-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWKHSx5Kxs82MO7RSoCkXzLemnP+ZXD9hmHUkwGB7S2iWG5bJe5xIch1qJt9Ngmk Mtw4x3M8OhL9OaZMmnLb1w== 0001047469-03-029133.txt : 20030828 0001047469-03-029133.hdr.sgml : 20030828 20030828110149 ACCESSION NUMBER: 0001047469-03-029133 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030828 EFFECTIVENESS DATE: 20030828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL APPRECIATION VARIABLE ACCOUNT/MA CENTRAL INDEX KEY: 0000706111 IRS NUMBER: 042461439 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03561 FILM NUMBER: 03870025 BUSINESS ADDRESS: STREET 1: C/O SUN LIFE ASSURANCE CO OF CANADA STREET 2: ONE SUN LIFE EXECUTIVE PARK CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 BUSINESS PHONE: 6179545244 MAIL ADDRESS: STREET 1: C/O SUN LIFE ASSURANCE CO OF CANADA STREET 2: ONE SUN LIFE EXECUTIVE PARK CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 FORMER COMPANY: FORMER CONFORMED NAME: COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT/MA DATE OF NAME CHANGE: 19880121 N-CSRS 1 a2117386zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3561 - -------------------------------------------------------------------------------- COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 500 Boylston Street, Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Stephen E. Cavan Massachusetts Financial Services Company 500 Bolyston Street Boston, Massachusetts 02116 - -------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (617) 954-5000 - -------------------------------------------------------------------------------- Date of fiscal year end: December 31, 2002 - -------------------------------------------------------------------------------- Date of reporting period: June 30, 2003 - -------------------------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. [COMPASS LOGO] PROFESSIONALLY MANAGED COMBINATION FIXED/VARIABLE ANNUITIES FOR PERSONAL INVESTMENTS AND QUALIFIED RETIREMENT PLANS SEMIANNUAL REPORT - JUNE 30, 2003 CAPITAL APPRECIATION VARIABLE ACCOUNT GLOBAL GOVERNMENTS VARIABLE ACCOUNT GOVERNMENT SECURITIES VARIABLE ACCOUNT HIGH YIELD VARIABLE ACCOUNT MANAGED SECTORS VARIABLE ACCOUNT MONEY MARKET VARIABLE ACCOUNT TOTAL RETURN VARIABLE ACCOUNT ISSUED BY SUN LIFE ASSURANCE COMPANY OF CANADA (U.S), A WHOLLY OWNED SUBSIDIARY OF SUN LIFE OF CANADA (U.S.) HOLDINGS, INC. TABLE OF CONTENTS Letter from the Chairman 1 Management Reviews 2 Performance Summary 7 Portfolio of Investments 8 Financial Statements 24 Notes to Financial Statements 42 Board of Managers and Officers Back Cover
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY LETTER FROM THE CHAIRMAN DEAR CONTRACT OWNERS, We believe that bottom-up fundamental research is the best means of achieving superior long-term investment performance. When you're managing billions of dollars for investors, we think you have an obligation to have in-depth, firsthand knowledge of every company owned, anywhere in the world. MFS has structured its equity and fixed-income investment teams to capitalize on the strength of its investment process and the global reach of analysts based around the world. The global research team is composed of 45 equity research analysts, 27 based in the United States and 18 based abroad, and 26 credit research analysts. Each analyst is assigned one or more specific industries and then charged with identifying the most attractive investment ideas within these industries. The U.S. and non-U.S. equity research analysts are unified into one team that emphasizes a collaborative process in analyzing securities around the globe. Credit analysts also share their expertise in each segment of the fixed-income market and work as part of the same team ensuring that every member has access to information that may have a material effect on their investment decisions. As MFS(R) continues to grow and as markets become more complex, we believe this structure will enable the firm to maintain a consistent investment process with the goal of providing strong, long-term investment performance across market capitalizations, investment disciplines, and country borders for investors. THINKING GLOBALLY More companies than ever compete globally and, therefore, we must make investment decisions knowing what is occurring outside of a company's local market. This trend plays to the strength of MFS' environment of collaboration between research analysts and portfolio managers around the globe. The analysts know the most details about individual companies in specific industries and geographic regions. The portfolio managers have broader, cross-industry insights and a wider perspective on companies and industries. The goal is to make sure those two sets of perspectives coordinate and work well together. As the world's markets become more interdependent, we believe this collaborative environment allows MFS to produce solid investment ideas for our portfolios. BUILDING A NETWORK Simply put, we believe this structure assures that the analysts maintain their peripheral vision rather than become too immersed in a specific segment of the market. We do not believe that analysts and portfolio managers -- no matter how talented they may be -- can succeed by working in a vacuum. Through the latest technology available, the entire MFS research team meets frequently via video and telephone teleconferences, e-mail, and PDAs (personal digital assistants). When MFS hires new analysts, the firm requires them to spend an average of one year in Boston to learn the company's culture and to build relationships with their peers. This interaction among the analysts fosters a collaborative process that we believe is essential to deliver investment performance for our investors. The analysts work out of four research offices in Boston, London, Singapore, and Tokyo, and are assigned to specific regions and industries. They meet regularly with their colleagues to discuss world trends affecting the companies they cover. In addition, the equity and fixed-income analysts often visit company managements as a team. This collaboration is vital because of the different perspectives they bring to their analysis. Because a company's stock price has tended to follow its earnings over time, the equity research analysts tend to focus on gauging earnings potential, a company's position within its industry, and its ability to grow its market share. Conversely, the firm's fixed-income analysts will look at stability of a company's cash flow, the value of its assets, and its capital structure to gauge whether the company can generate enough free cash flow to pay off its debt. As a result of their collaboration, we believe we're able to obtain a more complete view of a company. WORKING TOGETHER Portfolio managers also work closely with the analysts to select the most appropriate securities for their portfolios from the various recommendations made by the analysts. Opinions are exchanged and ideas are challenged so that each member of the team is involved in our investment process. In fact, the portfolio managers will be the first ones to tell you that many of their best ideas start with the research analysts. We believe our collaborative approach also provides us with an effective way to assess risk. The portfolio managers are not discouraged from taking on an appropriate level of risk; however, we have rigorous guidelines to assure that the level of risk is measured and monitored and consistent with the investment philosophies of each of our portfolios. All told, this culture empowers the members of the investment team to continue to do their best work and allows them to make better investment decisions. As always, we appreciate your confidence in MFS and Sun Life, and we welcome any questions or comments you may have. Respectfully, /s/ C. James Prieur C. James Prieur Chairman of the MFS(R)/Compass Variable Account July 21, 2003 The opinions expressed in this letter are those of C. James Prieur, and no forecasts can be guaranteed. 1 MARKET ENVIRONMENT DURING THE PERIOD GLOBAL STOCK MARKETS RALLIED During the first half of 2003, investors enjoyed better results than they had experienced in several years. Nearly all asset classes showed positive performance for the period, and a second-quarter rally gave investors in U.S. and overseas stock markets their best quarter in many years. Looking at the global economy, however, we did not see much hard evidence that economic factors -- such as unemployment, consumer spending, or business investment -- had improved dramatically since the beginning of the year. In our view, the market rally seemed largely based on a combination of relief, hope, earnings improvement, and low interest rates: relief that both the conflict in Iraq and the SARS outbreak had been contained; hope for stronger economic numbers in the second half of 2003; first-quarter corporate earnings reports that were somewhat stronger than expected; and interest rates so low that investors sought out riskier asset classes -- such as stocks -- that offered potentially higher returns. FIXED-INCOME INVESTORS SOUGHT OUT HIGHER-YIELDING BONDS During the six-month period ended June 30, events that influenced U.S. and international fixed-income markets included U.S. mortgage rates that fell to near 40-year lows, a weak U.S. dollar relative to foreign currencies, and interest rate cuts by the U.S. Federal Reserve Board, the Bank of England, and the European Central Bank (ECB). Investors showed reinvigorated interest in U.S. corporate bonds of all quality levels. In our view, that interest was sparked by the historically low yields offered by U.S. Treasury securities, improvement in the balance sheet quality of corporate issuers, and increased investor confidence. Low yields on U.S. Treasury securities made higher-yielding corporate issues more attractive to investors, in our opinion. (The principal value and interest on U.S. Treasury securities is guaranteed by the U.S. Government if held to maturity.) High-grade corporate bonds performed well for the period, but they were well behind the strong results achieved by high-yield corporate issues. The period was marked by near-record inflows into the high-yield sector at a time when there was only a modest supply of new high-yield issues available. The result of this supply/demand imbalance was significant appreciation in high-yield bond prices overall. Although interest rates offered by overseas government bonds declined during the six-month period, the rates of return they offered were generally higher than those of U.S. Treasuries throughout the period. Emerging market bonds were among the top international performers because of the attractive yields they offered and the generally improving credit quality in developing nations. MANAGEMENT REVIEWS CAPITAL APPRECIATION VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass 2 account provided a total return of 15.36%, the Compass 3 account provided a total return of 15.30%, and the Compass 3 -- level 2 account provided a total return of 15.38 %. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of 13.09% over the same period for the account's benchmark, the Russell 1000 Growth Index, which measures the performance of large-cap U.S. growth stocks. PERFORMANCE CONTRIBUTORS Leisure, health care, and consumer staples were the account's best-performing sectors over the period. Strength among leisure holdings came from a variety of areas. Satellite broadcaster EchoStar grew its customer base while lowering the cost of adding new subscribers and controlling customer turnover. Cendant's various travel-related businesses rebounded as fighting in Iraq subsided. USA Interactive (which changed its name to InterActiveCorp during the period) consolidated its corporate structure by buying the stock it did not already own in subsidiaries TicketMaster, Expedia, and Hotels.com. We believe those actions set the course for potential future growth opportunities. Cable giant Comcast also delivered strong performance. The company made good progress in integrating its AT&T Broadband acquisition, and that progress boosted results from operations. Within health care, performance was helped by our positioning among health care service providers. Rising drug costs highlighted the value of pharmacy benefit managers -- firms that help other companies lower the cost of providing prescription drug benefits to employees. Our holdings in this industry included Express Scripts and Caremark. Elsewhere in health care, positions in biotechnology firms boosted returns. Genentech shares climbed dramatically following the release of favorable test results for the company's colon cancer product, Avastin. It is hoped that this compound may be the first of a new generation of medications designed to combat cancer by cutting off blood supply to tumors. Our position in Amgen rose as the company successfully launched three new products. Avoiding HCA, a hospital firm whose stock declined over the period, also helped the portfolio's relative performance. The account's underweighting in the consumer staples sector helped performance as the market, in our view, rotated away from consumer staples issues to favor stocks that were seen as more aggressive issues. Especially during the second-quarter market rally, the portfolio benefited from not owning familiar names such as Coca Cola and Sara Lee -- stocks that we felt did not fit our growth strategy and that, in fact, underperformed over the period, relative to the Russell Index. In addition, a cash settlement from a class-action lawsuit contributed to performance over the period. The account was a participant in a suit against Cendant related to alleged accounting fraud that was uncovered in 1998, after Cendant was formed by the merger of HFS and CUC International. The account had owned both HFS and CUC, and then Cendant, during the merger period. Along with other participants in the lawsuit, the portfolio suffered losses on Cendant stock in 1998. PERFORMANCE DETRACTORS A number of holdings in the business services arena failed to meet our expectations over the period. Chief among these was 2 Automatic Data Processing (ADP). The company had previously dealt with a weak environment -- soft demand for its payroll and financial services trade processing services -- by cutting costs. In March of 2003, however, ADP management signaled that they would add back some incremental expenses and take some other actions that we felt could dampen future earnings growth. The stock fell on the news of the change in strategy, and we sold our position. Elsewhere in business services, Affiliated Computer Services stock declined as the firm's business in information technology (IT) outsourcing was hurt by weak overall corporate spending. Our positions in transaction processor Concord EFS and consulting firm Accenture also declined over the period. All three stocks were sold out of the portfolio by period-end. Positioning among industrial goods and services firms also detracted from relative performance. Our holding in Northrop Grumman declined as a number of one-time charges masked otherwise good operating performance. The portfolio's underweighting in General Electric also held back relative results as GE outperformed during the period. Although several of our technology holdings were strong performers -- such as storage provider VERITAS Software and chip maker Analog Devices -- our overall performance in the sector slightly lagged our benchmark. Relative results were held back by our underweighting in semiconductor firm Intel, which rose strongly over the period, and by our holdings in software firms Network Associates and PeopleSoft, which declined. PeopleSoft and Intel were not in the portfolio at period-end. Stock selection among retailers also hurt relative performance. Our chief detractor in the sector was Kohl's, whose sales results were below expectations. GLOBAL GOVERNMENTS VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass 2 account provided a total return of 7.70%, the Compass 3 account provided a total return of 7.62%, and Compass 3 -- level 2 account provided a total return of 7.70%. These returns, which include the reinvestment of any dividends and capital gains distributions, compares with a return of 7.11% over the same period for the account's benchmark, the Salomon Brothers World Government Bond Index. The Salomon Brothers World Government Bond Index measures the government bond markets around the world. A BOND-FRIENDLY ENVIRONMENT The global environment in the first half of 2003 was characterized by weak economic activity and swings in risk aversion, particularly during the period surrounding the U.S. intervention in Iraq. These factors contributed to a bond-friendly environment as central banks in nearly all major economies responded to low-growth, low-inflation conditions with loose monetary policies. The dollar was generally weak against most major currencies over this period. The large U.S. current account deficit -- equivalent to 5% of the GDP (gross domestic product) and trending higher -- proved to be a powerful depreciating force on the dollar. It declined nearly 10% against the euro for the period. Greater dollar weakness was exhibited against some of the "dollar bloc" currencies, particularly the Canadian and Australian dollars. Japanese official intervention tempered the appreciation of the yen. Tentative signs of an uptick in global activity began to reverse some of these bond and currency movements as we opened the second half. KEY CONTRIBUTORS TO PERFORMANCE The portfolio benefited from a significant overweight position relative to its benchmark in Euro-bloc bonds. Attractive yields in Europe and the modest compression of their spread over U.S. Treasuries contributed to their relative outperformance. The portfolio's overweighted exposure to the euro was an additional contributor to outperformance. More recently, we have taken profits and reduced our euro currency position (while maintaining an overweight position in Euro-bloc bonds). The series' overweight bond and currency positions in Canada helped performance as did the bond positions in New Zealand and currency positions in Australia. KEY DETRACTORS TO PERFORMANCE Although the portfolio outperformed its benchmark, we could have done a better job against the U.S. component of the index. Our concerns regarding the relative "richness" of the U.S. Treasury market (particularly in relation to Europe) resulted in our underweighting the U.S. market prematurely. This positioning detracted somewhat from performance in the period. In addition, our underweighting in U.K. gilts and the Swiss franc were modest detractors from performance. GOVERNMENT SECURITIES VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass 2 account provided a total return of 2.07%, the Compass 3 account provided a total return of 2.02%, and the Compass 3 -- level 2 account provided a total return of 2.10%. These returns, which include the reinvestment of any dividends and capital gain distributions, compares with a return of 2.61% over the same period for the account's benchmark, the Lehman Brothers Government/Mortgage Index (the Lehman Index). The Lehman Index measures the performance of the government and mortgage securities markets. A TURBULENT YIELD ENVIRONMENT Global economic weakness, the U.S./Iraq war, and weaker-than-expected growth in U.S. gross domestic product contributed to a general decline in interest rates. During the first six months of 2003, the fixed-income markets continued to react to mixed economic signals and growing evidence of the U.S. Federal Reserve Board's (the Fed's) concerns about possible deflation. Investors took the Fed's mention in May of the possibility of "an unwelcome substantial fall in inflation," I.E., deflation, to mean that short-term rates would remain low for the foreseeable future. As a result, they drove interest rates on longer-term bonds to their lowest levels since the 1950s and triggered a rally in bond prices. The yield on 10-year Treasuries fell from 3.85% on May 1 to 3.1% by June 13. As yields fell and prices rose, Fed watchers began predicting that the Fed would cut rates 0.50% at its Open Market Committee meeting on June 25. They were disappointed by a cut of only 0.25%. Five days later, on June 30, the yield on the 10-year Treasury had risen to 3.51% and prices had fallen back to earlier levels. 3 DETRACTORS AND CONTRIBUTORS TO ACCOUNT PERFORMANCE U.S. Treasury securities posted lackluster returns throughout the period due in part to volatility in the Treasury market. Holdings of premium coupon mortgage-backed securities experienced prepayments throughout the period and dampened returns for the six months ended June 30. However, the account's lower coupon mortgage-backed securities performed slightly better over the period. Performance from the account's government agency positions surpassed Treasury results, particularly Small Business Administration (SBA) and Financing Corporation (FICO) holdings. (FICO was formed in the late 1980s by the Federal Home Loan Bank Board to help rescue thrift institutions.) Issues from these two agencies are less liquid than other agency securities and are traded less frequently. As a consequence, SBA and FICO issues provide a slight yield advantage over other federal agency paper. HIGH YIELD VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass level 2 account provided a total return of 10.62%, the Compass level 3 account provided a total return of 10.57%, and the Compass 3 -- level 2 account provided a total return of 10.65%. These returns, include the reinvestment of any dividends and capital gains distributions and compares with returns over the same period of 18.49% and 15.74%, respectively, for the account's benchmarks, the Lehman Brothers High Yield Index (the Lehman Index) and the Lipper High Current Yield Index (the Lipper Index). The Lehman Index measures the performance of the high-yield bond market. The Lipper Indices measure the performance of portfolios within their respective classifications and does not include mortality and expense risk charges. DETRACTORS FROM PERFORMANCE Overall, the portfolio's holdings were decidedly defensive relative to the high-yield market at large. While the series' defensiveness served investors well in recent years, it contributed to its underperformance during this period, as investors favored riskier options. The series continued to have significant underweight exposure relative to the benchmark to the wireline segment of the telecommunications industry, which still faced many fundamental challenges, including significant overcapacity. The series also had underweight exposure to the utilities sector, which proved to be one of the leaders of the high-yield rally during the period. In general, our strategy is to focus on credit issuers with improving fundamentals and to not take excessive risk. We continue to remain true to our discipline focus because we believe fundamentals drive performance over the long term. CONTRIBUTORS TO PERFORMANCE The rebound in the high-yield market was led by the telecommunications, utilities, and media sectors. While we were underweight in some of these sectors, or portions of them, we were able to strategically take advantage of the rally in the utilities sector and in the wireline segment of the telecommunications sector by choosing select names we felt were attractive from fundamental and valuation standpoints. Within our wireless telecom industry weighting, we favored select names with the ability to generate strong free cash flow. We had overweight exposure to the media sector, where we also favored companies with the ability to generate strong free cash flow. Many of these were broadcasting companies, which have tended to benefit from an increase in advertising revenue in past economic recoveries. MANAGED SECTORS VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass level 2 account provided a total return of 12.32%, the Compass level 3 account provided a total return of 12.24%, and the Compass 3 -- level 2 account provided a total return of 12.32%. These returns, which include the reinvestment of any dividends and capital gains distributions, compares with a return of 13.09% over the same period for the account's benchmark, the Russell 1000 Growth Index (the Russell Index), which measures the performance of large-cap U.S. growth stocks. The account's return also compares to a return over the same period of 13.49% for the Russell 3000 Growth Index and 15.63% for the Lipper Multi-cap Growth Index. The Russell 3000 Growth Index measures the performance of U.S. growth stocks. The Lipper index does not include mortality and expense risk charges. PERFORMANCE CONTRIBUTORS Favorable stock selection in health care, consumer staples, and financial services supported relative performance. In health care, several of our biotechnology