<Page>
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 811-4009
- --------------------------------------------------------------------------------
COMPASS GOVERNMENT SECURITIES VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
- --------------------------------------------------------------------------------
Date of fiscal year end: 12/31/03
- --------------------------------------------------------------------------------
Date of reporting period: 12/31/03
- --------------------------------------------------------------------------------
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
[COMPASS LOGO]
PROFESSIONALLY MANAGED COMBINATION FIXED/VARIABLE ANNUITIES FOR PERSONAL
INVESTMENTS AND QUALIFIED RETIREMENT PLANS
ANNUAL REPORT - DECEMBER 31, 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.
<Page>
TABLE OF CONTENTS
<Table>
Letter from the Chairman 1
Management Reviews 2
Performance Summary 6
Portfolio of Investments 7
Financial Statements 24
Notes to Financial Statements 41
Board of Managers and Officers Back Cover
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
<Page>
LETTER FROM THE CHAIRMAN
DEAR CONTRACT OWNERS,
In our view, the past year has been a promising one for investors. Financial
markets have improved steadily, spurred by indications of a global economic
recovery.
These developments make this an encouraging time for our contract owners. But we
also think it's a time to reinforce the fundamentals of a sound investment
strategy.
We think in any market environment the best approach for investors is
disciplined diversification. This method of investing involves three simple
steps. First, ALLOCATE your holdings across the major asset classes. Second,
DIVERSIFY within each class so that you get exposure to different investment
styles, such as growth and value, and market sectors, such as government and
corporate bonds. Finally, to respond to the way market activity can shift the
value of your accounts, REBALANCE your accounts on a routine schedule, such as
once per year. Doing so will help you maintain your desired allocation across
each asset class.
These investing fundamentals are often lost when markets are on an upswing. At
such times, it's easy to be tempted to shift your holdings into the current,
"hottest" performing investment. History suggests, however, that it is difficult
to predict year after year what the best performing sector or market will be.
While it is true that the past cannot offer any guarantees for the future, the
markets historically have demonstrated the benefits of taking the prudent
approach and spreading your assets across a variety of holdings. For investors
with a long-term goal such as retirement, a balanced approach usually makes the
most sense. As always, your investment professional can help you identify an
appropriate mix of investments for your needs.
Respectfully,
/s/ C. James Prieur
C. James Prieur
President and Chief Operating Officer, Sun Life Financial, Inc.
January 19, 2004
The opinions expressed in this letter are those of C. James Prieur, and no
forecasts can be guaranteed.
Note to Contract Owners: Effective January 1, 2004, J. Kermit Birchfield, an
independent Trustee, was appointed Chairman of the Compass Board, which oversees
the Compass Variable Accounts.
MARKET ENVIRONMENT
In the early months of 2003, investors were battered by economic and
geopolitical uncertainty. By year-end, however, investors were celebrating 2003
as the first positive year for global markets since 1999. The turnaround in
global stock markets began in March and April, when it became apparent that the
U.S.- and British-led coalition was on the verge of military success in Iraq.
The release of increasingly positive economic numbers as 2003 progressed,
particularly in the corporate earnings area, helped drive the ensuing equity
rally. In addition, investor concern over issues that held back the market in
the first quarter -- including the Iraq situation, a short-lived SARS epidemic,
and corporate misdeeds -- largely faded as the year progressed.
In the equity markets, the big surprise of 2003 was investors' appetite for
risk. After a brutal three-year market decline, many observers -- including MFS
and Sun Life -- believed investors would avoid risky investments. Instead, we
experienced an equity rally led by relatively low-quality, higher-risk stocks --
stocks of companies with substantial debt on their balance sheets, low profit
margins, and/or second- and third-tier competitive positioning. For most of
2003, investors seemed to favor the stocks that had previously fallen the
hardest, rather than bidding up industry leaders that had weathered the global
downturn relatively well. Toward the end of the year, however, we felt the
market was beginning to rotate toward less risky companies with stronger
fundamentals (business factors such as earnings and cash flow growth).
For U.S. investors in overseas stock markets, the big story of 2003 was the
decline of the dollar relative to other currencies. While many developed-nation
stock markets performed roughly in line with the broad U.S. market -- and
developing nations in general did even better -- the declining dollar increased
those returns for U.S. investors in overseas equities. For example, the Morgan
Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East) Index,
a commonly used measure of the international stock market, returned 20.8%
measured in local currencies but 39.2% when returns were converted into dollars.
(Source: Morgan Stanley Capital International)
Factors that contributed to the dollar's decline against most currencies
included a U.S. trade deficit that overseas investors viewed as excessive; low
interest rates that decreased the attractiveness of dollar-denominated
investments; and the Bush administration's apparent abandonment of a
long-standing U.S. policy of publicly advocating a strong dollar.
In the bond market, we saw interest rates in many developed nations fall to
historical lows in 2003. But by year-end, an improving global economy began to
put upward pressure on rates, and Australia and the United Kingdom became the
first major developed nations to raise rates. In the United States, the Federal
Reserve Board kept short-term rates at a four-decade low through year-end.
