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the companies or their
funds by the SEC.
The Ultra Series Fund currently has six funds available as investment
options under the Contracts, the T. Rowe Price International Series, Inc.
has one fund available as an investment option under the Contracts, the MFS
Variable Insurance Trust has two funds available as investment options
under the Contracts, the Oppenheimer Variable Account Funds has one fund
available as an investment option under the Contracts and the Templeton
Variable Products Series Fund has one fund available as an investment
option under the Contracts. The Ultra Series Fund, MFS Variable Insurance
Trust, Oppenheimer Variable Account Funds and Templeton Variable Products
Series Fund also have other funds that are not available under the
Contracts. All five investment companies may, in the future, create
additional funds or classes that may or may not be available as investment
options under the Contracts. Each fund has its own investment objective and
the income, gains and losses for each fund are determined separately for
that fund or class.
CIMCO Inc. (CIMCO) serves as the Investment Adviser to the Ultra Series
Fund and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
The Company owns one half of CIMCO's outstanding stock and one half is
owned indirectly by CUNA Mutual Insurance Society. CIMCO has entered into a
Subadvisor Agreement for the management of a portion of the investments in
the Mid-Cap Stock Fund. CIMCO is solely responsible for the payment of all
fees to the Subadvisor. The Subadvisor for this Fund is Heartland Advisors,
Inc.
Rowe Price-Fleming International, Inc. (RPFI) serves as the Investment
Adviser to the International Stock Portfolio and manages its assets in
accordance with general policies and guidelines established by the board of
directors of T. Rowe Price International Fund, Inc. RPFI was founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited.
Massachusetts Financial Services Company (MFS) serves as the Investment
Adviser to the MFS Global Governments Series and Emerging Growth Series and
manages its assets in accordance with general policies and guidelines
established by the board of trustees of MFS(R) Variable Insurance TrustSM.
MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which,
in turn, is a subsidiary of Sun Life Assurance Company of Canada.
OppenheimerFunds, Inc. (Oppenheimer) serves as the investment adviser to
the Oppenheimer High Income Fund and manages its assets in accordance with
general policies and guideline established by the board of trustees of the
Oppenheimer Variable Account Funds. Oppenheimer is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by senior
officers of Oppenheimer and controlled by Massachusetts Mutual Life
Insurance Company.
<PAGE>
Templeton Asset Management Ltd. (Templeton) serves as the investment
adviser to the Templeton Developing Markets Fund: Class 2 and manages its
assets and makes its investment decisions. Templeton is a Singapore
corporation wholly owned by Franklin Resources, Inc., a publicly owned
company. Resources' principal shareholders are Charles B. Johnson and
Rupert H. Johnson, Jr.
The assets of each fund are held separate from the assets of the other
funds, and each fund is offered at a price equal to its respective net
asset value per share, without sales charge. Dividends and capital gain
distributions from each fund are reinvested in that fund. Investments in
shares of the funds are stated at market value which is the net asset value
per share as determined by the funds. Realized gains and losses from
security transactions are reported on an average cost basis. Dividend
income is recorded on the ex-dividend date.
Federal Income Taxes
Currently, no charge is made against the Variable Account for any federal,
state or local taxes (other than premium taxes) that the Company incurs or
that may be attributable to the Variable Account or the Contracts. The
Company may, however, make such a charge in the future from surrender
value, death benefits or annuity payments, as appropriate. Such taxes may
include taxes (levied by any government entity) which the Company
determines to have resulted from: (1) the establishment or maintenance of
the Variable Account, (2) receipt by the Company of purchase payments, (3)
issuance of the Contracts, or (4) the payment of annuity payments.
Annuity Reserves
Annuity reserves are computed for contracts in the payout stage according
to the 1983a Individual Annuitant Mortality Table. The assumed investment
return is 3.5% unless the annuitant elects otherwise, in which case the
rate may vary from 3.5% to 7%, as regulated by the laws of the respective
states. The mortality risk is fully borne by the Company and may result in
additional amounts being transferred into the variable annuity account by
the Company to cover greater longevity of annuitants than expected.
Conversely, if reserves exceed amounts required, transfers may be made to
the insurance company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
(3) Fees and Charges
Organization Costs
The Company absorbed all organization expenses of the Variable Account.
Contract Charges
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expenses is deducted from purchase payments at the time purchase payments
are paid. However, a surrender charge is deducted upon surrender or partial
withdrawal of purchase payments within 7 years of their being paid and, in
certain circumstances, upon payment of a death benefit or the election of
certain annuity payment options.
