<PAGE>
Table of Contents
1 Separate Account Six Statement of Assets and Liabilities
4 Separate Account Six Statement of Operations
6 Separate Account Six Statement of Changes in Net Assets
8 Separate Account Six Notes to Financial Statements
9 Pegasus Statements of Assets and Liabilities
10 Pegasus Statements of Operations
11 Pegasus Statements of Changes in Net Assets
12 Pegasus Portfolio of Investments
29 Pegasus Notes to Financial Statements
34 Pegasus Financial Highlights
Variable annuity contracts are not bank deposits or obligations of, or endorsed
or guaranteed by, any bank, nor are they federally insured or otherwise
protected by the FDIC, the Federal Reserve Board, or any other agency; they are
subject to investment risks, including possible loss of the principal amount
invested.
HARTFORD
LIFE AND ANNUITY INSURANCE
COMPANY--SEPARATE ACCOUNT SIX
P.O. BOX 5085
Hartford, Connecticut 06100-5085
Telephone: 1-800-862-6668 (Contract Owners)
1-800-862-7155 (Investment
Representatives)
INVESTMENT ADVISER--PEGASUS
VARIABLE FUNDS
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0344
The Pegasus Pathmaker is a flexible Premium Variable Annuity issued by Hartford
Life and Annuity Insurance Company, Simsbury, CT (countrywide except for NY:
ILAVA94NC). The Pegasus Pathmaker Variable Annuity is underwritten by Hartford
Securities Distribution Company, Inc.
THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE
INVESTORS UNLESS PRECEDED
OR ACCOMPANIED BY A CURRENT
PROSPECTUS.
I
Pegasus Variable Funds
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PCM
U.S.
PCM GOVERNMENT
PCM PCM GLOBAL AND PCM PCM PCM PCM
GLOBAL GROWTH AND ASSET HIGH NEW MONEY DIVERSIFIED INTERNATIONAL
GROWTH INCOME ALLOCATION QUALITY OPPORTUNITIES MARKET INCOME GROWTH
FUND FUND FUND BOND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
PUTNAM VT GLOBAL
GROWTH FUND
Shares 52,219
Cost $ 839,855
Market Value $986,409 -- -- -- -- -- -- --
PUTNAM VT GROWTH
AND INCOME FUND
Shares 82,172
Cost $ 2,248,289
Market Value -- $2,251,510 -- -- -- -- -- --
PUTNAM VT GLOBAL
ASSET ALLOCATION
FUND
Shares 107,973
Cost $ 1,604,052
Market Value -- -- $1,991,013 -- -- -- -- --
PUTNAM VT U. S.
GOVERNMENT &
HIGH QUALITY
BOND FUND
Shares 59,803
Cost $ 761,382
Market Value -- -- -- $790,597 -- -- -- --
PUTNAM VT NEW
OPPORTUNITIES
FUND
Shares 276,818
Cost $ 5,521,518
Market Value -- -- -- -- $6,873,380 -- -- --
PUTNAM VT MONEY
MARKET FUND
Shares 895,866
Cost $ 895,866
Market Value -- -- -- -- -- $895,866 -- --
PUTNAM VT DIVER-
SIFIED INCOME
FUND
Shares 92,414
Cost $ 976,403
Market Value -- -- -- -- -- -- $1,011,004 --
PUTNAM VT INTER-
NATIONAL GROWTH
FUND
Shares 1,333,924
Cost $15,774,990
Market Value -- -- -- -- -- -- $18,261,422
Due from Hart-
ford Life and
Annuity Insur-
ance Company 409 1,613 348 1,748 7,702 1,750 1,751 16,509
Receivable from
fund shares sold -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 986,818 2,253,123 1,991,361 792,345 6,881,082 897,616 1,012,755 18,277,931
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Due to Hartford
Life and Annuity
Insurance Com-
pany -- -- -- -- -- -- -- --
Payable for fund
shares purchased 409 1,613 348 1,748 7,703 1,750 1,751 16,513
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabili-
ties $409 $1,613 $348 $1,748 $7,703 $1,750 $1,751 $16,513
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets
(variable annu-
ity contract li-
abilities) $986,409 $2,251,510 $1,991,013 $790,597 $6,873,379 $895,866 $1,011,004 $18,261,418
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
Pegasus Variable Funds
1
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PEGASUS PEGASUS PEGASUS
GROWTH MID-CAP PEGASUS INTRINSIC PEGASUS
AND VALUE OPPORTUNITY GROWTH VALUE BOND
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
PEGASUS GROWTH AND
VALUE FUND
Shares 2,929,382
Cost $43,658,193
Market Value $51,147,002 -- -- -- --
PEGASUS MID-CAP OPPOR-
TUNITY FUND
Shares 973,931
Cost $12,679,043
Market Value -- $14,920,627 -- -- --
PEGASUS GROWTH FUND
Shares 1,103,579
Cost $14,355,075
Market Value -- -- $20,294,818 -- --
PEGASUS INTRINSIC VALUE
FUND
Shares 1,564,938
Cost $17,320,341
Market Value -- -- -- $18,607,113 --
PEGASUS BOND FUND
Shares 4,484,724
Cost $46,096,680
Market Value -- -- -- -- $47,268,991
Due from Hartford Life
and Annuity Insurance
Company 50,967 13,343 18,295 19,962 54,695
Receivable from fund
shares sold -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Total Assets 51,197,969 14,933,970 20,313,113 18,627,075 47,323,686
- -------------------------------------------------------------------------------------------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company -- -- -- -- --
Payable for fund shares
purchased 41,230 13,363 15,052 19,973 54,695
- -------------------------------------------------------------------------------------------------
Total Liabilities 41,230 13,363 15,052 19,973 54,695
- -------------------------------------------------------------------------------------------------
Net Assets (variable
annuity contract lia-
bilities) $51,156,739 $14,920,607 $20,298,061 $18,607,102 $47,268,991
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
Pegasus Variable Funds
2
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
----------------------------------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULA-
TION PERIOD:
Group Sub-Accounts:
PCM Global Growth Fund Sub-Account........ 53,589 18.406930 $ 986,409
PCM Growth and Income Fund Sub-Account.... 177,097 12.697794 2,248,737
PCM Global Asset Allocation Fund Sub-Ac-
count.................................... 115,369 17.257826 1,991,013
PCM U.S. Government and High Quality Bond
Fund Sub-Account......................... 62,251 12.700147 790,597
PCM New Opportunities Fund Sub-Account.... 458,108 14.992989 6,868,404
PCM Money Market Fund Sub-Account......... 857,629 1.044584 895,866
PCM Diversified Income Fund Sub-Account... 77,893 12.979366 1,011,004
PCM International Growth Fund Sub-Account. 1,395,549 13.069579 18,239,240
Pegasus Growth and Value Fund Sub-Account. 2,771,108 18.442125 51,105,117
Pegasus Mid-Cap Opportunity Fund Sub-Ac-
count.................................... 831,503 17.928437 14,907,549
Pegasus Growth Fund Sub-Account........... 1,040,738 19.481510 20,275,146
Pegasus Intrinsic Value Fund Sub-Account.. 1,544,936 12.031471 18,587,856
Pegasus Bond Fund Sub-Account............. 4,271,866 11.055686 47,228,408
- --------------------------------------------------------------------------------
Total Accumulation Period:................. $185,135,344
- --------------------------------------------------------------------------------
ANNUITY CONTRACTS IN THE ANNUITY PERIOD:
Group Sub-Accounts:
PCM Growth and Income Fund Sub-Account.... 218 12.697794 $ 2,773
PCM New Opportunities Fund Sub-Account.... 332 14.992989 4,975
PCM International Growth Fund Sub-Account. 1,697 13.069579 22,178
Pegasus Growth and Value Fund Sub-Account. 2,799 18.442125 51,622
Pegasus Mid-Cap Opportunity Fund Sub-Ac-
count.................................... 728 17.928437 13,058
Pegasus Growth Fund Sub-Account........... 1,176 19.481510 22,915
Pegasus Intrinsic Value Fund Sub-Account.. 1,600 12.031471 19,246
Pegasus Bond Fund Sub-Account............. 3,671 11.055686 40,583
- --------------------------------------------------------------------------------
Total Annuity Period:...................... 177,352
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Grand Total:............................... $185,312,696
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
Pegasus Variable Funds
3
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PCM PCM PCM PCM PCM PCM PCM
PCM GROWTH GLOBAL ASSET U.S. GOVERNMENT NEW MONEY DIVERSIFIED INTERNATIONAL
GLOBAL GROWTH AND INCOME ALLOCATION & HIGH QUALITY OPPORTUNITIES MARKET INCOME GROWTH
FUND FUND FUND BOND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT IN-
COME:
Dividends $ 22,340 $ 28,411 $ 41,279 $39,895 $ -- $18,853 $39,335 $ -
EXPENSES:
Mortality and
expense under-
takings (6,097) (11,928) (13,390) (5,235) (40,064) (5,146) (6,459) (111,282)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment
income (loss) 16,243 16,483 27,889 34,660 (40,064) 13,707 32,876 (111,282)
CAPITAL GAINS IN-
COME 111,701 185,466 177,309 1,038 75,909 -- 16,707 -
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVEST-
MENTS:
Net realized
gain (loss) on
security trans-
actions 24 374 892 835 30,280 -- 31 96,943
Net unrealized
appreciation
(depreciation)
of
investments dur-
ing the period 28,421 (67,188) (30,224) (10,187) 894,391 -- (31,492) 2,716,714
- -----------------------------------------------------------------------------------------------------------------------------
Net gain (loss)
on investments 28,445 (66,814) (29,332) (9,352) 924,671 -- (31,461) 2,813,657
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets re-
sulting from op-
erations $156,389 $135,135 $175,866 $26,346 $960,516 $13,707 $18,122 $2,702,375
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Pegasus Variable Funds
4
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PEGASUS PEGASUS
GROWTH PEGASUS PEGASUS INTRINSIC PEGASUS
AND VALUE MID-CAP GROWTH VALUE BOND
FUND OPPORTUNITY FUND FUND FUND
SUB- FUND SUB- SUB- SUB-
ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 153,983 $ -- $ -- $161,921 $1,104,517
EXPENSES:
Mortality and expense
undertakings (309,689) (89,414) (124,636) (112,052) (276,469)
- ------------------------------------------------------------------------------------
Net investment income
(loss) (155,706) (89,414) (124,636) 49,869 828,048
CAPITAL GAINS INCOME 190,732 81,161 42,400 73,335 --
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions 1,813 4,119 103,495 29 (1,712)
Net unrealized appreci-
ation (depreciation) of
investments during the
period 3,089,447 730,224 3,063,336 335,872 395,830