However, long-term U.S. Treasury rates -- which are largely determined by
investor sentiment -- rose modestly for the period as a whole and experienced
sharp volatility in the spring and summer. Ten-year rates fell when the Fed,
after its May meeting, expressed a strong desire to keep rates low and implied
that it might use some unconventional strategies to do so -- such as buying
longer-term bonds. Then long-term rates shot up in late June and July after the
Fed lowered the short-term rate by only a quarter point at its June meeting,
disappointing a market that had expected a half-point drop. Many investors read
the quarter-point move as a sign that perhaps the economy was improving faster
than the Fed had expected.
In contrast, U.S. corporate bonds generally benefited from an accelerating
recovery. Growth in GDP (gross domestic product), employment, and other economic
measures pointed toward improving corporate bond fundamentals (factors such as
earnings, cash flow growth, and credit quality).
In response, investors became less risk adverse, and the "flight to quality"
that had characterized the bond market in late 2002 began to fade. With Treasury
yields at four-decade lows, investors in 2003 sought out higher-yielding
corporate debt. Riskier, lower-rated bonds showed the best performance for the
year.
1
<Page>
MANAGEMENT REVIEWS
CAPITAL APPRECIATION VARIABLE ACCOUNT
For the 12 months ended December 31, 2003, the Compass 2 account provided a
total return of 27.48%, the Compass 3 account provided a total return of 27.36%
and the Compass 3 -- level 2 provided a total return of 27.55%. These returns,
which include the reinvestment of any dividends and capital gains distributions,
compare with a return of 29.75% 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.
PORTFOLIO MANAGEMENT UPDATE
Gregory W. Locraft, Jr. assumed investment responsibilities for the portfolio in
November 2003, replacing John E. Lathrop. There has been no change to the
account's investment philosophy or objective: the portfolio will continue to
pursue reasonably priced large cap growth stocks identified through MFS'
bottom-up Original Research(SM) process.
DETRACTORS FROM PERFORMANCE
The portfolio's weakest-performing areas over the period were technology and
business services. In technology, the portfolio's stock selection and an
underweighted position in semiconductor stocks in general, and industry leader
Intel in particular, hurt relative results as stocks of electronic component
makers and equipment suppliers rallied strongly over the period. While we were
encouraged by evidence of strength in specific product markets, our positioning
in technology remained somewhat cautious because we felt stock valuations in the
sector were overly high and we believed the market was pricing in somewhat
optimistic views of future growth. However, the portfolio's relative performance
was helped by our overweighted positions in semiconductor maker Analog Devices
and storage software firm VERITAS Software.
Stock selection among business services concerns also held back performance
during the period. Business outsourcing firm BISYS Group lost value amid a
negative market environment for its insurance and education divisions and
problems with executing its business strategy. Our holding in payroll giant
Automatic Data Processing was another source of weakness in the business
services area. A shift from cost cutting to increasing business spending in the
face of poor sales trends made us concerned that ADP's issues were more
longer-term in nature. We sold ADP out of the portfolio.
Outside of the business services and technology areas, individual stock
detractors included media concern Viacom, which lost traction on continued weak
demand for radio advertising. We believe conditions in 2004 should offer good
growth opportunities for advertising-sensitive media companies, given the
confluence of a stronger economy, a U.S. presidential election, and the summer
Olympics in Greece. As of period-end, Viacom remained a significant position in
the portfolio.
Our holding in retailer Kohl's also hurt performance. Weakness in the
moderate-price apparel area led the company to report disappointing sales and
earnings. We see this setback as temporary in nature, and, as of the end of the
period, we viewed Kohl's as offering attractive longer-term growth potential.
Other detractors from performance included insurance and reinsurance firm XL
Capital and aerospace and defense company Northrop Grumman.
The portfolio's cash position also detracted from relative performance. As with
nearly all annuity subaccounts, this account holds some cash to buy new holdings
and to cover investor exchanges or redemptions. In a period when equity markets
rose sharply, cash hurt performance against our benchmark, the Russell 1000
Growth Index, which has no cash position.
CONTRIBUTORS TO PERFORMANCE
Holdings in the health care sector boosted portfolio results. We avoided or
underweighted a number of large-cap pharmaceutical stocks because we felt their
medium-term growth prospects would be limited by patent expirations on key
products as well as by a dearth of new drugs in the development pipeline.
Instead, we trained our sights on concerns elsewhere in health care that we
believed would offer stronger sustainable growth. For example, we favored
Genentech over Johnson & Johnson and Pfizer, in which we were relatively
underweighted over the period, and Merck, which we did not own. This positioning
proved beneficial for results, and we sold our Genentech position after it
reached our price target. However, several health care holdings did detract from
relative performance, including Schering-Plough, Wyeth, and AmerisourceBergen.
Underweighting consumer staples concerns also contributed to performance as that
sector lagged the broader market. For example, Coca-Cola, which we avoided over
the period, underperformed as volume growth failed to live up to investor
expectations. Not owning Anheuser-Busch over the period also helped relative
results.
Stock selection in the financial services sector also helped performance. In
particular, our position in Merrill Lynch did well over the period. Other
contributors to performance included our holdings in travel and real estate firm
Cendant, satellite television broadcaster Echostar, and conglomerate Tyco
International. Underweighting retail giant Wal-Mart also helped performance as
that firm's stock underperformed the broad market.