For purchase payments withdrawn or surrendered within one year of having
been paid, the charge is 7% of the amount of the payment withdrawn or
surrendered. For each purchase payment, the surrender charge decreases by
1% for each full year that has elapsed since the payment was made. No
surrender charge is assessed upon the withdrawal or surrender of the
contract value in excess of aggregate purchase payments or on purchase
payments made more than 7 years prior to the withdrawal or surrender.
Subject to certain restrictions for the first partial withdrawal (or
surrender) in each contract year, an amount equal to 10% of aggregate
purchase payments subject to a surrender charge (as of the time of
withdrawal or surrender) may be surrendered without a surrender charge. The
surrender charge also may be waived in certain circumstances as provided in
the Contracts.
Annual Contract Fee. On each contract anniversary (or upon surrender of the
Contract) prior to the annuity date, the Company deducts an annual contract
fee of $30 from the variable contract value. After the annuity date, the
Company deducts this fee from variable annuity payments. A pro-rated
portion of the fee is deducted upon annuitization of a Contract except on a
contract anniversary.
Transfer Fee. No charge is made for transfers, however, the Company
reserves the right to charge $10 for the 13th and each subsequent transfer
during a Contract year.
<PAGE>
Premium Taxes. If state or other premium taxes are applicable to a
Contract, they will be deducted either: (a) from purchase payments as they
are received, (b) from contract value upon surrender or partial withdrawal,
(c) upon application of adjusted contract value to an annuity payment
option, or (d) upon payment of a death benefit. The Company, however,
reserves the right to deduct premium taxes at the time it pays such taxes.
Variable Account Charges
Mortality and Expense Risk Charge. The Company deducts a daily mortality
and expense risk charge to compensate it for assuming certain mortality and
expense risks. The charge is deducted from the assets of the Variable
Account at an annual rate of 1.25% (approximately 0.85% for mortality risk
and 0.40% for expense risks).
Asset-Based Administration Charge. The Company deducts a daily
administration charge to compensate it for certain expenses it incurs in
administration of the Contract. The charge is deducted from the assets of
the Variable Account at an annual rate of 0.15%.
(4) Investment Transactions
The cost of shares purchased, including reinvestment of dividend
distributions, during the six months ended June 30, 1999, was as follows:
Money Market Fund................................ $22,235,465
Bond Fund........................................ 14,165,247
Balanced Fund.................................... 45,854,030
Growth and Income Stock Fund..................... 45,048,034
Capital Appreciation Stock Fund.................. 18,471,277
Mid-Cap Stock Fund............................... 1,941,049
International Stock Portfolio.................... 2,521,071
Global Governments Series........................ 1,106,372
Emerging Growth.................................. 9,190,143
High Income Fund................................. 10,555,481
Developing Markets Fund.......................... 639,914
-----------
$171,728,083
===========
(5) Accumulation Unit Activity from Contract Transactions
Transactions in accumulation units of each subaccount of the Variable
Account for the six months ended June 30, 1999, were as follows:
<TABLE>
<CAPTION>
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
Units for contracts in accumulation period:
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1997 1,551,829 2,725,770 12,307,622 14,176,543 6,732,473 --
Units sold 8,182,107 4,340,906 12,798,228 12,089,141 6,677,476 --
Units repurchased (7,453,252) (2,512,411) (7,416,771) (7,720,616) (4,825,290) --
--------- --------- --------- --------- -------- --------
Units outstanding at December 31, 1998 2,280,684 4,554,265 17,689,079 18,545,068 8,584,659 --
Units sold 4,298,356 2,829,160 7,299,907 6,076,029 3,407,480 188,536
Units repurchased (4,002,859) (1,825,169) (4,793,138) (4,428,070) (2,693,618) (1,967)
--------- --------- --------- --------- --------- --------
Units outstanding at June 30, 1999 2,576,181 5,558,256 20,195,848 20,193,027 9,298,521 186,569
========= ========= ========= ========= ========= ========