positions delivered robust results. Chief among these was Genentech, whose shares climbed dramatically following the release of favorable test results for Avastin, the company's experimental colon cancer drug. It is hoped that the compound may be the first of a new generation of medications designed to combat cancer by cutting off blood supply to tumors. Our position in Amgen rose as the company successfully launched three new products, and Genzyme stock benefited when the firm won FDA approval for two new drugs. Avoiding some disappointing names in the health care sector -- including Tenet Healthcare and HCA -- also helped the portfolio's relative performance. The account's underweighting in the consumer staples sector helped performance, particularly during the second-quarter market rally. While familiar names such as Coca Cola -- which we did not own -- and Procter & Gamble finished the period higher, their performance lagged the Russell Index. Stock selection among financial services concerns also helped results during the period. In particular, the portfolio's focus on capital-markets-sensitive franchises such as Citigroup, Merrill Lynch, and Goldman Sachs helped performance as bond spreads narrowed, trading volumes rose, and underwriting activity showed signs of renewed life. Individual stocks in other areas also helped performance. Our position in retailer Home Depot, for example, reaped rewards as that company showed progress in improving sales and controlling expenses. In the leisure sector, USA Interactive (which changed its name to InterActiveCorp over the period) consolidated its corporate structure by buying the stock it did not already own in subsidiaries TicketMaster, Expedia, and Hotels.com. The stock rose as, we believe, those actions set the course for potential future growth opportunities. PERFORMANCE DETRACTORS A number of holdings in the business services arena failed to meet our expectations over the period. Chief among these was Automatic Data Processing (ADP). The company had previously dealt with a weak environment -- soft demand for its payroll and financial services trade processing services -- by cutting costs. In 4 March of 2003, however, ADP management signaled that they would add back some incremental expenses and take some other actions that we felt could dampen future earnings growth. The stock fell on the news of the change in strategy, and we sold our position. Elsewhere in business services, Affiliated Computer Services stock declined as the firm's business in information technology (IT) outsourcing was hurt by weak overall corporate spending and it was eliminated from the portfolio. Positioning among industrial goods and services firms also detracted from relative performance. Our holding in Northrop Grumman declined as a number of one-time charges masked otherwise good operating performance. The portfolio's underweighting in General Electric also held back relative results as GE outperformed during the period. Stock selection among retailers also hurt relative performance. Our chief detractor in the sector was Kohl's, whose sales results were below expectations. Despite the fact that several of our technology holdings were strong performers - -- such as storage provider VERITAS Software and chip maker Analog Devices -- our overall positioning in the sector detracted from results. Performance was held back by our underweighting in semiconductor firms in general and Intel in particular, which outperformed during the period. Elsewhere in technology, our holdings in software firms Network Associates and PeopleSoft traded lower as those firms reduced future earnings projections. NOTES TO CONTRACT OWNERS: EFFECTIVE AUGUST, 2002, A TEAM COMPOSED OF MARGARET W. ADAMS, S. IRFAN ALI, JOHN E. LATHROP, AND STEPHEN PESEK BECAME THE MANAGEMENT TEAM OF THE PORTFOLIO. TONI Y. SHIMURA IS NO LONGER A MANAGER OF THE PORTFOLIO. EFFECTIVE MAY 21, 2003, THE RUSSELL 1000 GROWTH INDEX REPLACED THE RUSSELL 3000 GROWTH INDEX AS THE BENCHMARK OF THE ACCOUNT. WE BELIEVE THE RUSSELL 1000 GROWTH INDEX MORE ACCURATELY REFLECTS THE PORTFOLIO'S INVESTMENT DISCIPLINE, OFFERING INVESTORS A MORE RELIABLE OBJECTIVE MEASURE OF THE ACCOUNT'S PERFORMANCE. MONEY MARKET VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass level 2 account provided a total return of (0.28%), the Compass level 3 account provided a total return of (0.33%), and the Compass 3 -- level 2 account provided a total return of (0.25%). These returns, include the reinvestment of any distributions and compares with a 0.26% return for the average money market portfolio tracked by Lipper Inc., an independent firm that tracks portfolio performance which does not consider mortality and expense risk charge. A FAIRLY STABLE INTEREST RATE ENVIRONMENT During the period, there was tremendous uncertainty within the marketplace as well as the geopolitical arena. High levels of jobless claims, volatile energy prices, and the war in Iraq all contributed to restrained business and consumer spending. The U.S. Federal Reserve Board (the Fed) held short-term interest rates steady from January 1, 2003 through June 24. However, on June 25, the Fed cut the federal funds rate by 0.25% to 1.00%. The quarter of a percent reduction was less than the 0.50% that some investment professionals had anticipated. The smaller cut was viewed by many as a sign of optimism by the Fed. In fact, the Fed stated in its release that accompanied the cut, "Recent signs point to a firming in spending, markedly improved financial conditions, and labor and product markets that are stabilizing." Results for the account were negative due to the additional Sun Life charges which are seperate from and in addition to the management fee. Consequently, we concentrated portfolio investments in high-quality commercial paper and asset-backed commercial paper. These short-term obligations typically yielded three to five basis points (0.03% to 0.05%) more than discount agency paper of similar maturity. On June 30, 2003, approximately 83% of the portfolio was invested in commercial paper and asset-backed commercial paper. The balance of the portfolio was invested in U.S. government and government guaranteed issues. LIMITED SUPPLY OF COMMERCIAL PAPER The precarious nature of the economy caused companies to cut costs by reducing overhead, cutting the size of their workforce, and pulling back on merger and acquisition activity. As a result, companies had less need to finance debt through the commercial paper market, and supplies of commercial paper became limited. However, demand for all types of high-quality short-term debt, including commercial paper, was strong throughout the six-month reporting period. Constricted supply and continued demand caused the money market yield curve to flatten. Investors were unable to earn additional yield by investing in instruments of longer maturities. Given the flattened yield curve, we saw no compelling argument to invest in longer maturities. Until the Fed's interest rate cut in June, we had targeted an average maturity for the portfolio at about 50 days. After the cut, we revised our target maturity downward to 40 to 45 days. COMMITMENT TO QUALITY Regardless of market or economic conditions, we will maintain the portfolio's high quality as we focus on the account's objectives of income, capital preservation, and liquidity. TOTAL RETURN VARIABLE ACCOUNT For the six months ended June 30, 2003, the Compass level 2 account provided a total return of 7.42%, the Compass level 3 account provided a total return of 7.35%, and the Compass 3 -- level 2 account provided a total return of 7.42%. These returns, which include the reinvestment of any capital gains and dividend distributions, compares with returns of 11.75% and 3.93%, respectively, for the account's benchmarks, the Standard & Poor's 500 Stock Index and the Lehman Brothers Aggregate Bond Index. The S&P 500 is a commonly used measure of the broad stock market. The Lehman Index is a measure of the U.S. bond market. SLOW AND STEADY The account recorded positive relative performance for the period, although it trailed the S&P 500. We believe that a major reason for the account's underperformance was its conservative positioning in both the equity and fixed-income portions, which has been our long-term strategy regardless of current economic or market conditions. It also diversifies to reduce portfolio volatility. As a result of being a value investor, the account is typically underweighted in such sectors as technology and retail, both of which rebounded during the period. The stocks that performed the best were the higher quality and higher volatility stocks that had depreciated significantly during 5 the bear market. Prices of higher-quality, lower-risk stocks rose also, but not as much their more aggressive counterparts. As a result, our emphasis on quality somewhat held back the account's investment performance relative to its stock benchmark. SOLID CONTRIBUTIONS FROM UTILITIES & COMMUNICATIONS STOCKS For the period, the account's overweighted stock holdings in utilities & communications helped performance. The two standouts in the utilities & communications sector were AT&T Wireless and Calpine Corp. Calpine, which owns power generating plants and acts as a power merchant, had suffered from weak power demand and concern that it wouldn't meet its debt obligations. As concerns about the company's liquidity dissipated, the stock price rose. Stock selection among energy stocks also contributed to the account's performance as many oil producing and oil service companies benefited from the continued high price of oil and natural gas, including Occidental Petroleum. There were bright spots in the retail sectors as well. Shares of Sears reacted very positively to the announcement that it would be selling its credit card portfolio, thereby eliminating a major concern of investors and highlighting the stock's attractive price. Comcast exceeded investor expectations for new subscriber additions and started to reap benefits from its acquisition of AT&T Broadband. Both developments contributed to higher stock prices. HEALTH CARE DISAPPOINTING Health care stock holdings disappointed during the period, including Schering Plough. Its stock price declined sharply because of announcements of lower earnings, investigations of shareholder reporting practices, and marketing difficulties with a prescription allergy drug. The account's overweighted position in AT&T Corp. also hurt performance during the period. At the end of last year, AT&T appeared ready to turn a corner. However, pricing for the company's long distance service continues to be weak and competition remains fierce. As a result, expectations of future earnings were reduced and AT&T's stock price fell. FIXED-INCOME PERFORMANCE Generally, the account likes to keep 40% to 45% of the portfolio invested in bonds. Because of the stock market improvement during the period, we kept the portfolio at the lower end of the range. Our bond holdings contributed significantly to the account's performance by providing income and a measure of stability to the overall portfolio. We had trimmed our U.S. Treasury position in favor of corporate bonds because we felt that corporate bonds were attractively priced and offered better yields. (The principal value and interest on U.S. Treasury securities are guaranteed by the U.S. government if held to maturity.) During the period, interest rates fell to new 40-year lows and investor demand for the higher yields corporate bonds offer relative to government bonds drove corporate bond prices higher. Despite the rally we've experienced in the corporate bond market over the last several months, we believe there continue to be many companies with strong balance sheets whose bonds trade at attractive valuations. However, in this environment performance will be more bond-specific, therefore, we believe research into individual issuers will be more crucial to investment results. ---------- The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. The portfolios are actively managed, and current holdings may be different. It is not possible to invest directly in an index. INVESTMENT OBJECTIVES AND POLICIES Variable annuities are designed for long-term retirement investing; please see your investment professional for more information. The key risks listed may increase unit price volatility. See the prospectus for further information on these and other risk considerations. CAPITAL APPRECIATION VARIABLE ACCOUNT (CAVA) seeks to maximize capital appreciation by investing in securities of all types, with a major emphasis on common stocks. Investments in foreign and/or emerging markets securities involves risks relating to interest rates, currency-exchange-rates, economic, and political conditions. GLOBAL GOVERNMENTS VARIABLE ACCOUNT (GGVA) seeks moderate current income and preservation and growth of capital by investing in a portfolio of U.S. and foreign government and government-related securities. Investments in foreign and/or emerging market securities involves risks relating to interest rates, currency-exchange-rates, economic, and political conditions. Because the portfolio may invest in a limited number of companies, a change in one security's value may have a more significant effect on the portfolio's value. The portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may increase or decrease more than those of other fixed income securities. The portfolio may invest a substantial amount of its assets in issuers located in a single country or in a limited number of countries and therefore is more susceptible to adverse economic, political, or regulatory developments affecting those countries. GOVERNMENT SECURITIES VARIABLE ACCOUNT (GSVA) seeks current income and preservation of capital by investing in U.S. government securities. Government guarantees apply to the underlying securities only and not to the prices and yields of the portfolio. The portfolio may invest in mortgage-backed securities, which during times of fluctuating interest rates may Increase or decrease more than those of other fixed income securities. Government guarantees apply to underlying securities only and not to the prices and yields of the portfolio. HIGH YIELD VARIABLE ACCOUNT (HYVA) seeks high current income and capital appreciation by investing primarily in fixed-income securities of U.S. and foreign issuers that may be in the lower-rated categories or unrated and may include equity features. Investments in foreign and/or emerging markets securities involves risks relating to interest rates, currency-exchange-rates, economic, and political conditions. Investments in high yield and lower-rated securities may provide greater returns but may have greater-than-average risk. Because, the portfolio invests in a limited number of companies, a change in one security's value may have a more significant effect on the portfolio's value. 6 MANAGED SECTORS VARIABLE ACCOUNT (MSVA) seeks capital appreciation by varying the weighting of its portfolio among 13 industry sectors. Investments in foreign and/or emerging market securities involves risks relating to interest rates, currency-exchange-rates, economic, and political conditions. The portfolio focuses on companies in a limited number of sectors, making it more susceptible to adverse economic, political, or regulatory developments affecting those sectors than a portfolio that invests more broadly. When concentrating on one issuer, the portfolio is sensitive to changes in the value of their securities. These risks may increase unit price volatility. See the prospectus for details. MONEY MARKET VARIABLE ACCOUNT (MMVA) seeks maximum current income to the extent consistent with stability of principal by investing exclusively in money market instruments maturing in less than 13 months. Government guarantees apply to the underlying securities only and not to the prices and yields of the portfolio. Investments in the portfolio are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the portfolio seeks to preserve the value of your investment, it is possible to lose money by investing in the portfolio. The portfolio's yield will fluctuate with changes in market conditions. TOTAL RETURN VARIABLE ACCOUNT (TRVA) seeks to provide above-average income (compared to a portfolio entirely invested in equity securities), consistent with prudent employment of capital; its secondary objective is to take advantage of opportunities for growth of capital and income. Investments in foreign and/or emerging markets securities involves risks relating to interest rates, currency-exchange-rates, economic, and political conditions. Investments in high yield and lower-rated securities may provide greater returns but may have greater-than-average risk. SIX MONTHS PERFORMANCE THROUGH JUNE 30, 2003
COMPASS 2 COMPASS 3 COMPASS 3 - (U.S.) (U.S.) LEVEL 2 (U.S.) --------- --------- -------------- Capital Appreciation 15.36% 15.30% 15.38% Variable Account Global Governments 7.70% 7.62% 7.70% Variable Account Government Securities 2.07% 2.02% 2.10% Variable Account High Yield Variable 10.62% 10.57% 10.65% Account Managed Sectors Variable 12.32% 12.24% 12.32% Account Money Market Variable (0.28)% (0.33)% (0.25)% Account Total Return Variable 7.42% 7.35% 7.42% Account
THESE PERFORMANCE RESULTS REFLECT ANY APPLICABLE CONTRACT OR SURRENDER CHARGES. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT www.mfs.com FOR MORE PERFORMANCE RESULTS. 7 PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003 CAPITAL APPRECIATION VARIABLE ACCOUNT STOCKS -- 96.9%
ISSUER SHARES VALUE U.S. STOCKS -- 89.1% ADVERTISING & BROADCASTING -- 0.5% Lamar Advertising Co., "A"* 41,660 $ 1,466,849 -------------- AEROSPACE -- 1.4% Lockheed Martin Corp. 63,600 $ 3,025,452 Northrop Grumman Corp. 13,570 1,170,955 -------------- $ 4,196,407 -------------- BIOTECHNOLOGY -- 5.8% Abbott Laboratories, Inc. 115,600 $ 5,058,656 Amgen, Inc.* 100,140 6,653,302 Biogen, Inc.* 48,700 1,850,600 Genentech, Inc.* 34,300 2,473,716 Gilead Sciences, Inc.* 22,600 1,256,108 -------------- $ 17,292,382 -------------- BUSINESS MACHINES -- 2.0% International Business Machines Corp. 72,100 $ 5,948,250 -------------- BUSINESS SERVICES -- 2.9% Apollo Group, Inc.* 19,200 $ 1,185,792 BISYS Group, Inc.* 116,190 2,134,410 DST Systems, Inc.* 41,300 1,569,400 First Data Corp. 75,940 3,146,954 Thermo Electron Corp.* 28,400 596,968 -------------- $ 8,633,524 -------------- COMPUTER HARDWARE -- SYSTEMS -- 1.3% Dell Computer Corp.* 126,120 $ 4,030,795 -------------- COMPUTER SOFTWARE -- 1.4% Oracle Corp.* 350,318 $ 4,210,822 -------------- COMPUTER SOFTWARE-- PERSONAL COMPUTERS-- 3.9% Microsoft Corp. 455,020 $ 11,653,062 -------------- COMPUTER SOFTWARE -- SERVICES -- 3.2% SunGard Data Systems, Inc.* 136,530 $ 3,537,492 VERITAS Software Corp.* 210,910 6,046,790 -------------- $ 9,584,282 -------------- COMPUTER SOFTWARE -- SYSTEMS -- 0.5% Network Associates, Inc.* 112,300 $ 1,423,964 -------------- CONGLOMERATES -- 3.0% General Electric Co. 182,230 $ 5,226,357 Tyco International Ltd. 194,800 3,697,304 -------------- $ 8,923,661 -------------- CONSUMER GOODS & SERVICES -- 3.7% Avon Products, Inc. 61,060 $ 3,797,932 Gillette Co. 46,260 1,473,844 Kimberly-Clark Corp. 29,020 1,513,103 Newell Rubbermaid, Inc. 43,400 1,215,200 Procter & Gamble Co. 34,200 3,049,956 -------------- $ 11,050,035 -------------- ELECTRONICS -- 3.5% Analog Devices, Inc.* 118,290 $ 4,118,858 Linear Technology Corp. 54,260 1,747,714 Maxim Integrated Products, Inc. 53,390 1,825,404 Microchip Technology, Inc. 35,800 881,754 Novellus Systems, Inc.* 25,370 929,075 Texas Instruments, Inc. 57,500 1,012,000 -------------- $ 10,514,805 -------------- ENTERTAINMENT -- 6.2% AOL Time Warner, Inc.* 291,310 $ 4,687,178 Clear Channel Communications, Inc.* 112,636 4,774,640 Liberty Media Corp., "A"* 142,900 1,651,924 Viacom, Inc., "B"* 141,243 6,166,669 Walt Disney Co. 73,100 1,443,725 -------------- $ 18,724,136 -------------- FINANCIAL INSTITUTIONS -- 8.1% American Express Co. 38,940 $ 1,628,081 Citigroup, Inc. 158,296 6,775,069 Fannie Mae 81,100 5,469,384 Freddie Mac 30,000 1,523,100 Goldman Sachs Group, Inc. 51,080 4,277,950 Merrill Lynch & Co., Inc. 95,850 4,474,278 -------------- $ 24,147,862 -------------- FINANCIAL SERVICES -- 1.8% Mellon Financial Corp. 119,220 $ 3,308,355 Northern Trust Corp. 29,500 1,232,805 T. Rowe Price Group, Inc. 22,800 860,700 -------------- $ 5,401,860 -------------- FOOD & BEVERAGE PRODUCTS -- 1.9% Archer-Daniels-Midland Co. 43,200 $ 555,984 PepsiCo, Inc. 117,420 5,225,190 -------------- $ 5,781,174 -------------- FOREST & PAPER PRODUCTS -- 0.5% International Paper Co. 40,430 $ 1,444,564 -------------- INDUSTRIAL GASES -- 0.5% Praxair, Inc. 25,390 $ 1,525,939 -------------- INSURANCE -- 1.9% MetLife, Inc. 75,790 $ 2,146,373 Travelers Property Casualty Corp., "A" 229,386 3,647,237 -------------- $ 5,793,610 -------------- INTERNET -- 1.3% InterActiveCorp* 67,200 $ 2,659,104 Yahoo! Inc.* 37,600 1,231,776 -------------- $ 3,890,880 -------------- MEDIA -- 0.2% Westwood One, Inc.* 17,300 $ 586,989 -------------- MEDICAL & HEALTH PRODUCTS -- 2.7% Baxter International, Inc. 44,300 $ 1,151,800 Boston Scientific Corp.* 15,300 934,830 Caremark Rx, Inc.* 61,500 1,579,320 Medtronic, Inc. 75,100 3,602,547 St. Jude Medical, Inc.* 12,700 730,250 -------------- $ 7,998,747 -------------- MEDICAL & HEALTH TECHNOLOGY SERVICES -- 2.7% AmerisourceBergen Corp. 22,700 $ 1,574,245 Express Scripts, Inc., "A"* 42,370 2,894,718 Guidant Corp. 36,900 1,637,991 Health Management Associates, Inc., "A" 60,100 1,108,845 Tenet Healthcare Corp.* 79,400 925,010 -------------- $ 8,140,809 -------------- OIL SERVICES -- 1.7% Baker Hughes, Inc. 67,760 $ 2,274,703 Schlumberger Ltd. 61,100 2,906,527 -------------- $ 5,181,230 -------------- PHARMACEUTICALS -- 5.8% Johnson & Johnson Co. 52,760 $ 2,727,692 Pfizer, Inc. 216,435 7,391,255 Schering Plough Corp. 200,400 3,727,440 Wyeth 74,500 3,393,475 -------------- $ 17,239,862 -------------- PRINTING & PUBLISHING -- 1.7% E.W. Scripps Co., "A" 15,770 $ 1,399,114 New York Times Co., "A" 32,000 1,456,000 Tribune Co. 47,300 2,284,590 -------------- $ 5,139,704 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.4% Starwood Hotels & Resorts Co., "B" 42,780 $ 1,223,080 --------------
8
ISSUER SHARES VALUE U.S. STOCKS -- continued RESTAURANTS & LODGING -- 2.7% Brinker International, Inc.* 58,890 $ 2,121,218 Cendant Corp.* 160,120 2,933,398 McDonald's Corp. 79,900 1,762,594 Outback Steakhouse, Inc. 34,700 1,353,300 -------------- $ 8,170,510 -------------- RETAIL -- 8.7% CVS Corp. 97,510 $ 2,733,205 Home Depot, Inc. 199,560 6,609,427 Kohl's Corp.* 73,890 3,796,468 Lowe's Cos., Inc. 17,400 747,330 PETsMART, Inc.* 43,300 721,811 Staples, Inc.* 38,600 708,310 Target Corp. 100,860 3,816,543 The TJX Cos., Inc. 93,400 1,759,656 Wal-Mart Stores, Inc. 66,190 3,552,418 Williams-Sonoma, Inc.* 52,600 1,535,920 -------------- $ 25,981,088 -------------- SPECIAL PRODUCTS & SERVICES -- 1.1% 3M Co. 24,970 $ 3,220,631 Career Education Corp.* 2,100 143,682 -------------- $ 3,364,313 -------------- TELECOMMUNICATIONS -- 1.3% EchoStar Communications Corp., "A"* 110,585 $ 3,828,453 -------------- TELECOMMUNICATIONS & CABLE -- 1.0% Comcast Corp. "A"* 104,600 $ 3,156,828 -------------- TELECOMMUNICATIONS -- WIRELESS -- 0.8% Sprint Corp. (PCS Group)* 416,900 $ 2,397,175 -------------- TELECOMMUNICATIONS -- WIRELINE -- 2.4% Cisco Systems, Inc.* 430,800 $ 7,190,052 -------------- TRANSPORTATION -- 0.6% Fedex Corp. 30,500 $ 1,891,915 -------------- Total U.S. Stocks $ 267,129,618 -------------- FOREIGN STOCKS -- 7.8% BERMUDA -- 1.7% Ace Ltd. (Insurance) 47,700 $ 1,635,633 XL Capital Ltd., "A" (Insurance) 42,280 3,509,240 -------------- $ 5,144,873 -------------- CANADA -- 1.1% Encana Corp. (Oils) 86,200 $ 3,307,494 -------------- GERMANY -- 1.1% Bayerische Motoren Werke AG (Automotive) 42,100 $ 1,622,255 SAP AG (Computer Software -- Systems) 15,200 1,795,587 -------------- $ 3,417,842 -------------- NETHERLANDS -- 0.7% STMicroelectronics N.V. (Electronics) 105,500 $ 2,193,345 -------------- SWITZERLAND -- 1.3% Novartis AG (Medical & Health Products) 94,000 $ 3,727,730 -------------- UNITED KINGDOM -- 1.9% AstraZeneca Group PLC (Medical & Health Products) 69,400 $ 2,787,485 Vodafone Group PLC (Telecommunications)* 1,128,025 2,209,449 Willis Group Holdings Ltd. (Insurance) 17,400 535,050 -------------- $ 5,531,984 -------------- Total Foreign Stocks $ 23,323,268 -------------- Total Stocks (Identified Cost, $285,220,179) $ 290,452,886 -------------- SHORT-TERM OBLIGATIONS -- 2.7% PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE Citigroup, Inc., due 7/01/03 $ 2,158 $ 2,158,000 Federal National Mortgage Assn., due 7/01/03 1,875 1,875,000 General Electric Capital Corp., due 7/01/03 3,962 3,962,000 -------------- Total Short-Term Obligations, at Amortized Cost $ 7,995,000 -------------- Total Investments (Identified Cost, $293,215,179) $ 298,447,886 -------------- OTHER ASSETS, LESS LIABILITIES -- 0.4% 1,151,025 -------------- Net Assets -- 100.0% $ 299,598,911 ==============