In addition, a cash settlement from a class-action lawsuit contributed to
performance over the period. The series 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 series had
owned both HFS and CUC, and then Cendant, during the merger period. Along with
other participants in the lawsuit, the portfolio had suffered losses on Cendant
stock in 1998.
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
For the 12 months ended December 31, 2003, the Compass 2 account provided a
total return of 13.76%, the Compass 3 account provided a total return of 13.59%,
and Compass 3 -- level 2 account provided a total return of 13.76%. These
returns, which include the reinvestment of any dividends and capital gains
distributions, compare with a return of 14.91% over the same period for the
account's benchmark, the Citigroup World Government Bond Index. The Citigroup
World Government Bond Index includes developed country government bond markets
around the world.
A BOND-FRIENDLY ENVIRONMENT
The global environment was characterized by weak economic activity during the
first half (H1) of 2003 (especially during the lead up to, and subsequent
intervention, in Iraq), followed by a moderate upswing in second-half (H2)
growth. This growth was primarily driven by more buoyant conditions in the
United States as well as improving prospects for Japan and Europe. Despite
improved conditions, excess global production capacity and low
2
<Page>
inflation led most of the major developed countries to follow H1 interest rate
cuts with steady low and accommodative rates in H2. All of this fostered a
bond-friendly environment as central bankers were more concerned with the risk
of excess disinflation than with excess inflation.
With the exception of a brief upswing mid year, the dollar displayed persistent
weakness against most major global currencies during 2003. The large and growing
U.S. current account deficit demanded an increasingly large share of global
savings, which, in turn caused a sharp depreciation of the currency. The dollar
depreciated by approximately 20% against the euro in 2003, and by between
20%-35% against the "dollar bloc" currencies of Canada, Australia, and New
Zealand. Heavy Japanese official intervention tempered the appreciation of the
yen to only 10% versus the U.S. dollar.
KEY CONTRIBUTORS TO PERFORMANCE
The portfolio benefited from a significant underweighted position relative to
its benchmark in the U.S. dollar, as the currency decline was both broad based
and precipitous. The overweighted position in the euro was particularly
beneficial. The overweighted bond position in the euro area also benefited
performance. The "dollar bloc" and Scandinavia were additional sources of
outperformance. The portfolio's overweighted bond and currency positions in
Canada boosted performance as did the overweighted currency and underweighted
bond positions in Australia. The overweighted bond positions in Denmark and
Sweden also provided a means of outperformance.
KEY DETRACTORS FROM PERFORMANCE
Our underweighting in Japanese government bonds and the Swiss franc were modest
detractors from performance.
GOVERNMENT SECURITIES VARIABLE ACCOUNT
For the 12 months ended December 31, 2003, the Compass 2 account provided a
total return of 0.96%, the Compass 3 account provided a total return of 0.86%,
and the Compass 3 -- level 2 account provided a total return of 1.01%. These
returns, which include the reinvestment of any dividends and capital gain
distributions, compare with a return of 2.73% over the same period for the
account's benchmark, the Lehman Brothers Government/Mortgage Index (the Lehman
Index). The Lehman Brothers Government/Mortgage Index measures the performance
of the government and mortgage securities markets.
MARKET ENVIRONMENT
The bond market for the 12 months ended December 31, 2003 was influenced by an
accommodative U.S. monetary policy and low interest rates paid by U.S.
government bonds. Although interest rates on December 31, 2003 were not that
different from what they had been a year earlier, they were fairly volatile
during the 12-month period, especially in June and July. For example, the
10-year U.S. Treasury bond reached 3.10% in June -- a four-decade low. However,
Treasury interest rates then backed up from late June through August and reached
4.60% in September 2003.
ACCOUNT POSITIONING
The biggest shifts in portfolio holdings occurred primarily in the second half
of 2003. We reduced the account's holdings in U.S. Treasury bonds and
mortgage-backed securities because we expected the early summer's volatility to
continue through year end.
By December 31, 2003, the account's Treasury position was cut nearly in half and
the mortgage-backed holdings were reduced by nearly 10%. At the same time, we
increased the account's holdings in U.S. government agency bonds.
DETRACTORS AND CONTRIBUTORS TO PERFORMANCE
Mortgage-backed securities performed well for most of the year, with the
exception of the summer months. However, our mortgage strategy detracted from
the account's overall results because we had reduced our holdings in the group
in the second half of 2003. As a result, the account did not participate fully
in the sector's second-half performance.
Contributions to return came from the account's allocations to 15-year
mortgage-backed securities and to government agency securities, especially those
issued Financing Corporation (FICO). Issues from FICO are less liquid than other
agency securities because they are traded less frequently. As a consequence,
FICO provides a slight yield advantage over other government agencies and U.S.
Treasury issues. (The principal value and interest of U.S. Treasury securities
are guaranteed by the U.S. government if held to maturity. FICO was formed in
the late 1980s by the Federal Home Loan Bank board to help rescue thrift
institutions.)