- ------------------------------------------------------------------------------------
Net gain (loss) on in-
vestments 3,091,260 734,343 3,166,831 335,901 394,118
- ------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $3,126,286 $726,090 $3,084,595 $459,105 $1,222,166
- ------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
Pegasus Variable Funds
5
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PCM PCM PCM PCM PCM
PCM GROWTH GLOBAL ASSET U.S. GOVERNMENT NEW PCM PCM INTERNATIONAL
GLOBAL GROWTH AND INCOME ALLOCATION & HIGH QUALITY OPPORTUNITIES MONEY DIVERSIFIED GROWTH
FUND FUND FUND BOND FUND FUND MARKET FUND INCOME FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income (loss) $ 16,243 $ 16,483 $ 27,889 $ 34,660 $ (40,064) $ 13,707 $ 32,876 $ (111,282)
Capital gains
income 111,701 185,466 177,309 1,038 75,909 -- 16,707 --
Net realized
gain (loss) on
security trans-
actions 24 374 892 835 30,280 -- 31 96,943
Net unrealized
appreciation
(depreciation)
of investments
during the pe-
riod 28,421 (67,188) (30,224) (10,187) 894,391 -- (31,492) 2,716,714)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets re-
sulting from op-
erations 156,389 135,135 175,866 26,346 960,516 13,707 18,122 2,702,375
- ------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSAC-
TIONS:
Purchases 26,801 661,478 30,509 84,580 1,475,252 (96,676) 96,304 3,002,736
Net transfers 54,764 224,450 15,147 68,128 (199,836) 228,711 112,450 (221,149)
Surrenders (10,320) (44,680) (34,475) (91,004) (118,357) (20,891) (32,840) (330,603)
Net annuity
transactions -- 2,622 -- -- 4,424 -- -- 19,140
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets re-
sulting from
unit transac-
tions 71,245 843,870 11,181 61,704 1,161,483 111,144 175,914 2,470,124
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets 227,634 979,005 187,047 88,050 2,121,999 124,851 194,036 5,172,499
NET ASSETS:
Beginning of
Year 758,775 1,272,505 1,803,966 702,547 4,751,380 771,015 816,968 13,088,919
- ------------------------------------------------------------------------------------------------------------------------------
End of Year $986,409 $2,251,510 $1,991,013 $ 790,597 $6,873,379 $895,866 $1,011,004 $18,261,418
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
ENDED DECEMBER
31, 1997
OPERATIONS:
Net investment
income (loss) $ 4,124 $ (7,292) $ 202,829 $ 156,146 $ (29,035) $ 13,768 $ 181,200 $ 108,854
Capital gains
income 14,810 -- 463,905 -- -- -- 33,403 --
Net realized
gain (loss) on
security trans-
actions 13,653 116 769,450 (52,503) 2,226 -- (6,775) (658)
Net unrealized
appreciation
(depreciation)
of investments
during the pe-
riod 52,462 70,409 (348,873) (4,804) 457,470 -- (85,983) (230,282)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets re-
sulting from op-
erations 85,049 63,233 1,087,311 98,839 430,661 13,768 121,845 (122,086)
- ------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSAC-
TIONS:
Purchases 285,116 884,913 1,097,790 652,973 1,636,610 217,499 1,212,370 4,400,400
Net transfers (90,194) 348,182 (7,521,042) (2,366,168) 2,761,489 616,768 (3,477,675) 9,006,077
Surrenders (29,493) (23,823) (245,162) (141,774) (77,380) (77,020) (105,409) (195,472)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets re-
sulting from
unit transac-
tions 165,429 1,209,272 (6,668,414) (1,854,969) 4,320,719 757,247 (2,370,714) 13,211,005
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets 250,478 1,272,505 (5,581,103) (1,756,130) 4,751,380 771,015 (2,248,869) 13,088,919
NET ASSETS:
Beginning of
Year 508,297 -- 7,385,069 2,458,677 -- -- 3,065,837 --
- ------------------------------------------------------------------------------------------------------------------------------
End of Year $758,775 $1,272,505 $1,803,966 $ 702,547 $4,751,380 $771,015 $ 816,968 $13,088,919
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Pegasus Variable Funds
6
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PEGASUS
PEGASUS PEGASUS MONEY PEGASUS
GROWTH MID-CAP PEGASUS MARKET INTRINSIC PEGASUS PEGASUS
AND VALUE OPPORTUNITY GROWTH FUND VALUE BOND MANAGED ASSETS
FUND FUND FUND SUB- FUND FUND BALANCED FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ (155,706) $ (89,414) $ (124,636) $ 49,869 $ 828,048
Capital gains income 190,732 81,161 42,400 73,335 --
Net realized gain
(loss) on security
transactions 1,813 4,119 103,495 29 (1,712)
Net unrealized appreci-
ation (depreciation) of
investments during the
period 3,089,447 730,224 3,063,336 335,872 395,830
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 3,126,286 726,090 3,084,595 459,105 1,222,166
- --------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 8,447,525 2,619,280 3,334,902 3,232,048 9,239,921
Net transfers 2,827,624 1,031,340 (748,420) 1,900,333 5,775,452
Surrenders (1,098,964) (265,523) (391,201) (345,414) (1,077,366)
Net annuity transac-
tions 49,290 12,890 20,531 19,087 39,879
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 10,225,475 3,397,987 2,215,812 4,806,054 13,977,886
- --------------------------------------------------------------------------------------------------------------------
Total increase (de-
crease) in net assets 13,351,761 4,124,077 5,300,407 5,265,159 15,200,052
NET ASSETS:
Beginning of Year 37,804,978 10,796,530 14,997,654 13,341,943 32,068,939
- --------------------------------------------------------------------------------------------------------------------
End of Year $51,156,739 $14,920,607 $20,298,061 $18,607,102 $47,268,991
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
OPERATIONS:
Net investment income
(loss) $ (114,063) $ (122,241) $ (152,233) $ 23,014 $ 22,796 $ 642,777 $ 7,548
Capital gains income 766,624 1,590,529 1,076,636 -- 45,262 19,484 180,913
Net realized gain
(loss) on security
transactions (3,216) 501,302 623,125 -- (1,872) (2,027) 2,663,920
Net unrealized appreci-
ation (depreciation) of
investments during the
period 3,560,218 189,167 1,161,170 -- 950,900 776,480 (1,086,285)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 4,209,563 2,158,757 2,708,698 23,014 1,017,086 1,436,714 1,766,096
- --------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 13,843,170 4,429,654 6,126,101 126,745 4,633,265 12,346,781 4,616,463
Net transfers 12,589,078 (3,940,241) (4,245,608) (1,462,029) 7,904,486 18,871,440 (24,292,348)
Surrenders (736,816) (378,113) (464,118) (31,103) (212,894) (585,996) (486,478)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 25,695,432 111,300 1,416,375 (1,366,387) 12,324,857 30,632,225 (20,162,363)
- --------------------------------------------------------------------------------------------------------------------
Total increase (de-
crease) in net assets 29,904,995 2,270,057 4,125,073 (1,343,373) 13,341,943 32,068,939 (18,396,267)
NET ASSETS:
Beginning of Year 7,899,983 8,526,473 10,872,581 1,343,373 -- -- 18,396,267
- --------------------------------------------------------------------------------------------------------------------
End of Year $37,804,978 $10,796,530 $14,997,654 $ -- $13,341,943 $32,068,939 $ --
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Pegasus Variable Funds
7
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
1.ORGANIZATION:
Separate Account Six (the Account) is a separate investment account within
Hartford Life and Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various mutual
funds (The Funds) as directed by the contractholders.
2.SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the Account,
which are in accordance with generally accepted accounting principles in the
investment company industry:
a)Security Transactions--
Security transactions are recorded on the trade date (date the order to buy
or sell is executed). Cost of investments sold is determined on the basis
of identified cost. Dividend and capital gains income are accrued as of the
ex-dividend date. Capital gains income represents dividends from the Funds
which are characterized as capital gains under tax regulations.
b)Security Valuation--
The investment in shares of the Putnam Variable Trust Funds (Putnam VT
Global Growth Fund, Putnam VT Global Asset Allocation Fund, Putnam VT U.S.
Government and High Quality Bond Fund, Putnam VT Diversified Income Fund,
Putnam VT Growth and Income Fund, Putnam VT New Opportunities Fund, Putnam
VT Money Market Fund and Putnam VT International Growth Fund) or the
Pegasus Variable Funds (Pegasus Growth and Value Fund, Pegasus Mid-Cap
Opportunity Fund, Pegasus Growth Fund, Pegasus Intrinsic Value Fund, and
Pegasus Bond Fund) are valued at the closing net asset value per share as
determined by the appropriate Fund as of June 30, 1998.
c)Federal Income Taxes--
The operations of the Account form a part of, and are taxed with, the total
operations of the Company, which is taxed as an insurance company under the
Internal Revenue Code. Under current law, no federal income taxes are
payable with respect to the operations of the Account.
d) 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 as
of the date of the financial statements and the reported amounts of income
and expenses during the period. Operating results in the future could vary
from the amounts derived from management's estimates.
3.ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
a)Mortality and Expense Undertakings--
The Company, as issuer of variable annuity contracts, provides the
mortality and expense undertakings and, with respect to the Account,
receives a maximum annual fee of up to 1.25% of the Account's average daily
net assets. The Company also provides administrative services and receives
an annual fee of 0.15% of the Account's average daily net assets.
b)Deduction of Annual Maintenance Fee--
Annual maintenance fees are deducted through termination of units of
interest from applicable contract owners' accounts, in accordance with the
terms of the contracts.