See portfolio footnotes and notes to financial statements. 9 PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003 GLOBAL GOVERNMENTS VARIABLE ACCOUNT BONDS -- 87.8%
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE FOREIGN BONDS -- 64.3% AUSTRALIA -- 0.5% Commonwealth of Australia, 8.75s, 2008 AUD 42 $ 33,269 Commonwealth of Australia, 6.5s, 2013 46 34,366 -------------- $ 67,635 -------------- AUSTRIA -- 3.7% Republic of Austria, 5.5s, 2007 EUR 186 $ 236,740 Republic of Austria, 5s, 2012 62 78,048 Republic of Austria, 4.65s, 2018 156 186,489 -------------- $ 501,277 -------------- BELGIUM -- 1.8% Kingdom of Belgium, 3.75s, 2009 EUR 142 $ 168,247 Kingdom of Belgium, 5s, 2012 54 67,884 -------------- $ 236,131 -------------- CANADA -- 4.7% Government of Canada, 5.5s, 2009 CAD 81 $ 64,462 Government of Canada, 5.25s, 2012 473 369,120 Government of Canada, 8s, 2023 194 195,587 -------------- $ 629,169 -------------- DENMARK -- 5.6% Kingdom of Denmark, 7s, 2007 DKK 863 $ 155,450 Kingdom of Denmark, 6s, 2009 770 136,436 Kingdom of Denmark, 6s, 2011 100 17,925 Kingdom of Denmark, 5s, 2013 1,803 302,361 Realkredit Danmark, 4s, 2008 (Banks) 895 142,803 -------------- $ 754,975 -------------- FINLAND -- 4.2% Republic of Finland, 2.75s, 2006 EUR 29 $ 33,654 Republic of Finland, 3s, 2008 165 189,848 Republic of Finland, 5.375s, 2013 268 346,523 -------------- $ 570,025 -------------- FRANCE -- 5.0% Republic of France, 4.75s, 2007 EUR 95 $ 117,422 Republic of France, 4s, 2009 245 293,318 Republic of France, 4.75s, 2012 41 50,680 Republic of France, 5s, 2016 87 108,201 Republic of France, 6s, 2025 69 94,564 -------------- $ 664,185 -------------- GERMANY-- 5.5% Federal Republic of Germany, 4.75s, 2008 EUR 318 $ 395,940 Federal Republic of Germany, 4.5s, 2009 167 205,293 Federal Republic of Germany, 5.25s, 2010 103 131,685 -------------- $ 732,918 -------------- IRELAND -- 4.7% Republic of Ireland, 4.25s, 2007 EUR 178 $ 216,300 Republic of Ireland, 5s, 2013 139 174,594 Republic of Ireland, 4.6s, 2016 197 236,712 -------------- $ 627,606 -------------- ITALY -- 5.1% Republic of Italy, 4.75s, 2013 EUR 336 $ 413,253 Republic of Italy, 5.25s, 2017 214 270,506 -------------- $ 683,759 -------------- MEXICO -- 0.4% Pemex Project Funding Master Trust, 8.625s, 2022 (Finance) $ 43 $ 49,127 -------------- NETHERLANDS -- 4.6% Kingdom of Netherlands, 5.75s, 2007 EUR 103 $ 130,969 Kingdom of Netherlands, 3.75s, 2009 124 146,332 Kingdom of Netherlands, 5s, 2012 269 337,577 -------------- $ 614,878 -------------- NEW ZEALAND -- 3.5% Government of New Zealand, 7s, 2009 NZD 397 $ 254,899 Government of New Zealand, 6.5s, 2013 331 210,365 -------------- $ 465,264 -------------- NORWAY -- 1.4% Kingdom of Norway, 5.5s, 2009 NOK 431 $ 63,487 Kingdom of Norway, 6s, 2011 439 66,425 Kingdom of Norway, 6.5s, 2013 406 64,117 -------------- $ 194,029 -------------- PORTUGAL -- 0.5% Republic of Portugal, 5.45s, 2013 EUR 52 $ 67,332 -------------- QATAR -- 0.3% State of Qatar, 9.75s, 2030 $ 33 $ 45,804 -------------- SPAIN -- 8.0% Kingdom of Spain, 6s, 2008 EUR 472 $ 612,529 Kingdom of Spain, 5.35s, 2011 283 364,411 Kingdom of Spain, 5.5s, 2017 74 96,733 -------------- $ 1,073,673 -------------- SWEDEN -- 1.8% Kingdom of Sweden, 8s, 2007 SEK 535 $ 78,418 Kingdom of Sweden, 5.25s, 2011 745 100,113 Spintab AB, 5s, 2008 (Banks & Credit Cos.) 500 65,438 -------------- $ 243,969 -------------- UNITED KINGDOM -- 3.0% United Kingdom Treasury, 7.25s, 2007 GBP 199 $ 375,010 United Kingdom Treasury, 5.75s, 2009 17 30,915 -------------- $ 405,925 -------------- Total Foreign Bonds $ 8,627,681 -------------- U.S. BONDS -- 23.5% MUNICIPALS -- 4.8% Cleveland, Ohio, 5.75s, 2012 $ 185 $ 221,674 Dickson County, Tennessee, 5s, 2013 110 124,441 New Jersey St. Turnpike Authority Turnpike Rev., 6s, 2013 145 176,375 Ocala, Florida Capital Improvements Rev., 5.25s, 2013 50 58,352 University of California Rev., 5s, 2033 65 67,702 -------------- $ 648,544 -------------- SUPRANATIONAL -- 0.3% International Bank For Reconstruction & Development, 5s, 2006 (Banks) $ 37 $ 40,322 -------------- U.S. GOVERNMENT AGENCIES -- 9.1% Federal National Mortgage Assn., 1.75s, 2008 JPY 100,000 $ 886,908 Federal National Mortgage Assn., 5.5s, 2017 $ 36 37,194 -------------- Federal National Mortgage Assn., 6.5s, 2031 71 74,426 Federal National Mortgage Assn., 6.5s, 2032 99 103,130 Federal National Mortgage Assn., 5.5s, 2099 TBA 115 119,181 -------------- $ 1,220,839 --------------
10
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued U.S. TREASURY OBLIGATIONS -- 9.3% U.S. Treasury Bonds, 8s, 2021 $ 56 $ 81,128 U.S. Treasury Notes, 2s, 2004 217 219,577 U.S. Treasury Notes, 3.5s, 2006 119 125,438 U.S. Treasury Notes, 3.375s, 2007 97 107,018 U.S. Treasury Notes, 6.125s, 2007 ### 269 311,168 U.S. Treasury Notes, 4.25s, 2010 184 216,009 U.S. Treasury Notes, 4s, 2012 182 189,387 -------------- $ 1,249,725 -------------- Total U.S. Bonds $ 3,159,430 -------------- Total Bonds (Identified Cost, $10,785,337) $ 11,787,111 -------------- SHORT-TERM OBLIGATION -- 12.8% Federal National Mortgage Assn., due 7/01/03 at Amortized Cost $ 1,726 $ 1,726,000 CALL OPTIONS PURCHASED PRINCIPAL AMOUNT OF CONTRACTS ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) Euro/July/1.1516 (Premiums Paid, $6,329) $ 549 $ 4,632 -------------- Total Investments (Identified Cost, $12,517,666 ) $ 13,517,743 -------------- OTHER ASSETS, LESS LIABILITIES -- (0.6)% (87,152) -------------- Net Assets -- 100.0% $ 13,430,591 ==============
See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003 GOVERNMENT SECURITIES VARIABLE ACCOUNT BONDS -- 97.5%
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE UNITED STATES -- 97.5% U.S. GOVERNMENT AGENCIES -- 69.7% Aid to Israel, 6.6s, 2008 $ 985 $ 1,103,024 Aid to Peru, 9.98s, 2008 1,001 1,195,942 Empresa Energetica Cornito Ltd., 6.07s, 2010 2,999 3,306,397 Federal Home Loan Mortgage Corp., 2.875s, 2005 637 655,817 Federal Home Loan Mortgage Corp., 4.25s, 2005 2,040 2,151,427 Federal Home Loan Mortgage Corp., 2.25s, 2006 1,415 1,434,310 Federal Home Loan Mortgage Corp., 7.5s, 2027 427 454,979 Federal Home Loan Mortgage Corp., 7.5s, 2028 28 29,335 Federal Home Loan Mortgage Corp., 6.5s, 2032 4,570 4,755,927 Federal Home Loan Mortgage Corp., 5.5s, 2033 1,850 1,908,390 Federal National Mortgage Assn., 5s, 2018 1,550 1,600,858 Federal National Mortgage Assn., 5.409s, 2020 7 7,239 Federal National Mortgage Assn., 5.5s, 2017-2033 11,923 12,296,076 Federal National Mortgage Assn., 6s, 2016-2032 19,712 20,594,564 Federal National Mortgage Assn., 6.5s, 2005-2032 14,719 15,383,300 Federal National Mortgage Assn., 7.5s, 2022-2031 1,274 1,354,873 Federal National Mortgage Assn., 8.5s, 2007 17 17,887 Federal National Mortgage Assn., 10s, 2018 644 735,282 Financing Corp., 9.8s, 2018 1,290 2,029,938 Financing Corp., 10.35s, 2018 1,150 1,885,387 Government National Mortgage Assn., 6.5s, 2028 1,970 2,071,009 Government National Mortgage Assn., 7.5s, 2032 494 521,752 Government National Mortgage Assn., 11s, 2010-2019 128 147,476 Government National Mortgage Assn., 12.5s, 2015 21 24,925 Government National Mortgage Assn., 14s, 2014 2 1,993 Resolution Funding Corp., 8.875s, 2020 1,700 2,533,002 Small Business Administration, 8.4s, 2007 55 58,281 Small Business Administration, 8.7s, 2009 203 219,344 Small Business Administration, 10.05s, 2009 44 48,407 Small Business Administration, 6.34s, 2021 901 1,007,164 Small Business Administration, 6.44s, 2021 909 1,020,842 Small Business Administration, 6.625s, 2021 935 1,057,804 Small Business Administration, 6.07s, 2022 674 745,798 Student Loan Marketing Assn., 5.25s, 2006 3,125 3,416,784
11
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE UNITED STATES -- continued U.S. GOVERNMENT AGENCIES -- continued Tennessee Valley Authority 0s to 2012, 8.25s to 2042 $ 2,250 $ 1,557,607 U.S. Department of Housing & Urban Development, 6.36s, 2016 500 576,900 U.S. Department of Housing & Urban Development, 6.59s, 2016 2,045 2,324,482 -------------- Total U.S. Government Agencies $ 90,234,522 -------------- U.S. TREASURY OBLIGATIONS -- 27.8% U.S. Treasury Bonds, 12.375s, 2004 $ 755 $ 828,996 U.S. Treasury Bonds, 10.375s, 2012 1,800 2,397,726 U.S. Treasury Bonds, 12s, 2013 3,500 5,086,347 U.S. Treasury Bonds, 9.25s, 2016 129 197,516 U.S. Treasury Bonds, 0s, 2017 3,250 1,762,534 U.S. Treasury Bonds, 0s, 2023 1,877 714,949 U.S. Treasury Bonds, 6.875s, 2025 417 549,430 U.S. Treasury Bonds, 5.25s, 2028 1,186 1,291,026 U.S. Treasury Bonds, 6.125s, 2029 375 458,218 U.S. Treasury Bonds, 6.25s, 2030 2,914 3,627,703 U.S. Treasury Bonds, 3.375s, 2032 366 442,551 U.S. Treasury Notes, 3.25s, 2007 7,535 7,863,775 U.S. Treasury Notes, 3.375s, 2007 2,942 3,230,921 U.S. Treasury Notes, 4.75s, 2008 3,736 4,141,562 U.S. Treasury Notes, 5s, 2011 1,836 2,060,838 U.S. Treasury Notes, 3.625s, 2013 1,278 1,287,984 -------------- $ 35,942,076 -------------- Total Bonds (Identified Cost, $120,096,718) $ 126,176,598 -------------- SHORT-TERM OBLIGATION Federal National Mortgage Assn., due 7/01/03, at Amortized Cost $ 59 $ 59,000 -------------- REPURCHASE AGREEMENTS -- 20.1% Goldman Sachs, dated 06/30/03, due 07/01/03, total to be received $12,991,433 (secured by various U.S. Treasury and Federal Agency obligations in a jointly traded account), at Cost $ 12,991 $ 12,991,000 Merrill Lynch, dated 06/30/03, due 07/01/03, total to be received $12,991,415 (secured by various U.S. Treasury and Federal Agency obligations in a jointly traded account), at Cost 12,991 12,991,000 -------------- Total Repurchase Agreements, at Cost $ 25,982,000 -------------- Total Investments (Identified Cost, $146,137,718) $ 152,217,598 -------------- OTHER ASSETS, LESS LIABILITIES -- (17.6)% (22,736,822) -------------- Net Assets -- 100.0% $ 129,480,776 ==============
See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003 HIGH YIELD VARIABLE ACCOUNT BONDS -- 92.8%
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- 84.6% ADVERTISING & BROADCASTING -- 8.7% Allbritton Communications Co., 7.75s, 2012 $ 345 $ 356,212 CBD Media LLC, 8.625s, 2011 ## 40 41,200 Dex Media East LLC, 9.875s, 2009 220 245,300 Directv Holdings LLC, 8.375s, 2013 ## 405 451,575 Echostar DBS Corp., 10.375s, 2007 60 66,450 Echostar DBS Corp., 9.375s, 2009 3,200 3,412,000 Emmis Communications Corp., 0s to 2006, 12.5s to 2011 658 569,170 Entercom Radio LLC, 7.625s, 2014 170 185,300 Granite Broadcasting Corp., 10.375s, 2005 155 154,613 Granite Broadcasting Corp., 8.875s, 2008 185 180,837 Lamar Media Corp., 7.25s, 2013 255 270,300 LIN Television Corp., 8s, 2008 20 21,450 Muzak LLC/ Muzak Finance Corp., 10s, 2009 ## 160 167,600 Panamsat Corp., 8.5s, 2012 230 248,975 Paxson Communications Corp., 0s to 2006, 12.25s to 2009 600 501,000 Primedia, Inc.,, 8.875s, 2011 340 361,250 Radio One, Inc., 8.875s, 2011 355 390,500 RH Donnelley Finance Corp., 8.875s, 2010 ## 95 104,975 RH Donnelley Finance Corp., 10.875s, 2012 ## 160 186,400 Spanish Broadcasting Systems, Inc., 9.625s, 2009 325 345,313 XM Satellite Radio, Inc., 0s to 2005, 14s to 2009 620 441,803 -------------- $ 8,702,223 -------------- AEROSPACE -- 1.1% Alliant Techsystems, Inc., 8.5s, 2011 $ 360 $ 399,600 Esterline Technologies Corp., 7.75s, 2013 ## 85 87,125 K & F Industries, Inc., 9.25s, 2007 330 344,025 K & F Industries, Inc., 9.625s, 2010 145 160,950 Titan Corp., 8s, 2011 ## 80 84,800 Vought Aircraft, Inc., 8s, 2011 ## 70 70,700 -------------- $ 1,147,200 -------------- AIRLINES -- 0.3% Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 $ 301 $ 291,082 -------------- APPAREL & MANUFACTURERS -- 0.1% Westpoint Stevens, Inc., 7.875s, 2005 $ 130 $ 27,950 Westpoint Stevens, Inc., 7.875s, 2008 140 30,100 -------------- $ 58,050 -------------- AUTOMOTIVE -- 2.6% Advanced Accessory Systems LLC, 10.75s, 2011 ## $ 85 $ 90,100 Arvinmeritor, Inc., 8.75s, 2012 215 240,800 Collins & Aikman Products Co., 10.75s, 2011 300 264,000 Cummins Engine Co., Inc., 9.5s, 2010 ## 155 175,925 Dana Corp., 10.125s, 2010 110 121,275 Dana Corp., 9s, 2011 270 292,275 Dura Operating Corp., 9s, 2009 235 216,200 General Motors Corp., 7.125s, 2013 61 61,192 Metaldyne Corp., 11s, 2012 165 136,950 Tenneco Automotive, Inc., 11.625s, 2009 260 230,100 Tenneco Automotive, Inc., 10.25s, 2013 ## 295 298,687
12
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued AUTOMOTIVE -- continued TRW Automotive Acquisition Corp., 9.375s, 2013 ## $ 240 $ 260,400 TRW Automotive Acquisition Corp., 11s, 2013 ## 100 109,000 Venture Holdings, 9.5s, 2005** 250 69,375 -------------- $ 2,566,279 -------------- BASIC INDUSTRY -- 0.6% Actuant Finance Corp., 13s, 2009 $ 156 $ 182,520 Foamex LP/ Capital Corp., 10.75s, 2009 200 160,000 International Wire Group, Inc., 11.75s, 2005 70 44,800 Thermadyne Holdings Corp., 0s to 2003, 12.5s to 2008,** 1,650 66 Trimas Corp., 9.875s, 2012 ## 165 169,125 -------------- $ 556,511 -------------- BROADCAST & CABLE TV -- 1.6% Charter Communications Holdings, 8.625s, 2009 $ 510 $ 367,200 CSC Holdings, Inc., 8.125s, 2009 200 206,500 Insight Midwest, 9.75s, 2009 415 438,863 Mediacom LLC/Capital Corp., 9.5s, 2013 515 544,612 -------------- $ 1,557,175 -------------- BUILDING -- 2.3% Atrium Cos, Inc., 10.5s, 2009 $ 300 $ 321,000 Formica Corp., 10.875s, 2009** 310 77,500 Integrated Electrical Services, Inc., 9.375s, 2009 30 30,450 Interface, Inc., 10.375s, 2010 299 287,040 Nortek, Inc., 9.25s, 2007 700 721,000 Texas Industries, Inc., 10.25s, 2011 ## 220 228,800 Williams Scotsman, Inc., 9.875s, 2007 600 588,000 -------------- $ 2,253,790 -------------- BUSINESS SERVICES -- 1.8% General Binding Corp., 9.375s, 2008 $ 860 $ 825,600 Iron Mountain, Inc., 8.625s, 2013 280 299,600 Lucent Technologies, Inc., 6.45s, 2029 400 274,000 Xerox Corp., 7.625s, 2013 440 440,550 -------------- $ 1,839,750 -------------- CHEMICALS -- 2.8% Compass Minerals Group, Inc., 10s, 2011 $ 305 $ 341,600 Huntsman ICI Holdings, 0s, 2009 100 39,000 Huntsman ICI Holdings, 10.125s, 2009 1,050 1,008,000 Huntsman International LLC, 9.875s, 2009 90 93,600 Johnson Diversey, Inc., 9.625s, 2012 EUR 460 519,147 Lyondell Chemical Co., 9.625s, 2007 $ 155 151,900 Lyondell Chemical Co., 9.875s, 2007 250 245,000 Sovereign Specialty Chemicals, 11.875s, 2010 425 405,875 -------------- $ 2,804,122 -------------- CONGLOMERATES -- 0.5% Rexnord Corp., 10.125s, 2012 $ 170 $ 187,000 SPX Corp., 7.5s, 2013 315 340,988 -------------- $ 527,988 -------------- CONSUMER GOODS & SERVICES -- 2.8% American Safety Razor Co., 9.875s, 2005 $ 1,000 $ 930,000 Jacuzzi Brands, Inc., 9.625s, 2010 90 90,000 Kindercare Learning Centers, Inc., 9.5s, 2009 380 382,850 Remington Arms, Inc., 10.5s, 2011 ## 355 370,975 Samsonite Corp., 10.75s, 2008 $ 235 $ 240,287 Simmons Co., 10.25s, 2009 740 791,800 -------------- $ 2,805,912 -------------- CONTAINERS -- 5.3% Graham Packaging Co., 8.75s, 2008 ## $ 275 $ 273,625 Graphic Packaging Corp., 8.625s, 2012 335 341,700 Huntsman Packaging Corp., 13s, 2010 525 493,500 Owens-Brockway Glass Container, Inc., 8.25s, 2013 ## 3,185 3,328,325 Plastipak Holdings, Inc., 10.75s, 2011 295 315,650 Pliant Corp., 13s, 2010 55 51,700 Silgan Holdings, Inc., 9s, 2009 465 481,275 -------------- $ 5,285,775 -------------- CORPORATE ASSET-BACKED -- 0.9% Airplane Pass-Through Trust, 10.875s, 2019 $ 741 $ 14,816 Morgan Stanley Capital I, Inc., 7.702s, 2039 430 423,143 Mortgage Capital Funding, Inc., 7.214s, 2007 500 506,970 -------------- $ 944,929 -------------- ENERGY -- INDEPENDENT -- 2.1% Encore Acquisition Co., 8.375s, 2012 $ 380 $ 406,600 Magnum Hunter Resources, Inc., 9.6s, 2012 225 247,500 Pioneer Natural Resources Co., 9.625s, 2010 460 570,341 Pioneer Natural Resources Co., 7.5s, 2012 10 11,452 Semco Energy, Inc., 7.125s, 2008 ## 35 36,575 Semco Energy, Inc., 7.75s, 2013 ## 35 37,275 Stone Energy Corp., 8.25s, 2011 165 174,075 Vintage Petroleum, Inc., 8.25s, 2012 260 286,000 Westport Resources Corp., 8.25s, 2011 340 372,300 -------------- $ 2,142,118 -------------- ENTERTAINMENT -- 1.7% AMC Entertainment, Inc., 9.5s, 2011 $ 750 $ 776,250 Premier Parks, Inc., 9.75s, 2007 90 89,100 Regal Cinemas Corp., 9.375s, 2012 470 518,175 Six Flags, Inc., 9.75s, 2013 310 306,900 -------------- $ 1,690,425 -------------- FOOD & NON ALCOHOLIC BEVERAGE PRODUCTS -- 1.5% Burns Philip Capital Property Ltd., 9.75s, 2012 ## $ 655 $ 638,625 Dominos, Inc., 8.25s, 2011 ## 90 92,925 Merisant Co., 9.5s, 2013 ## 80 82,800 Michael Foods, Inc., 11.75s, 2011 590 678,500 -------------- $ 1,492,850 -------------- FOREST & PAPER PRODUCTS -- 2.7% Buckeye Cellulose Corp., 9.25s, 2008 $ 300 $ 298,500 Buckeye Cellulose Corp., 8s, 2010 175 163,625 Fibermark, Inc., 10.75s, 2011 25 25,000 Georgia Pacific Corp., 9.375s, 2013 ## 495 545,737 Greif Brothers Corp., 8.875s, 2012 305 327,875 Jefferson Smurfit Corp., 8.25s, 2012 345 370,013 Riverwood International Corp., 10.625s, 2007 305 316,437 Riverwood International Corp., 10.875s, 2008 235 240,875 Speciality Paperboard, Inc., 9.375s, 2006 ## 480 456,000 -------------- $ 2,744,062 --------------
13
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued GAMING & LODGING -- 12.8% Argosy Gaming Co., 10.75s, 2009 $ 180 $ 197,100 Aztar Corp., 8.875s, 2007 290 302,688 CBRE Escrow, Inc., 9.75s, 2010 ## 55 57,819 Coast Hotels & Casinos, Inc., 9.5s, 2009 595 636,650 Corrections Corp. of America, 9.875s, 2009 205 228,831 Corrections Corp. of America, 7.5s, 2011 45 47,025 Forest City Enterprises, Inc., 7.625s, 2015 200 209,750 Hilton Hotels Corp., 7.625s, 2012 730 799,350 Hollywood Park, Inc., 9.25s, 2007 315 310,275 Hollywood Park, Inc., 9.5s, 2007 215 213,387 Horseshoe Gaming LLC, 8.625s, 2009 345 365,700 Host Marriott LP, 9.5s, 2007 250 268,750 Host Marriott LP, 8.45s, 2008 400 413,000 Mandalay Resort Group, 9.375s, 2010 315 355,950 MGM Mirage, Inc., 8.5s, 2010 390 458,250 Park Place Entertainment Corp., 8.875s, 2008 3,250 3,583,125 Station Casinos, Inc., 8.375s, 2008 10 10,800 Station Casinos, Inc., 8.875s, 2008 3,250 3,412,500 Vail Resorts, Inc., 8.75s, 2009 405 423,225 Venetian Casino Resort LLC, 11s, 2010 450 507,375 -------------- $ 12,801,550 -------------- HOME CONSTRUCTION -- 0.7% D.R. Horton Inc., 8s, 2009 $ 380 $ 422,750 MMI Products, Inc., 11.25s, 2007 ## 375 263,438 -------------- $ 686,188 -------------- INSURANCE -- PROPERTY & CASUALTY -- 0.5% Willis Corroon Corp., 9s, 2009** $ 500 $ 530,000 -------------- MACHINERY & TOOLS -- 3.3% Agco Corp., 9.5s, 2008 $ 605 $ 653,400 Blount, Inc., 7s, 2005 385 373,450 Blount, Inc., 13s, 2009 65 55,250 Columbus McKinnon Corp., 8.5s, 2008 285 212,325 JLG Industries, Inc., 8.25s, 2008 ## 115 116,725 Joy Global, Inc., 8.75s, 2012 220 240,900 Manitowoc Co., Inc., 10.5s, 2012 85 94,350 Motors & Gears, Inc., 10.75s, 2006 100 87,500 Terex Corp., 10.375s, 2011 550 607,750 United Rentals, Inc., 10.75s, 2008 580 633,650 United Rentals, Inc., 9.25s, 2009 210 206,850 -------------- $ 3,282,150 -------------- MEDICAL & HEALTH TECHNOLOGY SERVICES -- 1.7% Alliance Imaging, Inc., 10.375s, 2011 $ 270 $ 282,150 Beverly Enterprises, Inc., 9.625s, 2009 140 135,100 Fisher Scientific International, Inc., 8.125s, 2012 ## 200 214,000 HCA Healthcare Co., 7.875s, 2011 225 251,979 NDC Health Corp., 10.5s, 2012 ## 110 117,975 Omnicare, Inc., 6.125s, 2013 85 86,700 Prime Medical Services, Inc., 8.75s, 2008 135 126,900 Tenet Healthcare Corp., 6.5s, 2012 305 282,888 Triad Hospital, Inc., 8.75s, 2009 205 218,069 -------------- $ 1,715,761 -------------- MEDICAL EQUIPMENT -- 0.3% Alpharma, Inc., 8.625s, 2011 ## $ 290 $ 304,500 -------------- METALS & MINING -- 1.3% Arch Western Finance LLC, 6.75s, 2013 ## $ 230 $ 235,750 Doe Run Resources Corp., 8.5s, 2008** 214 85,506 Kaiser Aluminum & Chemical Corp., 9.875s, 2049** $ 360 $ 280,800 P&L Coal Holdings Corp., 6.875s, 2013 ## 505 528,987 U.S. Steel Corp., 9.75s, 2010 140 142,100 -------------- $ 1,273,143 -------------- NATURAL GAS -- DISTRIBUTION -- 0.3% Amerigas Partners LLP, 8.875s, 2011 $ 275 $ 299,750 -------------- NATURAL GAS -- PIPELINE -- 2.8% ANR Pipeline Co., 8.875s, 2010 ## $ 75 $ 81,937 ANR Pipeline Co., 9.625s, 2021 420 495,600 Dynegy, Inc., 6.875s, 2011 350 294,000 El Paso Production Holding Co., 8.5s, 2010 ## 240 256,800 El Paso Energy Corp., 7.75s, 2013 ## 300 299,250 Northwest Pipeline Corp., 8.125s, 2010 65 69,875 Plains All American Pipeline LP, 7.75s, 2012 340 380,800 Southern Natural Gas Co., 8.875s, 2010 ## 325 354,250 Williams Companies, Inc., 8.625s, 2010 110 114,950 Williams Companies, Inc., 7.125s, 2011 450 438,750 -------------- $ 2,786,212 -------------- OIL SERVICES -- 1.6% Dresser, Inc., 9.375s, 2011 $ 390 $ 401,700 Grant Prideco, Inc., 9s, 2009 35 38,850 Gulfmark Offshore, Inc., 8.75s, 2008 625 648,437 Hanover Equipment Trust, 8.75s, 2011 380 399,000 Houston Exploration Co., 7s, 2013 ## 105 108,413 -------------- $ 1,596,400 -------------- OILS -- 0.6% Citgo Petroleum Corp., 11.375s, 2011 ## $ 220 $ 245,300 Tesoro Petroleum Corp., 8s, 2008 ## 105 107,625 Tesoro Petroleum Corp., 9s, 2008 100 90,500 Tesoro Petroleum Corp., 9.625s, 2012 190 173,850 -------------- $ 617,275 -------------- PC & PERIPHERAL -- 3.5% Unisys Corp., 8.125s, 2006 $ 3,250 $ 3,477,500 -------------- POLLUTION CONTROL -- 0.5% Allied Waste North America, Inc., 10s, 2009 $ 295 $ 313,437 Allied Waste North America, Inc., 7.875s, 2013 150 156,938 -------------- $ 470,375 -------------- PRINTING & PUBLISHING -- 0.9% Hollinger International Publishing, Inc., 9s, 2010 $ 335 $ 358,450 Hollinger International Publishing, Inc., 11.875s, 2011 ## 160 177,600 Mail-Well Corp., 9.625s, 2012 185 194,713 Moore North America Finance, Inc., 7.875s, 2011 ## 200 208,500 -------------- $ 939,263 -------------- RAILROADS & SHIPPING -- 0.4% Kansas City Southern Railway Co., 7.5s, 2009 $ 360 $ 373,050 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.8% Starwood Hotels & Resorts, Inc., 7.375s, 2007 $ 375 $ 394,688 Starwood Hotels & Resorts, Inc., 7.875s, 2012 400 438,000 -------------- $ 832,688 --------------
14
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued STEEL -- 0.7% Commonwealth Aluminum Corp., 10.75s, 2006 $ 330 $ 331,650 Jorgensen (Earle M.) Co., 9.75s, 2012 275 291,500 WCI Steel, Inc., 10s, 2004 385 119,350 -------------- $ 742,500 -------------- STORES -- 4.1% Cole National Group, Inc., 8.875s, 2012 $ 675 $ 649,687 Dollar General Corp., 8.625s, 2010 360 398,250 Finlay Enterprises, Inc., 9s, 2008 250 252,500 Finlay Fine Jewelry Corp., 8.375s, 2008 850 879,750 J.Crew Operating Corp., 10.375s, 2007 485 470,450 Oxford Industries, Inc., 8.875s, 2011 ## 185 194,250 PCA LLC, 11.875s, 2009 360 392,400 Rite Aid Corp, 12.5s, 2006 260 291,200 Rite Aid Corp., 8.125s, 2010 ## 420 434,700 Rite Aid Corp., 9.5s, 2011 ## 25 26,875 Rite Aid Corp., 9.25s, 2013 ## 145 143,550 -------------- $ 4,133,612 -------------- SUPERMARKETS -- 1.3% Fleming Companies., Inc., 10.125s, 2008** $ 240 $ 36,000 Roundys, Inc., 8.875s, 2012 670 700,150 Southland Corp., 5s, 2003 525 525,000 -------------- $ 1,261,150 -------------- TELECOMMUNICATIONS -- WIRELINE -- 1.1% Qwest Services Corp., 13.5s, 2010 ## $ 825 $ 932,250 Time Warner Telecom, Inc., 10.125s, 2011 200 193,000 -------------- $ 1,125,250 -------------- UTILITIES -- ELECTRIC POWER -- 3.5% AES Corp., 8.875s, 2011 $ 250 $ 244,375 AES Corp., 8.75s, 2013 ## 300 312,000 AES Corp., 9s, 2015 ## 300 313,500 Calpine Corp., 8.5s, 2011 300 225,000 Centerpoint Energy Resources Corp., 7.875s, 2013 ## 659 758,011 CMS Energy Corp., 8.5s, 2011 200 208,750 Illinois Power Co., 11.5s, 2010 ## 180 205,650 PG&E Corp., 6.875s, 2008 ## 70 72,625 Reliant Resources, Inc., 9.25s, 2010 180 180,900 Reliant Resources, Inc., 9.5s, 2013 ## 210 212,363 Teco Energy, Inc., 10.5s, 2007 165 188,306 Teco Energy, Inc., 7.5s, 2010 60 61,800 TXU Corp., 6.375s, 2006 500 531,875 -------------- $ 3,515,155 -------------- WIRELESS COMMUNICATIONS -- 2.5% Alamosa Holdings, Inc., 0s to 2005, 12.875s to 2010 $ 185 $ 107,300 Alamosa Holdings, Inc., 12.5s, 2011 270 221,400 American Tower Corp., 0s, 2008 190 122,550 Centennial Cellular Operating Co., 10.75s, 2008 815 749,800 Nextel Communications, Inc., 8.125s, 2011 ## 65 64,838 Rural Cellular Corp., 9.75s, 2010 575 508,875 Triton PCS, Inc., 8.75s, 2011 480 478,800 Triton PCS, Inc., 8.5s, 2013 ## 200 215,000 -------------- $ 2,468,563 -------------- Total U.S. Bonds $ 84,642,276 -------------- FOREIGN BONDS -- 8.2% CANADA -- 2.0% Abitibi Consolidated, Inc., 8.55s, 2010 (Forest & Paper Products) $ 300 $ 336,047 Acetex Corp., 10.875s, 2009 (Chemicals) 245 272,256 Canwest Media, Inc., 10.625s, 2011 (Advertising & Broadcasting) 100 114,000 Canwest Media, Inc., 7.625s, 2013 (Advertising & Broadcasting) ## 105 111,563 Norske Skog Ltd., 8.625s, 2011 (Forest & Paper Products) ## 435 454,575 Quebecor Media, Inc., 11.125s, 2011 (Advertising & Broadcasting) 345 395,025 Russel Metals, Inc., 10s, 2009 (Metals & Mining) 295 317,125 -------------- $ 2,000,591 -------------- FRANCE -- 1.4% Crown Cork & Seal, 9.5s, 2011 (Containers) ## $ 425 $ 459,000 Crown Cork & Seal, 10.25s, 2011 (Containers) ## EUR 70 85,349 Crown Cork & Seal, 10.875s, 2013 (Containers) ## $ 210 228,900 Rhodia S.A., 8.875s, 2011(Chemicals) ## 335 346,725 Vivendi Universal S.A., 9.25s, 2010 (Advertising & Broadcasting) ## 220 250,250 -------------- $ 1,370,224 -------------- GERMANY Kronos International, Inc., 8.875s, 2009 (Chemicals) EUR 15 $ 18,116 -------------- IRELAND -- 0.4% MDP Acquisitions PLC, 9.625s, 2012 (Forest & Paper Products) $ 345 $ 381,225 -------------- MEXICO -- 0.6% Corporacion Durango de S.A., 13.75s, 2009 (Forest & Paper Products)**## $ 360 $ 189,000 Pemex Project Funding Master Trust, 9.125s, 2010 (Quasi-Government) 212 256,520 United Mexican States, 8.125s, 2019 175 199,500 -------------- $ 645,020 -------------- NETHERLANDS -- 0.4% Kappa Beheer B.V., 10.625s, 2009 (Forest & Paper Products) $ 350 $ 374,938 -------------- NORWAY -- 0.1% Ocean Rig Norway AS, 10.25s, 2008 (Oil Services) $ 100 $ 83,125 -------------- RUSSIA -- 0.1% Gazprom, 9.625s, 2013 (Utilities-Gas) ## $ 120 $ 132,300 -------------- SINGAPORE -- 2.9% Flextronics International Ltd., 9.875s, 2010 (Electronics) $ 245 $ 268,275 Flextronics International Ltd., 6.5s, 2013 (Electronics) ## 2,725 2,622,812 -------------- $ 2,891,087 -------------- SWEDEN -- 0.1% Stena AB, 9.625s, 2012 (Transportation -- Services) $ 75 $ 82,406 -------------- UNITED KINGDOM -- 0.2% Energis PLC, 9.75s, 2009 (Telecomunications -- Wireline)** $ 275 $ 5,500 Telewest Communications PLC, 11s, 2007 (Broadcast & Cable TV)** 160 58,000