HIGH YIELD VARIABLE ACCOUNT
For the 12 months ended December 31, 2003, the Compass Level 2 account provided
a total return of 19.47%; Compass Level 3 account provided a total return of
19.35%; and the Compass 3 -- Level 2 account returned 19.53%. These returns
include the reinvestment of any dividends and capital gains distributions and
compare to returns over the same period of 28.97% and 26.36%, respectively, for
the series' benchmarks, the Lehman Brothers High Yield Index (the Lehman Index)
and the Lipper High Yield Bond Index (the Lipper Index). The Lehman Index
measures the performance of the high-yield bond market. The Lipper indices
measure the performance of funds within their respective classifications and do
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 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.
3
<Page>
We were overweighted in 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 12 months ended December 31, 2003, the Compass level 2 account provided
a total return of 23.16%, the Compass level 3 account provided a total return of
22.98% and the Compass 3 -- level 2 account provided a total return of 23.16%.
These returns, which include the reinvestment of any dividends and capital gains
distributions, compare with a return of 29.75% 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 with a return over the same period of 30.97% for the Russell 3000
Growth Index and 35.39% for the Lipper Multi-cap Growth Index. The Russell 3000
Growth Index measures the performance of U.S. growth stocks.
DETRACTORS FROM PERFORMANCE
On a sector basis, our positioning among leisure stocks proved the most
significant impediment to performance. Media conglomerate Viacom lost traction
on continued near-term weak demand for radio advertising. As of period-end,
however, Viacom remained a significant position in the portfolio because we
believe market conditions in 2004 could offer growth opportunities for
advertising-sensitive media companies -- given the confluence of a stronger
economy, a U.S. presidential election, and the summer Olympics. Elsewhere in the
leisure sector, holdings in newspaper concerns Tribune Co. and The New York
Times Co. also detracted from results as the firms' ad sales in their respective
major metropolitan areas were slow to rebound. By period-end we had sold our
position in Tribune Co.
Two holdings in the business services group also hurt relative performance. In
early 2003, Automatic Data Processing, which had benefited from conservative
expense management amid soft demand for its payroll and trade processing
services, announced plans to increase spending. We felt that this change in
strategy would dampen future earnings growth. ADP stock fell on the news, and we
sold our position. BISYS Group, which supports financial institutions and
corporate clients with investment and educational services, also weighed on
results. Soft demand for the company's high-end insurance products led BISYS to
post disappointing earnings. As we believed the company would be able to address
this issue in time, we maintained a position in the stock.
On an individual stock basis, the most significant detractor from performance
was Intel. We initiated a position in the stock based on our view that the
company's new focus on microprocessor battery life and size could give the firm
a sustainable competitive edge. Staying true to our valuation discipline,
however, kept us from moving to an overweighted position as the stock soared
higher in the second half of the year. Unfortunately, successful stockpicking
elsewhere in technology -- including strong-performing positions in VERITAS
Software, Analog Devices, and Cisco Systems -- was not sufficient to offset the
impact of being underweighted in Intel.
Moderate-priced apparel retailer Kohl's also hurt performance. Mediocre
merchandising, together with adverse weather in key markets, led Kohl's to
report weak operating results. We viewed these issues as surmountable and
increased our holdings over the period. Other detractors from performance
included insurance and reinsurance firm XL Capital and aerospace and defense
company Northrop Grumman -- which were sold out of the portfolio during the
period -- and pharmaceutical and health care products firm Wyeth.
CONTRIBUTORS TO PERFORMANCE
In the health care sector, we avoided or underweighted several large-cap
pharmaceutical firms because we felt their medium-term growth prospects would be
limited by patent expirations on key products as well as by a dearth of new
drugs in the development pipeline. Instead, we invested in companies elsewhere
in health care that we believed would offer stronger sustainable growth. For
example, we favored Genentech over Johnson & Johnson, in which we were
relatively underweighted, and Merck, which we did not own. This positioning
proved beneficial for results.
Underweighting consumer staples concerns also helped performance as that sector
lagged the overall market. Avoiding Coca-Cola was particularly helpful, as the
company reported lackluster volume growth. Exiting positions in Colgate
Palmolive and Anheuser-Busch in favor of other opportunities earlier in 2003
also proved beneficial to performance. Positions in capital-markets-sensitive
companies such as Merrill Lynch and Goldman Sachs also helped portfolio
performance as bond spreads narrowed, trading volumes rose, and underwriting
activity showed signs of renewed life.
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 had suffered losses on Cendant
stock in 1998.
NOTE TO SHAREHOLDERS: EFFECTIVE MAY 21, 2003, THE RUSSELL 1000 GROWTH INDEX
REPLACED THE RUSSELL 3000 GROWTH INDEX AND THE LIPPER MULTI-CAP 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 12 months ended December 31, 2003, the Compass level 2 account provided
a total return of -0.66%, the Compass level 3 account provided a total return of
- -0.76% and the Compass 3 level 2 account provided a total return of -0.61%.
These returns includes the reinvestment of any distributions. As of December 31,
2003 the account's 7 day yield with and without waiver was 0.38%. The yield
quotation more closely reflects the current earnings of the series than the
total return quotation.
MARKET ENVIRONMENT
The reporting period began with an unsettled market environment that was
characterized by geopolitical concerns, high jobless claims, mixed economic
news, and volatile energy prices. By the end of the period on December 31, 2003,
economic conditions appeared to be significantly improved, jobless claims were
down, but energy prices were still high.