Pegasus Variable Funds
8
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID-CAP INTRINSIC
GROWTH AND OPPORTUNITY GROWTH VALUE BOND
VALUE FUND FUND FUND FUND FUND
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $45,580,803 $13,913,958 $14,601,086 $18,153,397 $47,702,834
- ----------------------------------------------------------------------------------------
At value (Note 2) $52,634,305 $16,571,421 $21,297,994 $19,197,931 $48,981,754
Receivable for securi-
ties sold -- 247,859 -- -- --
Receivable for shares
purchased 50,973 13,348 18,298 19,973 54,695
Income receivable 40,920 9,194 10,590 22,649 505,925
Deferred organization
costs, net (Note 2) 10,549 10,533 10,533 -- --
Prepaids and other as-
sets 2,544 5,842 2,953 9,668 12,151
- ----------------------------------------------------------------------------------------
TOTAL ASSETS 52,739,291 16,858,197 21,340,368 19,250,221 49,554,525
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities
purchased 543,034 970,484 -- -- --
Payable for variation
margin on futures con-
tracts 19,125 2,775 -- 8,500 --
Accrued investment advi-
sory fees 24,702 7,260 10,182 9,139 16,097
Accrued administration
fees 6,175 1,815 2,546 2,285 6,036
Accrued custodial fees 2,557 2,491 649 795 1,662
Other payables and ac-
crued expenses -- 5,304 8,158 -- --
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES 595,593 990,129 21,535 20,719 23,795
- ----------------------------------------------------------------------------------------
NET ASSETS $52,143,698 $15,868,068 $21,318,833 $19,229,502 $49,530,730
- ----------------------------------------------------------------------------------------
Net assets consist of:
Capital shares (unlim-
ited number of shares
authorized, par value
$.10 per share) $ 298,580 $ 103,564 $ 115,931 $ 161,718 $ 469,892
Additional paid-in capi-
tal 43,950,052 12,734,988 14,099,031 17,687,239 47,777,563
Accumulated undistrib-
uted net investment in-
come (loss) 8,344 (9,394) (17,940) 16,635 (5,627)
Accumulated undistrib-
uted net realized gains
on investments and
financial futures 788,497 379,847 424,903 311,487 9,982
Net unrealized apprecia-
tion on investments and
financial futures 7,098,225 2,659,063 6,696,908 1,052,423 1,278,920
- ----------------------------------------------------------------------------------------
NET ASSETS $52,143,698 $15,868,068 $21,318,833 $19,229,502 $49,530,730
- ----------------------------------------------------------------------------------------
Shares of capital stock
outstanding 2,985,798 1,035,642 1,159,314 1,617,177 4,698,923
- ----------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 17.46 $ 15.32 $ 18.39 $ 11.89 $ 10.54
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Pegasus Variable Funds
9
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND MID-CAP GROWTH INTRINSIC
VALUE FUND OPPORTUNITY FUND FUND VALUE FUND BOND FUND
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 52,593 $ 10,903 $ 13,224 $ 68,003 $1,309,966
Dividends 309,143 43,693 55,261 192,442 --
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 361,736 54,596 68,485 260,445 1,309,966
- -----------------------------------------------------------------------------------------
EXPENSES (NOTES 2, 3 AND
5):
Investment advisory
fees 135,625 41,111 56,299 49,883 83,382
Administration fees 33,906 10,278 14,075 12,471 31,268
Professional fees 24,247 16,998 18,902 14,713 19,293
Custodial fee 17,948 17,517 8,521 9,448 14,108
Amortization of de-
ferred organization
costs 2,880 2,880 2,880 -- --
Printing 4,967 2,706 4,355 2,706 2,706
Registration, filing
fees and other expenses 7,304 9,070 5,099 4,720 7,029
Less: Expense reim-
bursement (12,486) (35,576) (21,133) (15,096) (1,759)
- -----------------------------------------------------------------------------------------
NET EXPENSES 214,391 64,984 88,998 78,845 156,027
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS) 147,345 (10,388) (20,513) 181,600 1,153,939
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net realized gains
(losses):
on investment transac-
tions 618,965 369,853 426,260 238,966 9,901
on financial futures 173,732 20,624 (1,268) 72,544 --
Net change in
unrealized appreciation
on investments and fi-
nancial futures 2,572,667 501,090 2,973,263 106,821 425,637
- -----------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS ON IN-
VESTMENTS 3,365,364 891,567 3,398,255 418,331 435,538
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $3,512,709 $881,179 $3,377,742 $599,931 $1,589,477
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Variable Funds
10
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND VALUE FUND MID-CAP OPPORTUNITY FUND
-----------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income (loss) $ 147,345 $ 206,522 $ (10,388) $ 4,129
Net realized
gains 792,697 837,720 390,477 1,743,002
Net change in
unrealized
appreciation on
investments and
financial
futures 2,572,667 3,665,139 501,090 725,115
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 3,512,709 4,709,381 881,179 2,472,246
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net
investment
income (157,166) (195,276) -- (3,201)
From realized
gains (194,536) (785,704) (86,669) (1,732,223)
- ------------------------------------------------------------------------------------------------------------------------------------
Total
distributions (351,702) (980,980) (86,669) (1,735,424)
- ------------------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 10,559,335 26,172,441 3,612,170 4,779,295
Net asset value
of shares issued
in
reinvestment of distributions to shareholders 351,702 980,980 86,668 1,735,424
- ------------------------------------------------------------------------------------------------------------------------------------
10,911,037 27,153,421 3,698,838 6,514,719
Less: payments
for shares
redeemed (633,543) (779,182) (293,510) (4,798,971)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets from
capital share
transactions 10,277,494 26,374,239 3,405,328 1,715,748
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS 13,438,501 30,102,640 4,199,838 2,452,570
NET ASSETS:
Beginning of
period 38,705,197 8,602,557 11,668,230 9,215,660
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $52,143,698 $38,705,197 $15,868,068 $11,668,230
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 615,748 1,722,895 236,405 318,480
Shares issued in
reinvestment of
distributions to
shareholders 20,439 61,654 5,993 120,944
- ------------------------------------------------------------------------------------------------------------------------------------
636,187 1,784,549 242,398 439,424
Less: shares
redeemed (35,999) (50,917) (18,268) (312,599)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN
SHARES
OUTSTANDING 600,188 1,733,632 224,130 126,825
CAPITAL SHARES:
Beginning of
period 2,385,610 651,978 811,512 684,687
- ------------------------------------------------------------------------------------------------------------------------------------
End of period 2,985,798 2,385,610 1,035,642 811,512
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH FUND INTRINSIC VALUE FUND
-----------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Period Ended
June 30, 1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income (loss) $ (20,513) $ 28,340 $ 181,600 $ 115,690
Net realized
gains 424,992 1,211,616 311,510 123,169
Net change in
unrealized
appreciation on
investments and
financial
futures 2,973,263 1,819,220 106,821 945,602
- -----------------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 3,377,742 3,059,176 599,931 1,184,461
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net
investment
income -- (26,849) (167,876) (112,779)
From realized
gains (44,524) (1,140,567) (75,897) (47,295)
- -----------------------------------------------------------------------------------------------------------
Total
distributions (44,524) (1,167,416) (243,773) (160,074)
- -----------------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 3,905,320 6,512,260 4,755,243 13,088,467
Net asset value
of shares issued
in
reinvestment of distributions to shareholders 44,524 1,167,416 243,773 160,074
- -----------------------------------------------------------------------------------------------------------
3,949,844 7,679,676 4,999,016 13,248,541
Less: payments
for shares
redeemed (1,804,140) (5,273,546) (51,230) (347,370)
- -----------------------------------------------------------------------------------------------------------
Net increase in
net assets from
capital share
transactions 2,145,704 2,406,130 4,947,786 12,901,171
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS 5,478,922 4,297,890 5,303,944 13,925,558
NET ASSETS:
Beginning of
period 15,839,911 11,542,021 13,925,558 --
- -----------------------------------------------------------------------------------------------------------
End of period $21,318,833 $15,839,911 $19,229,502 $13,925,558
- -----------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 227,568 428,650 393,244 1,224,500
Shares issued in
reinvestment of
distributions to
shareholders 2,611 74,931 20,271 14,079
- -----------------------------------------------------------------------------------------------------------
230,179 503,581 413,515 1,238,579
Less: shares
redeemed (100,216) (343,565) (4,214) (30,703)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN
SHARES
OUTSTANDING 129,963 160,016 409,301 1,207,876
CAPITAL SHARES:
Beginning of
period 1,029,351 869,335 1,207,876 --
- -----------------------------------------------------------------------------------------------------------
End of period 1,159,314 1,029,351 1,617,177 1,207,876
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
BOND FUND
------------------------------
Six Months Ended Period Ended
June 30, 1998 December 31,
(Unaudited) 1997(1)
------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment
income (loss) $ 1,153,939 $ 921,773
Net realized
gains 9,901 20,905
Net change in
unrealized
appreciation on
investments and
financial
futures 425,637 853,283
- ---------------------------------------------------------------------------
Net increase in
net assets from
operations 1,589,477 1,795,961
- ---------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net
investment
income (1,165,658) (915,681)
From realized
gains -- (20,824)
- ---------------------------------------------------------------------------
Total
distributions (1,165,658) (936,505)
- ---------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 14,715,191 33,072,130
Net asset value
of shares issued
in
reinvestment of distributions to shareholders 1,165,658 936,505
- ---------------------------------------------------------------------------
15,880,849 34,008,635
Less: payments
for shares
redeemed (1,003,808) (638,221)
- ---------------------------------------------------------------------------
Net increase in
net assets from
capital share
transactions 14,877,041 33,370,414
- ---------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS 15,300,860 34,229,870
NET ASSETS:
Beginning of
period 34,229,870 --
- ---------------------------------------------------------------------------
End of period $49,530,730 $34,229,870
- ---------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS:
Shares sold 1,403,852 3,249,652
Shares issued in
reinvestment of
distributions to
shareholders 111,397 90,681
- ---------------------------------------------------------------------------
1,515,249 3,340,333
Less: shares
redeemed (95,443) (61,216)
- ---------------------------------------------------------------------------
NET INCREASE IN
SHARES
OUTSTANDING 1,419,806 3,279,117
CAPITAL SHARES:
Beginning of
period 3,279,117 --
- ---------------------------------------------------------------------------
End of period 4,698,923 3,279,117
- ---------------------------------------------------------------------------
</TABLE>
(1)For the period May 1, 1997 (commencement of operations) through December 31,
1997.
See Notes to Financial Statements.