15
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE FOREIGN BONDS -- continued UNITED KINGDOM -- continued Telewest Communications PLC, 0s to 2004, 9.25s to 2009, (Broadcast & Cable TV)** $ 400 $ 122,000 Telewest Communications PLC, 0s to 2005, 11.375s to 2010, (Broadcast & Cable TV)** 85 24,863 -------------- $ 210,363 -------------- Total Foreign Bonds $ 8,189,395 -------------- Total Bonds (Identified Cost, $93,604,817) $ 92,831,671 -------------- STOCKS -- 1.0% SHARES U.S. STOCKS -- 0.6% AUTOMOTIVE Hayes Lemmerz International, Inc.,* 3,536 $ 40,841 Oxford Automotive, Inc.,* 53 11,794 -------------- $ 52,635 -------------- BASIC INDUSTRY Thermadyne Holdings Corp.* 2,827 $ 35,337 -------------- BROADCAST & CABLE TV -- 0.3% NTL, Inc.* 7,986 $ 272,482 -------------- CHEMICALS Sterling Chemicals, Inc.* 810 $ 12,150 -------------- MACHINERY & TOOLS IKS Corp.* 1,666 $ 2,249 -------------- METALS & MINING -- 0.2% Metals Management, Inc.* 10,345 $ 183,831 -------------- SPECIAL PRODUCTS & SERVICES Ranger Industries, Inc.* 10,842 $ 976 -------------- TELECOMMUNICATIONS -- WIRELINE XO Communications, Inc.* 198 $ 1,436 -------------- UTILITIES -- TELEPHONE -- 0.1% ITC Deltacom, Inc.* 26,300 $ 77,585 -------------- Total U.S. Stocks $ 638,681 -------------- FOREIGN STOCKS -- 0.4% NETHERLANDS -- 0.1% Completel Europe N.V. (Telecommunications -- Wireline)* EUR 5,411 $ 80,850 Versatel Telecom International N.V. (Telecommunications -- Wireline)* EUR 7,740 10,060 -------------- $ 90,910 -------------- SWEDEN -- 0.2% Song Networks Holdings AB (Utilities -- Telephone)* SEK 46,549 $ 218,329 -------------- UNITED KINGDOM -- 0.1% Colt Telecom Group PLC, ADR (Telephone Services)* 2,001 $ 8,264 -------------- Jazztel PLC (Telecommunications -- Wireline)* EUR 236,202 70,640 -------------- $ 78,904 -------------- Total Foreign Stocks $ 388,143 -------------- Total Stocks (Identified Cost, $6,081,135) $ 1,026,824 -------------- PREFERRED STOCK -- 1.0% AUTOMOTIVE Hayes Lemmerz International, Inc., 8s 11 $ 847 -------------- ISSUER SHARES VALUE BROADCAST & CABLE TV -- 0.9% CSC Holdings, Inc., 11.125s,* 8,846 $ 906,715 NTL, Inc., 10.5s 12 36 -------------- $ 906,751 -------------- TELECOMMUNICATIONS -- WIRELINE Completed Europe N.V. 53 $ 106,688 Global Crossings Holdings Ltd., 10.5s, # 1,789 895 Song Networks Holding AB, 0s, (Telephone Services) SEK 5,040 6,934 -------------- $ 119,515 -------------- Total Preferred Stock (Identified Cost, $738,743) $ 1,022,113 -------------- CONVERTIBLE BOND PRINCIPAL AMOUNT (000 OMITTED) UNITED KINGDOM Jazztel PLC, 12s, 2012 (Telecommunications -- Wireline) (Identified Cost $77,270) EUR 48 $ 22,921 -------------- WARRANTS ISSUER SHARES VALUE GT Group Telecom, Inc., (Telephone Services)* 1,050 $ 394 Loral Orion Network Systems, Inc., (Business Services)* 1,000 275 Loral Orion Network Systems, Inc., (Business Services)* 1,100 259 Metronet Communications Corp., (Broadcast & Cable TV)* 600 6 Ono Finance PLC, (Broadcast & Cable TV)* 1,225 12 Ono Finance PLC, (Broadcast & Cable TV)* 265 3 Sterling Chemicals, Inc., (Chemicals)* 1,151 12 Thermadyne Holdings Corp., (Basic Industry)* 7,176 4,808 XM Satellite Radio, Inc., (Broadcast & Cable TV)* 425 2,337 XO Communications, Inc., (Telecommunications -- Wireline)* 397 1,032 XO Communications, Inc., (Telecommunications -- Wireline)* 298 477 XO Communications, Inc., (Telecommunications -- Wireline)* 298 164 Total Warrants (Identified Cost, $436,441) $ 9,779 -------------- SHORT-TERM OBLIGATIONS -- 4.4% PRINCIPAL AMOUNT (000 OMITTED) Citigroup, Inc., due 7/01/03 $ 2,147 $ 2,147,000 Federal National Mortgage Assn., due 7/01/03 2,259 2,259,000 Total Short-Term Obligations, at Amortized Cost $ 4,406,000 -------------- Total Investments (Identified Cost, $105,344,406) $ 99,319,308 -------------- OTHER ASSETS, LESS LIABILITIES -- 0.8% 770,384 -------------- Net Assets -- 100.0% $ 100,089,692 ==============
See portfolio footnotes and notes to financial statements. 16 PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003 MANAGED SECTORS VARIABLE ACCOUNT STOCKS -- 97.2%
ISSUER SHARES VALUE U.S. STOCKS -- 95.1% BUILDING MATERIALS -- 1.7% 3M Co. 6,700 $ 864,166 Praxair, Inc. 3,700 222,370 -------------- $ 1,086,536 -------------- CONSUMER PRODUCTS -- 4.8% Avon Products, Inc. 16,700 $ 1,038,740 Gillette Co. 6,000 191,160 PepsiCo, Inc. 24,800 1,103,600 Procter & Gamble Co. 7,600 677,768 -------------- $ 3,011,268 -------------- ENERGY -- 1.3% BJ Services Co.* 6,800 $ 254,048 Schlumberger Ltd. 12,200 580,354 -------------- $ 834,402 -------------- FINANCIAL SERVICES -- 13.1% American Express Co. 8,000 $ 334,480 Bank of New York Co., Inc. 16,000 460,000 Citigroup, Inc. 40,600 1,737,680 Fannie Mae 14,700 991,368 Goldman Sachs Group, Inc. 13,000 1,088,750 Hartford Financial Services Group, Inc. 5,800 292,088 Marsh & McLennan Cos., Inc. 2,500 127,675 Mellon Financial Corp. 23,600 654,900 Merrill Lynch & Co., Inc. 21,600 1,008,288 MetLife, Inc. 8,900 252,048 SLM Corp. 15,600 611,052 Travelers Property Casualty Corp., "A" 47,092 748,763 -------------- $ 8,307,092 -------------- HEALTHCARE -- 18.0% Abbott Laboratories, Inc. 32,800 $ 1,435,328 AmerisourceBergen Corp. 4,500 312,075 Amgen, Inc.* 28,900 1,920,116 Biogen, Inc.* 10,800 410,400 Boston Scientific Corp.* 4,500 274,950 Caremark Rx, Inc.* 10,800 277,344 Eli Lilly & Co. 3,600 248,292 Express Scripts, Inc.* 6,500 444,080 Genentech, Inc.* 10,400 750,048 Genzyme Corp.* 7,900 330,220 Johnson & Johnson Co. 19,700 1,018,490 Medtronic, Inc. 16,400 786,708 Pfizer, Inc. 65,800 2,247,070 Wyeth 20,800 947,440 -------------- $ 11,402,561 -------------- INDUSTRIAL -- 2.8% General Electric Co. 53,300 $ 1,528,644 Northrop Grumman Corp. 3,150 271,814 -------------- $ 1,800,458 -------------- LEISURE -- 14.2% AOL Time Warner, Inc.* 66,000 $ 1,061,940 ARAMARK Corp., "B"* 13,200 295,944 Brinker International, Inc.* 7,100 255,742 Clear Channel Communications, Inc.* 22,100 936,819 Comcast Corp., "A"* 19,100 576,438 Comcast Corp., "Special A"* 13,500 389,205 Cox Communications, Inc., "A"* 11,000 350,900 E.W. Scripps Co., "A" 3,110 275,919 InterActiveCorp* 17,000 672,690 Lamar Advertising Co., "A"* 12,500 440,125 New York Times Co., "A" 12,000 546,000 Outback Steakhouse, Inc. 6,400 249,600 Starbucks Corp.* 5,500 134,860 Starwood Hotels & Resorts Co. 16,900 483,171 Tribune Co. 12,100 584,430 Viacom, Inc., "B"* 31,800 1,388,388 Westwood One, Inc.* 11,300 383,409 -------------- $ 9,025,580 -------------- OTHER -- 3.6% Apollo Group, Inc. "A"* 3,700 $ 228,512 BISYS Group, Inc.* 25,800 473,946 DST Systems, Inc.* 7,000 266,000 First Data Corp. 16,300 675,472 SunGard Data Systems, Inc.* 23,800 616,658 -------------- $ 2,260,588 -------------- RETAIL -- 10.7% CVS Corp. 18,900 $ 529,767 Home Depot, Inc. 47,200 1,563,264 Kohl's Corp.* 18,300 940,254 Lowe's Cos., Inc. 5,900 253,405 Staples, Inc.* 12,600 231,210 Target Corp. 27,100 1,025,464 The TJX Cos., Inc. 14,700 276,948 Wal-Mart Stores, Inc. 30,200 1,620,834 Williams-Sonoma, Inc.* 12,600 367,920 -------------- $ 6,809,066 -------------- TECHNOLOGY -- 22.5% Analog Devices, Inc.* 33,100 $ 1,152,542 Cadence Design Systems, Inc.* 22,500 271,350 Cisco Systems, Inc.* 121,900 2,034,511 Dell Computer Corp.* 33,500 1,070,660 Intel Corp. 12,600 261,878 International Business Machines Corp. 17,500 1,443,750 Linear Technology Corp. 15,700 505,697 Maxim Integrated Products, Inc. 13,800 471,822 Microchip Technology, Inc. 12,800 315,264 Microsoft Corp. 99,600 2,550,756 Network Associates, Inc.* 19,000 240,920 Novellus Systems, Inc.* 10,000 366,210 Oracle Corp.* 94,800 1,139,496 Peoplesoft, Inc.* 32,100 564,639 Symantec Corp.* 2,200 96,492 Texas Instruments, Inc. 16,500 290,400 VERITAS Software Corp.* 42,300 1,212,741 Yahoo! Inc.* 9,100 298,116 -------------- $ 14,287,244 -------------- TRANSPORTATION -- 0.9% United Parcel Service, Inc., "B" 8,800 $ 560,560 -------------- UTILITIES -- TELEPHONE -- 1.5% AT&T Wireless Services, Inc.* 53,000 $ 435,130 Sprint Corp. (PCS Group)* 86,000 494,500 -------------- $ 929,630 -------------- Total U.S. Stocks $ 60,314,985 -------------- FOREIGN STOCKS -- 2.1% BERMUDA -- 2.1% XL Capital Ltd., "A" (Insurance) 9,800 $ 813,400 Ace Ltd. (Financial Services) 14,400 493,776 -------------- Total Foreign Stocks $ 1,307,176 -------------- Total Stocks (Identified Cost, $54,859,359) $ 61,622,161 --------------
17
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE SHORT-TERM OBLIGATION -- 2.9% Federal National Mortgage Assn., due 7/01/03, at Amortized Cost $ 1,866 $ 1,866,000 -------------- Total Investments (Identified Cost, $56,725,359) $ 63,488,161 -------------- OTHER ASSETS, LESS LIABILITIES -- (0.1)% (67,857) -------------- Net Assets -- 100.0% $ 63,420,304 ==============
See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003 MONEY MARKET VARIABLE ACCOUNT COMMERCIAL PAPER -- 83.0%
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE Abbey National North America, due 7/01/03 $ 1,352 $ 1,352,000 American Express Credit Corp., due 7/11/03 1,400 1,399,522 Archer Daniels Midland Co., due 10/31/03 - 11/04/03 2,050 2,041,582 Bank of America Corp., due 7/10/03 100 99,969 Cargill, Inc., due 7/01/03 388 388,000 Citibank Credit Card Issuance Trust, due 7/08/03 - 9/05/03 1,945 1,943,505 Citigroup, Inc., due 7/24/03 - 9/04/03 2,050 2,047,523 Coca-Cola Co., due 7/18/03 1,400 1,399,220 Coca-Cola Enterprises, Inc., due 8/11/03 2,000 1,997,221 Dexia Delaware, due 7/29/03 1,000 999,199 Edison Asset Securitization LLC, due 8/11/03, at Amortized Cost 2,050 2,047,385 General Electric Capital Corp., due 8/12/03 - 8/27/03 2,055 2,051,839 Goldman Sachs Group LP, due 8/22/03 2,000 1,996,360 Govco, Inc., due 7/18/03 1,400 1,399,167 HBOS Treasury Services PLC, due 8/28/03 2,000 1,996,117 HSBC America, Inc., due 9/04/03 2,000 1,995,667 Jupiter Section, due 7/28/03 1,099 1,098,126 New Center Asset Trust, due 9/15/03 2,000 1,994,933 Old Line Funding Corp., due 7/08/03 1,000 999,765 Park Avenue Recreation Corp., due 7/01/03 1,502 1,502,000 Rabobank Nederland, due 7/01/03 1,352 1,352,000 Sheffield Receivables Corp., due 7/01/03 - 7/25/03 1,503 1,502,099 Societe Generale North America, Inc., due 9/04/03 1,900 1,895,918 UBS Finance, Inc., due 7/01/03 1,352 1,352,000 -------------- Total Commercial Paper, at Amortized Cost $ 36,851,117 -------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 18.6% Federal Home Loan Bank, due 8/29/03 - 2/26/04 $ 3,300 $ 3,280,401 Federal National Mortgage Assn., due 8/20/03 5,000 4,991,805 Total U.S. Government and Agency Obligations, at Amortized Cost and Value $ 8,272,206 -------------- Total Investments at Amortized Cost and Value $ 45,123,323 -------------- OTHER ASSETS, LESS LIABILITIES -- (1.6)% (730,520) -------------- Net Assets -- 100.0% $ 44,392,803 ==============
See portfolio footnotes and notes to financial statements. 18 PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003 TOTAL RETURN VARIABLE ACCOUNT STOCKS -- 58.7%
ISSUER SHARES VALUE U.S. STOCKS -- 56.1% AEROSPACE -- 0.1% United Technologies Corp. 1,310 $ 92,787 -------------- BANKS & CREDIT COS. -- 3.1% Bank of America Corp. 17,270 $ 1,364,848 Bank One Corp. 17,900 665,522 FleetBoston Financial Corp. 59,630 1,771,608 SouthTrust Corp. 20,201 549,467 SunTrust Banks, Inc. 19,100 1,133,394 U.S. Bancorp 2,952 72,324 Wachovia Corp. 15,499 619,340 -------------- $ 6,176,503 -------------- BROKERAGE & ASSET MANAGERS -- 0.7% Franklin Resources, Inc. 17,900 $ 699,353 T. Rowe Price Group, Inc. 16,000 604,000 -------------- $ 1,303,353 -------------- BUSINESS SERVICES -- 0.1% Automatic Data Processing, Inc. 5,000 $ 169,300 -------------- CELLULAR PHONES -- 0.8% Telephone & Data Systems, Inc. 31,540 $ 1,567,538 -------------- CHEMICALS -- 1.0% Air Products & Chemicals, Inc. 12,920 $ 537,472 Dow Chemical Co. 21,000 650,160 E.I. DuPont de Nemours & Co. 1,300 54,132 Lyondell Chemical Co. 22,850 309,161 PPG Industries, Inc. 9,600 487,104 -------------- $ 2,038,029 -------------- COMPUTER SERVICES -- 0.6% Apple Computer, Inc.* 6,500 $ 124,280 Hewlett-Packard Co. 18,900 402,570 International Business Machines Corp. 7,160 590,700 -------------- $ 1,117,550 -------------- COMPUTER SOFTWARE -- 1.1% Microsoft Corp. 67,940 $ 1,739,943 Network Associates, Inc.* 34,370 435,812 -------------- $ 2,175,755 -------------- CONGLOMERATES -- 1.2% General Electric Co. 40,620 $ 1,164,981 Honeywell International, Inc. 3,700 99,345 Tyco International Ltd. 59,110 1,121,908 -------------- $ 2,386,234 -------------- CONSUMER GOODS & SERVICES -- 1.7% Altria Group, Inc. 12,300 $ 558,912 Colgate-Palmolive Co. 5,500 318,725 Gillette Co. 18,000 573,480 Kimberly-Clark Corp. 26,400 1,376,496 Procter & Gamble Co. 7,220 643,880 -------------- $ 3,471,493 -------------- CONTAINERS -- 0.7% Owens Illinois, Inc.* 67,030 $ 923,003 Smurfit-Stone Container Corp.* 43,800 570,714 -------------- $ 1,493,717 -------------- ELECTRICAL EQUIPMENT -- 0.3% Emerson Electric Co. 9,900 $ 505,890 -------------- ELECTRONICS -- 0.9% Intel Corp. 10,100 $ 209,918 Novellus Systems, Inc.* 17,400 637,206 Texas Instruments, Inc. 57,220 1,007,072 -------------- $ 1,854,196 -------------- ENERGY -- 1.4% ConocoPhillips 21,880 $ 1,199,024 TXU Corp. 75,590 1,696,996 -------------- $ 2,896,020 -------------- ENTERTAINMENT -- 1.8% AOL Time Warner, Inc.* 22,240 $ 357,842 Viacom, Inc., "B"* 62,893 2,745,908 Walt Disney Co. 29,950 591,512 -------------- $ 3,695,262 -------------- FINANCIAL INSTITUTIONS -- 5.7% Citigroup, Inc. 83,486 $ 3,573,201 Fannie Mae 11,900 802,536 Freddie Mac 15,840 804,197 J. P. Morgan Chase & Co. 22,500 769,050 Mellon Financial Corp. 110,230 3,058,882 Merrill Lynch & Co., Inc. 43,710 2,040,383 Morgan Stanley Dean Witter & Co. 10,200 436,050 -------------- $ 11,484,299 -------------- FOOD & BEVERAGE PRODUCTS -- 1.1% Archer-Daniels-Midland Co. 50,107 $ 644,877 Kellogg Co. 27,500 945,175 PepsiCo, Inc. 13,286 591,227 -------------- $ 2,181,279 -------------- FOREST & PAPER PRODUCTS -- 0.8% Bowater, Inc. 18,040 $ 675,598 International Paper Co. 26,100 932,553 -------------- $ 1,608,151 -------------- GAMING & LODGING -- 0.3% Starwood Hotels & Resorts Co. 20,270 $ 579,519 -------------- HEALTH & HOSPITALS -- 0.1% Tenet Healthcare Corp.* 24,600 $ 286,590 -------------- INDUSTRIAL GASES -- 0.5% Praxair, Inc. 16,040 $ 964,004 -------------- INSURANCE -- 3.4% Allstate Corp. 53,410 $ 1,904,066 Chubb Corp. 15,800 948,000 Hartford Financial Services Group, Inc. 37,760 1,901,594 MetLife, Inc. 21,500 608,880 Nationwide Financial Services, Inc., "A" 11,120 361,400 Travelers Property Casualty Corp. "A" 67,601 1,074,856 Travelers Property Casualty Corp. "B" 1 16 -------------- $ 6,798,812 -------------- MACHINERY -- 0.4% Deere & Co. 16,890 $ 771,873 -------------- MEDICAL & HEALTH PRODUCTS -- 4.6% Baxter International, Inc. 42,180 $ 1,096,680 Bristol-Myers Squibb Co. 2,650 71,947 Eli Lilly & Co. 24,880 1,715,974 Johnson & Johnson Co. 1,900 98,230 Merck & Co., Inc. 25,560 1,547,658 Pfizer, Inc. 72,700 2,482,705 Schering Plough Corp. 121,460 2,259,156 -------------- $ 9,272,350 -------------- METALS & MINERALS -- 1.2% Alcoa, Inc. 74,440 $ 1,898,220 Phelps Dodge Corp.* 14,700 563,598 -------------- $ 2,461,818 -------------- OIL SERVICES -- 4.1% BJ Services Co.* 18,850 $ 704,236 Cooper Cameron Corp.* 15,990 805,576 GlobalSantaFe Corp. 64,430 1,503,796 Noble Corp.* 76,955 2,639,556 Schlumberger Ltd. 54,080 2,572,586 -------------- $ 8,225,750 -------------- OILS -- 3.1% Devon Energy Corp. 42,570 $ 2,273,238 ExxonMobil Corp. 59,992 2,154,313
19
ISSUER SHARES VALUE U.S. STOCKS -- continued OILS -- continued Occidental Petroleum Corp. 53,700 1,801,635 -------------- $ 6,229,186 -------------- PHARMACEUTICALS -- 0.3% Wyeth 11,800 $ 537,490 -------------- PHOTOGRAPHIC PRODUCTS -- 0.1% Eastman Kodak Co. 8,500 $ 232,475 -------------- PRINTING & PUBLISHING -- 1.0% Gannett Co., Inc. 2,720 $ 208,923 New York Times Co. 18,600 846,300 Tribune Co. 18,500 893,550 -------------- $ 1,948,773 -------------- RAILROADS -- 0.6% Burlington Northern Santa Fe Railway Co. 35,460 $ 1,008,482 Norfolk Southern Corp. 14,100 270,720 -------------- $ 1,279,202 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.4% Equity Residential Properties Trust 30,260 $ 785,247 Healthcare Realty Trust 1,100 32,065 -------------- $ 817,312 -------------- RESTAURANTS & LODGING -- 0.9% Hilton Hotels Corp. 54,280 $ 694,241 McDonald's Corp. 54,760 1,208,006 -------------- $ 1,902,247 -------------- RETAIL -- 2.1% Home Depot, Inc. 26,300 $ 871,056 May Department Stores Co. 11,200 249,312 Sears, Roebuck & Co. 78,380 2,636,703 The Limited., Inc. 31,600 489,800 -------------- $ 4,246,871 -------------- SUPERMARKETS -- 1.0% Kroger Co.* 119,620 $ 1,995,262 -------------- TELECOMMUNICATIONS -- 6.2% Advanced Fibre Communications, Inc.* 22,390 $ 364,285 AT&T Corp. 73,274 1,410,525 AT&T Wireless Services, Inc.* 348,547 2,861,571 BellSouth Corp. 62,500 1,664,375 Comcast Corp. "A"* 1 30 Comcast Corp. "Special A"* 64,930 1,871,932 Cox Communications, Inc.* 7,000 223,300 SBC Communications, Inc. 67,424 1,722,683 Verizon Communications, Inc. 61,016 2,407,081 -------------- $ 12,525,782 -------------- UTILITIES -- ELECTRIC -- 2.3% Calpine Corp.* 261,700 $ 1,727,220 Duke Energy Corp. 25,900 516,705 Entergy Corp. 7,700 406,406 Exelon Corp. 8,120 485,657 FPL Group, Inc. 4,560 304,836 NiSource, Inc. 52,711 1,001,509 Pinnacle West Capital Corp. 2,660 99,617 PPL Corp. 3,400 146,200 -------------- $ 4,688,150 -------------- UTILITIES -- GAS -- 0.4% National Fuel Gas Co. 22,100 $ 575,705 WGL Holdings, Inc. 9,610 256,587 -------------- $ 832,292 -------------- Total U.S. Stocks $ 112,813,114 -------------- FOREIGN STOCKS -- 2.6% AUSTRALIA -- 0.1% Broken Hill Proprietary Co. Ltd. (Mining) 37,600 $ 218,130 -------------- NETHERLANDS -- 0.1% Akzo Nobel N.V. (Chemicals) 11,600 $ 307,954 -------------- SWITZERLAND -- 0.4% Novartis AG (Pharmaceuticals) 18,200 $ 721,752 -------------- UNITED KINGDOM -- 2.0% BP Amoco PLC, ADR (Oils) 51,890 $ 2,180,418 Reed Elsevier PLC (Publishing) 140,900 1,174,366 Vodafone Group PLC, ADR (Telecommunications) 36,695 721,057 -------------- $ 4,075,841 -------------- Total Foreign Stocks $ 5,323,677 -------------- Total Stocks (Identified Cost, $116,113,357) $ 118,136,791 -------------- BONDS -- 37.3% PRINCIPAL AMOUNT (000 OMITTED) U.S. BONDS -- 36.2% ADVERTISING & BROADCASTING -- 0.1% Clear Channel Communications, 7.25s, 2003 $ 133 $ 134,333 -------------- AEROSPACE -- 0.6% BAE Systems Holding Inc., 6.4s, 2011 ## $ 223 $ 249,510 Boeing Capital Corp., 6.5s, 2012 373 420,641 Northrop Grumman Corp., 7.75s, 2031 326 418,180 -------------- $ 1,088,331 -------------- AIRLINES -- 0.3% Continental Airlines Pass-Through Trust, Inc., 6.648s, 2019 $ 609 $ 587,571 Jet Equipment Trust, 11.44s, 2014 ## 300 30 -------------- $ 587,601 -------------- AUTOMOTIVE -- 0.4% Ford Motor Co., 7.45s, 2031 $ 123 $ 112,676 Ford Motor Credit Co., 6.875s, 2006 16 16,970 General Motors Acceptance Corp., 6.875s, 2011 277 277,924 General Motors Acceptance Corp., 7.25s, 2011 185 189,829 General Motors Acceptance Corp., 8s, 2031 176 172,685 General Motors Corp., 7.125s, 2013 41 41,129 -------------- $ 811,213 -------------- BANKS & CREDIT COS. -- 1.1% Abbey National Capital, 8.963s, 2049 $ 179 $ 256,815 Bank of America Corp., 7.4s, 2011 299 367,355 Credit Suisse First Boston, 4.625s, 2008 736 787,417 Credit Suisse First Boston, 6.125s, 2011 67 75,056 First Union Lehman Brothers Commercial, 7.38s, 2029 90 103,234 Popular North America, Inc., 4.25s, 2008 211 219,009 Socgen Real Estate Co., 7.64s, 2049 ## 361 418,306 -------------- $ 2,227,192 -------------- BROADCAST & CABLE TV -- 0.6% Cox Communications, Inc., 7.75s, 2010 $ 237 $ 289,900 TCI Communications Financing III, 9.65s, 2027 425 505,750 Telecomunicaciones de Puerto Rico, Inc., 6.65s, 2006 270 298,667 -------------- $ 1,094,317 -------------- BROKERAGE & ASSET MANAGERS -- 0.4% Lehman Brothers Holdings, Inc., 8.25s, 2007 $ 334 $ 398,849 Morgan Stanley Dean Witter & Co., 6.1s, 2006 353 388,615 -------------- $ 787,464 --------------
20
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued BUILDING -- 0.1% CRH America, Inc., 6.95s, 2012 $ 208 $ 242,703 -------------- CHEMICALS -- 0.1% Dow Chemical Co., 5.75s, 2008 $ 162 $ 177,710 -------------- CONGLOMERATES-- 0.1% News America Holdings, Inc., 6.703s, 2004 $ 215 $ 222,981 -------------- CONSUMER CYCLICAL -- 0.1% Cendant Corp., 6.875s, 2006 $ 147 $ 164,426 Cendant Corp., 6.25s, 2008 90 99,595 -------------- $ 264,021 -------------- CORPORATE ASSET-BACKED -- 3.0% Banamex Credit Card Merchant Voucher, 6.25s, 2003 ## $ 57 $ 57,299 BCF LLC, 7.75s, 2026 ## 82 65,181 Bear Stearns Commercial Mortgage Securities, Inc., 6.8s, 2008 391 430,380 Beneficial Home Equity Loan Trust, 1.439s, 2037 404 400,912 Certificates Funding Corp., 6.716s, 2004 ## 292 304,632 Chase Commercial Mortgage Securities Corp., 6.39s, 2030 369 424,731 Chase Commercial Mortgage Securities Corp., 7.543s, 2032 121 137,785 Chase Mortgage Finance Trust, 6s, 2017 116 118,078 Citibank Credit Card Issuance Trust, 6.65s, 2008 623 685,637 Criimi Mae Corp., 6.701s, 2030 ## 190 209,885 Criimi Mae Corp., 7s, 2033 ## 320 362,387 CWMBS, Inc. Pass-Through Trust, 8s, 2030 756 776,171 First Union Lehman Brothers Bank, 6.56s, 2035 101 116,133 General Motors Acceptance Corp., 3.898s, 2013 75 75,052 GS Mortgage Securities Corp. II, 6.06s, 2030 381 405,579 Independant National Mortgage Corporation, 7s, 2026 107 106,843 Morgan Stanley Dean Witter Capital, 2.839s, 2013 ## 298 298,276 Residential Accredit Loans, Inc., 7s, 2028 280 287,155 Residential Funding Mortgage Securities, Inc., 6s, 2016 571 584,245 Summit Acceptance Auto Investment LLC, 7.51s, 2007 157 157,514 -------------- $ 6,003,875 -------------- DEFENSE ELECTRONICS -- 0.1% Raytheon Co., 6.15s, 2008 $ 217 $ 245,368 -------------- ENERGY -- INDEPENDENT -- 0.2% Devon Financing Corp., U L C, 6.875s, 2011 $ 348 $ 408,216 -------------- ENERGY -- INTEGRATED Phillips Petroleum Co., 8.5s, 2005 $ 40 $ 45,058 -------------- ENTERTAINMENT -- 0.2% Aol Time Warner, Inc., 6.15s, 2007 $ 97 $ 109,118 Time Warner, Inc., 10.15s, 2012 1 1,368 Time Warner, Inc., 6.875s, 2018 172 193,444 Walt Disney Co., 6.75s, 2006 69 76,838 -------------- $ 380,768 -------------- FINANCIAL INSTITUTIONS -- 0.4% Countrywide Home Loans, Inc., 6.85s, 2004 $ 232 $ 244,022 Merrill Lynch Mortgage Invs, Inc., 6.39s, 2030 99 111,467 Mortgage Capital Funding, Inc., 6.337s, 2031 326 371,481 -------------- $ 726,970 -------------- FINANCIAL SERVICES -- 0.6% General Electric Capital Corp., 7.5s, 2005 $ 536 $ 594,754 General Electric Capital Corp., 8.75s, 2007 130 158,659 J.P. Morgan Commercial Mortgage Finance Corp., 6.613s, 2030 175 200,017 Morgan Stanley Capital I, Inc., 0s, 2030 ## 9,759 303,575 -------------- $ 1,257,005 -------------- FOOD & BEVERAGE PRODUCTS -- 0.2% Kellogg Co., 6s, 2006 $ 291 $ 320,804 -------------- FOREST & PAPER PRODUCTS -- 0.2% Meadwestvaco Corp., 6.8s, 2032 $ 104 $ 113,729 Weyerhaeuser Co., 6.75s, 2012 254 288,341 -------------- $ 402,070 -------------- GAMING & LODGING -- 0.2% Harrahs Operating, Inc., 7.125s, 2007 $ 193 $ 218,309 MGM Mirage, Inc., 8.5s, 2010 179 210,325 -------------- $ 428,634 -------------- HOME CONSTRUCTION Pulte Homes Inc., 6.375s, 2033 $ 65 $ 65,560 -------------- INSURANCE -- 0.8% AIG Sunamerica, 7.6s, 2005 ## $ 444 $ 493,548 Metlife, Inc., 6.5s, 2032 180 205,409 Prudential Funding Corp., Medium Term Note 144A, 6.6s, 2008 ## 179 206,894 SunAmerica Institutional, 5.75s, 2009 441 484,836 The Chubb Corp., 0s, 2005 10 263,105 -------------- $ 1,653,792 -------------- INSURANCE -- PROPERTY & CASUALTY -- 0.2% Allstate Corp., 6.125s, 2032 $ 185 $ 201,938 Safeco Corp., 4.875s, 2010 32 33,831 Travelers Property Casualty Corp., New, 6.375s, 2033 84 91,808 -------------- $ 327,577 -------------- MACHINERY & TOOLS -- 0.1% Kennametal Inc., 7.2s, 2012 $ 211 $ 230,927 -------------- MEDICAL & HEALTH TECHNOLOGY SERVICES -- 0.2% HCA, Inc., 6.95s, 2012 $ 276 $ 294,125 HCA, Inc., 6.25s, 2013 32 32,622 The Healthcare Co., 8.75s, 2010 60 69,893 -------------- $ 396,640 -------------- NATURAL GAS -- PIPELINE -- 0.3% Kinder Morgan Energy Partners, 6.75s, 2011 $ 315 $ 366,293 Kinder Morgan Energy Partners, 7.75s, 2032 117 147,528 -------------- $ 513,821 -------------- POLLUTION CONTROL -- 0.3% Waste Management, Inc., 7.375s, 2010 $ 508 $ 609,563 -------------- PRINTING & PUBLISHING -- 0.1% BELO Corp., 7.75s, 2027 $ 226 $ 270,320 -------------- RAILROADS -- 0.2% Union Pacific Corp., 6.34s, 2003 $ 365 $ 371,347 --------------