A key event for the marketplace was the Federal Reserve Board's late June
decision to cut short-term interest rates by 25 basis points (0.25%). The
quarter of a percent reduction was less than the 50 basis points (0.50%) that
some investment professionals had anticipated. The Fed made no other adjustment
to short-term
4
<Page>
interest rates for the remainder of 2003 and indicated that it wouldn't make any
further changes "for a considerable period."
ACCOUNT POSITIONING
On December 31, 2002, when there was significant volatility in interest rate
expectations, the account's weighted average maturity was 33 days. With the
easing of both geopolitical tensions and the reduction in the Fed funds rate, we
extended our average maturity. By December 31, 2003, the weighted average for
the account was 52 days.
Results for the account were negative due to the additional Sun Life charges
which are separate from and in addition to the management fee. Consequently, we
concentrated portfolio investments in high-quality commercial paper and
asset-backed commercial paper.
CONTINUED SHORT SUPPLY OF COMMERCIAL PAPER
In the first half of 2003, the precarious nature of the economy caused companies
to pull back on spending. That pull-back reduced need for short-term financing
and limited the supply of new commercial paper. Despite growing economic
strength in the second half of 2003, the supply of commercial paper continued to
be constrained by cautious corporate spending. Businesses also took advantage of
the low interest rate environment by issuing longer-term debt in place of
commercial paper. On December 31, 2003, approximately 71% of the account was
invested in commercial paper with the balance of the portfolio invested in
government paper and repurchase agreements.
COMMITMENT TO QUALITY
Regardless of market or economic conditions, we intend to maintain the account's
high quality as we focus on the account's objectives of income, capital
preservation, and liquidity.
TOTAL RETURN VARIABLE ACCOUNT
For the 12 months ended December 31, 2003, the Compass level 2 account provided
a total return of 15.64%, the Compass level 3 account provided a total return of
15.46%, and the Compass 3 -- level 2 account provided a total return of 15.64%.
These returns, which include the reinvestment of any capital gains and dividend
distributions, compare with returns of 28.67% and 4.10%, respectively, for the
account's benchmarks, the Standard & Poor's 500 Stock Index (S&P 500) and the
Lehman Brothers Aggregate Bond Index (the Lehman Index). The S&P 500 is a
commonly used measure of the broad U.S. stock market. The Lehman Index is an
unmanaged, market-value-weighted index of U.S. Treasuries, government-agency
securities (excluding mortgage-backed securities), and investment-grade domestic
corporate debt.
ACCOUNT POSITIONING
This account normally invests between 55% to 60% of its assets in inexpensive,
lower-risk stocks with the balance in higher-quality bonds and a relatively
small position in short-term cash equivalent securities. (Cash-equivalent
securities are used to facilitate transactions and provide liquidity.) While
this allocation has provided a competitive historical long-term track record,
the account's results over the past year lagged stock market returns as
represented by the S&P 500. In 2003, stocks outperformed bonds and cash, and
higher-risk, lower-quality issues led returns within the equity and fixed-income
markets.
During periods of rising equity markets such as we saw in 2003, the account's
cash holdings detracted from performance versus the S&P 500 benchmark.
DETRACTORS TO PERFORMANCE
Our underweighted position in technology and conservative positioning in leisure
and overweighting telecommunications were the primary reasons the account
underperformed its stock benchmark. We maintained an underweighting in
technology primarily because we felt that many stocks in the sector did not meet
our valuation criteria. However, the sector rose through much of the period,
buoyed by signs of economic growth, potential increases in capital spending, and
possible pent-up demand for personal computers, servers, and software. In
absolute terms, the group was one of the best performing portfolio sectors. For
example, the account received very strong returns from Texas Instruments.
However, our underweighting in stocks such as Intel (or avoiding companies such
as Cisco Systems) caused the account's relative performance to lag benchmark
returns.
The performance of the account's leisure holdings was disappointing. Investors
stayed away from publisher Reed Elsevier because of concerns about the company's
US textbook business. Lower-than-expected advertising revenues negatively
affected the stock prices of newspaper publishers Tribune and New York Times.
In the utilities and communications sector, our overweighted position in
telephone services stocks such as BellSouth detracted from performance as
competitive pressures intensified and outweighed inexpensive valuations.
CONTRIBUTORS TO PERFORMANCE
Holdings in the financial services sector provided strong relative returns for
the period. Banks benefited from falling interest rates, an improving outlook
for corporate credit, and strength in mortgage lending activity. FleetBoston's
stock price received a significant boost following Bank of America's
announcement of a $47 billion takeover offer. In addition, the market rally
boosted stock prices of companies such as T. Rowe Price and Merrill Lynch. The
strong performance of these and other financial stocks was offset somewhat by
the decline of Federal Home Loan Mortgage Corporation's (Freddie Mac) stock.
T. Rowe Price stock was sold when it reached our performance target.
Our underweighted position in consumer staples stocks, especially beverage
stocks such as Coca-Cola, contributed to performance when investors turned
toward cyclical companies whose earnings tend to be more sensitive to an
economic recovery.
The account also received strong results from Alcoa and Occidental Petroleum.
Rising commodity prices helped boost Alcoa's stock price. Continued high oil
prices buoyed the stock price of Occidental.
In the fixed income market, corporate bonds in general outperformed U.S.