Pegasus Variable Funds
11
<PAGE>
PEGASUS VARIABLE GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 7.43%
Pegasus Cash Management Fund Class I (in shares)..... 2,312,357 $ 2,312,357
Salomon Brothers, Revolving Repurchase Agreement,
6.03%, 7/1/98 (secured by various U.S. Treasury
Bills and Strips with maturities ranging from
8/15/98 through 5/15/08, all held at Chase Bank).... $1,500,000 1,500,000
U.S. Treasury Bills, 9/17/98(1)...................... 50,000 49,472
U.S. Treasury Bills, 9/24/98(1)...................... 50,000 49,429
-----------
TOTAL TEMPORARY CASH INVESTMENTS....................... 3,911,258
-----------
(Cost $3,911,258)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 92.57%
Aerospace -- 1.27%
Boeing Co............................................ 15,000 668,437
-----------
Banks -- 4.67%
Bankamerica Corp..................................... 12,000 1,037,250
Norwest Corp......................................... 38,000 1,420,250
-----------
2,457,500
-----------
Business Machines -- 4.12%
Compaq Computer Corp................................. 17,000 482,375
Electronic Data Systems Corp......................... 27,000 1,080,000
Gateway 2000, Inc.................................... 12,000 607,500
-----------
2,169,875
-----------
Business Services -- 2.35%
Auto Data Processing, Inc............................ 17,000 1,238,875
-----------
Chemicals -- 2.07%
Sigma-Aldrich Corp................................... 31,000 1,088,875
-----------
Construction -- 3.24%
Masco Corp........................................... 21,000 1,270,500
York International Corp.............................. 10,000 435,625
-----------
1,706,125
-----------
Consumer Durables -- 2.56%
Newell Co............................................ 27,000 1,344,937
-----------
Containers -- 1.53%
Crown Cork & Seal Co., Inc........................... 17,000 807,500
-----------
Drugs and Medicine -- 10.97%
Abbott Laboratories Corp............................. 27,000 1,103,625
American Home Products Corp.......................... 26,000 1,345,500
Bristol-Myers Squibb Co.............................. 14,600 1,678,088
Schering-Plough Corp................................. 18,000 1,649,250
-----------
5,776,463
-----------
</TABLE>
Pegasus Variable Funds
12
<PAGE>
PEGASUS VARIABLE GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Electronics -- 7.96%
Amp, Inc.................................................. 31,000 $ 1,065,625
Andrew Corp............................................... 24,000 433,500
First Data Corp........................................... 37,000 1,232,563
Hewlett Packard Co........................................ 7,000 419,125
Intel Corp................................................ 14,000 1,037,750
-----------
4,188,563
-----------
Energy and Utilities -- 8.82%
Enron Corp................................................ 19,000 1,027,187
FPL Group, Inc............................................ 21,000 1,323,000
MCN Energy Group, Inc..................................... 36,000 895,500
Pinnacle West Capital Corp................................ 31,000 1,395,000
-----------
4,640,687
-----------
Energy Raw Materials -- 2.21%
Schlumberger Ltd.......................................... 17,000 1,161,313
-----------
Food and Agriculture -- 7.94%
Bestfoods................................................. 23,000 1,335,438
ConAgra, Inc.............................................. 43,000 1,362,562
PepsiCo, Inc.............................................. 36,000 1,482,750
-----------
4,180,750
-----------
Insurance -- 4.08%
American International Group, Inc......................... 7,000 1,022,000
Chubb Corp................................................ 14,000 1,125,250
-----------
2,147,250
-----------
International Oil -- 3.34%
British Petroleum PLC ADR................................. 12,081 1,066,148
Mobil Corp................................................ 9,000 689,625
-----------
1,755,773
-----------
Liquor -- 2.24%
Anheuser-Busch Companies, Inc............................. 25,000 1,179,687
-----------
Media -- 5.58%
Gannett Co., Inc.......................................... 17,000 1,208,062
Washington Post Co., Class B.............................. 3,000 1,728,000
-----------
2,936,062
-----------
Miscellaneous & Conglomerates -- 2.87%
Cognizant Corp............................................ 24,000 1,512,000
-----------
Miscellaneous Finance -- 3.10%
Federal Home Loan Mortgage Corp........................... 16,000 753,000
PMI Group, Inc............................................ 12,000 880,500
-----------
1,633,500
-----------
Non-Durables and Entertainment -- 2.27%
Kimberly-Clark Corp....................................... 26,000 1,192,750
-----------
</TABLE>
Pegasus Variable Funds
13
<PAGE>
PEGASUS VARIABLE GROWTH AND VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Producer Goods -- 2.21%
Dover Corp................................................ 34,000 $ 1,164,500
-----------
Retail -- 2.38%
Officemax, Inc.*.......................................... 76,000 1,254,000
-----------
Telephone -- 4.78%
Bell Atlantic Corp........................................ 22,000 1,003,750
Century Telephone Enterprises, Inc........................ 33,000 1,513,875
-----------
2,517,625
-----------
TOTAL COMMON STOCKS......................................... 48,723,047
-----------
(Cost $41,669,545)
TOTAL INVESTMENTS........................................... $52,634,305
===========
(Cost $45,580,803)
</TABLE>
*Non-income producing security.
(1)Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNDERLYING
EXPIRATION FACE AMOUNT UNREALIZED
PURCHASED DATE AT VALUE GAIN
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
9 S&P 500..................................... 9/98 $2,571,750 $44,723
</TABLE>
Pegasus Variable Funds
14
<PAGE>
PEGASUS VARIABLE MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 7.51%
Pegasus Cash Management Fund Class I (in shares)....... 1,215,612 $ 1,215,612
U.S. Treasury Bills, 9/17/98 (1)....................... $ 20,000 19,789
U.S. Treasury Bills, 9/24/98 (1)....................... 10,000 9,886
-----------
TOTAL TEMPORARY CASH INVESTMENTS........................ 1,245,287
-----------
(Cost $1,245,287)
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS -- 92.49%
Apparel -- 1.81%
Tommy Hilfiger Corp................................... 4,800 300,000
-----------
Banks -- 8.51%
Associated Banc Corp.................................. 5,847 219,993
Charter One Financial, Inc............................ 14,200 478,363
First Tennessee National Corp......................... 4,900 154,656
Peoples Heritage Financial Group...................... 8,200 193,725
TCF Financial Corp.................................... 12,300 362,850
-----------
1,409,587
-----------
Business Machines -- 2.12%
Comdisco, Inc......................................... 8,700 165,300
Xilinx, Inc........................................... 5,450 185,300
-----------
350,600
-----------
Business Services -- 9.82%
CDI Corp.*............................................ 4,500 120,375
DST Systems, Inc.*.................................... 6,700 375,200
Hon Industries, Inc................................... 9,800 333,200
National Data Corp.................................... 4,900 214,375
Omnicom Group, Inc.................................... 4,100 204,488
SunGard Data Systems, Inc.*........................... 9,900 379,912
-----------
1,627,550
-----------
Construction -- 3.95%
Applied Power, Inc.................................... 7,000 240,625
Crane Co.............................................. 8,525 413,995
-----------
654,620
-----------
Consumer Durables -- 1.61%
Leggett & Platt, Inc.................................. 10,700 267,500
-----------
Containers -- 1.73%
AptarGroup, Inc....................................... 4,600 286,063
-----------
Drugs and Medicine -- 4.55%
Health Care & Retirement Corp.*....................... 5,100 201,131
Quorum Health Group, Inc.*............................ 8,450 223,925
Sybron International Corp.*........................... 13,000 328,250
-----------
753,306
-----------
</TABLE>
Pegasus Variable Funds
15
<PAGE>
PEGASUS VARIABLE MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Electronics -- 6.72%
Belden, Inc............................................... 8,300 $ 254,188
KEMET Corp.*.............................................. 5,400 71,044
Microchip Technology, Inc.*............................... 6,800 177,650
Molex, Inc. Class A Non-Voting............................ 6,213 145,229
Lexmark International Group, Inc., Class A................ 5,700 347,700
Teradyne, Inc.*........................................... 4,400 117,700
-----------
1,113,511
-----------
Energy Raw Materials -- 2.56%
Apache Corp............................................... 7,100 233,650
Noble Affiliates, Inc..................................... 5,300 201,400
-----------
425,050
-----------
Food and Agriculture -- 1.18%
US Foodservice, Inc....................................... 5,600 196,350
-----------
Insurance -- 3.12%
Capital RE Corp........................................... 4,900 350,962
Transatlantic Holdings, Inc............................... 2,150 166,222
-----------
517,184
-----------
International Oil -- 1.40%
Camco International, Inc.................................. 1,900 147,963
Global Industries, Ltd.................................... 5,000 84,375
-----------
232,338
-----------
Miscellaneous and Conglomerates -- 6.87%
DENTSPLY International, Inc............................... 6,200 155,000
Essex International, Inc.................................. 6,200 146,475
Health Management Associates, Inc. Class A*............... 3,562 119,104
Littlefuse, Inc.*......................................... 6,900 174,225
Waters Corp............................................... 5,300 312,369
Young & Rubicam, Inc...................................... 7,200 230,400
-----------
1,137,573
-----------
Miscellaneous Finance -- 13.75%
CMAC Investment Corp...................................... 3,700 227,550
Edwards (A.G.), Inc....................................... 5,950 253,991
Everest Reinsurance Holdings, Inc......................... 7,800 299,812
Executive Risk, Inc....................................... 3,200 236,000
FINOVA Group, Inc......................................... 6,500 368,063
Heller Financial, Inc..................................... 9,200 276,000
Idex Corp................................................. 6,275 216,487
PMI Group, Inc............................................ 2,850 209,119
Waddell & Reed Financial Class A.......................... 7,900 189,106
-----------
2,276,128
-----------
</TABLE>
Pegasus Variable Funds
16
<PAGE>
PEGASUS VARIABLE MID-CAP OPPORTUNITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Motor Vehicles -- 5.65%
Borg Warner Automotive, Inc............................... 5,200 $ 249,925
Donaldson Co., Inc........................................ 5,700 134,662
Harley-Davidson, Inc...................................... 8,000 310,000
Tower Automotive, Inc..................................... 5,600 240,100
-----------
934,687
-----------
Non-Durables and Entertainment -- 0.91%
Lancaster Colony Corp..................................... 4,000 151,500
-----------
Non-Ferrous Metals -- 0.98%
DT Industries, Inc........................................ 6,700 162,475
-----------
Producer Goods -- 6.51%
Ametek Inc................................................ 5,900 172,944
Harsco Corp............................................... 5,400 247,387
Hubbell, Inc. Class B..................................... 5,100 212,287
Juno Lighting, Inc........................................ 9,400 222,075
Teleflex, Inc............................................. 5,900 224,200
-----------
1,078,893
-----------
Retail -- 7.62%
Kohls Corp.*.............................................. 3,600 186,750
Proffitts, Inc.*.......................................... 10,400 419,900
Mens Wearhouse, Inc....................................... 9,350 308,550
Zale Corp.*............................................... 10,900 346,756
-----------
1,261,956
-----------
Travel and Recreation -- 1.14%
Galileo International, Inc................................ 4,200 189,263
-----------
TOTAL COMMON STOCKS......................................... 15,326,134
-----------
(Cost $12,668,671)
TOTAL INVESTMENTS........................................... $16,571,421
===========
(Cost $13,913,958)
</TABLE>
*Non-income producing security.