21
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE U.S. BONDS -- continued REAL ESTATE -- 0.5% Boston Properties, 5s, 2015 ## $ 42 $ 41,172 EOP Operating Limited Partnership, 6.8s, 2009 29 33,376 Simon Property Group Incorporated New, 6.75s, 2004 578 595,879 Vornado Reality Trust, 5.625s, 2007 383 410,949 -------------- $ 1,081,376 -------------- TELECOMMUNICATIONS -- WIRELINE -- 0.7% Alltel Corp., 7.875s, 2032 $ 127 $ 168,869 Citizens Communications, 8.5s, 2006 125 144,976 Citizens Communications Co., 7.625s, 2008 254 301,699 Sprint Capital Corp., 7.125s, 2006 77 84,271 Sprint Capital Corp., 6.875s, 2028 124 124,401 Verizon New York Inc., 6.875s, 2012 486 572,102 -------------- $ 1,396,318 -------------- U.S. GOVERNMENT AGENCIES -- 17.1% Federal Home Loan Mortgage Corp., 2.375s, 2006 $ 1,900 $ 1,930,362 Federal Home Loan Mortgage Corp., 6s, 2011 94 109,781 Federal Home Loan Pc, 5s, 2017 155 160,308 Federal Home Loan Pc, 5s, 2018 299 308,661 Federal Home Loan Pc, 5.5s, 2033 496 512,448 Federal National Mortgage Assn., 5.25s, 2007 1,211 1,345,881 Federal National Mortgage Assn., 5.722s, 2009 830 926,569 Federal National Mortgage Assn., 6.625s, 2009 1,286 1,542,963 Federal National Mortgage Assn., 6.625s, 2010 3,148 3,805,623 Federal National Mortgage Assn., 5.5s, 2016 993 1,031,460 Federal National Mortgage Assn., 6s, 2016 1,921 2,005,167 Federal National Mortgage Assn., 5.5s, 2017 969 1,006,132 Federal National Mortgage Assn., 6s, 2017 1,125 1,174,344 Federal National Mortgage Assn., 4.5s, 2018 530 538,944 Federal National Mortgage Assn., 5s, 2018 320 330,500 Federal National Mortgage Assn., 6.5s, 2028 3,284 3,429,033 Federal National Mortgage Assn., 7.5s, 2030 101 107,647 Federal National Mortgage Assn., 4.08s, 2031 342 342,530 Federal National Mortgage Assn., 7.5s, 2031 254 270,044 Federal National Mortgage Assn., 6s, 2032 436 453,175 Federal National Mortgage Assn., 6.5s, 2032 2,276 2,373,167 Federal National Mortgage Assn., 5s, 2033 450 455,344 Federal National Mortgage Assn., 5.5s, 2033 4,520 4,677,299 Federal National Mortgage Assn., 6s, 2033 $ 3,500 $ 3,636,717 Government National Mortgage Assn., 7.5s, 2023 182 193,956 Government National Mortgage Assn., 7.5s, 2024 6 6,338 Government National Mortgage Assn., 6.5s, 2028 873 917,300 Government National Mortgage Assn., 5s, 2033 380 387,600 SLM Corp., 5.375s, 2013 195 210,615 Student Loan Marketing Assn., 5s, 2004 250 260,202 -------------- $ 34,450,110 -------------- U.S. TREASURY OBLIGATIONS -- 4.4% U.S. Treasury Bonds, 11.875s, 2003 $ 568 $ 590,875 U.S. Treasury Bonds, 6.25s, 2023 2,660 3,258,292 U.S. Treasury Bonds, 5.375s, 2031 447 503,347 U.S. Treasury Notes, 1.25s, 2005 387 386,773 U S. Treasury Notes, 1.625s, 2005 850 855,844 U.S. Treasury Notes, 5.75s, 2005 665 731,890 U.S. Treasury Notes, 4.375s, 2007 146 158,615 U.S. Treasury Notes, 4.25s, 2010 731 860,181 U.S. Treasury Notes, 3s, 2012 1,141 1,257,317 U.S. Treasury Notes, 3.875s, 2013 120 123,483 -------------- $ 8,726,617 -------------- UTILITIES -- ELECTRIC -- 0.1% DTE Energy Co., 7.05s, 2011 $ 238 $ 278,354 -------------- UTILITIES -- ELECTRIC POWER -- 2.1% Centerpoint Energy Resources Corp., 7.875s, 2013 ## $ 65 $ 74,766 Cleveland Electric Illuminating Co., 9s, 2023 321 337,048 Entergy Mississippi, Inc., 6.2s, 2004 256 264,747 Firstenergy Corp., 6.45s, 2011 72 79,010 GGIB Funding Corp., 7.43s, 2011 122 126,779 Gulf States Utilities Co., 8.25s, 2004 128 134,099 Midamerican Energy Holdings, 3.5s, 2008 ## 118 118,635 Midamerican Energy Holdings, 5.875s, 2012 ## 61 66,900 Midamerican Funding LLC, 6.927s, 2029 454 517,177 Niagara Mohawk Power Corp., 7.75s, 2006 1 1,145 Niagara Mohawk Power Corp., 8.77s, 2018 560 582,876 Northeast Utilities, 8.58s, 2006 201 232,939 Oncor Electric Delivery Co., 7s, 2032 312 358,294 Progress Energy, Inc., 6.85s, 2012 195 224,414 Progress Energy, Inc., 7.1s, 2011 69 80,268 PSEG Power LLC, 6.95s, 2012 124 142,363 PSEG Power LLC, 8.625s, 2031 91 117,312 Toledo Edison Co., 7.875s, 2004 320 340,196 TXU Corp., 7s, 2013 ## 75 83,063 Waterford 3 Funding Entergy Corp., 8.09s, 2017 372 408,169 -------------- $ 4,290,200 -------------- WIRELESS COMMUNICATIONS -- 0.1% AT&T Wireless Services Inc., 8.75s, 2031 $ 125 $ 154,508 AT&T Wireless Services, Inc., 7.35s, 2006 107 120,069 -------------- $ 274,577 -------------- Total U.S. Bonds $ 72,793,733 --------------
22
PRINCIPAL AMOUNT ISSUER (000 OMITTED) VALUE FOREIGN BONDS -- 1.1% CANADA -- 0.2% Hydro Quebec, 6.3s, 201 (Utilities-Electric) $ 262 $ 308,251 -------------- FRANCE -- 0.1% France Telecom S.A., 10s, 2031 (Telecom-Wireline) $ 220 $ 304,422 -------------- ISRAEL -- 0.1% Israel St, 4.625s, 2013 $ 112 $ 109,078 -------------- ITALY -- 0.3% Italy Republic, 4.625s, 2005 $ 363 $ 383,162 Unicredito Italiano Capital Trust (Banks & Credit Cos.), 1s, 2049 ## 208 267,473 -------------- $ 650,635 -------------- MEXICO -- 0.3% Pemex Project Funding Master Trust, 9.125s, 2010(Oils) $ 282 $ 341,220 United Mexican States, 8.125s, 2019 85 96,900 United Mexican States, 11.375s, 2016 70 101,850 -------------- $ 539,970 -------------- NETHERLANDS Deutsche Telekom Intl Fin BV, 8.75s, 2030 (Telecom-Wireline) $ 70 $ 89,186 -------------- SINGAPORE -- 0.1% DBS Capital Funding Corp., 7.657s, 2049 (Banks & Credit Cos.) ## $ 170 $ 201,803 -------------- Total Foreign Bonds $ 2,203,345 -------------- Total Bonds (Identified Cost, $71,438,879) $ 74,997,078 -------------- CONVERTIBLE PREFERRED STOCK -- 0.2% U.S. STOCKS -- 0.2% TELECOMMUNICATIONS -- 0.2% Motorola Inc., (Identified Cost, $527,117) 11,400 $ 371,640 -------------- PREFERRED STOCK -- 0.2% ISSUER SHARES VALUE U.S. STOCKS -- 0.2% INSURANCE -- 0.2% Hartford Financial Services Group Inc. (Identified Cost, $430,281) 9,000 $ 473,760 -------------- PRINCIPAL AMOUNT (000 OMITTED) CONVERTIBLE BOND -- 0.2% U.S. BONDS -- 0.2% COMPUTER SOFTWARE-SYSTEMS -- 0.2% Analog Devices Inc., 4.75s, 2005 (Identified Cost $336,325) $ 350 $ 356,125 -------------- SHORT-TERM OBLIGATIONS -- 6.7% Edison Asset Securitization LLC, due 7/01/03 $ 3,954 $ 3,954,000 General Electric Capital Corp., due 7/01/03 2,896 2,896,000 Federal Home Loan Bank, due 7/01/03 6,584 6,584,000 -------------- Total Short-Term Obligations, at Amortized Cost $ 13,434,000 -------------- Total Investments (Identified Cost, $202,251,995 ) $ 207,769,394 -------------- OTHER ASSETS, LESS LIABILITIES -- (3.3)% (6,686,262) -------------- Net Assets -- 100.0% $ 201,083,132 ==============
See portfolio footnotes and notes to financial statements PORTFOLIO FOOTNOTES: * Non-income producing security. ** Non-income producing security - in default. # Payment-in-kind security. ## SEC Rule 144A restriction. ### Security segregated as collateral for an open futures contract. Abbreviations have been used throughout this report to indicate amounts shown in currencies other than U.S. Dollar. A list of abbreviations is shown below. AUD=Australian Dollar JPY=Japanese Yen CAD=Canadian Dollar NOK=Norwegian Kroner DKK=Danish Kroner NZD=New Zealand Dollar EUR=Euro PLN=Polish Zloty GBP=British Pounds SEK=Swedish Kroner 23 STATEMENTS OF ASSETS AND LIABILITIES (Unaudited)-- June 30, 2003 (000 Omitted)
CAPITAL GLOBAL GOVERNMENT HIGH APPRECIATION GOVERNMENTS SECURITIES YIELD VARIABLE VARIABLE VARIABLE VARIABLE ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------ ----------- ---------- ---------- Assets: Investments -- Investments cost $ 293,215 $ 12,518 $ 120,156 $ 105,344 Unrealized appreciation (depreciation) 5,233 1,000 6,080 (6,025) Repurchase agreements, at value -- -- 25,982 -- ------------ ----------- ---------- ---------- Total investments, at value $ 298,448 $ 13,518 $ 152,218 $ 99,319 Cash $ 1 $ 0* $ 33 $ 0* Receivable for forward foreign currency exchange contracts -- 36 -- 3 Receivable for investments sold 3,793 876 -- 168 Receivable for units sold 34 1 12 3 Interest and dividends receivable 125 255 1,101 1,782 Receivable from investment adviser 48 6 -- -- Other assets 8 --* 2 2 ------------ ----------- ---------- ---------- Total assets $ 302,457 $ 14,692 $ 153,366 $ 101,277 ============ =========== ========== ========== Liabilities: Payable for forward foreign currency exchange contracts $ -- $ 82 $ -- $ -- Payable for daily variation margin on open future contracts -- 7 -- -- Payable for investments purchased 1,748 1,020 23,342 811 Payable for TBA purchase commitments -- -- -- -- Payable for units surrendered 240 7 61 65 Payable to affiliates -- Investment adviser 19 1 6 6 Administrative fee 0* 0* 0* 0* Sponsor 805 120 439 265 Accrued expenses and other liabilities 46 24 37 40 ------------ ----------- ---------- ---------- Total liabilities $ 2,858 $ 1,261 $ 23,885 $ 1,187 ------------ ----------- ---------- ---------- Net assets $ 299,599 $ 13,431 $ 129,481 $ 100,090 ============ =========== ========== ========== MANAGED MONEY TOTAL SECTORS MARKET RETURN VARIABLE VARIABLE VARIABLE ACCOUNT ACCOUNT ACCOUNT ------------ ----------- ---------- Assets: Investments -- Investments cost $ 56,725 $ 45,123 $ 202,252 Unrealized appreciation (depreciation) 6,763 -- 5,517 Repurchase agreements, at value -- -- -- ------------ ----------- ---------- Total investments, at value $ 63,488 $ 45,123 $ 207,769 Cash $ 0* $ 0* $ 14 Receivable for forward foreign currency exchange contracts -- -- -- Receivable for investments sold 565 -- 451 Receivable for units sold 20 33 16 Interest and dividends receivable 20 -- 1,005 Receivable from investment adviser -- -- -- Other assets 1 13 4 ------------ ----------- ---------- Total assets $ 64,094 $ 45,169 $ 209,259 ============ =========== ========== Liabilities: Payable for forward foreign currency exchange contracts $ -- $ -- $ -- Payable for daily variation margin on open future contracts -- -- -- Payable for investments purchased 472 -- 1,456 Payable for TBA purchase commitments -- -- 6,416 Payable for units surrendered 115 395 97 Payable to affiliates -- Investment adviser 4 2 12 Administrative fee 0* 0* 0* Sponsor 59 353 156 Accrued expenses and other liabilities 24 26 39 ------------ ----------- ---------- Total liabilities $ 674 $ 776 $ 8,176 ------------ ----------- ---------- Net assets $ 63,420 $ 44,393 $ 201,083 ============ =========== ==========
* Amount less than $500. See notes to financial statements. 24 STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2003 -- continued (000 Omitted except for unit values)
CAPITAL GLOBAL GOVERNMENT APPRECIATION GOVERNMENTS SECURITIES UNIT VARIABLE VARIABLE VARIABLE UNIT VALUE ACCOUNT ACCOUNT ACCOUNT -------- -------- ------------ ----------- ----------- Net assets applicable to contract owners: Capital Appreciation Variable Account -- Compass 2 4,300 $ 45.980 $ 197,851 Compass 3 707 30.363 21,466 Compass 3 - Level 2 6,120 12.610 77,170 Global Governments Variable Account -- Compass 2 178 $ 23.828 $ 4,235 Compass 3 47 23.286 1,098 Compass 3 - Level 2 589 13.629 8,029 Government Securities Variable Account -- Compass 2 2,633 $ 36.873 $ 97,055 Compass 3 171 25.796 4,407 Compass 3 - Level 2 1,735 15.073 26,155 High Yield Variable Account -- Compass 2 1,967 $ 31.533 Compass 3 151 23.204 Compass 3 - Level 2 2,685 12.392 Managed Sectors Variable Account -- Compass 2 416 $ 37.871 Compass 3 245 37.271 Compass 3 - Level 2 3,179 12.052 Money Market Variable Account -- Compass 2 1,379 $ 20.266 Compass 3 166 16.626 Compass 3 - Level 2 1,061 12.435 Total Return Variable Account -- Compass 2 1,761 $ 38.619 Compass 3 520 37.742 Compass 3 - Level 2 6,107 18.207 ------------ ----------- ----------- Net assets applicable to owners of deferred contracts 296,487 13,362 127,617 Reserve for variable annuities -- Compass 2 Contracts 2,792 19 1,767 Compass 3 Contracts 1 41 0 Compass 3 - Level 2 Contracts 319 9 97 ------------ ----------- ----------- Net assets $ 299,599 $ 13,431 $ 129,481 ============ =========== =========== HIGH MANAGED MONEY TOTAL YIELD SECTORS MARKET RETURN VARIABLE VARIABLE VARIABLE VARIABLE ACCOUNT ACCOUNT ACCOUNT ACCOUNT ---------- --------- ----------- ----------- Net assets applicable to contract owners: Capital Appreciation Variable Account -- Compass 2 Compass 3 Compass 3 - Level 2 Global Governments Variable Account -- Compass 2 Compass 3 Compass 3 - Level 2 Government Securities Variable Account -- Compass 2 Compass 3 Compass 3 - Level 2 High Yield Variable Account -- Compass 2 $ 62,027 Compass 3 3,486 Compass 3 - Level 2 33,273 Managed Sectors Variable Account -- Compass 2 $ 15,776 Compass 3 9,114 Compass 3 - Level 2 38,319 Money Market Variable Account -- Compass 2 $ 27,883 Compass 3 2,741 Compass 3 - Level 2 13,184 Total Return Variable Account -- Compass 2 $ 67,990 Compass 3 19,607 Compass 3 - Level 2 111,194 ---------- -------- ------------ ----------- Net assets applicable to owners of deferred contracts 98,786 63,209 43,808 198,791 Reserve for variable annuities -- Compass 2 Contracts 1,260 96 542 1,380 Compass 3 Contracts 1 24 26 228 Compass 3 - Level 2 Contracts 43 91 17 684 ---------- -------- ------------ ----------- Net assets $ 100,090 $ 63,420 $ 44,393 $ 201,083 ========== ======== ============ ===========
See notes to financial statements. 25 STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2003 (000 Omitted)
CAPITAL GLOBAL GOVERNMENT HIGH MANAGED MONEY TOTAL APPRECIATION GOVERNMENTS SECURITIES YIELD SECTORS MARKET RETURN VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ------------ ----------- ---------- --------- ---------- ---------- ---------- Net investment income (loss): Income -- Interest $ 68 $ 247 $ 2,675 $ 4,061 $ 9 $ 356 $ 1,973 Dividends 1,222 -- -- 49 250 -- 1,184 --------- --------- --------- --------- --------- --------- --------- Total investment income $ 1,290 $ 247 $ 2,675 $ 4,110 $ 259 $ 356 $ 3,157 --------- --------- --------- --------- --------- --------- --------- Expenses -- Mortality and expense risk charges $ 1,737 $ 80 $ 825 $ 563 $ 365 $ 345 $ 1,181 Management fee 988 43 361 337 221 138 722 Boards of Managers Fees 11 1 5 4 2 2 8 Distribution fee 15 1 3 3 7 2 15 Administrative fee 23 1 11 8 5 5 17 Custodian fee 69 8 26 23 18 5 50 Printing 23 2 9 2 7 1 12 Auditing fees 16 17 15 21 16 5 23 Legal fees 0* 0* 0* -- 0* 0* 0* Miscellaneous 6 1 15 6 1 -- 3 --------- --------- --------- --------- --------- --------- --------- Total expenses $ 2,888 $ 154 $ 1,270 $ 967 $ 642 $ 503 $ 2,031 Fees paid indirectly (6) 0* 0* (1) 0* -- (1) --------- --------- --------- --------- --------- --------- --------- Net expenses $ 2,882 $ 154 $ 1,270 $ 966 $ 642 $ 503 $ 2,030 --------- --------- --------- --------- --------- --------- --------- Net investment income (loss) $ (1,592) $ 93 $ 1,405 $ 3,144 $ (383) $ (147) $ 1,127 --------- --------- --------- --------- --------- --------- --------- Realized and unrealized gain (loss) on investments: Realized gain (loss) (identified cost basis) -- Investment transactions $ (9,380) $ 603 $ 2,107 $ 645 $ (230) $ -- $ (525) Futures contracts -- 37 -- -- -- -- -- Foreign currency transactions (3) 66 -- (15) -- -- 1 --------- --------- --------- --------- --------- --------- --------- Net realized gain (loss) on investments and foreign currency transactions $ (9,383) $ 706 $ 2,107 $ 630 $ (230) $ -- $ (524) --------- --------- --------- --------- --------- --------- --------- Change in unrealized appreciation (depreciation)-- Investments $ 51,257 $ 283 $ (768) $ 5,405 $ 7,559 $ -- $ 13,287 Futures contracts -- (38) -- -- -- -- -- Translation of assets and liabilities in foreign currencies 0* (74) -- 5 -- -- -- --------- --------- --------- --------- --------- --------- --------- Net unrealized gain (loss) on investments and foreign currency translation $ 51,257 $ 171 $ (768) $ 5,410 $ 7,559 $ -- $ 13,287 --------- --------- --------- --------- --------- --------- --------- Net realized and unrealized gain on investments and foreign currency $ 41,874 $ 877 $ 1,339 $ 6,040 $ 7,329 $ -- $ 12,763 --------- --------- --------- --------- --------- --------- --------- Increase (decrease) in net assets from operations $ 40,282 $ 970 $ 2,744 $ 9,184 $ 6,946 $ (147) $ 13,890 ========= ========= ========= ========= ========= ========= =========
* Amount less than $500. See notes to financial statements. 26 STATEMENTS OF CHANGES IN NET ASSETS (000 Omitted)
CAPITAL APPRECIATION GLOBAL GOVERNMENTS VARIABLE ACCOUNT VARIABLE ACCOUNT --------------------------- --------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------ ------------- ------------ Increase (decrease) in net assets: From operations: Net investment income (loss) $ (1,592) $ (4,601) $ 93 $ 198 Net realized gain (loss) on investments and foreign currency transactions (9,383) (124,529) 706 497 Net unrealized gain (loss) on investments and foreign currency translation 51,257 (19,285) 171 1,166 ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations $ 40,282 $ (148,415) $ 970 $ 1,861 ----------- ----------- ----------- ----------- Participant transactions: Accumulation activity: Purchase payments received $ 3,820 $ 10,253 $ 201 $ 436 Net transfers between variable and fixed accumulation accounts (2,038) (13,000) 882 1,365 Withdrawals, surrenders, annuitizations and contract charges (13,913) (47,725) (672) (1,490) ----------- ----------- ----------- ----------- Net accumulation activity $ (12,131) $ (50,472) $ 411 $ 311 ----------- ----------- ----------- ----------- Annuitization activity: Annuitizations $ -- $ 40 $ -- $ 1 Annuity payments and contract charges (221) (623) (3) (5) Net transfers among accounts for annuity reserves (4) (13) -- 27 Adjustments to annuity reserves (178) 465 (9) (74) ----------- ----------- ----------- ----------- Net annuitization activity $ (403) $ (131) $ (12) $ (51) ----------- ----------- ----------- ----------- Increase (decrease) in net assets from participant transactions $ (12,534) $ (50,603) $ 399 $ 260 ----------- ----------- ----------- ----------- Total increase (decrease) in net assets $ 27,748 $ (199,018) $ 1,369 $ 2,121 Net assets: At beginning of period 271,851 470,869 12,062 9,941 ----------- ----------- ----------- ----------- At end of period $ 299,599 $ 271,851 $ 13,431 $ 12,062 =========== =========== =========== =========== GOVERNMENT SECURITIES VARIABLE ACCOUNT --------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 ------------- ------------ Increase (decrease) in net assets: From operations: Net investment income (loss) $ 1,405 $ 4,376 Net realized gain (loss) on investments and foreign currency transactions 2,107 1,007 Net unrealized gain (loss) on investments and foreign currency translation (768) 4,771 ----------- ----------- Increase (decrease) in net assets from operations $ 2,744 $ 10,154 ----------- ----------- Participant transactions: Accumulation activity: Purchase payments received $ 1,351 $ 2,179 Net transfers between variable and fixed accumulation accounts 1,348 4,607 Withdrawals, surrenders, annuitizations and contract charges (7,556) (16,712) ----------- ----------- Net accumulation activity $ (4,857) $ (9,926) ----------- ----------- Annuitization activity: Annuitizations $ 1 $ 39 Annuity payments and contract charges (315) (490) Net transfers among accounts for annuity reserves (4) 62 Adjustments to annuity reserves 36 (41) ----------- ----------- Net annuitization activity $ (282) $ (430) ----------- ----------- Increase (decrease) in net assets from participant transactions $ (5,139) $ (10,356) ----------- ----------- Total increase (decrease) in net assets $ (2,395) $ (202) Net assets: At beginning of period 131,876 132,078 ----------- ----------- At end of period $ 129,481 $ 131,876 =========== ===========
See notes to financial statements. 27
HIGH YIELD MANAGED SECTORS VARIABLE ACCOUNT VARIABLE ACCOUNT -------------------------- -------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------ ------------- ------------ Increase (decrease) in net assets: From operations: Net investment income (loss) $ 3,144 $ 7,007 $ (383) $ (1,083) Net realized gain (loss) on investments and foreign currency transactions 630 (17,649) (230) (16,573) Net unrealized gain (loss) on investments and foreign currency translation 5,410 10,942 7,559 (6,684) --------- -------- --------- ---------- Increase (decrease) in net assets from operations $ 9,184 $ 300 $ 6,946 $ (24,340) --------- -------- --------- ---------- Participant transactions: Accumulation activity: Purchase payments received $ 724 $ 1,286 $ 1,588 $ 3,932 Net transfers between variable and fixed accumulation accounts 570 16,395 (1,172) (5,119) Withdrawals, surrenders, annuitizations and contract charges (4,302) (10,451) (3,330) (11,761) --------- -------- --------- ---------- Net accumulation activity $ (3,008) $ 7,230 $ (2,914) $ (12,948) --------- -------- --------- ---------- Annuitization activity: Annuitizations $ -- $ 106 $ -- $ 13 Annuity payments and contract charges (122) (313) (17) (73) Net transfers among accounts for annuity reserves 8 (4) -- (21) Adjustments to annuity reserves (160) 14 (7) 10 --------- -------- --------- ---------- Net annuitization activity $ (274) $ (197) $ (24) $ (71) --------- -------- --------- ---------- Increase (decrease) in net assets from participant transactions $ (3,282) $ 7,033 $ (2,938) $ (13,019) --------- -------- --------- ---------- Total increase (decrease) in net assets $ 5,902 $ 7,333 $ 4,008 $ (37,359) Net assets: At beginning of period 94,188 86,855 59,412 96,771 --------- -------- --------- ---------- At end of period $ 100,090 $ 94,188 $ 63,420 $ 59,412 ========= ======== ========= ==========
See notes to financial statements. 28
MONEY MARKET TOTAL RETURN VARIABLE ACCOUNT VARIABLE ACCOUNT -------------------------- -------------------------- SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------- ------------ ------------- ------------ Increase (decrease) in net assets: From operations: Net investment income (loss) $ (147) $ (31) $ 1,127 $ 3,536 Net realized loss on investments and foreign currency transactions -- -- (524) (7,793) Net unrealized gain (loss) on investments and foreign currency translation -- -- 13,287 (11,303) --------- ---------- ----------- ----------- Increase (decrease) in net assets from operations $ (147) $ (31) $ 13,890 $ (15,560) --------- ---------- ----------- ----------- Participant transactions: Accumulation activity: Purchase payments received $ 1,172 $ 1,789 $ 2,770 $ 6,095 Net transfers between variable and fixed accumulation accounts (1,151) (9,692) (2,142) 1,032 Withdrawals, surrenders, annuitizations and contract charges (5,982) (21,484) (10,724) (27,208) --------- ---------- ----------- ----------- Net accumulation activity $ (5,961) $ (29,387) $ (10,096) $ (20,081) --------- ---------- ----------- ----------- Annuitization activity: Annuitizations $ 7 $ 19 $ 258 $ 180 Annuity payments and contract charges (57) (136) (226) (429) Net transfers among accounts for annuity reserves -- 11 -- (5) Adjustments to annuity reserves (8) 17 (99) (209) --------- ---------- ----------- ----------- Net annuitization activity $ (58) $ (89) $ (67) $ (463) --------- ---------- ----------- ----------- Decrease in net assets from participant transactions $ (6,019) $ (29,476) $ (10,163) $ (20,544) --------- ---------- ----------- ----------- Total increase (decrease) in net assets $ (6,166) $ (29,507) $ 3,727 $ (36,104) Net assets: At beginning of period 50,559 80,066 197,356 233,460 --------- ---------- ----------- ----------- At end of period $ 44,393 $ 50,559 $ 201,083 $ 197,356 ========= ========== =========== ===========
See notes to financial statements. 29 PER UNIT AND OTHER DATA The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single account unit. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the account.