Treasuries over the period (Principal and interest of U.S. Treasury securities,
however, are guaranteed by the U.S. government if held to maturity). In that
environment, our relative overweighting in corporate debt and underweighting in
Treasuries helped the fixed-income portion of the acount outperform the overall
U.S. bond market, as measured by the Lehman Brothers Aggregate Bond Index.
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.
5
<Page>
The portfolios are actively managed, and current holdings may be different.
It is not possible to invest directly in an index.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the
About MFS section of MFS.COM or by visiting the SEC website at
HTTP://WWW.SEC.GOV.
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.
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.
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.
YEAR END PERFORMANCE THROUGH DECEMBER 31, 2003
<Table>
<Caption>
COMPASS 2 COMPASS 3 COMPASS 3 -
(U.S.) (U.S.) LEVEL 2 (U.S.)
--------- --------- --------------
Capital Appreciation 27.48% 27.36% 27.55%
Variable Account*
Global Government 13.76% 13.59% 13.76%
Variable Account
Government Securities 0.96% 0.86% 1.01%
Variable Account
High Yield Variable 19.47% 19.35% 19.53%
Account
Managed Sectors
Variable Account* 23.16% 22.98% 23.16%
Money Market
Variable Account (0.66)% (0.76)% (0.61)%
Total Return
Variable Account 15.64% 15.46% 15.64%
</Table>
THESE PERFORMANCE RESULTS REFLECT ANY APPLICABLE CONTRACT OR SURRENDER CHARGES.
VISIT sunlife-usa.com FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
* A PORTION OF THE RETURNS SHOWN IS ATTRIBUTABLE TO THE RECEIPT OF A
NON-RECURRING PAYMENT IN SETTLEMENT OF A CLASS ACTION LAWSUIT. SEE NOTES TO
FINANCIAL STATEMENTS.
6
<Page>
PORTFOLIO OF INVESTMENTS -- December 31, 2003
CAPITAL APPRECIATION VARIABLE ACCOUNT
STOCKS -- 95.8%
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- 90.9%
AEROSPACE -- 1.5%
Honeywell International, Inc. 20,800 $ 695,344
L-3 Communications Holding, Inc.* 15,900 816,624
Lockheed Martin Corp. 63,600 3,269,040
-------------
$ 4,781,008
-------------
APPAREL MANUFACTURERS -- 0.7%
Nike, Inc., "B" 13,800 $ 944,748
Reebok International Ltd. 32,200 1,266,104
-------------
$ 2,210,852
-------------
AUTOMOTIVE -- 0.3%
Harley-Davidson, Inc. 19,600 $ 931,588
-------------
BANKS & CREDIT COMPANIES -- 5.0%
American Express Co. 77,840 $ 3,754,223
Citigroup, Inc. 135,796 6,591,538
Fannie Mae 54,400 4,083,264
MBNA Corp. 56,500 1,404,025
-------------
$ 15,833,050
-------------
BIOTECHNOLOGY -- 3.5%
Amgen, Inc.* 103,440 $ 6,392,592
Genzyme Corp.* 60,800 2,999,872
Gilead Sciences, Inc.* 29,600 1,720,944
-------------
$ 11,113,408
-------------
BROADCAST & CABLE TV -- 5.6%
Citadel Broadcasting Corp.* 22,600 $ 505,562
Clear Channel Communications, Inc. 99,336 4,651,905
Comcast Corp., "A"* 182,200 5,988,914
EchoStar Communications Corp., "A"* 87,185 2,964,290
NTL, Inc.* 13,500 941,625
Time Warner, Inc.* 66,400 1,194,536
Westwood One, Inc.* 41,900 1,433,399
-------------
$ 17,680,231
-------------
BROKERAGE & ASSET MANAGERS -- 2.3%
Goldman Sachs Group, Inc. 30,880 $ 3,048,782
Merrill Lynch & Co., Inc. 68,750 4,032,188
-------------
$ 7,080,970
-------------
BUSINESS SERVICES -- 2.3%
BISYS Group, Inc.* 53,200 $ 791,616
DST Systems, Inc.* 41,300 1,724,688
Getty Images, Inc.* 34,500 1,729,485
Manpower, Inc. 26,500 1,247,620
SunGard Data Systems, Inc.* 65,230 1,807,523
-------------
$ 7,300,932
-------------
CHEMICALS -- 1.1%
3M Co. 39,740 $ 3,379,092
-------------
COMPUTER SOFTWARE -- 6.4%
BEA Systems, Inc.* 83,400 $ 1,025,820
Manhattan Associates, Inc.* 21,100 583,204
Microsoft Corp. 467,520 12,875,501
Netscreen Technologies, Inc.* 69,400 1,717,650
Networks Associates, Inc.* 112,300 1,688,992
Symantec Corp.* 18,400 637,560
VERITAS Software Corp.* 41,810 1,553,660
-------------
$ 20,082,387
-------------
COMPUTER SOFTWARE -- SYSTEMS -- 2.1%
Hewlett-Packard Co. 82,000 $ 1,883,540
IBM Corp. 49,600 4,596,928
-------------
$ 6,480,468
-------------
CONSUMER GOODS & SERVICES -- 2.6%
Colgate-Palmolive Co. 59,600 $ 2,982,980
Procter & Gamble Co. 50,600 5,053,928
-------------
$ 8,036,908
-------------
U.S. STOCKS -- continued
CONSUMER SERVICES -- 0.8%
Apollo Group, Inc., "A"* 18,700 $ 1,271,600
Career Education Corp.* 33,400 1,338,338