(1)Securities represent the margin deposit on the futures contracts.
<TABLE>
<S> <C> <C>
FUTURES CONTRACT
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE AMOUNT UNREALIZED
PURCHASED DATE AT VALUE GAIN
- --------- ---------- ---------------------- ----------
<S> <C> <C> <C>
2 Mid-Cap. 400 Futures............ 9/98 $364,600 $1,600
</TABLE>
Pegasus Variable Funds
17
<PAGE>
PEGASUS VARIABLE GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 1.28%
Pegasus Cash Management Fund Class I...................... 273,250 $ 273,250
----------
(Cost $273,250)
COMMON STOCKS -- 98.72%
Banks -- 5.19%
MBNA Corp................................................ 11,500 379,500
Norwest Corp............................................. 12,000 448,500
State Street Corp........................................ 4,000 278,000
----------
1,106,000
----------
Business Machines -- 11.97%
Cisco System, Inc........................................ 8,000 736,500
Dell Computer Corp....................................... 4,000 371,250
Microsoft Corp. *........................................ 8,000 867,000
Silicon Graphics *....................................... 11,500 139,438
Sun Microsystems, Inc.................................... 10,000 434,375
----------
2,548,563
----------
Business Services -- 6.02%
Cendant Corp............................................. 20,000 417,500
Computer Associates International, Inc................... 9,000 500,062
Interpublic Group of Companies, Inc...................... 6,000 364,125
----------
1,281,687
----------
Consumer Durables -- 1.28%
Staples, Inc............................................. 9,400 272,013
----------
Drugs and Medicine -- 17.33%
American Home Products Corp.............................. 8,000 414,000
Amgen, Inc. *............................................ 7,000 457,625
Guidant Corp............................................. 6,500 463,531
Johnson & Johnson........................................ 3,500 258,125
Mylan Laboratories, Inc.................................. 12,000 360,750
Pfizer, Inc.............................................. 4,500 489,094
Smithkline Beecham PLC ADR............................... 8,000 484,000
Stryker Corp............................................. 10,000 383,750
United Healthcare Corp................................... 6,000 381,000
----------
3,691,875
----------
Electronics -- 8.00%
3Com Corp................................................ 14,000 429,625
Altera Corp.............................................. 10,500 310,406
Intel Corp............................................... 8,500 630,063
Lucent Technologies, Inc................................. 4,000 332,750
----------
1,702,844
----------
Energy and Utilities -- 2.22%
AES Corp. *.............................................. 9,000 473,062
----------
</TABLE>
Pegasus Variable Funds
18
<PAGE>
PEGASUS VARIABLE GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Energy Raw Materials -- 2.49%
Baker Hughes, Inc.......................................... 8,000 $ 276,500
Western Atlas, Inc. *...................................... 3,000 254,625
----------
531,125
----------
Food and Agriculture -- 3.54%
Coca Cola Co............................................... 4,000 342,000
PepsiCo, Inc............................................... 10,000 411,875
----------
753,875
----------
Insurance -- 2.79%
AFLAC, Inc................................................. 7,000 212,188
UNUM Corp.................................................. 6,900 382,950
----------
595,138
----------
Miscellaneous and Conglomerates -- 5.39%
Elan PLC ADR *............................................. 10,000 643,125
Tyco International, LTD.................................... 8,000 504,000
----------
1,147,125
----------
Miscellaneous Finance -- 4.34%
Associates First Capital................................... 5,000 384,375
Federal Home Loan Mortgage Corp............................ 6,000 282,375
MGIC Investment Corp....................................... 4,500 256,781
----------
923,531
----------
Non-Durables and Entertainment -- 2.21%
Service Corp. International................................ 11,000 471,625
----------
Producer Goods -- 4.44%
General Electric Co........................................ 6,000 546,000
Illinois Tool Works, Inc................................... 6,000 400,125
----------
946,125
----------
Retail -- 7.24%
Dollar General Corp........................................ 11,250 445,078
Home Depot, Inc............................................ 6,750 560,672
Officemax, Inc............................................. 15,000 247,500
Walgreen Co................................................ 7,000 289,187
----------
1,542,437
----------
Soaps And Cosmetics -- 1.28%
Procter & Gamble Co........................................ 3,000 273,188
----------
Telephone -- 7.48%
AirTouch Communications, Inc. *............................ 11,000 642,812
Tellabs, Inc............................................... 6,500 465,563
WorldCom, Inc.............................................. 10,000 484,375
----------
1,592,750
----------
Tobacco -- 1.66%
Philip Morris Companies, Inc............................... 9,000 354,375
----------
</TABLE>
Pegasus Variable Funds
19
<PAGE>
PEGASUS VARIABLE GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Travel and Recreation -- 3.84%
Carnival Corp., Class A................................... 14,000 $ 554,750
Disney (Walt) Co.......................................... 2,500 262,656
-----------
817,406
-----------
TOTAL COMMON STOCKS......................................... 21,024,744
-----------
(Cost $14,327,836)
TOTAL INVESTMENTS........................................... $21,297,994
===========
(Cost $14,601,086)
</TABLE>
*Non-income producing security
Pegasus Variable Funds
20
<PAGE>
PEGASUS VARIABLE INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 8.26%
Pegasus Cash Management Fund Class I (in shares)....... 1,535,649 $ 1,535,649
U.S. Treasury Bill, 9/17/98(1)......................... $ 20,000 19,789
U.S. Treasury Bill, 9/24/98(1)......................... 30,000 29,657
-----------
TOTAL TEMPORARY CASH INVESTMENTS........................ 1,585,095
-----------
(Cost $1,585,095)
CONVERTIBLE BONDS -- 9.22%
Nac Re Corp., 5.25%, 12/15/02.......................... 410,000 456,125
Pep Boys, Zero Coupon, 9/20/11......................... 450,000 246,938
Potomac Electric Power Co., 5.00%, 9/1/02.............. 376,000 366,600
Roche Holding Inc. Zero Coupon, 5/6/12................. 1,450,000 700,538
-----------
TOTAL CONVERTIBLE BONDS................................. 1,770,201
-----------
(Cost $1,698,702)
<CAPTION>
SHARES
------
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCK -- 1.11%
Finance -- 1.16%
Salomon Inc., 7.625% Preferred........................ 4,500 214,312
-----------
(Cost $161,544)
COMMON STOCKS -- 81.41%
Aerospace -- 4.41%
Lockheed Martin Corp.................................. 8,000 847,000
-----------
Apparel -- 5.45%
Payless Shoesource, Inc.*............................. 7,500 552,656
Unifi, Inc............................................ 14,400 493,200
-----------
1,045,856
-----------
Banks -- 2.13%
Pacific Century Financial Corp........................ 17,000 408,000
-----------
Business Services -- 1.82%
Grey Advertising, Inc................................. 880 348,480
-----------
Chemicals -- 2.10%
NCH Corp.............................................. 6,300 403,594
-----------
Consumer Durables -- 0.69%
National Presto Industries, Inc....................... 3,400 132,387
-----------
Domestic Oil -- 0.77%
Atlantic Richfield Co................................. 1,900 148,438
-----------
Drugs and Medicine -- 2.78%
Arch Coal, Inc........................................ 15,900 395,513
Block Drug, Inc., Class A............................. 3,630 137,940
-----------
533,453
-----------
Energy and Utilities -- 6.85%
Sierra Pacific Resources.............................. 8,800 319,550
SJW Corp.............................................. 2,900 171,100
Southwest Gas Corp.................................... 11,900 290,806
St. Joeseph Light & Power Co.......................... 11,200 208,600
Washington Water Power Co............................. 14,500 325,344
-----------
1,315,400
-----------
</TABLE>
Pegasus Variable Funds
21
<PAGE>
PEGASUS VARIABLE INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Food and Agriculture -- 4.52%
Farmer Brothers Co........................................ 2,100 $ 501,900
Tate & Lyle PLC Sponsored................................. 11,500 365,142
-----------
867,042
-----------
Insurance -- 12.49%
American National Insurance Co............................ 5,800 610,450
Citizens Corp............................................. 14,900 466,556
Financial Security Assurance Holdings..................... 5,300 311,375
Ohio Casualty Corp........................................ 4,850 214,613
Old Republic International Corp........................... 19,050 558,403
Safeco Corp............................................... 5,200 236,275
-----------
2,397,672
-----------
International Oil -- 0.61%
Amoco Corp................................................ 2,800 116,550
-----------
Liquor -- 2.16%
Diageo PLC................................................ 8,608 414,798
-----------
Miscellaneous Finance -- 16.10%
Associated Estates Realty................................. 3,200 59,800
Federal National Mortgage Association..................... 11,900 722,925
Fund American Enterprises Holdings, Inc................... 6,600 976,800
Leucadia National Corp.................................... 23,600 780,275
PXRE Corp................................................. 18,360 550,800
-----------
3,090,600
-----------
Non-Durables and Entertainment -- 3.85%
Lubys Cafeterias, Inc..................................... 12,900 226,556
Sbarro, Inc............................................... 18,900 512,663
-----------
739,219
-----------
Non-Ferrous Metals -- 1.34%
DeBeers Consolidated Mines, LTD........................... 14,700 257,250
-----------
Producer Goods -- 0.41%
Tennant Co................................................ 1,800 79,650
-----------
Railroads and Shipping -- 4.33%
Alexander & Baldwin, Inc.................................. 12,500 364,063
Canadian National Railway Co.............................. 8,787 466,809
-----------
830,872
-----------
Retail -- 1.63%
Enesco Group, Inc......................................... 10,200 313,650
-----------
Tires and Rubber Goods -- 1.85%
Bandag, Inc., Class A..................................... 10,290 355,005
-----------
</TABLE>
Pegasus Variable Funds
22
<PAGE>
PEGASUS VARIABLE INTRINSIC VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
----------- ------ ------
<S> <C> <C>
Tobacco -- 5.12%
Loews Corp................................................. 9,180 $ 799,807
UST, Inc................................................... 6,800 183,600
-----------
983,407
-----------
TOTAL COMMON STOCKS.......................................... 15,628,323
-----------
(Cost $14,708,056)
TOTAL INVESTMENTS............................................ $19,197,931
===========
(Cost $18,153,397)
</TABLE>
*Non-income producing security.