CAPITAL APPRECIATION VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 2 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 39.859 $ 59.446 $ 80.578 ---------------- ------------ ------------ Investment income $ 0.198 $ 0.369 $ 0.598 Expenses (0.441) (1.002) (1.401) ---------------- ------------ ------------ Net investment loss $ (0.243) $ (0.633) $ (0.803) Net realized and unrealized gain (loss) on investments and foreign currency transactions 6.364 (18.954) (20.329) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 6.121 $ (19.587) $ (21.132) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 45.980 $ 39.859 $ 59.446 ================ ============ ============ Total Return 15.36%#+++^^ (32.95)%+++ (26.22)%+++ Ratios (to average net assets): Expenses## 2.13%++ 2.12% 0.79%+ Net investment loss (1.15)%++ (1.36)% (1.19)%+ Portfolio turnover 44% 80% 123% Number of units outstanding at end of period (000 Omitted) 4,300 4,521 5,340 CAPITAL APPRECIATION VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 92.242 $ 70.426 $ 55.390 ------------ ------------ ------------ Investment income $ 0.907 $ 0.401 $ 0.311 Expenses (1.920) (1.519) (1.275) ------------ ------------ ------------ Net investment loss $ (1.013) $ (1.118) $ (0.964) Net realized and unrealized gain (loss) on investments and foreign currency transactions (10.651) 22.934 16.000 ------------ ------------ ------------ Net increase (decrease) in unit value $ (11.664) $ 21.816 $ 15.036 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 80.578 $ 92.242 $ 70.426 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.76%+ 0.76%+ 0.77%+ Net investment loss (1.08)%+ (1.51)%+ (1.55)%+ Portfolio turnover 140% 85% 78% Number of units outstanding at end of period (000 Omitted) 5,818 6,403 7,447 CAPITAL APPRECIATION VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 3 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 26.334 $ 39.314 $ 53.342 ---------------- ------------ ------------ Investment income $ 0.128 $ 0.240 $ 0.417 Expenses (0.301) (0.688) (1.025) ---------------- ------------ ------------ Net investment loss $ (0.173) $ (0.448) $ (0.608) Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.202 (12.532) (13.420) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 4.029 $ (12.980) $ (14.028) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 30.363 $ 26.334 $ 39.314 ================ ============ ============ Total Return 15.30%#+++^^ (33.02)%+++ (26.30)%+++ Ratios (to average net assets): Expenses## 2.23%++ 2.22% 0.79%+ Net investment loss (1.26)%++ (1.42)% (1.19)%+ Portfolio turnover 44% 80% 123% Number of units outstanding at end of period (000 Omitted) 707 812 999 CAPITAL APPRECIATION VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 61.123 $ 46.713 $ 36.776 ------------ ------------ ------------ Investment income $ 0.581 $ 0.261 $ 0.203 Expenses (1.317) (1.042) (0.875) ------------ ------------ ------------ Net investment loss $ (0.736) $ (0.781) $ (0.672) Net realized and unrealized gain (loss) on investments and foreign currency transactions (7.045) 15.191 10.609 ------------ ------------ ------------ Net increase (decrease) in unit value $ (7.781) $ 14.410 $ 9.937 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 53.342 $ 61.123 $ 46.713 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.76%+ 0.76%+ 0.77%+ Net investment loss (1.08)%+ (1.51)%+ (1.55)%+ Portfolio turnover 140% 85% 78% Number of units outstanding at end of period (000 Omitted) 1,327 1,824 2,452
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from directed brokerage and certain expense offset arrangements. ^^ The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value per share, the per unit value total return for the six months ended June 30, 2003, would have been 13.08% and 13.03% Compass 2 and 3, respectively. See notes to financial statements. 30
CAPITAL APPRECIATION VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 3 - LEVEL 2 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 10.929 $ 16.292 $ 22.072 ---------------- ------------ ------------ Investment income $ 0.053 $ 0.100 $ 0.154 Expenses (0.118) (0.260) (0.357) ---------------- ------------ ------------ Net investment loss $ (0.065) $ (0.160) $ (0.203) Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.746 (5.203) (5.577) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.681 $ (5.363) $ (5.780) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 12.610 $ 10.929 $ 16.292 ================ ============ ============ Total Return 15.38%#+++^^ (32.92)%+++ (26.19)%+++ Ratios (to average net assets): Expenses## 2.08%++ 2.07% 0.79%+ Net investment loss (1.13)%++ (1.32)% (1.19)%+ Portfolio turnover 44% 80% 123% Number of units outstanding at end of period (000 Omitted) 6,120 6,148 6,705 CAPITAL APPRECIATION VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 25.255 $ 19.272 $ 15.150 ------------ ------------ ------------ Investment income $ 0.247 $ 0.109 $ 0.085 Expenses (0.513) (0.409) (0.342) ------------ ------------ ------------ Net investment loss $ (0.266) $ (0.300) $ (0.257) Net realized and unrealized gain (loss) on investments and foreign currency transactions (2.917) 6.283 4.379 ------------ ------------ ------------ Net increase (decrease) in unit value $ (3.183) $ 5.983 $ 4.122 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 22.072 $ 25.255 $ 19.272 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.76%+ 0.76%+ 0.77%+ Net investment loss (1.08)%+ (1.51)%+ (1.55)%+ Portfolio turnover 140% 85% 78% Number of units outstanding at end of period (000 Omitted) 6,283 5,632 5,055
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from directed brokerage and certain expense offset arrangements. ^^ The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value per share, the per unit value total return for the six months ended June 30, 2003, would have been 13.11%. See notes to financial statements. 31
GLOBAL GOVERNMENTS VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 22.125 $ 18.653 $ 19.378 ---------------- ------------ ------------ Investment income~~ $ 0.446 $ 0.861 $ 0.946 Expenses (0.277) (0.486) (0.500) ---------------- ------------ ------------ Net investment income~ $ 0.169 $ 0.375 $ 0.446 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.534 3.097 (1.171) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.703 $ 3.472 $ (0.725) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 23.828 $ 22.125 $ 18.653 ================ ============ ============ Total Return 7.70%#+++ 18.61%+++ (3.74)%+++ Ratios (to average net assets): Expenses## 2.47%++ 2.50% 1.28%+ Net investment income~~ 1.44%++ 1.73% 2.23%+ Portfolio turnover 63% 126% 72% Number of units outstanding at end of period (000 Omitted) 178 160 134 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ 0.850 $ 0.470 Ratios (to average net assets): Expenses## -- 2.44% 1.39%+ Net investment income~~ -- 1.79% 2.12%+ GLOBAL GOVERNMENTS VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 19.459 $ 20.830 $ 18.280 ------------ ------------ ------------ Investment income~~ $ 1.144 $ 1.095 $ 1.081 Expenses (0.471) (0.479) (0.451) ------------ ------------ ------------ Net investment income~ $ 0.673 $ 0.616 $ 0.630 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.754) (1.987) 1.920 ------------ ------------ ------------ Net increase (decrease) in unit value $ (0.081) $ (1.371) $ 2.550 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 19.378 $ 19.459 $ 20.830 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 1.25%+ 1.11%+ 1.08%+ Net investment income~~ 3.50%+ 3.07%+ 3.33%+ Portfolio turnover 130% 172% 306% Number of units outstanding at end of period (000 Omitted) 167 212 296 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ -- $ -- Ratios (to average net assets): Expenses## -- -- -- Net investment income~~ -- -- -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 21.638 $ 18.269 $ 19.007 ---------------- ------------ ------------ Investment income~~ $ 0.438 $ 0.846 $ 1.063 Expenses (0.282) (0.511) (0.579) ---------------- ------------ ------------ Net investment income~ $ 0.156 $ 0.335 $ 0.484 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.492 3.034 (1.222) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.648 $ 3.369 $ (0.738) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 23.286 $ 21.638 $ 18.269 ================ ============ ============ Total Return 7.62%#+++ 18.44%+++ (3.88)%+++ Ratios (to average net assets): Expenses## 2.62%++ 2.65% 1.28%+ Net investment income~~ 1.36%++ 1.77% 2.23%+ Portfolio turnover 63% 126% 72% Number of units outstanding at end of period (000 Omitted) 47 58 68 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ 0.840 $ 0.500 Ratios (to average net assets): Expenses## -- 2.56% 1.39%+ Net investment income~~ -- 1.87% 2.12%+ GLOBAL GOVERNMENTS VARIABLE ACCOUNT ------------------------------------------------ COMPASS 3 ------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 19.115 $ 20.492 $ 18.010 ------------ ------------ ------------ Investment income~~ $ 1.103 $ 0.986 $ 1.046 Expenses (0.480) (0.442) (0.428) ------------ ------------ ------------ Net investment income~ $ 0.623 $ 0.544 $ 0.618 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.731) (1.921) 1.864 ------------ ------------ ------------ Net increase (decrease) in unit value $ (0.108) $ (1.377) $ 2.482 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 19.007 $ 19.115 $ 20.492 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 1.25%+ 1.11%+ 1.08%+ Net investment income~~ 3.50%+ 3.07%+ 3.33%+ Portfolio turnover 130% 172% 306% Number of units outstanding at end of period (000 Omitted) 108 186 290 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ -- $ -- Ratios (to average net assets): Expenses## -- -- -- Net investment income~~ -- -- --
~~ As required, effective January 1, 2001 the account has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.08 and $0.08, respectively, increase net realized and unrealized gains and losses per share by $0.08 and $0.08, respectively, and decrease the ratio of net investment income to average net assets by 0.41% and 0.41%, respectively. Per share, ratios, and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjunction with the redemption of units. # Not Annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 32
GLOBAL GOVERNMENTS VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 - LEVEL 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 12.655 $ 10.669 $ 11.083 ---------------- ------------ ------------ Investment income~~ $ 0.251 $ 0.499 $ 0.520 Expenses (0.156) (0.281) (0.274) ---------------- ------------ ------------ Net investment income~ $ 0.095 $ 0.218 $ 0.246 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.879 1.768 (0.660) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 0.974 $ 1.986 $ (0.414) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 13.629 $ 12.655 $ 10.669 ================ ============ ============ Total Return 7.70%#+++ 18.61%+++ (3.74)%+++ Ratios (to average net assets): Expenses## 2.47%++ 2.50% 1.28%+ Net investment income~~ 1.43%++ 1.70% 2.23%+ Portfolio turnover 63% 126% 72% Number of units outstanding at end of period (000 Omitted) 589 568 574 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ 0.490 $ 0.260 Ratios (to average net assets): Expenses## -- 2.42% 1.40%+ Net investment income~~ -- 1.78% 2.12%+ GLOBAL GOVERNMENTS VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 11.130 $ 11.914 $ 10.455 ------------ ------------ ------------ Investment income~~ $ 0.654 $ 1.826 $ 0.627 Expenses (0.270) (0.782) (0.253) ------------ ------------ ------------ Net investment income~ $ 0.384 $ 1.044 $ 0.374 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.431) (1.828) 1.085 ------------ ------------ ------------ Net increase (decrease) in unit value $ (0.047) $ (0.784) $ 1.459 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 11.083 $ 11.130 $ 11.914 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 1.25%+ 1.11%+ 1.08%+ Net investment income~~ 3.50%+ 3.07%+ 3.33%+ Portfolio turnover 130% 172% 306% Number of units outstanding at end of period (000 Omitted) 619 641 695 ~ The investment adviser voluntarily agreed under a temporary expense agreement to pay all of the account's operating expenses, exclusive of mortality and expense risk fees; in excess of 1.25% of average daily net assets. To the extent actual expenses were over this limitation net investment income per share and the ratios would have been: Net investment income~~ $ -- $ -- $ -- Ratios (to average net assets): Expenses## -- -- -- Net investment income~~ -- -- --
~~ As required, effective January 1, 2001 the account has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains and losses per share by $0.04, and decrease the ratio of net investment income to average net assets by 0.41%. Per share, ratios, and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjunction with the redemption of units. # Not Annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 33
GOVERNMENT SECURITIES VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 36.124 $ 33.448 $ 31.520 ---------------- ------------ ------------ Investment income~~ $ 0.756 $ 1.862 $ 2.183 Expenses (0.359) (0.677) (0.661) ---------------- ------------ ------------ Net investment loss $ 0.397 $ 1.185 $ 1.522 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.352 1.491 0.406 ---------------- ------------ ------------ Net increase (decrease) in unit value $ 0.749 $ 2.676 $ 1.928 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 36.873 $ 36.124 $ 33.448 ================ ============ ============ Total Return 2.07%#+++ 8.00%+++ 6.12%+++ Ratios (to average net assets): Expenses## 1.97%++ 1.94% 0.66%+ Net investment income~~ 2.15%++ 3.19% 4.42%+ Portfolio turnover 78% 139% 89% Number of units outstanding at end of period (000 Omitted) 2,633 2,759 3,043 GOVERNMENT SECURITIES VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 28.523 $ 29.418 $ 27.537 ------------ ------------ ------------ Investment income~~ $ 2.169 $ 2.053 $ 1.884 Expenses (0.572) (0.558) (0.545) ------------ ------------ ------------ Net investment loss $ 1.597 $ 1.495 $ 1.339 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.400 (2.390) 0.542 ------------ ------------ ------------ Net increase (decrease) in unit value $ 2.997 $ (0.895) $ 1.881 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 31.520 $ 28.523 $ 29.418 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.64%+ 0.63%+ 0.62%+ Net investment income~~ 5.28%+ 5.06%+ 4.61%+ Portfolio turnover 51% 75% 137% Number of units outstanding at end of period (000 Omitted) 3,210 4,228 4,751 GOVERNMENT SECURITIES VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 25.284 $ 23.434 $ 22.105 ---------------- ------------ ------------ Investment income~~ $ 0.524 $ 1.300 $ 1.590 Expenses (0.258) (0.495) (0.510) ---------------- ------------ ------------ Net investment loss $ 0.266 $ 0.805 $ 1.080 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.246 1.045 0.249 ---------------- ------------ ------------ Net increase (decrease) in unit value $ 0.512 $ 1.850 $ 1.329 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 25.796 $ 25.284 $ 23.434 ================ ============ ============ Total Return 2.02%#+++ 7.89%+++ 6.01%+++ Ratios (to average net assets): Expenses## 2.07%++ 2.04% 0.66%+ Net investment income~~ 2.08%++ 3.36% 4.42%+ Portfolio turnover 78% 139% 89% Number of units outstanding at end of period (000 Omitted) 171 205 254 GOVERNMENT SECURITIES VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 20.023 $ 20.672 $ 19.369 ------------ ------------ ------------ Investment income~~ $ 1.476 $ 1.410 $ 1.327 Expenses (0.412) (0.407) (0.406) ------------ ------------ ------------ Net investment loss $ 1.064 $ 1.003 $ 0.921 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.018 (1.652) 0.382 ------------ ------------ ------------ Net increase (decrease) in unit value $ 2.082 $ (0.649) $ 1.303 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 22.105 $ 20.023 $ 20.672 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.64%+ 0.63%+ 0.62%+ Net investment income~~ 5.28%+ 5.06%+ 4.61%+ Portfolio turnover 51% 75% 137% Number of units outstanding at end of period (000 Omitted) 398 701 851
~~ As required, effective January 1, 2001, the account adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.06, $0.04 and $0.03, respectively, increase net realized and unrealized gains and losses per share by $0.06, $0.04 and $0.03, respectively, and decrease the ratio of net investment income to average net assets by 0.19%, 0.19% and 0.19%, respectively. Per share, ratios, and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 34
GOVERNMENT SECURITIES VARIABLE ACCOUNT ----------------------------------------------------- COMPASS 3 - LEVEL 2 ----------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 14.763 $ 13.663 $ 12.868 ---------------- ------------ ------------ Investment income~~ $ 0.299 $ 0.732 $ 0.826 Expenses (0.142) (0.267) (0.248) ---------------- ------------ ------------ Net investment loss $ 0.157 $ 0.465 $ 0.578 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.153 0.635 0.217 ---------------- ------------ ------------ Net increase (decrease) in unit value $ 0.310 $ 1.100 $ 0.795 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 15.073 $ 14.763 $ 13.663 ================ ============ ============ Total Return 2.10%#+++ 8.05%+++ 6.17%+++ Ratios (to average net assets): Expenses## 1.92%++ 1.89% 0.66%+ Net investment income~~ 2.12%++ 3.17% 4.42%+ Portfolio turnover 78% 139% 89% Number of units outstanding at end of period (000 Omitted) 1,735 1,692 1,617 GOVERNMENT SECURITIES VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 11.639 $ 11.998 $ 11.225 ------------ ------------ ------------ Investment income~~ $ 0.876 $ 0.833 $ 0.761 Expenses (0.228) (0.222) (0.218) ------------ ------------ ------------ Net investment loss $ 0.648 $ 0.611 $ 0.543 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.581 (0.970) 0.230 ------------ ------------ ------------ Net increase (decrease) in unit value $ 1.229 $ (0.359) $ 0.773 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 12.868 $ 11.639 $ 11.998 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.64%+ 0.63%+ 0.62%+ Net investment income~~ 5.28%+ 5.06%+ 4.61%+ Portfolio turnover 51% 75% 137% Number of units outstanding at end of period (000 Omitted) 1,542 1,641 1,532
~~ As required, effective January 1, 2001, the account adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.06, $0.04 and $0.03, respectively, increase net realized and unrealized gains and losses per share by $0.06, $0.04 and $0.03, respectively, and decrease the ratio of net investment income to average net assets by 0.19%, 0.19% and 0.19%, respectively. Per share, ratios, and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 35
HIGH YIELD VARIABLE ACCOUNT ----------------------------------------------------- COMPASS 2 ----------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 28.505 $ 28.969 $ 29.882 ---------------- ------------ ------------ Investment income~~ $ 1.406 $ 3.015 $ 3.684 Expenses (0.329) (0.617) (0.699) ---------------- ------------ ------------ Net investment income $ 1.077 $ 2.398 $ 2.985 Net realized and unrealized gain (loss) on investments and foreign currency 1.951 (2.862) (3.898) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 3.028 $ (0.464) $ (0.913) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 31.533 $ 28.505 $ 28.969 ================ ============ ============ Total return 10.62%#+++ (1.60)%+++ (3.05)%+++ Ratios (to average net assets) Expenses## 2.19%++ 2.18% 0.90%+ Investment income~~ 7.06%++ 7.84% 9.16%+ Portfolio turnover 96% 172% 103% Number of units outstanding at end of period (000 Omitted) 1,967 2,069 2,328 HIGH YIELD VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 33.630 $ 31.973 $ 32.645 ------------ ------------ ------------ Investment income~~ $ 3.786 $ 3.424 $ 3.304 Expenses (0.725) (0.728) (0.706) ------------ ------------ ------------ Net investment income $ 3.061 $ 2.696 $ 2.598 Net realized and unrealized gain (loss) on investments and foreign currency (6.809) (1.039) (3.270) ------------ ------------ ------------ Net increase (decrease) in unit value $ (3.748) $ 1.657 $ (0.672) ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 29.882 $ 33.630 $ 31.973 ============ ============ ============ Total return -- -- -- Ratios (to average net assets) Expenses## 0.89%+ 0.90%+ 0.86%+ Investment income~~ 9.00%+ 7.93%+ 7.66%+ Portfolio turnover 109% 153% 174% Number of units outstanding at end of period (000 Omitted) 2,677 3,065 3,667 ~~ As required, effective January 1, 2002, the account adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $0.02, increase net realized and unrealized gains and loser per share by $0.02, and decrease the ratio of net investment income to average net assets by 0.06%. Per share, ratios, and supplemental data for periods prior to Janaury 1, 2001, have not been restated to reflect this change in presentation. HIGH YIELD VARIABLE ACCOUNT ----------------------------------------------------- COMPASS 3 ----------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 20.986 $ 21.349 $ 22.043 ---------------- ------------ ------------ Investment income~~ $ 1.000 $ 2.141 $ 3.188 Expenses (0.247) (0.469) (0.643) ---------------- ------------ ------------ Net investment income $ 0.753 $ 1.672 $ 2.545 Net realized and unrealized gain (loss) on investments and foreign currency 1.465 (2.035) (3.239) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 2.218 $ (0.363) $ (0.694) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 23.204 $ 20.986 $ 21.349 ================ ============ ============ Total return 10.57%#+++ (1.70)%+++ (3.15)%+++ Ratios (to average net assets) Expenses## 2.29%++ 2.28% 0.90%+ Investment income~~ 6.94%++ 8.45% 9.16%+ Portfolio turnover 96% 172% 103% Number of units outstanding at end of period (000 Omitted) 151 178 231 HIGH YIELD VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 24.832 $ 23.633 $ 24.153 ------------ ------------ ------------ Investment income~~ $ 2.730 $ 2.451 $ 2.304 Expenses (0.557) (0.552) (0.526) ------------ ------------ ------------ Net investment income $ 2.173 $ 1.899 $ 1.778 Net realized and unrealized gain (loss) on investments and foreign currency (4.962) (0.700) (2.298) ------------ ------------ ------------ Net increase (decrease) in unit value $ (2.789) $ 1.199 $ (0.520) ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 22.043 $ 24.832 $ 23.633 ============ ============ ============ Total return -- -- -- Ratios (to average net assets) Expenses## 0.89%+ 0.90%+ 0.86%+ Investment income~~ 9.00%+ 7.93%+ 7.66%+ Portfolio turnover 109% 153% 174% Number of units outstanding at end of period (000 Omitted) 297 427 665
~~ As required, effective January 2, 2001, the account adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $0.02, increase net realized and unrealized gains and loser per share by $0.02, and decrease the ratio of net investment income to average net assets by 0.06%. Per share, ratios, and supplemental data for periods prior to Janaury 1, 2001, have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjunction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 36
HIGH YIELD VARIABLE ACCOUNT ----------------------------------------------------- COMPASS 3 - LEVEL 2 ----------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 11.199 $ 11.376 $ 11.728 ---------------- ------------ ------------ Investment income~~ $ 0.577 $ 1.220 $ 0.784 Expenses (0.136) (0.257) (0.151) ---------------- ------------ ------------ Net investment income $ 0.441 $ 0.963 $ 0.633 Net realized and unrealized gain (loss) on investments and foreign currency 0.752 (1.140) (0.985) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.193 $ (0.177) $ (0.352) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 12.392 $ 11.199 $ 11.376 ================ ============ ============ Total return 10.65%#+++ (1.55)%+++ (3.01)%+++ Ratios (to average net assets) Expenses## 2.14%++ 2.13% 0.90%+ Investment income~~ 6.91%++ 6.08% 9.16%+ Portfolio turnover 96% 172% 103% Number of units outstanding at end of period (000 Omitted) 2,685 2,684 1,131 HIGH YIELD VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 13.193 $ 12.537 $ 12.794 ------------ ------------ ------------ Investment income~~ $ 1.527 $ 1.414 $ 1.178 Expenses (0.290) (0.296) (0.256) ------------ ------------ ------------ Net investment income $ 1.237 $ 1.118 $ 0.922 Net realized and unrealized gain (loss) on investments and foreign currency (2.702) (0.462) (1.179) ------------ ------------ ------------ Net increase (decrease) in unit value $ (1.465) $ 0.656 $ (0.257) ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 11.728 $ 13.193 $ 12.537 ============ ============ ============ Total return -- -- -- Ratios (to average net assets) Expenses## 0.89%+ 0.90%+ 0.86%+ Investment income~~ 9.00%+ 7.93%+ 7.66%+ Portfolio turnover 109% 153% 174% Number of units outstanding at end of period (000 Omitted) 2,619 1,001 971
~~ As required, effective January 1, 2002, the account adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share and increase net realized and unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition, the ratio of net investment income to average net assets decreased by 0.06%. Per share, ratios, and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. * Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjunction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 37
MANAGED SECTORS VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 2 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 33.716 $ 46.116 $ 72.314 ---------------- ------------ ------------ Investment income $ 0.153 $ 0.270 $ 0.465 Expenses (0.374) (0.810) (1.179) ---------------- ------------ ------------ Net investment loss $ (0.221) $ (0.540) $ (0.714) Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.376 (11.860) (25.484) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 4.155 $ (12.400) $ (26.198) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 37.871 $ 33.716 $ 46.116 ================ ============ ============ Total Return 12.32%#+++^^ (26.89)%+++ (36.23)%+++ Ratios (to average net assets): Expenses## 2.17%++ 2.10% 0.88%+ Net investment loss (1.27)%++ (1.45)% (1.32)%+ Portfolio turnover 33% 264% 295% Number of units outstanding at end of period (000 Omitted) 416 455 573 MANAGED SECTORS VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 92.865 $ 50.488 $ 45.452 ------------ ------------ ------------ Investment income $ 0.633 $ 0.493 $ 0.261 Expenses 1.817 1.236 0.985 ------------ ------------ ------------ Net investment loss $ (1.184) $ (0.743) $ (0.724) Net realized and unrealized gain (loss) on investments and foreign currency transactions (19.367) 43.120 5.760 ------------ ------------ ------------ Net increase (decrease) in unit value $ (20.551) $ 42.377 $ 5.036 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 72.314 $ 92.865 $ 50.488 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.84%+ 0.84%+ Net investment loss (1.39)%+ (1.30)%+ (1.59)%+ Portfolio turnover 447% 417% 159% Number of units outstanding at end of period (000 Omitted) 697 686 681 MANAGED SECTORS VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 3 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 33.207 $ 45.487 $ 71.434 ---------------- ------------ ------------ Investment income $ 0.149 $ 0.251 $ 0.487 Expenses (0.388) (0.852) (1.297) ---------------- ------------ ------------ Net investment loss $ (0.239) $ (0.601) $ (0.810) Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.303 (11.679) (25.137) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 4.064 $ (12.280) $ (25.947) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 37.271 $ 33.207 $ 45.487 ================ ============ ============ Total Return 12.24%#+++^^ (27.00)%+++ (36.32.)%+++ Ratios (to average net assets): Expenses## 2.32%++ 2.25% 0.88%+ Net investment loss (1.41)%++ (1.56)% (1.32)%+ Portfolio turnover 33% 264% 295% Number of units outstanding at end of period (000 Omitted) 245 296 390 MANAGED SECTORS VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 91.870 $ 50.021 $ 45.099 ------------ ------------ ------------ Investment income $ 0.602 $ 0.473 $ 0.254 Expenses (1.908) (1.290) (1.037) ------------ ------------ ------------ Net investment loss $ (1.306) $ (0.817) $ (0.783) Net realized and unrealized gain (loss) on investments and foreign currency transactions (19.130) 42.666 5.705 ------------ ------------ ------------ Net increase (decrease) in unit value $ (20.436) $ 41.849 $ 4.922 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 71.434 $ 91.870 $ 50.021 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.84%+ 0.84%+ Net investment loss (1.39)%+ (1.30)%+ (1.59)%+ Portfolio turnover 447% 417% 159% Number of units outstanding at end of period (000 Omitted) 576 785 988