Orbitz, Inc., "A" 9,900 229,600
-------------
$ 2,839,618
-------------
CONTAINERS -- 0.3%
Smurfit-Stone Container Corp.* 55,300 $ 1,026,921
-------------
ELECTRICAL EQUIPMENT -- 5.0%
Emerson Electric Co. 7,700 $ 498,575
General Electric Co. 292,700 9,067,846
Molex, Inc. 18,500 645,465
Tyco International Ltd. 208,800 5,533,200
-------------
$ 15,745,086
-------------
ELECTRONICS -- 6.9%
Agere Systems, Inc., "B"* 412,800 $ 1,197,120
Amphenol Corp., "A"* 12,400 792,732
Analog Devices, Inc. 67,790 3,094,613
Applied Materials, Inc.* 38,400 862,080
Intel Corp. 253,700 8,169,140
Maxim Integrated Products, Inc. 19,390 965,622
Novellus Systems, Inc.* 30,270 1,272,854
Texas Instruments, Inc. 122,300 3,593,174
Xilinx, Inc.* 43,400 1,681,316
-------------
$ 21,628,651
-------------
ENTERTAINMENT -- 1.8%
Viacom, Inc., "B" 93,043 $ 4,129,248
Walt Disney Co. 65,900 1,537,447
-------------
$ 5,666,695
-------------
FOOD & DRUG STORES -- 1.6%
CVS Corp. 90,710 $ 3,276,445
Walgreen Co. 46,300 1,684,394
-------------
$ 4,960,839
-------------
FOOD & NON ALCOHOLIC BEVERAGES -- 1.9%
PepsiCo, Inc. 104,220 $ 4,858,736
Sysco Corp. 33,500 1,247,205
-------------
$ 6,105,941
-------------
GAMING & LODGING -- 1.2%
Carnival Corp. 31,900 $ 1,267,387
Cendant Corp.* 105,320 2,345,476
-------------
$ 3,612,863
-------------
GENERAL MERCHANDISE -- 3.1%
Kohl's Corp.* 33,890 $ 1,523,017
Target Corp. 136,560 5,243,904
Wal-Mart Stores, Inc. 58,190 3,086,979
-------------
$ 9,853,900
-------------
INSURANCE -- 2.1%
American International Group, Inc. 98,700 $ 6,541,836
-------------
INTERNET -- 2.3%
Ebay, Inc.* 55,800 $ 3,604,122
InterActive Corp.* 106,600 3,616,938
-------------
$ 7,221,060
-------------
MACHINERY & TOOLS -- 0.8%
Eaton Corp. 11,500 $ 1,241,770
Illinois Tool Works, Inc. 14,700 1,233,477
-------------
$ 2,475,247
-------------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES -- 1.7%
Cardinal Health, Inc. 37,600 $ 2,299,616
Caremark Rx, Inc.* 73,300 1,856,689
Tenet Healthcare Corp.* 72,000 1,155,600
-------------
$ 5,311,905
-------------
</Table>
7
<Page>
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- continued
MEDICAL EQUIPMENT -- 5.1%
AmerisourceBergen Corp. 38,200 $ 2,144,930
Baxter International, Inc. 61,900 1,889,188
C.R. Bard, Inc. 17,400 1,413,750
CTI Molecular Imaging, Inc* 69,500 1,175,245
Cyberonics, Inc.* 14,400 460,944
Edwards Lifesciences Corp.* 15,400 463,232
Guidant Corp. 37,900 2,281,580
Medtronic, Inc. 93,800 4,559,618
Thermo Electron Corp.* 67,500 1,701,000
-------------
$ 16,089,487
-------------
OIL SERVICES -- 1.9%
BJ Services Co.* 25,300 $ 908,270
GlobalSantaFe Corp. 70,400 1,748,032
Noble Corp.* 51,300 1,835,514
Smith International, Inc.* 36,700 1,523,784
-------------
$ 6,015,600
-------------
PERSONAL COMPUTERS & PERIPHERALS -- 1.4%
Dell, Inc.* 128,720 $ 4,371,331
-------------
PHARMACEUTICALS -- 9.6%
Abbott Laboratories, Inc. 67,300 $ 3,136,180
Eli Lilly & Co. 21,400 1,505,062
Johnson & Johnson Co. 177,600 9,174,816
Pfizer, Inc. 270,235 9,547,403
Schering-Plough Corp. 100,100 1,740,739
Wyeth 118,500 5,030,325
-------------
$ 30,134,525
-------------
POLLUTION CONTROL -- 0.1%
Waste Management, Inc. 10,600 $ 313,760
-------------
RESTAURANTS -- 0.5%
Outback Steakhouse, Inc. 36,300 $ 1,604,823
-------------
SPECIALTY CHEMICALS -- 0.2%
Georgia Gulf Corp. 17,100 $ 493,848
-------------
SPECIALTY STORES -- 3.1%
Best Buy Co., Inc. 23,700 $ 1,238,088
CarMax, Inc.* 47,500 1,469,175
Home Depot, Inc. 43,660 1,549,494
Staples, Inc.* 54,500 1,487,850
The TJX Cos., Inc. 114,000 2,513,700
Williams-Sonoma, Inc.* 39,600 1,376,892
-------------
$ 9,635,199
-------------
TELECOMMUNICATIONS -- WIRELESS -- 0.8%
AT&T Wireless Services, Inc.* 124,300 $ 993,157
Sprint Corp. (PCS Group)* 265,000 1,489,300
-------------
$ 2,482,457
-------------
TELECOMMUNICATIONS -- WIRELINE -- 4.1%
ADTRAN, Inc. 18,800 $ 582,800
Andrew Corp.* 107,700 1,239,627
Cisco Systems, Inc.* 430,800 10,464,132
QUALCOMM, Inc. 10,300 555,479
-------------
$ 12,842,038
-------------
TRUCKING -- 1.2%
Fedex Corp. 33,200 $ 2,241,000
United Parcel Service, Inc., "B" 19,200 1,431,360
-------------
$ 3,672,360
-------------
Total U.S. Stocks $ 285,556,884
-------------
FOREIGN STOCKS -- 4.9%
BERMUDA -- 0.8%
Accenture Ltd., "A" (Business Services)* 44,200 $ 1,163,344
Marvell Technology Group Ltd.