(1)Securities represent the margin deposit for the futures contracts.
FUTURES CONTRACT
<TABLE>
<CAPTION>
EXPIRATION UNDERLYING FACE AMOUNT UNREALIZED
PURCHASED DATE AT VALUE GAIN
- --------- ---------- ---------------------- ----------
<S> <C> <C> <C>
4 S&P 500 Futures................. 9/98 $1,143,000 $7,889
</TABLE>
Pegasus Variable Funds
23
<PAGE>
PEGASUS VARIABLE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 5.99%
Pegasus Cash Management Fund Class I (in shares)...... 1,159,301 $ 1,159,301
Salomon Brothers, Revolving Repurchase Agreement,
6.03%, 7/1/98 (secured by various U.S. Treasury Bills
and Strips with maturities ranging from 8/15/98
through 5/15/08 , all held at Chase Bank)............ $1,773,166 1,773,166
-----------
TOTAL TEMPORARY CASH INVESTMENTS....................... 2,932,467
-----------
(Cost $2,932,467)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 82.39%
U.S. Treasury Securities -- 58.92%
Strips from U.S. Treasury Securities due:
11/15/11............................................. 500,000 235,050
2/15/13.............................................. 300,000 131,127
2/15/14.............................................. 450,000 185,306
5/15/18.............................................. 800,000 258,072
U.S. Treasury Bonds:
10.375%, 11/15/09.................................... 400,000 500,500
12.75%, 11/15/10..................................... 9,745,000 13,879,024
10.375%, 11/15/12.................................... 2,790,000 3,735,977
8.75%, 5/15/17....................................... 2,400,000 3,232,128
U.S. Treasury Inflation Protection Securities:
3.625%, 7/15/02...................................... 202,916 200,696
3.375%, 1/15/07...................................... 203,938 197,502
U.S. Treasury Note, 7.125%, 02/29/00.................. 6,150,000 6,303,750
-----------
(Cost $27,889,587) 28,859,132
-----------
Agency Obligations -- 23.47%
Federal Home Loan Mortgage Corp. Participation Ctfs.:
#555238, 12.00%, 07/01/19............................ 95,425 107,729
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 11 Class 11-D, 9.50%, 07/15/19................ 250,000 269,670
Series 22 Class C, 9.50%, 04/15/20................... 151,920 167,243
Series 47 Class 47-F, 10.00%, 06/15/20............... 97,023 104,307
Series 99 Class Z, 9.50%, 01/15/21................... 57,335 61,635
Series 128 Class I, 6.50%, 02/15/21.................. 200,000 200,737
Series 1051 Class D, 7.00%, 11/15/19................. 45,545 45,735
Series 1065 Class J, 9.00%, 04/15/21................. 92,878 99,424
Series 1250 Class J, 7.00%, 5/15/22.................. 211,000 214,332
Series 1295 Class JB, 4.50%, 03/15/07................ 300,000 285,245
Series 1297 Class H, 7.50%, 01/15/20................. 204,868 209,257
Series 1370 Class F, 6.75%, 03/15/19................. 260,000 261,223
Series 1389 Class SA, IF, 10/15/07................... 40,303 37,372
Series 1465 Class SA, IO, IF, 02/15/08............... 678,099 28,060
Series 1484 Class O, 6.00%, 4/15/23.................. 54,288 53,446
Series 1489 Class L, 5.50%, 04/15/08................. 77,009 76,192
Series 1491 Class MA, 6.75%, 11/15/22................ 39,445 39,144
Series 1543 Class JC, AR, 7/15/23.................... 95,000 80,267
Series 1586 Class A, 6.00%, 09/15/08................. 172,794 172,082
Series 1589 Class Z, 6.25%, 09/15/23................. 739,536 705,439
Series 1595 Class S, IO, IF, 10/15/13................ 917,488 38,090
Series 1603 Class IF, IF, 1/15/23.................... 45,000 45,953
</TABLE>
Pegasus Variable Funds
24
<PAGE>
PEGASUS VARIABLE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
Series 1606 Class LC, IF, 05/15/08.................. $ 187,878 $ 193,102
Series 1619 Class SD, AR, 11/15/23.................. 161,148 164,751
Series 1646 Class MD, AR, 10/15/22.................. 218,537 224,028
Series 1647 Class SB, IF, 12/15/08.................. 80,482 80,292
Series 1679 Class O, 6.40%, 2/15/09................. 199,762 199,901
Series 1685 Class Z, Accrual Bond, 6.00%, 11/15/23.. 129,609 121,057
Series 1686 Class SL, IF, 02/15/24.................. 133,553 130,957
Series 1689 Class SD, IF, 10/15/23.................. 100,000 102,869
Series 1700 Class GA, PO, 02/15/24.................. 286,574 195,003
Series 1709 Class C, 5.50%, 12/15/09................ 359,647 356,803
Series 1796-A Class S, IF, 02/15/09................. 125,000 116,793
Series 1859 Class SB, IO, IF, 10/15/23.............. 168,836 29,056
Sereis 1967 Class PC, PO, 10/15/08.................. 250,000 203,644
Series 2002 Class A, PO, 11/15/22................... 144,000 103,091
Series 2023 Class PN, PO, 3/15/28................... 792,080 196,268
Federal National Mortgage Assn. Pass Thru Securities:
Pool #116612, AR, 03/01/19.......................... 74,791 77,290
Pool #303532, AR, 03/01/29.......................... 131,943 132,876
Federal National Mortgage Assn. Pass Thru Securities
Gtd. Remic Trust:
1986 Class K-2, IO, 2.56%, 11/01/08................. 881,964 58,303
1989 Class 83-H, 8.50%, 11/25/19.................... 405,483 421,571
1990 Class 1-D, 8.80%, 01/25/20..................... 129,256 136,732
1990 Class 93-G, 5.50%, 08/25/20.................... 109,652 107,207
1990 Class 143-J, 8.75%, 12/25/20................... 153,302 161,811
1990 Class 140-K, HB, 652.1454%, 12/25/20........... 1,141 29,250
1991 Class 161-H, 7.50%, 2/25/21.................... 41,333 41,485
1992-G Class 15-Z, 7.00%, 01/25/22.................. 280,060 288,104
1992-G Class 42-Z, 7.00%, 07/25/22.................. 151,129 153,821
1992-G Class 59-F, AR, 10/25/22..................... 128,463 125,938
1992-G Class 61-Z, 7.00%, 10/25/22.................. 40,169 40,230
1992-G Class 66-JB, 5.00%, 11/25/21................. 200,000 182,862
1992 Class 143-MA, 5.50%, 9/25/22................... 400,000 371,901
1992 Class 204-B, 6.00%, 10/25/20................... 250,000 248,756
1993-G Class 1-KA, 7.90%, 1/25/23................... 108,000 117,051
1993-G Class 12-C, PO, 2/25/23...................... 343,138 320,118
1993-G Class 13-G, 6.00%, 06/25/20.................. 200,000 199,321
1993 Class 19-G, 5.00%, 05/25/19.................... 250,000 243,999
1993-G Class 19-K, 6.50%, 06/25/19.................. 46,124 46,172
1993 Class 38-S, IO, IF, 11/25/22................... 102,137 751
1993 Class 44-S, IO, IF, 04/25/23................... 202,553 8,157
1993 Class 58-J, 5.50%, 04/25/23.................... 42,100 41,558
1993 Class 94-K, 6.75%, 05/25/23.................... 36,363 36,414
1993 Class 139-SG, IF, 8/25/23...................... 173,165 153,677
1993 Class 155-SB, IO, IF, 09/25/23................. 473,233 24,691
1993 Class 175-S, IF, 05/25/07...................... 70,953 71,510
1993 Class 193-B, 3.00%, 9/25/23.................... 226,154 201,306
1993 Class 220-SD, IF, 11/25/13..................... 49,707 44,408
1993 Class X-225C-FP, IF, 10/25/22.................. 120,000 115,646
1993 Class 230-FA, IF, 12/25/23..................... 206,397 208,004
1994 Class 8-G, PO, 11/25/23........................ 86,531 71,302
</TABLE>
Pegasus Variable Funds
25
<PAGE>
PEGASUS VARIABLE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
1994-G Class 13-ZB, 7.00%, 11/17/24................. $ 192,624 $ 192,383
1994 Class 30-LA, 6.50%, 2/25/09.................... 32,068 32,188
1994 Class 82-SA, IO, IF, 05/25/23.................. 1,131,529 36,323
1995 Class 13-B, 6.50%, 03/25/09.................... 120,569 121,097
1996 Class 7-C, 6.50%, 12/25/10..................... 200,000 198,528
1996 Class 20-L, PO, 09/25/08....................... 195,000 145,060
1996 Class 24-B, PO, 10/25/08....................... 200,000 135,254
1996 Class 24-K, PO, 2/25/08........................ 100,000 82,904
1996 Class 39-J, PO, 9/25/08........................ 150,000 107,706
1997 Class 85-L, 6.50%, IO, 12/25/20................ 437,934 55,123
Government National Mortgage Assn. Pass Thru
Securities:
Pool #297628, 8.00%, 09/15/22....................... 149,118 155,386
Government National Mortgage Assn. Pass Thru
Securities
Gtd. Remic Trust 1994 Class 4-SA, IF, IO, 10/16/22.. 609,446 32,789
-----------
(Cost $11,217,820) 11,497,160
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS........... 40,356,292
-----------
(Cost $39,107,407)
ASSET BACKED SECURITIES -- 9.46%
Arcadia Automobile Receivables Trust,
Series 1997-B, Class A3, 6.00%, 7/16/01.............. 600,000 602,600
Series 1998-B, Class A3, 5.95%, 1/15/02.............. 250,000 250,078
Series 1998-A, Class AY, 6.00%, 11/15/03............. 200,000 200,136
Case Equipment Loan Trust Asset Backed Pass Thru.
