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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
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COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Bolyston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: December 31, 2002
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Date of reporting period: June 30, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
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[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.
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TABLE OF CONTENTS
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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
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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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.
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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
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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.
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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
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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
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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
<Page>
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
<Table>
<Caption>
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
</Table>
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
<Page>
PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003
CAPITAL APPRECIATION VARIABLE ACCOUNT
STOCKS -- 96.9%
<Table>
<Caption>
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
--------------
</Table>
8
<Page>
<Table>
<Caption>
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%
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
9
<Page>
PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
BONDS -- 87.8%
<Table>
<Caption>
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
--------------
</Table>
10
<Page>
<Table>
<Caption>
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
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003
GOVERNMENT SECURITIES VARIABLE ACCOUNT
BONDS -- 97.5%
<Table>
<Caption>
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
</Table>
11
<Page>
<Table>
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003
HIGH YIELD VARIABLE ACCOUNT
BONDS -- 92.8%
<Table>
<Caption>
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
</Table>
12
<Page>
<Table>
<Caption>
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
--------------
</Table>
13
<Page>
<Table>
<Caption>
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
--------------
</Table>
14
<Page>
<Table>
<Caption>
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
</Table>
15
<Page>
<Table>
<Caption>
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%
<Caption>
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
--------------
<Caption>
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
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
UNITED KINGDOM
Jazztel PLC, 12s, 2012
(Telecommunications -- Wireline)
(Identified Cost $77,270) EUR 48 $ 22,921
--------------
WARRANTS
<Caption>
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%
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
16
<Page>
PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003
MANAGED SECTORS VARIABLE ACCOUNT
STOCKS -- 97.2%
<Table>
<Caption>
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
--------------
</Table>
17
<Page>
<Table>
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2003
MONEY MARKET VARIABLE ACCOUNT
COMMERCIAL PAPER -- 83.0%
<Table>
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements.
18
<Page>
PORTFOLIO OF INVESTMENTS (Unaudited)-- June 30, 2003
TOTAL RETURN VARIABLE ACCOUNT
STOCKS -- 58.7%
<Table>
<Caption>
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
</Table>
19
<Page>
<Table>
<Caption>
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%
<Caption>
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
--------------
</Table>
20
<Page>
<Table>
<Caption>
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
--------------
</Table>
21
<Page>
<Table>
<Caption>
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
--------------
</Table>
22
<Page>
<Table>
<Caption>
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%
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- 0.2%
INSURANCE -- 0.2%
Hartford Financial Services Group Inc.
(Identified Cost, $430,281) 9,000 $ 473,760
--------------
<Caption>
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
==============
</Table>
See portfolio footnotes and notes to financial statements
PORTFOLIO FOOTNOTES:
* Non-income producing security.
** Non-income producing security - in default.
# Payment-in-kind security.
## SEC Rule 144A restriction.
### Security segregated as collateral for an open futures contract.
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
<Page>
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited)-- June 30, 2003
(000 Omitted)
<Table>
<Caption>
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
============ =========== ========== ==========
<Caption>
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
============ =========== ==========
</Table>
* Amount less than $500.
See notes to financial statements.
24
<Page>
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2003 -- continued
(000 Omitted except for unit values)
<Table>
<Caption>
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
============ =========== ===========
<Caption>
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
========== ======== ============ ===========
</Table>
See notes to financial statements.
25
<Page>
STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2003
(000 Omitted)
<Table>
<Caption>
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
========= ========= ========= ========= ========= ========= =========
</Table>
* Amount less than $500.
See notes to financial statements.
26
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
(000 Omitted)
<Table>
<Caption>
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
=========== =========== =========== ===========
<Caption>
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
=========== ===========
</Table>
See notes to financial statements.
27
<Page>
<Table>
<Caption>
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
========= ======== ========= ==========
</Table>
See notes to financial statements.
28
<Page>
<Table>
<Caption>
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
========= ========== =========== ===========
</Table>
See notes to financial statements.
29
<Page>
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.
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
<Table>
<Caption>
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%+
<Caption>
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~~ -- -- --
<Caption>
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%+
<Caption>
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~~ -- -- --
</Table>
~~ 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
<Page>
<Table>
<Caption>
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%+
<Caption>
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~~ -- -- --
</Table>
~~ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
~~ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
</Table>
~~ 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
<Page>
<Table>
<Caption>
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
<Caption>
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.
<Caption>
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
<Caption>
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
</Table>
~~ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
</Table>
~~ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
* Per unit data are based on the average number of units outstanding during
each year.
+ Excluding mortality and expense risk charges and distribution expense
charges.
++ Annualized.
+++ 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
<Page>
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
<Page>
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.
<Table>
<Caption>
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
============ =========== ========== ======== ======== ======== ========
</Table>
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
<Page>
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.
<Table>
<Caption>
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE BASED ON AVERAGE
DAILY NET ASSETS DAILY NET ASSETS
NOT EXCEEDING $300 MILLION IN EXCESS OF $300 MILLION
- ---------------------------------------------------------------------------------------------------------------
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%
</Table>
The agreements also provide that the Investment Adviser will pay certain
variable account expenses in excess of 1.25% of the average daily net assets of
each variable account for any calendar year. The variable accounts pay no
compensation directly to their officers or members of the Boards of Managers who
are affiliated with the Investment Adviser or the Sponsor.
Administrator - The 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:
<Table>
<Caption>
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
</Table>
(6) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
<Table>
<Caption>
PURCHASES SALES
- ---------------------------------------------------------------------------
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
</Table>
44
<Page>
Purchases and sales of U.S. government securities, other than purchased option
transactions and short-term obligations, were as follows:
<Table>
<Caption>
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
</Table>
* 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
<Table>
<Caption>
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
</Table>
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
<Table>
<Caption>
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
---------------------------------------------------------------------------------------------------------------
Global Governments Variable Account Japan Govt Bond 10yr September 2003 1 Long $ (28,336)
</Table>
At June 30, 2003 the Global Governments Variable Account had sufficient cash
and/or securities to cover any margin requirements under these contracts.
45
<Page>
(8) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as
follows:
<Table>
<Caption>
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)
========= ========= =========
<Caption>
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)
========= ============= =============
</Table>
46
<Page>
<Table>
<Caption>
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)
========= ========= =========
<Caption>
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)
========= ============= =============
</Table>
47
<Page>
(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
<Page>
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
<Page>
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
<Page>
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
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By (Signature and Title)* JOHN W. BALLEN
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John W. Ballen, President
Date: August 25, 2003
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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.
<Page>
By (Signature and Title)* JOHN W. BALLEN
------------------------------------------------------
John W. Ballen, President (Principal Executive
Officer)
Date: August 25, 2003
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By (Signature and Title)* RICHARD M. HISEY
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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.