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. ^^ The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value per share, the per unit value total return for the six months ended June 30, 2003, would have been 12.08% and 11.99% for Compass 2 and 3 respectively. See notes to financial statements. 38
MANAGED SECTORS VARIABLE ACCOUNT ------------------------------------------------------- COMPASS 3 - LEVEL 2 ------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 10.730 $ 14.676 $ 23.014 ---------------- ------------ ------------ Investment income $ 0.049 $ 0.083 $ 0.136 Expenses (0.119) (0.259) (0.350) ---------------- ------------ ------------ Net investment loss $ (0.070) $ (0.176) $ (0.214) Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.392 (3.770) (8.124) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.322 $ (3.946) $ (8.338) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 12.052 $ 10.730 $ 14.676 ================ ============ ============ Total Return 12.32%#+++^^ (26.89)%+++ (36.23)%+++ Ratios (to average net assets): Expenses## 2.17%++ 2.10% 0.88%+ Net investment loss (1.28)%++ (1.46)% (1.32)%+ Portfolio turnover 33% 264% 295% Number of units outstanding at end of period (000 Omitted) 3,179 3,173 3,559 MANAGED SECTORS VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 29.554 $ 16.068 $ 14.465 ------------ ------------ ------------ Investment income $ 0.201 $ 0.159 $ 0.088 Expenses (0.578) (0.401) (0.330) ------------ ------------ ------------ Net investment loss $ (0.377) $ (0.242) $ (0.242) Net realized and unrealized gain (loss) on investments and foreign currency transactions (6.163) 13.728 1.845 ------------ ------------ ------------ Net increase (decrease) in unit value $ (6.540) $ 13.486 $ 1.603 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 23.014 $ 29.554 $ 16.068 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.84%+ 0.84%+ Net investment loss (1.39)%+ (1.30)%+ (1.59)%+ Portfolio turnover 447% 417% 159% Number of units outstanding at end of period (000 Omitted) 3,548 3,115 2,542
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. ^^ The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset value per share, the per unit value total return for the six months ended June 30, 2003, would have been 12.08%. See notes to financial statements. 39
MONEY MARKET VARIABLE ACCOUNT ----------------------------------------------------- COMPASS 2 ----------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 20.322 $ 20.341 $ 19.862 ---------------- ------------ ------------ Investment income $ 0.132 $ 0.382 $ 0.950 Expenses (0.188) (0.401) (0.471) ---------------- ------------ ------------ Net Increase (decrease) in unit value $ (0.056) $ (0.019) $ 0.479 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 20.266 $ 20.322 $ 20.341 ================ ============ ============ Total Return (0.28)%#+++ (0.09)%+++ 2.41%+++ Ratios (to average net assets): Expenses## 1.85%++ 1.96% 0.65%+ Net investment income (0.53)%++ (0.12)% 2.51%+ Number of units outstanding at end of period (000 Omitted) 1,379 1,626 1,986 MONEY MARKET VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 18.997 $ 18.391 $ 17.745 ------------ ------------ ------------ Investment income $ 1.232 $ 0.960 $ 0.993 Expenses (0.367) (0.354) (0.347) ------------ ------------ ------------ Net Increase (decrease) in unit value $ 0.865 $ 0.606 $ 0.646 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 19.862 $ 18.997 $ 18.391 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.60%+ 0.58%+ 0.59%+ Net investment income 4.45%+ 3.25%+ 3.58%+ Number of units outstanding at end of period (000 Omitted) 3,304 3,749 4,123 MONEY MARKET VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 16.680 $ 16.712 $ 16.334 ---------------- ------------ ------------ Investment income $ 0.107 $ 0.318 $ 0.784 Expenses (0.161) (0.350) (0.406) ---------------- ------------ ------------ Net increase (decrease) in unit value $ (0.054) $ (0.032) $ 0.378 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 16.626 $ 16.680 $ 16.712 ================ ============ ============ Total Return (0.33)%#+++ (0.19)%+++ 2.31%+++ Ratios (to average net assets): Expenses## 1.95%++ 2.06% 0.65%+ Net investment income (0.64)%++ (0.14)% 2.51%+ Number of units outstanding at end of period (000 Omitted) 166 186 222 MONEY MARKET VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 15.638 $ 15.154 $ 14.637 ------------ ------------ ------------ Investment income $ 1.002 $ 0.781 $ 0.819 Expenses (0.306) (0.297) (0.302) ------------ ------------ ------------ Net increase (decrease) in unit value $ 0.696 $ 0.484 $ 0.517 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 16.334 $ 15.638 $ 15.154 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.60%+ 0.58%+ 0.59%+ Net investment income 4.45%+ 3.25%+ 3.58%+ Number of units outstanding at end of period (000 Omitted) 468 863 1,370 MONEY MARKET VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 - LEVEL 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 12.466 $ 12.472 $ 12.172 ---------------- ------------ ------------ Investment income $ 0.070 $ 0.223 $ 0.710 Expenses (0.101) (0.229) (0.410) ---------------- ------------ ------------ Net increase (decrease) in unit value $ (0.031) $ (0.006) $ 0.300 ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 12.435 $ 12.466 $ 12.472 ================ ============ ============ Total Return (0.25)%#+++ (0.04)%+++ 2.46%+++ Ratios (to average net assets): Expenses## 1.80%++ 1.91% 0.65%+ Net investment income (0.52)%++ (0.01)% 2.51%+ Number of units outstanding at end of period (000 Omitted) 1,061 1,113 2,835 MONEY MARKET VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 11.636 $ 11.259 $ 10.859 ------------ ------------ ------------ Investment income $ 0.747 $ 0.579 $ 0.607 Expenses (0.211) (0.202) (0.207) ------------ ------------ ------------ Net increase (decrease) in unit value $ 0.536 $ 0.377 $ 0.400 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 12.172 $ 11.636 $ 11.259 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.60%+ 0.58%+ 0.59%+ Net investment income 4.45%+ 3.25%+ 3.58%+ Number of units outstanding at end of period (000 Omitted) 1,562 3,875 3,141
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjunction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 40
TOTAL RETURN VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 35.950 $ 38.562 $ 39.126 ---------------- ------------ ------------ Investment income $ 0.604 $ 1.407 $ 1.513 Expenses (0.384) (0.777) (0.830) ---------------- ------------ ------------ Net investment income $ 0.220 $ 0.630 $ 0.683 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.449 (3.242) (1.247) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 2.669 $ (2.612) $ (0.564) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 38.619 $ 35.950 $ 38.562 ================ ============ ============ Total Return 7.42%#+++ (6.77)%+++ (1.44)%+++ Ratios (to average net assets): Expenses## 2.12%++ 2.08% 0.85%+ Net investment income 1.20%++ 1.43% 1.67%+ Portfolio turnover 35% 76% 104% Number of units outstanding at end of period (000 Omitted) 1,761 1,871 2,080 TOTAL RETURN VARIABLE ACCOUNT ---------------------------------------------- COMPASS 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 33.729 $ 33.250 $ 30.156 ------------ ------------ ------------ Investment income $ 1.464 $ 1.374 $ 1.394 Expenses (0.727) (0.701) (0.675) ------------ ------------ ------------ Net investment income $ 0.737 $ 0.673 $ 0.719 Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.660 (0.194) 2.375 ------------ ------------ ------------ Net increase (decrease) in unit value $ 5.397 $ 0.479 $ 3.094 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 39.126 $ 33.729 $ 33.250 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.83%+ 0.82%+ Net investment income 2.02%+ 1.90%+ 2.10%+ Portfolio turnover 105% 106% 125% Number of units outstanding at end of period (000 Omitted) 2,240 2,925 3,495 TOTAL RETURN VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 35.160 $ 37.771 $ 38.379 ---------------- ------------ ------------ Investment income $ 0.590 $ 1.360 $ 1.599 Expenses (0.397) (0.804) (0.939) ---------------- ------------ ------------ Net investment income $ 0.193 $ 0.556 $ 0.660 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.389 (3.167) (1.268) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 2.582 $ (2.611) $ (0.608) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 37.742 $ 35.160 $ 37.771 ================ ============ ============ Total Return 7.35%#+++ (6.91)%+++ (1.59.)%+++ Ratios (to average net assets): Expenses## 2.27%++ 2.23% 0.85%+ Net investment income 1.08%++ 1.61% 1.67+ Portfolio turnover 35% 76% 104% Number of units outstanding at end of period (000 Omitted) 520 634 838 TOTAL RETURN VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 33.134 $ 32.713 $ 29.713 ------------ ------------ ------------ Investment income $ 1.395 $ 1.315 $ 1.303 Expenses (0.749) (0.727) (0.684) ------------ ------------ ------------ Net investment income $ 0.646 $ 0.588 $ 0.619 Net realized and unrealized gain (loss) on investments and foreign currency transactions 4.599 (0.167) 2.381 ------------ ------------ ------------ Net increase (decrease) in unit value $ 5.245 $ 0.421 $ 3.000 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 38.379 $ 33.134 $ 32.713 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.83%+ 0.82%+ Net investment income 2.02%+ 1.90%+ 2.10%+ Portfolio turnover 105% 106% 125% Number of units outstanding at end of period (000 Omitted) 1,253 2,125 2,943 TOTAL RETURN VARIABLE ACCOUNT ------------------------------------------------------ COMPASS 3 - LEVEL 2 ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ------------------------------- (UNAUDITED) 2002 2001 ---------------- ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 16.949 $ 18.180 $ 18.445 ---------------- ------------ ------------ Investment income $ 0.280 $ 0.658 $ 0.687 Expenses (0.180) (0.367) (0.382) ---------------- ------------ ------------ Net investment income $ 0.100 $ 0.291 $ 0.305 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.158 (1.522) (0.570) ---------------- ------------ ------------ Net increase (decrease) in unit value $ 1.258 $ (1.231) $ (0.265) ---------------- ------------ ------------ Unit value: Net asset value -- end of period $ 18.207 $ 16.949 $ 18.180 ================ ============ ============ Total Return 7.42%#+++ (6.77)%+++ (1.44)%+++ Ratios (to average net assets): Expenses## 2.12%++ 2.08% 0.85%+ Net investment income 1.17%++ 1.55% 1.67%+ Portfolio turnover 35% 76% 104% Number of units outstanding at end of period (000 Omitted) 6,107 6,236 6,537 TOTAL RETURN VARIABLE ACCOUNT ---------------------------------------------- COMPASS 3 - LEVEL 2 ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Per unit data:* Net asset value -- beginning of period $ 15.901 $ 15.676 $ 14.217 ------------ ------------ ------------ Investment income $ 0.683 $ 0.642 $ 0.635 Expenses (0.343) (0.331) (0.311) ------------ ------------ ------------ Net investment income $ 0.340 $ 0.311 $ 0.324 Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.204 (0.086) 1.135 ------------ ------------ ------------ Net increase (decrease) in unit value $ 2.544 $ 0.225 $ 1.459 ------------ ------------ ------------ Unit value: Net asset value -- end of period $ 18.445 $ 15.901 $ 15.676 ============ ============ ============ Total Return -- -- -- Ratios (to average net assets): Expenses## 0.83%+ 0.83%+ 0.82%+ Net investment income 2.02%+ 1.90%+ 2.10%+ Portfolio turnover 105% 106% 125% Number of units outstanding at end of period (000 Omitted) 6,382 6,729 6,702
* Per unit data are based on the average number of units outstanding during each year. + Excluding mortality and expense risk charges and distribution expense charges. ++ Annualized. +++ The total return does not reflect load fees in conjuction with the redemption of units. # Not annualized. ## Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements. 41 NOTES TO FINANCIAL STATEMENTS (Unaudited) (1) ORGANIZATION Capital Appreciation Variable Account, Global Governments Variable Account, Government Securities Variable Account, High Yield Variable Account, Managed Sectors Variable Account, Money Market Variable Account, and Total Return Variable Account (the variable account(s)) are separate accounts established by Sun Life Assurance Company of Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and Compass 3 combination fixed/variable annuity contracts. Capital Appreciation Variable Account, Government Securities Variable Account, Money Market Variable Account, and Total Return Variable Account operate as open-end, diversified management investment companies, and Global Governments Variable Account, High Yield Variable Account, and Managed Sectors Variable Account operate as open-end, non-diversified management investment companies as those terms are defined in the Investment Company Act of 1940, as amended. (2) SIGNIFICANT ACCOUNTING POLICIES General - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capital Appreciation Variable Account, Global Governments Variable Account, High Yield Variable Account, Managed Sectors Variable Account and Total Return Variable Account can invest in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country's legal, political, and economic environment. The High Yield Variable Account can invest up to 100% of its portfolio in high-yield securities rated below investment grade. Investments in high-yield securities involve greater degrees of credit and market risk than investments in higher-rated securities and tend to be more sensitive to economic conditions. Investment Valuations - Equity securities in the portfolios for which market quotations are available are valued at the last sale or official closing price on the primary market or exchange on which they are primarily traded or at the last quoted bid price for securities in which there were no sales during the day. If no sales are reported, as is the case for most securities traded over the counter, securities are valued on the basis of quotations obtained from brokers and dealers or on the basis of valuations furnished by a pricing service. Bonds and other fixed income securities (other than short-term obligations) of U.S. issuers in the variable accounts portfolios are valued at an evaluated bid price on the basis of quotes from brokers and dealers or on the basis of valuations furnished by a pricing service. Prices obtained from pricing services utilize both dealer-supplied valuations and electronic data processing techniques which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data without exclusive reliance upon quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Money market instruments are valued at amortized cost, which the Board of Managers have determined in good faith approximates market value. The money market variable accounts' use of amortized cost is subject to compliance with certain conditions as specified under Rule 2a-7 of the Investment Company Act of 1940. Forward contracts will be valued using a pricing model taking into consideration market data from an external pricing source. Use of the pricing services has been approved by the Board of Managers. All other securities (other than short-term obligations) and futures contracts in the variable accounts' portfolios for which the principal market is one or more securities or commodities exchanges (whether domestic or foreign) will be valued at the last reported sale price or at the settlement price prior to the determination (or if there has been no current sale, at the closing bid price) on the primary exchange on which such securities, futures or contracts are traded; but if a securities exchange is not the principal market for securities, such securities will, if market quotations are readily available, be valued at current bid prices. Short-term obligations in the variable accounts' portfolios are valued at amortized cost, which constitutes fair value as determined by the Board of Managers. Short-term obligations with a remaining maturity in excess of 60 days will be valued upon dealer-supplied valuations. Portfolio investments for which market quotations are not readily available, or whose values have been materially affected by events occurring after the close of their primary markets, are valued at fair value as determined in good faith by or at the direction of the Board of Managers. Repurchase Agreements - Certain variable accounts may enter into repurchase agreements with institutions that the investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. The variable accounts require that the securities collateral in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the variable accounts to obtain those securities in the event of a default under the repurchase agreement. The variable accounts monitor, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the variable accounts under each such repurchase agreement. The variable accounts, along with other affiliated entities of Massachusetts Financial Services Company (MFS), may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Foreign Currency Translation - Investment valuations, other assets, and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed. Futures Contracts - Certain variable accounts may enter into futures contracts for the delayed delivery of securities or currency, or contracts based on financial indices at a fixed price on a future date. In entering such contracts, the variable account is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the variable account each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses by the variable account. The variable account's investments in futures contracts is designed to hedge against anticipated future changes in interest or exchange rates or securities prices. Investments in interest rate futures for purposes other than hedging may be made to modify the duration of the portfolio without incurring the additional transaction 42 costs involved in buying and selling the underlying securities. Investments in currency futures for purposes other than hedging may be made to change the variable account's relative position in one or more currencies without buying and selling portfolio assets. Investments in equity index contracts or contracts on related options for purposes other than hedging, may be made when the variable account has cash on hand and wishes to participate in anticipated market appreciation while the cash is being invested. Should interest or exchange rates or securities prices move unexpectedly, the variable account may not achieve the anticipated benefits of the futures contracts and may realize a loss. Forward Foreign Currency Exchange Contracts - Certain variable accounts may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The variable account may enter into forward foreign currency exchange contracts for hedging purposes as well as for non-hedging purposes. For hedging purposes, the variable account may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. The variable account may also use contracts in a manner intended to protect foreign currency-denominated securities from declines in value due to unfavorable exchange rate movements. For non-hedging purposes, the variable account may enter into contracts with the intent of changing the relative exposure of the variable account's portfolio of securities to different currencies to take advantage of anticipated changes. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Certain variable accounts may enter in "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date. Although the unit price has been established, the principal value has not been finalized. However, the principal amount of the commitments will not fluctuate more than 1.0%. Each variable account holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the variable account may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date, which is in addition to the risk of decline in the value of the variable account's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Investment Valuations" above. The variable accounts may enter into "TBA" (to be announced) sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Legal fees and other related expenses incurred to preserve and protect the value of a security owned are added to the cost of the security; other legal fees are expensed. Capital infusions made directly to the security issuer, which are generally non-recurring, incurred to protect or enhance the value of high-yield debt securities, are reported as additions to the cost basis of the security. Costs that are incurred to negotiate the terms or conditions of capital infusions or that are expected to result in a plan of reorganization are reported as realized losses. Ongoing costs incurred to protect or enhance an investment, or costs incurred to pursue other claims or legal actions, are expensed. Fees Paid Indirectly - The variable accounts' custody fees are reduced according to an arrangement that measures the value of cash deposited with the custodian by the variable accounts. During the period ended June 30, 2003, each variable account's custodian fees were reduced under this arrangement. The Capital Appreciation Variable Account, Managed Sectors Variable Account, and Total Return Variable Account have entered into a directed brokerage agreement, under which the broker will credit the variable account a portion of the commissions generated, to offset certain expenses of the variable account. For the period ended June 30, 2003, each variable accounts' custodian fees were reduced under this agreement. These amounts are shown as a reduction of total expenses on the Statement of Operations.
CAPITAL GLOBAL GOVERNMENT HIGH MANAGED MONEY TOTAL APPRECIATION GOVERNMENTS SECURITIES YIELD SECTORS MARKET RETURN VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ---------------------------------------------------------------------------------------------------------- Balance credits $ 215 $ 25 $ 406 $ 1,037 $ -- $ -- $ 238 Directed brokerage credits 6,309 -- -- 210 -- 810 ------------ ----------- ---------- -------- -------- -------- -------- $ 6,524 $ 25 $ 406 $ 1,037 $ 210 -- $ 1,048 ============ =========== ========== ======== ======== ======== ========
Federal Income Taxes - The variable accounts are funding vehicles for individual variable annuities. The operations of the variable accounts are part of the operations of Sun Life Assurance Company of Canada (U.S.), the Sponsor, and are not taxed separately; the variable accounts are not taxed as regulated investment companies. The Sponsor qualifies for the federal income tax treatment granted to life insurance companies under Subchapter L of the Internal Revenue Code. Accordingly, no provision for federal income or excise tax is necessary. Foreign taxes have been provided for on interest and dividend income earned on foreign investments in accordance with the applicable country's tax rates and to the extent unrecoverable are recorded as a reduction of investment income. (3) CONTRACT CHARGES The Sponsor makes a deduction from the variable accounts at the end of each valuation period, during both the accumulation period and after annuity payments begin, for assuming the mortality and expense risks under the contracts. The rate of the deduction may be changed annually but in no event may it exceed 1.25% of the average net assets of each variable account attributable to Compass 3 contracts, or, with respect to Compass 2 contracts, 1.30% of the assets of Capital 43 Appreciation Variable Account, Government Securities Variable Account, High Yield Variable Account, and Money Market Variable Account, or 1.25% of the assets of Global Governments Variable Account, Managed Sectors Variable Account, and Total Return Variable Account attributable to such contracts. For assuming the distribution expense risk under Compass 3 contracts, the Sponsor makes a deduction from the variable accounts at the end of each valuation period for the first seven contract years at an effective annual rate of 0.15% of the net assets of the variable accounts attributable to such contracts. Contracts are transferred from Compass 3 to Compass -- 3 Level 2 in the month following the seventh contract anniversary. No deduction is made after the seventh contract anniversary. No deduction is made with respect to assets attributable to Compass 2 contracts. Each year, on the contract anniversary, a contract maintenance charge of $25 with respect to Compass 2 contracts and $30 with respect to Compass 3 contracts is deducted from each contract's accumulation account and paid the Sponsor to cover administrative expenses relating to the contract. After the annuity commencement date, the annual contract maintenance charge is deducted pro rata from each annuity payment made during the year. The Sponsor does not deduct a sales charge from purchase payments. However, a withdrawal charge (contingent deferred sales charge) may be deducted to cover certain expenses relating to the sale of the contract. In no event shall the aggregate withdrawal charges (including the distribution expense charge described above applicable to Compass 3 contracts) exceed 5% of the purchase payments made under a Compass 2 contract or 9% of the purchase payments made under a Compass 3 contract. (4) ANNUITY RESERVES Annuity reserves for contracts with annuity commencement dates prior to February 1, 1987 have been calculated using the 1971 Individual Annuitant Mortality Table. Annuity reserves for contracts with annuity commencement dates on or after February 1, 1987 are calculated using the 1983 Individual Annuitant Mortality Table. Annuity reserves for contracts in payment period are calculated using an assumed interest rate of 4%. Required adjustments are accomplished by transfers to or from the Sponsor. (5) TRANSACTIONS WITH AFFILIATES Investment Adviser - Each variable account has an investment advisory agreement with Massachusetts Financial Services Company (MFS), an affiliate of the Sponsor, to provide overall investment advisory and administrative services, and general office facilities. The management fee is computed daily and paid monthly at an effective annual rate based on a percentage of each variable account's average daily net assets.