Ctf.,
Series 1995-A, Class A, 7.30%, 03/15/02.............. 60,265 60,756
Series 1995-B, Class A3, 6.15%, 09/15/02............. 155,226 155,809
Series 1996-A, Class A2, 5.50%, 02/15/03............. 111,611 111,435
Chase Manhattan Grantor Trust, Series 1995-A, 6.00%,
09/17/01............................................. 164,129 164,335
CPS Auto Trust Asset Backed Pass Thru Ctf.,
Series 1997-4, Class A1, 6.07%, 03/15/03............. 163,660 163,833
Ford Credit Auto Owner Trust Asset Backed Pass Thru
Ctf.,
Series 1997-B, Class A2, 5.95%, 01/15/00............. 300,000 300,421
Green Tree Financial Corp. Loan Trust Asset Backed
Ctf.,
Series 1994-5, Class A2, 7.30%, 11/15/19............. 7,622 7,630
Merrill Lynch Home Equity Loan, 1992-1, Class A,
Variable Rate,
07/15/22............................................. 68,139 68,232
Nationsbank Auto Grantor Trust Asset Backed Ctf.,
Series 1995-A, Class A, 8.85%, 06/15/02.............. 28,125 28,145
Navistar Financial Corp. Owner Trust,
Series 1995-1, Class A2, 6.55%, 11/20/01............. 66,028 66,193
Olympic Automobile Rec. Trust Asset Backed Pass Thru
Ctf.,
Series 1995-C, Class A2, 6.20%, 01/15/02............. 189,639 190,227
Series 1996-C, Class A5, 7.00%, 03/15/04............. 300,000 308,174
Sears Credit Account Master Trust, Asset Backed Pass
Thru Ctf.
Series 1998-1A, 5.80%, 8/15/05....................... 200,000 199,500
ONYX Acceptance Grantor Trust Auto Loan Pass Thru
Ctf.,
Series 1996-1, Class A, 5.40%, 05/15/01.............. 129,079 128,715
Western Financial Asset Backed Pass Thru Ctf.,
Series 1996-C, Class A4, 6.80%, 12/20/03............. 150,000 152,069
</TABLE>
Pegasus Variable Funds
26
<PAGE>
PEGASUS VARIABLE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION FACE AMOUNT VALUE
----------- ----------- ------
<S> <C> <C>
WFS Financial Owner Trust Asset Backed Pass Thru Ctf.,
Series 1997-A, Class A3, 6.50%, 09/20/01............. $ 195,947 $ 197,350
Series 1997-B, Class A2, 6.05%, 07/20/00............. 228,446 228,764
Series 1997-C, Class A2, 5.95%, 06/20/00............. 188,590 188,633
Series 1997-D, Class A2, 6.20%, 09/20/00............. 350,000 350,547
Series 1996-D, Class A-3, 6.05%, 07/20/01............ 210,519 211,112
World Omni Automobile Lease Sec Trust Asset Backed
Pass Thru Ctf.,
Series 1995-A, Class A, 6.05%, 11/25/01.............. 49,728 49,744
Series 1997-B, Class A1, 6.07%, 11/25/97............. 250,000 250,545
-----------
TOTAL ASSET BACKED SECURITIES.......................... 4,634,983
-----------
(Cost $4,620,974)
CORPORATE BONDS AND NOTES -- 2.16%
Finance -- 1.07%
Associates Corp. of North America:
9.125%, 04/01/00.................................... 85,000 89,376
8.15%, 08/01/09..................................... 200,000 229,566
5.96%, 05/15/37..................................... 200,000 202,566
-----------
(Cost $516,027) 521,508
-----------
Industry -- 0.93%
Boeing Co., 7.95%, 08/15/24.......................... 110,000 135,897
Ford Motor Credit Corp., 8.20%, 02/15/02............. 300,000 320,441
-----------
(Cost $445,749) 456,338
-----------
Public Utility -- 0.16%
Nippon Telegraph & Telephone Corp., 9.50%, 07/27/98.. 80,000 80,166
-----------
(Cost $80,210)
TOTAL CORPORATE BONDS AND NOTES........................ 1,058,012
-----------
(Cost $1,041,987)
TOTAL INVESTMENTS...................................... $48,981,754
===========
(Cost $47,702,834)
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
The Pegasus Variable Bond Fund invests in securities whose value is derived
from an underlying pool of mortgages or consumer loans. Some of these
securities are collateralized mortgage obligations (CMOs). CMOs are debt
securities issued by U.S. government agencies or by financial institutions and
other mortgage lenders which are collateralized by a pool of mortgages held
under an indenture. Descriptions of certain collateralized mortgage obligations
are as follows:
Adjustable Rate (AR)
Inverse Floaters (IF) represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest payment
on an underlying pool of mortgage loans. The face amount shown represents the
par value on the underlying pool. The yields on these securities are generally
higher than prevailing market yields of other mortgage-backed securities
because their cash flow patterns are more volatile and there is a greater risk
that the initial investment will not be fully recouped. These securities are
subject to accelerated principal paydowns as a result of prepayments or
refinancing of the underlying pool of mortgage instruments. As a result,
interest income may be reduced considerably.
Pegasus Variable Funds
27
<PAGE>
PEGASUS VARIABLE BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
See Notes to Financial Statements
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's, the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayments on the underlying mortgages of these securities increase, the yield
on these securities increases.
Pegasus Variable Funds
28
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND COMMENCEMENT OF OPERATIONS
The Pegasus Variable Funds (the "Trust" or the "Funds") was organized as a
Delaware business trust on November 7, 1994, and registered under the
Investment Company Act of 1940, as amended, as an open-end investment company.
As of June 30, 1998, the Trust consisted of five separate series of which there
were four Equity Funds and one Bond Fund (the "Funds"), as described below.
EQUITY FUNDS:
Pegasus Variable Growth and Value Fund
Pegasus Variable Mid-Cap Opportunity Fund
Pegasus Variable Growth Fund
Pegasus Variable Intrinsic Value Fund
BOND FUND:
Pegasus Variable Bond Fund
The Funds commenced operations on March 30, 1995, except for the Intrinsic
Value Fund and the Bond Fund, which commenced operations on May 1, 1997. Shares
of the Trust are made available to serve as the underlying investment media of
the variable annuity contracts issued by Separate Account Six of ITT Hartford
Life & Annuity Insurance Company. Orders for the Trust's shares are executed in
accordance with the investment instructions of the contract owners.
On June 26, 1997, the Pegasus Variable Annuity Managed Assets Balanced and
Money Market Funds liquidated their assets and discontinued operations.
Shareholder investments in these two portfolios were reallocated into other
existing mutual funds offered by Separate Account Six within ITT Hartford Life
and Annuity Insurance Company, such shares being equal in value to the net
assets so reallocated.
As of December 31, 1997 the Pegasus Variable Annuity Growth and Value Fund,
Pegasus Variable Annuity Mid-Cap Opportunity Fund, Pegasus Variable Annuity
Growth Fund, Pegasus Variable Annuity Intrinsic Value Fund, and Pegasus
Variable Annuity Bond Fund changed their names to the Pegasus Variable Growth
and Value Fund, Pegasus Variable Mid-Cap Opportunity Fund, Pegasus Variable
Growth Fund, Pegasus Variable Intrinsic Value Fund, and Pegasus Variable Bond
Fund, respectively.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the financial statements. The policies are in conformity with
generally accepted accounting principles for investment companies. Following
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Investments
The Funds value investment securities at market value which is determined by a
pricing service based upon quoted market prices or dealer quotes. Securities
for which market prices or dealer quotes are not readily available are valued
by the investment advisor, First Chicago NBD Investment Management Company
(FCNIMCO), in accordance with procedures approved by the Board of Trustees.
Fixed income securities are valued at the mean of the closing bid and ask price
as estimated by an independent pricing service. Fixed income securities with
maturities less than 60 days are carried at amortized cost, which approximates
market value.
Investment security purchases and sales are accounted for as of the trade
date.
Pegasus Variable Funds
29
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
The Trust invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open market
desk will do business. FCNIMCO, acting under the supervision of the Board of
Trustees, has established the following additional policies and procedures
relating to the Trust's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by the Trust or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted under the effective interest rate
method as required by the Internal Revenue Code and by generally accepted
accounting principles. For mortgage-backed securities, as prepayments on the
underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life. Dividends
are recorded on the ex-dividend date.
Futures contracts
The Funds may enter into futures contracts for the purpose of hedging against
changes in the value of their portfolio securities or in securities they intend
to purchase. The Equity Funds may also enter into stock index futures contracts
as a substitute for comparable market positions in the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by the Fund each day, depending on
the daily fluctuation of the value of the contract. Futures contracts are
valued based upon their quoted daily closing prices. The aggregate principal
amounts of the contracts are not recorded in the financial statements. The
daily change in the value of the contract is recorded as an unrealized gain or
loss. Futures contracts open at December 31, 1997 and their related unrealized
market appreciation (depreciation) are set forth in the notes to the Portfolio
of Investments.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or indices, which may not
correlate with the change in value of the hedged investments.
Federal Income Taxes
It is the Trust's policy to comply with the requirements of Subchapter M of
the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
Net investment income and realized gains (losses) differ for financial
statement and tax purposes primarily because of the recognition of wash sales
transactions and post-October 30 capital losses. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that net investment income or realized gains were recorded
by the Funds. Certain book-to-tax timing differences for the Funds are
reflected as excess distributions in the Statements of Changes in Net Assets.
These distributions do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by the
Equity Funds and monthly by the Bond Fund. Net realized capital gains are
distributed annually or as necessary to comply with Subchapter M of the
Internal Revenue Code. Distributions from net investment income and net
realized gains are made during each year to prevent the 4% excise tax imposed
on regulated investment companies by the Internal Revenue Code.
Pegasus Variable Funds
30
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Deferred Organization Costs
Organization costs are amortized on a straight-line basis over a five year
period beginning with the commencement of operations of each portfolio.
Expenses
Expenses are charged daily as a percentage of the respective Fund's assets.
The Trust monitors the rate at which expenses are charged to ensure that a
proper amount of expense is charged to income each year. This percentage is
subject to revision if there is a change in the estimate of the future net
assets of the Funds or a change in expectations as to the level of actual
expenses.
When Issued/To Be Announced (TBA) Securities
The Bond Fund may purchase securities on a "when issued" basis. These
securities have been registered by a municipality or government agency, but
have not yet been issued to the public. These transactions involve a commitment
by the Fund to purchase particular securities, with payment and delivery taking
place at a future date, for which all specific information, such as the face
amount and maturity date of such investment security, is not known at the time
of the trade. These transactions are subject to market fluctuations and the
risk that the value at delivery may be more or less than the purchase price at
which the transactions were entered. The current value of these securities is
determined in the same manner as that of other portfolio securities. Although
the Bond Fund generally purchases these securities with the intention of
acquisition, such securities may be sold before the settlement.