Units for annuitizeed contracts:
Units outstanding at December 31, 1997 -- -- 3,394 9,339 248 --
Units sold 88 -- 2,810 2,286 1,575 --
Units repurchased (33) -- (340) (736) (40) --
--------- --------- --------- --------- --------- --------
Units outstanding at December 31, 1998 55 -- 5,864 10,889 1,783 --
--------- --------- --------- --------- --------- --------
Units sold 19 497 14,179 15,823 1,710 --
Units repurchased (142) (6) (10,626) (13,900) (1,779) --
--------- --------- --------- --------- --------- --------
Units outstanding at June 30, 1999 (68) 491 9,417 12,812 1,714 --
--------- --------- --------- --------- --------- --------
Total units outstanding June 30, 1999 2,576,113 5,558,747 20,205,265 20,205,839 9,300,235 186,569
========= ========= ========= ========= ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
International Global Emerging High Developing
Stock Governments Growth Income Markets
Units for contracts in accumulation period: Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1997 4,373,475 1,232,126 3,752,045 1,234,868 458,727
Units sold 5,085,363 1,096,047 4,843,927 3,628,184 896,126
Units repurchased (4,503,868) (1,227,198) (3,503,276) (1,303,313) (486,052)
--------- --------- --------- --------- -------
Units outstanding at December 31, 1998 4,954,970 1,100,975 5,092,696 3,559,739 868,801
Units sold 2,485,765 543,254 2,517,632 1,851,669 338,808
Units repurchased (2,427,037) (576,677) (1,996,377) (1,202,671) (295,835)
--------- --------- --------- --------- -------
Units outstanding at June 30, 1999 5,013,698 1,067,552 5,613,951 4,208,737 911,774
========= ========= ========= ========= =======
Units for annuitizeed contracts:
Units outstanding at December 31, 1997 -- -- 1,491 -- --
Units sold 1,061 190 110 1,614 --
Units repurchased (35) (3) (61) (48) --
--------- --------- --------- --------- ---------
Units outstanding at December 31, 1998 1,026 187 1,540 1,566 --
--------- --------- --------- --------- ---------
Units sold 10 1 8 930 --
Units repurchased (86) (8) (97) (84) --
--------- --------- --------- --------- ---------
Units outstanding at June 30, 1999 950 180 1,451 2,412 --
--------- --------- --------- --------- ---------
Total units outstanding June 30, 1999 5,014,648 1,067,732 5,615,402 4,211,149 911,774
========= ========= ========= ========= =========
</TABLE>
(6) Condensed Financial Information
The table below gives per unit information about the financial history of
each subaccount for each period.
<TABLE>
<CAPTION>
Money Market Bond Balanced Growth & Income
Subaccount Subaccount Subaccount Stock Subaccount
<S> <C> <C> <C> <C>
Unit value: 1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
Beginning of period $11.72 $11.31 $12.79 $12.21 $16.80 $15.02 $23.17 $19.91
End of period 11.91 11.72 12.66 12.79 18.39 16.80 27.75 23.17
Percentage increase in
unit value during period 1.62% 5.31% (1.02%) 3.69% 9.46% 22.44% 19.77% 39.38%
Number of units outstanding
at end of period 2,576,113 2,280,739 5,558,747 4,554,265 20,205,265 17,694,943 20,205,839 18,555,957
</TABLE>
<TABLE>
<CAPTION>
Capital Appreciation Mid-Cap International Global Governments
Stock Subaccount Stock Subaccount Stock Subaccount Subaccount
<S> <C> <C> <C> <C>
Unit value: 1999 1998 1999* 1999 1998 1999 1998
---- ---- ----- ---- ---- ---- ----
Beginning of period $23.91 $20.05 $10.00 $14.41 $12.61 $12.02 $11.29
End of period 26.79 23.91 10.45 14.85 14.41 11.59 12.02
Percentage increase in
unit value during period 12.05% 33.62% 4.50% 3.05% 17.76% (3.58%) 2.66%
Number of units outstanding
at end of period 9,300,235 8,586,442 186,569 5,014,648 4,955,996 1,067,732 1,101,162
</TABLE>
*1999 data is for the two-month period ended June 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
Emerging Growth High Income Developing Markets
Subaccount Subaccount Stock Subaccount
<S> <C> <C> <C>
Unit value: 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Beginning of period $16.04 $12.12 $10.87 $10.99 $5.17 $6.64
End of period 17.97 16.04 11.21 10.87 7.34 5.17
Percentage increase in
unit value during period 12.03% 48.27% 3.13% 2.00% 41.97% 10.54%
Number of units outstanding
at end of period 5,615,402 5,094,236 4,211,149 3,561,305 911,774 868,801
</TABLE>
For the Money Market Subaccount, the "seven-day average yield" for the fund
for the seven days ended June 30, 1999, was 3.1% and the "effective yield"
for the period was 3.2%.