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE BASED ON AVERAGE BASED ON AVERAGE DAILY NET ASSETS DAILY NET ASSETS NOT EXCEEDING $300 MILLION IN EXCESS OF $300 MILLION - --------------------------------------------------------------------------------------------------------------- Capital Appreciation Variable Account 0.75% 0.675% Global Governments Variable Account 0.75% 0.675% Government Securities Variable Account 0.55% 0.495% High Yield Variable Account 0.75% 0.675% Managed Sectors Variable Account 0.75% 0.675% Money Market Variable Account 0.50% 0.500% Total Return Variable Account 0.75% 0.675%
The agreements also provide that the Investment Adviser will pay certain variable account expenses in excess of 1.25% of the average daily net assets of each variable account for any calendar year. The variable accounts pay no compensation directly to their officers or members of the Boards of Managers who are affiliated with the Investment Adviser or the Sponsor. Administrator - The variable accounts have an administrative services agreement with MFS to provide the variable accounts with certain financial, legal, shareholder communications, compliance, and other administrative services. As a partial reimbursement for the cost of providing these services, the variable accounts pay MFS an administrative fee at the following annual percentages of the variable accounts, average daily net assets:
First $2 billion 0.0175% Next $2.5 billion 0.0130% Next $2.5 billion 0.0005% In excess of $7 billion 0.0000%
(6) PORTFOLIO SECURITIES Purchases and sales of investments, other than U.S. government securities, purchased option transactions, and short-term obligations were as follows:
PURCHASES SALES - --------------------------------------------------------------------------- Capital Appreciation Variable Account $ 116,220,448 $ 120,656,144 Global Governments Variable Account 6,875,951 4,942,349 Government Securities Variable -- 5,901,787 High Yield Variable Account 80,614,319 82,218,517 Managed Sectors Variable Account 19,357,513 22,236,591 Money Market Variable Account* 876,016,431 885,761,431 Total Return Variable Account 36,385,205 38,166,764
44 Purchases and sales of U.S. government securities, other than purchased option transactions and short-term obligations, were as follows:
PURCHASES SALES - --------------------------------------------------------------------------- Global Governments Variable Account $ 1,657,678 $ 2,066,444 Government Securities Variable Account 99,206,187 96,074,016 Total Return Variable Account 28,442,549 31,441,781
* Purchases and sales of investments for Money Market Variable Account consist solely of short-term obligations. (7) FINANCIAL INSTRUMENTS Certain variable accounts trade financial instruments with off-balance-sheet risk in the normal course of its investing activities in order to manage exposure to market risks such as interest rates and foreign currency exchange rates. These financial instruments include written options, forward foreign currency exchange contracts, and futures contracts. The notional or contractual amounts of these instruments represent the investment the variable accounts have in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
NET UNREALIZED CONTRACTS TO CURRENCY CONTRACTS APPRECIATION SETTLEMENT DATE DELIVER/RECEIVE ABBREVIATIONS IN EXCHANGE FOR AT VALUE (DEPRECIATION) - ----------------------------------------------------------------------------------------------------------------------------------- Global Governments Variable Account Sales 8/5/03 155,523 AUD $ 103,655 $ 104,032 $ (377) 8/5/03 303,511 CAD 223,807 223,362 445 8/4/03 3,050,038 DKK 482,507 471,607 10,900 7/25/03-8/4/03 1,094,040 EUR 1,260,765 1,257,212 3,553 7/28/03 21,072 GBP 34,761 34,758 3 7/28/03-8/4/03 93,081,493 JPY 783,952 777,597 6,355 8/4/03 1,377,579 NOK 195,492 190,403 5,089 8/4/03 846,185 NZD 486,844 494,426 (7,582) 9/15/03 134,706 PLN 35,139 34,280 859 8/4/03 795,329 SEK 102,634 99,282 3,352 --------------- ---------- -------------- $ 3,709,556 $3,686,959 $ 22,597 =============== ========== ============== Purchases 7/28/03-8/5/03 429,028 AUD $ 282,811 $ 287,009 $ 4,198 8/4/03-8/18/03 848,137 EUR 992,826 974,524 (18,302) 8/4/03 56,128 GBP 93,172 92,539 (633) 8/11/03 344,139,307 JPY 2,931,340 2,875,602 (55,738) 8/4/03 57,552 NZD 33,440 33,628 188 9/15/03 134,706 PLN 33,000 34,280 1,280 --------------- ---------- -------------- $ 4,366,589 $4,297,582 $ (69,007) =============== ========== ============== High Yield Variable Account Sales 8/4/03 128,066 EUR $ 150,365 $ 147,151 $ 3,214
See page 23 for an explanation of abbreviations used to indicate amounts shown in currencies other than U.S. Dollar. At June 30, 2003, the Global Governments Variable Account and the High Yield Variable Account had sufficient cash and/or securities to cover any commitments under these contracts. FUTURES CONTRACTS
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION --------------------------------------------------------------------------------------------------------------- Global Governments Variable Account Japan Govt Bond 10yr September 2003 1 Long $ (28,336)
At June 30, 2003 the Global Governments Variable Account had sufficient cash and/or securities to cover any margin requirements under these contracts. 45 (8) PARTICIPANT TRANSACTIONS The changes in net assets from changes in numbers of outstanding units were as follows:
SIX MONTHS ENDED JUNE 30, 2003 (000 OMITTED) ------------------------------------------------------- TRANSFERS BETWEEN WITHDRAWALS, VARIABLE ACCOUNTS SURRENDERS, PURCHASE AND FIXED ANNUITIZATIONS, PAYMENTS ACCUMULATION AND CONTRACT RECEIVED ACCOUNT CHARGES ---------------- ----------------- ----------------- UNITS DOLLARS UNITS DOLLARS UNITS DOLLARS ----- --------- ----- --------- ----- --------- Capital Appreciation Variable Account Compass 2 Contracts 29 $ 1,047 (21) $ (540) (229) $ (9,597) Compass 3 Contracts 58 1,562 (126) (3,429) (37) (995) Compass 3 Level 2 Contracts 117 1,211 147 1,931 (292) (3,321) --------- --------- --------- $ 3,820 $ (2,038) $ (13,913) ========= ========= ========= Global Government Variable Account Compass 2 Contracts 1 $ 16 25 $ 561 (8) $ (182) Compass 3 Contracts 5 119 (12) (291) (4) (90) Compass 3 Level 2 Contracts 6 66 46 612 (31) (400) --------- --------- --------- $ 201 $ 882 $ (672) ========= ========= ========= Government Securities Variable Account Compass 2 Contracts 15 $ 527 15 $ 534 (156) $ (5,687) Compass 3 Contracts 17 417 (37) (944) (14) (347) Compass 3 Level 2 Contracts 29 407 117 1,758 (103) (1,522) --------- --------- --------- $ 1,351 $ 1,348 $ (7,556) ========= ========= ========= High Yield Variable Account Compass 2 Contracts 9 $ 242 5 $ 239 (116) $ (3,474) Compass 3 Contracts 12 251 (27) (585) (12) (265) Compass 3 Level 2 Contracts 21 231 28 916 (48) (563) --------- --------- --------- $ 724 $ 570 $ (4,302) ========= ========= ========= Managed Sectors Variable Account Compass 2 Contracts 7 $ 213 (16) $ (483) (30) $ (1,024) Compass 3 Contracts 22 756 (61) (2,042) (14) (461) Compass 3 Level 2 Contracts 62 619 111 1,353 (167) (1,845) --------- --------- --------- $ 1,588 $ (1,172) $ (3,330) ========= ========= ========= Money Market Variable Account Compass 2 Contracts 8 $ 148 (81) $ (1,627) (174) $ (3,525) Compass 3 Contracts 26 419 (26) (417) (20) (325) Compass 3 Level 2 Contracts 50 605 69 893 (171) (2,132) --------- --------- --------- $ 1,172 $ (1,151) $ (5,982) ========= ========= ========= Total Return Variable Account Compass 2 Contracts 10 $ 312 (25) $ (747) (95) $ (3,442) Compass 3 Contracts 36 1,269 (125) (4,407) (25) (872) Compass 3 Level 2 Contracts 76 1,189 169 3,012 (374) (6,410) --------- --------- --------- $ 2,770 $ (2,142) $ (10,724) ========= ========= ========= SIX MONTHS ENDED JUNE 30, 2003 (000 OMITTED) ------------------------------------------------- NET NET NET ACCUMULATION ANNUITIZATION INCREASES ACTIVITY ACTIVITY (DECREASE) ----------------- ------------- ------------- UNITS DOLLARS DOLLARS DOLLARS ----- --------- ------------- ------------- Capital Appreciation Variable Account Compass 2 Contracts (221) $ (9,090) $ (371) $ (9,461) Compass 3 Contracts (105) (2,862) (35) (2,897) Compass 3 Level 2 Contracts (28) (179) 3 (176) --------- ------------- ------------- $ (12,131) $ (403) $ (12,534) ========= ============= ============= Global Government Variable Account Compass 2 Contracts 18 $ 395 $ (10) $ 385 Compass 3 Contracts (11) (262) (1) (263) Compass 3 Level 2 Contracts 21 278 (1) 277 --------- ------------- ------------- $ 411 $ (12) $ 399 ========= ============= ============= Government Securities Variable Account Compass 2 Contracts (126) $ (4,626) $ (265) $ (4,891) Compass 3 Contracts (34) (874) (3) (877) Compass 3 Level 2 Contracts 43 643 (14) 629 --------- ------------- ------------- $ (4,857) $ (282) $ (5,139) ========= ============= ============= High Yield Variable Account Compass 2 Contracts (102) $ (2,993) $ (270) $ (3,263) Compass 3 Contracts (27) (599) 0 (599) Compass 3 Level 2 Contracts 1 584 (4) 580 --------- ------------- ------------- $ (3,008) $ (274) $ (3,282) ========= ============= ============= Managed Sectors Variable Account Compass 2 Contracts (39) $ (1,294) $ (11) $ (1,305) Compass 3 Contracts (53) (1,747) (8) (1,755) Compass 3 Level 2 Contracts 6 127 (5) 122 --------- ------------- ------------- $ (2,914) $ (24) $ (2,938) ========= ============= ============= Money Market Variable Account Compass 2 Contracts (247) $ (5,004) $ (53) $ (5,057) Compass 3 Contracts (20) (323) (5) (328) Compass 3 Level 2 Contracts (52) (634) 0 (634) --------- ------------- ------------- $ (5,961) $ (58) $ (6,019) ========= ============= ============= Total Return Variable Account Compass 2 Contracts (110) $ (3,877) $ (192) $ (4,069) Compass 3 Contracts (114) (4,010) (67) (4,077) Compass 3 Level 2 Contracts (129) (2,209) 192 (2,017) --------- ------------- ------------- $ (10,096) $ (67) $ (10,163) ========= ============= =============
46
YEAR ENDED DECEMBER 31, 2002 (000 OMITTED) ------------------------------------------------------- TRANSFERS BETWEEN WITHDRAWALS, VARIABLE ACCOUNTS SURRENDERS, PURCHASE AND FIXED ANNUITIZATIONS, PAYMENTS ACCUMULATION AND CONTRACT RECEIVED ACCOUNT CHARGES ---------------- ----------------- ----------------- UNITS DOLLARS UNITS DOLLARS UNITS DOLLARS ----- --------- ----- --------- ----- --------- Capital Appreciation Variable Account Compass 2 Contracts 77 $ 3,095 (189) $ (7,743) (707) $ (33,229) Compass 3 Contracts 146 4,484 (240) (7,371) (93) (2,975) Compass 3 Level 2 Contracts 232 2,674 111 2,114 (900) (11,521) --------- --------- --------- $ 10,253 $ (13,000) $ (47,725) ========= ========= ========= Global Government Variable Account Compass 2 Contracts 4 $ 48 40 $ 851 (18) $ (359) Compass 3 Contracts 12 236 (16) (299) (6) (122) Compass 3 Level 2 Contracts 16 152 62 813 (84) (1,009) --------- --------- --------- $ 436 $ 1,365 $ (1,490) ========= ========= ========= Government Securities Variable Account Compass 2 Contracts 29 $ 913 59 $ 2,125 (372) $ (12,895) Compass 3 Contracts 32 770 (61) (1,468) (20) (474) Compass 3 Level 2 Contracts 43 496 269 3,950 (237) (3,343) --------- --------- --------- $ 2,179 $ 4,607 $ (16,712) ========= ========= ========= High Yield Variable Account Compass 2 Contracts 22 $ 541 (15) $ (535) (266) $ (7,535) Compass 3 Contracts 24 468 (48) (1,016) (29) (606) Compass 3 Level 2 Contracts 28 277 1,731 17,946 (206) (2,310) --------- --------- --------- $ 1,286 $ 16,395 $ (10,451) ========= ========= ========= Managed Sectors Variable Account Compass 2 Contracts 11 $ 409 (44) $ (1,614) (85) $ (3,392) Compass 3 Contracts 61 2,215 (112) (4,168) (43) (1,733) Compass 3 Level 2 Contracts 120 1,308 26 663 (532) (6,636) --------- --------- --------- $ 3,932 $ (5,119) $ (11,761) ========= ========= ========= Money Market Variable Account Compass 2 Contracts 30 $ 558 109 $ 2,267 (499) $ (10,128) Compass 3 Contracts 54 903 (25) (418) (65) (1,088) Compass 3 Level 2 Contracts 29 328 (928) (11,541) (823) (10,268) --------- --------- --------- $ 1,789 $ (9,692) $ (21,484) ========= ========= ========= Total Return Variable Account Compass 2 Contracts 24 $ 801 33 $ 1,514 (266) $ (9,926) Compass 3 Contracts 82 2,899 (206) (7,443) (80) (2,930) Compass 3 Level 2 Contracts 153 2,395 363 6,961 (817) (14,352) --------- --------- --------- $ 6,095 $ 1,032 $ (27,208) ========= ========= ========= YEAR ENDED DECEMBER 31, 2002 (000 OMITTED) ------------------------------------------------- NET NET NET ACCUMULATION ANNUITIZATION INCREASES ACTIVITY ACTIVITY (DECREASE) ----------------- ------------- ------------- UNITS DOLLARS DOLLARS DOLLARS ----- --------- ------------- ------------- Capital Appreciation Variable Account Compass 2 Contracts (819) $ (37,877) $ (79) $ (37,956) Compass 3 Contracts (187) (5,862) 47 (5,815) Compass 3 Level 2 Contracts (557) (6,733) (99) (6,832) --------- ------------- ------------- $ (50,472) $ (131) $ (50,603) ========= ============= ============= Global Government Variable Account Compass 2 Contracts 26 $ 540 $ (40) $ 500 Compass 3 Contracts (10) (185) 0 (185) Compass 3 Level 2 Contracts (6) (44) (11) (55) --------- ------------- ------------- $ 311 $ (51) $ 260 ========= ============= ============= Government Securities Variable Account Compass 2 Contracts (284) $ (9,857) $ (382) $ (10,239) Compass 3 Contracts (49) (1,172) (8) (1,180) Compass 3 Level 2 Contracts 75 1,103 (40) 1,063 --------- ------------- ------------- $ (9,926) $ (430) $ (10,356) ========= ============= ============= High Yield Variable Account Compass 2 Contracts (259) $ (7,529) $ (185) $ (7,714) Compass 3 Contracts (53) (1,154) 0 (1,154) Compass 3 Level 2 Contracts 1,553 15,913 (12) 15,901 --------- ------------- ------------- $ 7,230 $ (197) $ 7,033 ========= ============= ============= Managed Sectors Variable Account Compass 2 Contracts (118) $ (4,597) $ (40) $ (4,637) Compass 3 Contracts (94) (3,686) (3) (3,689) Compass 3 Level 2 Contracts (386) (4,665) (28) (4,693) --------- ------------- ------------- $ (12,948) $ (71) $ (13,019) ========= ============= ============= Money Market Variable Account Compass 2 Contracts (360) $ (7,303) $ (60) $ (7,363) Compass 3 Contracts (36) (603) (11) (614) Compass 3 Level 2 Contracts (1,722) (21,481) (18) (21,499) --------- ------------- ------------- $ (29,387) $ (89) $ (29,476) ========= ============= ============= Total Return Variable Account Compass 2 Contracts (209) $ (7,611) $ (376) $ (7,987) Compass 3 Contracts (204) (7,474) (96) (7,570) Compass 3 Level 2 Contracts (301) (4,996) 9 (4,987) --------- ------------- ------------- $ (20,081) $ (463) $ (20,544) ========= ============= =============
47 (9) LINE OF CREDIT The variable accounts and other affiliated funds participate in an $800 million unsecured line of credit provided by a syndication of banks under a line of credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each variable account, based on its borrowings, at a rate equal to the bank's base rate. In addition, a commitment fee, based on the average daily unused portion of the line of credit, is allocated among the participating funds at the end of each quarter. The commitment fee allocated to each of the accounts for the six months ended June 30, 2003 ranged from $20 to $1,068. The variable accounts had no borrowings during the period. This report is prepared for the general information of contract owners. It is authorized for distribution to prospective only when preceded or accompanied by a current prospectus. 48 MEMBERS OF BOARDS OF MANAGERS AND OFFICERS The following table presents certain information regarding the Managers and executive officers of the Compass Variable Accounts (the "Account"), including their principal occupations, which, unless specific dates are shown, are of more than five years duration, although the titles may not have been the same throughout. NAME, POSITION WITH TRUST, LENGTH OF TIME SERVED, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS(1): INTERESTED MANAGERS C. JAMES PRIEUR* Member of Board of Managers and Chairman (since July 1999) (born 4/21/51) Sun Life Assurance Company of Canada, President and Chief Operating Officer (since April 1999), General Manager, U.S. (until April 1999). SAMUEL ADAMS** Member of Board of Managers (since July 1982) (born 10/19/25) Kirkpatrick & Lockhart LLP (Attorneys), Of Counsel; Warner & Stackpole (Attorneys), Partner (until 1999). DAVID D. HORN* Member of Board of Managers (since April 1986) (born 6/7/41) Private Investor; Retired; Sun Life Assurance Company of Canada, Former Senior Vice President and General Manager for the United States (until 1997). INDEPENDENT TRUSTEES J. KERMIT BIRCHFIELD Member of Board of Managers (since May 1997) (born 1/8/40) Consultant; Century Partners, Inc. (investments), Managing Director; Dairy Mart Convenience Stores, Inc. (convenience stores), Chairman; Displaytech, Inc. (manufacturer of liquid crystal display technology), Director; HPSC, Inc. (medical financing), Director; Intermountain Gas Company, Inc. (public utility gas distribution), Director. ROBERT C. BISHOP Member of Board of Managers (since May 2001) (born 1/13/43) AutoImmune, Inc. (pharmaceutical product development), Chairman, President and Chief Executive Officer; Caliper Technologies, Inc. (laboratory analytical instruments), Director; Millipore Corporation (purification/filtration products), Director; Quintiles Transnational Corp. (contract services to the medical industry), Director. FREDERICK H. DULLES Member of Board of Managers (since May 2001) (born 3/12/42) McFadden, Pilkington & Ward LLP (solicitors and registered foreign lawyers), Partner; Jackson & Nash, LLP (law firm), Of Counsel (January 2000 to November 2000). DERWYN F. PHILLIPS Member of Board of Managers (since April 1986) (born 8/31/30) Retired. ROBERT G. STEINHART Member of Board of Managers (since May 2001) (born 6/15/40) Private Investor; Bank One, Texas N.A., Vice Chairman and Director (January 2000 to January 2001); Bank One Corporation, Officer (until January 2000); Carreker Corporation (consultant and technology provider to financial institutions), Director; Prentiss Properties Trust (real estate investment trust), Director; United Auto Group, Inc. (automotive retailer), Director. HAVILAND WRIGHT Member of Board of Managers (since May 2001) (born 7/21/48) Hawaii Small Business Development Center, Kaua'i Center, Center Director (since May 2002); Displaytech, Inc. (manufacturer of liquid crystal display technology), Chairman and Chief Executive Officer (until March 2002). TRUSTEE EMERITUS GARTH MARSTON Member of Board of Managers Emeritus (born 4/28/26) Retired. OFFICERS JOHN W. BALLEN++ President (born 9/12/59) Massachusetts Financial Services Company, Chief Executive Officer and Director. JAMES R. BORDEWICK, JR.++ Assistant Secretary and Assistant Clerk (born 3/6/59) Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel. STEPHEN E. CAVAN++ Secretary and Clerk (born 11/6/53) Massachusetts Financial Services Company, Senior Vice President, General Counsel and Secretary. STEPHANIE A. DESISTO++ Assistant Treasurer (born 10/1/53) Massachusetts Financial Services Company, Vice President (since April 2003); Brown Brothers Harriman & Company, Senior Vice President (November 2002 to April 2003); ING Groep N.V./Aeltus Investment Management, Senior Vice President (prior to November 2002). ROBERT R. FLAHERTY++ Assistant Treasurer (born 9/18/63) Massachusetts Financial Services Company, Vice President (since August 2000); UAM Fund Services, Senior Vice President (prior to August 2000). RICHARD M. HISEY++ Treasurer (born 8/29/58) Massachusetts Financial Services Company, Senior Vice President (since July 2002); The Bank of New York, Senior Vice President (September 2000 to July 2002); Lexington Global Asset Managers, Inc., Executive Vice President and Chief Financial Officer (prior to September 2000); Lexington Funds, Treasurer (prior to September 2000). ELLEN MOYNIHAN++ Assistant Treasurer (born 11/13/57) Massachusetts Financial Services Company, Vice President. JAMES O. YOST++ Assistant Treasurer (born 6/12/60) Massachusetts Financial Services Company, Senior Vice President. The Accounts do not hold annual meetings for the purpose of electing Members of the Board of Managers ("Managers"), and Managers are not elected for fixed terms. This means that each Manager is elected to hold office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each officer holds office until his or her successor is chosen and qualified, or until he or she retires, resigns or is removed from office. All Managers currently serve as Managers of each Account and have served in that capacity continuously since originally elected or appointed. All of the Managers are also Trustees of MFS/Sun Life Series Trust. The executive officers of the Compass Variable Accounts hold similar offices for the MFS/Sun Life Series Trust and other funds in the MFS fund complex. Each Manager serves as a Trustee or Manager of 38 Accounts/Series. The Statement of Additional Information contains further information about the Trustees and is available without charge upon request, by calling 1-800-752-7215. SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.) ANNUITY SERVICE MAILING ADDRESS c/o Sun Life Retirement Products and Services P.O. Box 1024, Boston, MA 02103-9986 INVESTMENT ADVISER Massachusetts Financial Services Company 500 Boylston Street, Boston, MA 02116-3741 DISTRIBUTOR Clarendon Insurance Agency, Inc. One Sun Life Executive Park, Wellesley Hills, MA 02481 CUSTODIAN State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110-2875 ACCOUNT INFORMATION For account information, please call toll free: 1-800-752-7218 anytime from a touch-tone telephone. To speak with a customer service representative, please call toll free: 1-800-752-7215 any business day from 8 a.m. to 6 p.m. Eastern time. (1) Directorships of companies required to report to the Securities and Exchange Commission (the "SEC") (i.e. "public companies"). * "Interested person" of Sun Life of Canada (U.S.), within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the Trust. The address of Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts. ** "Interested person" of Massachusetts Financial Services Company ("MFS"), within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston, Massachusetts. Samuel Adams is an "interested person" of MFS because the law firm of Kirkpatrick & Lockhart, LLP, where Mr. Adams is Of Counsel, is counsel to some investment companies managed by MFS, and to MFS and its affiliates within the past two fiscal years of the Trust. ++ MFS Investment Management(R) (C) 2003 MFS Investment Management(R) MFS(R)investment products are offered through MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA. CO-SEM 08/03 45.4 M ITEM 2. CODE OF ETHICS. Applicable for annual reports filed for fiscal years ending on or after July 15, 2003. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Applicable for annual reports filed for fiscal years ending on or after July 15, 2003. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. Applicable for annual reports filed for the first fiscal year ending after December 15, 2003. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. If applicable, not applicable at this time. Applicable for annual reports covering periods ending on or after the compliance date for the listing standards applicable to the particular issuer. Listed issuers must be in compliance with the new listing rules by the earlier of the registrant's first annual shareholders meeting after January 15, 2004 or October 31, 2004. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Applicable for annual reports filed on or after July 1, 2003. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable. (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2): Attached hereto. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14 under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Compass Capital Appreciation Variable Account ------------------------------------------------------------------ By (Signature and Title)* JOHN W. BALLEN ------------------------------------------------------ John W. Ballen, President Date: August 25, 2003 ----------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* JOHN W. BALLEN ------------------------------------------------------ John W. Ballen, President (Principal Executive Officer) Date: August 25, 2003 ----------------------------- By (Signature and Title)* RICHARD M. HISEY ------------------------------------------------------ Richard M. Hisey, Treasurer (Principal Financial Officer and Accounting Officer) Date: August 25, 2003 ----------------------------- * Print name and title of each signing officer under his or her signature. EX-99.CERT 3 a2117386zex-99_cert.txt EX-99 CERT EX-99.CERT COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Richard M. Hisey, certify that: 1. I have reviewed this report on Form N-CSR of Compass Capital Appreciation Variable Account; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation (the "Evaluation Date"); and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 25, 2003 RICHARD M. HISEY --------------------------- ---------------------------------------- Richard M. Hisey Treasurer (Principal Financial Officer and Accounting Officer) COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, John W. Ballen, certify that: 1. I have reviewed this report on Form N-CSR of Compass Capital Appreciation Variable Account; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation (the "Evaluation Date"); and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 25, 2003 JOHN W. BALLEN --------------------------- ---------------------------------------- John W. Ballen President (Principal Executive Officer) EX-99.906CERT 4 a2117386zex-99_906cert.txt EX_99.906CERT EX-99.906CERT COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, Richard M. Hisey, certify that: 1. The Form N-CSR (the "Report") of Compass Capital Appreciation Variable Account (the "Registrant") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 25, 2003 RICHARD M. HISEY --------------------------- ---------------------------------------- Richard M. Hisey Treasurer (Principal Financial Officer and Accounting Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, John W. Ballen, certify that: 1. The Form N-CSR (the "Report") of Compass Capital Appreciation Variable Account (the "Registrant") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 25, 2003 JOHN W. BALLEN --------------------------- ---------------------------------------- John W. Ballen President (Principal Executive Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----