(3) INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
FCNIMCO is the investment advisor pursuant to an Advisory Agreement with the
Trust. For its advisory services to the Trust, FCNIMCO is entitled to a fee,
computed daily and payable monthly.
FCNIMCO and BISYS serve as the Trust's Co-Administrators pursuant to an
Administration Agreement with the Trust. Under the Administration Agreement,
FCNIMCO and BISYS generally assist in all aspects of the Trust's operations,
other than providing investment advice, subject to the overall authority of the
Trust's Board of Trustees in accordance with Delaware law. Under the terms of
the Administration Agreement, FCNIMCO and BISYS are entitled to a monthly
administration fee at the annual rate of 0.15% of each Fund's average daily net
assets.
Prior to October 7, 1996, the Funds incurred no separate administration fee in
addition to the advisory fee for administrative services rendered by FCNIMCO
under the prior investment advisory agreement.
FCNIMCO has agreed that they may waive their fees in whole or in part; and, if
in part, may specify the particular Fund to which such waiver relates as may be
required to satisfy any expense limitation imposed by state securities laws or
other applicable laws. At present, no restrictive expense limitation is imposed
on the Trust. Restrictive limitations could be imposed as a result of changes
in current state laws and regulations in those states where the Trust has
qualified its shares, or by a decision of the Trustees to qualify the shares in
other states having restrictive expense limitations. For the period ended June
30, 1998, FCNIMCO reimbursed the Variable Growth and Value Fund, Variable Mid-
Cap Opportunity Fund, Variable Growth Fund, Variable Intrinsic Value Fund, and
Variable Bond Fund for certain expenses in the amounts of $12,486, $35,576,
$21,133, $15,096 and $1,759, respectively.
On April 10, 1998, First Chicago NBD Investment Management Company's parent
company, First Chicago NBD Corporation, entered into an agreement and plan of
merger with BANC ONE CORPORATION pursuant to which First Chicago NBD
Corporation will merge with and into BANC ONE CORPORATION. The merger is
conditioned upon, among other things, approval by holders of a majority of the
BANC ONE CORPORATION common stock, approval by holders of a majority of the
First Chicago NBD Corporation common stock, and receipt of certain regulatory
and governmental approvals.
Pegasus Variable Funds
31
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(4) INVESTMENT SECURITIES TRANSACTIONS
Information with respect to investment securities and security transactions at
federal tax cost, excluding short-term investments, for the period ended June
30, 1998 is as follows:
<TABLE>
<CAPTION>
MID-CAP
GROWTH AND OPPORTUNITY INTRINSIC
VALUE FUND FUND GROWTH FUND VALUE FUND BOND FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Unrealized Gains $ 8,601,505 $ 3,143,615 $ 7,213,453 $ 1,683,053 $ 1,388,928
Gross Unrealized Losses (1,507,492) (495,089) (516,545) (630,630) (110,008)
- -----------------------------------------------------------------------------------------
$ 7,094,013 $ 2,648,526 $ 6,696,908 $ 1,052,423 $ 1,278,920
- -----------------------------------------------------------------------------------------
Federal Income Tax Cost $45,585,015 $13,924,495 $14,601,086 $18,153,397 $47,702,834
Purchases $15,102,418 $ 4,975,816 $ 5,630,720 $ 4,672,896 $15,459,999
Sales $ 7,276,268 $ 1,977,547 $ 3,002,249 $ 819,662 $ 2,310,196
</TABLE>
(5) EXPENSES
For the period ended June 30, 1998, FCNIMCO voluntarily agreed to reimburse a
portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded 0.95% for the Growth and Value, Mid-Cap Opportunity, Growth,
and Intrinsic Value Funds and 0.75% for the Bond Fund (as a percentage of each
Fund's average daily net assets).
(6) EQUITY OF AFFILIATES:
As of June 30, 1998, Hartford Life Insurance Company held a direct interest in
shares as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES TOTAL SHARES
---------------------------------------------
<S> <C> <C>
Pegasus Variable Growth
and Value Fund 56,417 1.89%
Pegasus Variable Mid-Cap
Opportunity Fund 61,711 5.96%
Pegasus Variable Growth
Fund 55,735 4.81%
Pegasus Variable Intrin-
sic Value Fund 52,240 3.23%
Pegasus Variable Bond
Fund 214,199 4.56%
</TABLE>
Pegasus Variable Funds
32
<PAGE>
[INTENTIONALLY LEFT BLANK]
Pegasus Variable Funds
33
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
The Financial Highlights present a per share analysis of how the Pegasus
Variable Funds' net asset values have changed during the periods presented.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements of
the Funds and other information for the periods presented.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
-------------------------------------------
NET
REALIZED
AND
UNREALIZED
GAIN (LOSS)
ON
NET ASSET NET INVESTMENTS FROM
VALUE, INVESTMENT AND TOTAL FROM NET
BEGINNING INCOME FINANCIAL INVESTMENT INVESTMENT
OF PERIOD (LOSS) FUTURES OPERATIONS INCOME
<S> <C> <C> <C> <C> <C>
GROWTH AND VALUE FUND
For the period ended 6/30/98 (Unaudited) $16.22 0.05 1.31 1.36 (0.05)
December 31, 1997 13.19 0.13 3.38 3.51 (0.13)
December 31, 1996 11.63 0.15 2.02 2.17 (0.14)
December 31, 1995(/1/) 10.00 0.13 1.63 1.76 (0.13)
- ------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
For the period ended 6/30/98 (Unaudited) $14.38 (0.01) 1.04 1.03 --
December 31, 1997 13.46 0.01 3.55 3.56 (0.01)
December 31, 1996 11.02 0.03 2.67 2.70 (0.03)
December 31, 1995(/1/) 10.00 0.05 1.02 1.07 (0.05)
- ------------------------------------------------------------------------------------------------
GROWTH FUND
For the period ended 6/30/98 (Unaudited) $15.39 (0.02) 3.06 3.04 --
December 31, 1997 13.28 0.03 3.36 3.39 (0.03)
December 31, 1996 11.37 0.05 1.94 1.99 (0.05)
December 31, 1995(/1/) 10.00 0.06 1.38 1.43 (0.05)
- ------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
For the period ended 6/30/98 (Unaudited) $11.53 0.12 0.40 0.52 (0.11)
For the period ended 12/31/97(/2/) 10.00 0.12 1.57 1.69 (0.12)
- ------------------------------------------------------------------------------------------------
BOND FUND
For the period ended 6/30/98 (Unaudited) $10.44 0.29 0.10 0.39 (0.29)
For the period ended 12/31/97(/2/) 10.00 0.37 0.45 0.82 (0.37)
- ------------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------
FROM IN EXCESS
REALIZED OF REALIZED TOTAL
GAINS GAINS DISTRIBUTIONS
----------------------------------
<S> <C> <C> <C>
GROWTH AND VALUE FUND
For the period ended 6/30/98 (Unaudited) (0.07) -- (0.12)
December 31, 1997 (0.35) -- (0.48)
December 31, 1996 (0.47) -- (0.61)
December 31, 1995(/1/) -- -- (0.13)
- ------------------------------------------------------------------------------------------------
MID-CAP OPPORTUNITY FUND
For the period ended 6/30/98 (Unaudited) (0.09) -- (0.09)
December 31, 1997 (2.63) -- (2.64)
December 31, 1996 (0.23) -- (0.26)
December 31, 1995(/1/) -- -- (0.05)
- ------------------------------------------------------------------------------------------------
GROWTH FUND
For the period ended 6/30/98 (Unaudited) (0.04) -- (0.04)
December 31, 1997 (1.25) -- (1.28)
December 31, 1996 (0.01) (0.02) (0.08)
December 31, 1995(/1/) (0.01) -- (0.06)
- ------------------------------------------------------------------------------------------------
INTRINSIC VALUE FUND
For the period ended 6/30/98 (Unaudited) (0.05) -- (0.16)
For the period ended 12/31/97(/2/) (0.04) -- (0.16)
- ------------------------------------------------------------------------------------------------
BOND FUND
For the period ended 6/30/98 (Unaudited) -- -- (0.29)
For the period ended 12/31/97(/2/) (0.01) -- (0.38)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Commenced operations on March 30, 1995.
(2) Commenced operations on May 1, 1997.
+ Annualized.
Pegasus Variable Funds
34
<PAGE>
PEGASUS VARIABLE FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------
NET EXPENSES
ASSET NET NET WITHOUT
VALUE ASSETS INVESTMENT FEE WAIVERS/ PORTFOLIO
END OF TOTAL END OF INCOME REIMBURSED TURNOVER
PERIOD RETURN PERIOD EXPENSES (LOSS) EXPENSES RATE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
17.46 17.60%+ $52,143,698 0.95%+ 0.65%+ 1.00%+ 16.76%
16.22 26.80% $38,705,197 0.93% 0.93% 1.10% 31.11%
13.19 18.75% $ 8,602,557 0.85% 1.35% 2.27% 46.82%
11.63 22.75%+ $ 3,753,691 0.85%+ 1.78%+ 4.93%+ 17.47%
- ---------------------------------------------------------------------------
15.32 14.42%+ $15,868,068 0.95%+ (0.15%)+ 1.46%+ 14.61%
14.38 26.65% $11,668,230 0.91% 0.04% 1.49% 80.65%
13.46 24.53% $ 9,215,660 0.85% 0.28% 2.11% 37.44%
11.02 14.20%+ $ 4,972,365 0.85%+ 0.67%+ 4.64%+ 32.11%
- ---------------------------------------------------------------------------
18.39 39.50%+ $21,318,833 0.95%+ (0.21%)+ 1.16%+ 16.34%
15.39 25.45% $15,839,911 0.91% 0.21% 1.26% 51.00%
13.28 17.52% $11,542,021 0.85% 0.49% 1.65% 23.11%
11.37 18.82%+ $ 6,434,936 0.85%+ 0.81%+ 3.15%+ 4.46%
- ---------------------------------------------------------------------------
11.89 9.12%+ $19,229,502 0.95%+ 2.17%+ 1.12%+ 5.21%
11.53 25.26%+ $13,925,558 0.95%+ 1.83%+ 1.22%+ 19.64%
- ---------------------------------------------------------------------------
10.54 7.64%+ $49,530,730 0.75%+ 5.86%+ 0.76%+ 5.94%
10.44 12.29%+ $34,229,870 0.75%+ 5.97%+ 0.77%+ 14.77%
- ---------------------------------------------------------------------------
</TABLE>
Pegasus Variable Funds
35