(Electronics)* 33,800 1,282,034
-------------
$ 2,445,378
-------------
FOREIGN STOCKS -- continued
CANADA -- 0.5%
Nortel Networks Corp.
(Telecommunications -- Wireline)* 372,100 $ 1,573,983
-------------
GERMANY -- 0.2%
Bayerische Motoren Werke AG
(Automotive) 16,800 $ 777,894
-------------
NETHERLANDS -- 0.3%
STMicroelectronics N.V. (Electronics) 34,200 $ 923,742
-------------
SWITZERLAND -- 1.6%
Alcon, Inc. (Medical Equipment) 26,200 $ 1,586,148
Novartis AG (Pharmaceuticals) 38,200 1,733,557
Roche Holdings AG (Pharmaceuticals) 17,000 1,714,014
-------------
$ 5,033,719
-------------
TAIWAN -- 0.5%
Taiwan Semiconductor Manufacturing
Co. Ltd., ADR (Electronics) 157,600 $ 1,613,824
-------------
UNITED KINGDOM -- 1.0%
Amdocs Ltd. (Computer Software)* 70,600 $ 1,587,088
AstraZeneca Group PLC (Pharmaceuticals) 33,200 1,588,267
-------------
$ 3,175,355
-------------
Total Foreign Stocks $ 15,543,895
-------------
Total Stocks (Identified Cost, $272,570,505) $ 301,100,779
-------------
REPURCHASE AGREEMENT -- 3.9%
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
Merrill Lynch, dated 12/31/03, due 01/02/04, total to be
received $12,240,646 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at cost $ 12,240 $ 12,240,000
-------------
Total Investments
(Identified Cost, $284,810,505) $ 313,340,779
-------------
OTHER ASSETS, LESS LIABILITIES -- 0.3% 984,975
-------------
Net Assets -- 100.0% $ 314,325,754
=============
</Table>
See portfolio footnotes and notes to financial statements.
8
<Page>
PORTFOLIO OF INVESTMENTS -- December 31, 2003
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
BONDS -- 86.4%
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
FOREIGN BONDS -- 68.0%
AUSTRALIA -- 0.5%
Commomwealth of Australia, 6.5s, 2013 AUD 85 $ 68,049
-------------
AUSTRIA -- 5.0%
Republic of Austria, 5.5s, 2007 EUR 297 $ 402,769
Republic of Austria, 5s, 2012 62 82,467
Republic of Austria, 4.65s, 2018 134 169,471
-------------
$ 654,707
-------------
BELGIUM -- 1.6%
Kingdom of Belgium, 3.75s, 2009 EUR 142 $ 179,534
Kingdom of Belgium, 5s, 2012 21 27,892
-------------
$ 207,426
-------------
CANADA -- 2.9%
Government of Canada, 5.5s, 2009 CAD 209 $ 172,571
Government of Canada, 5.25s, 2012 170 137,636
Government of Canada, 8s, 2023 66 68,820
-------------
$ 379,027
-------------
DENMARK -- 2.7%
Kingdom of Denmark, 7s, 2007 DKK 614 $ 117,225
Kingdom of Denmark, 6s, 2009 1,110 207,955
Kingdom of Denmark, 5s, 2013 203 35,773
-------------
$ 360,953
-------------
FINLAND -- 5.0%
Republic of Finland, 2.75s, 2006 EUR 64 $ 80,470
Republic of Finland, 3s, 2008 366 451,140
Republic of Finland, 5.375s, 2013 96 131,022
-------------
$ 662,632
-------------
FRANCE -- 5.2%
Republic of France, 4.75s, 2007 EUR 95 $ 125,998
Republic of France, 4s, 2009 383 488,854
Republic of France, 6s, 2025 52 75,236
-------------
$ 690,088
-------------
GERMANY -- 12.7%
Federal Republic of Germany, 4.75s, 2008 EUR 259 $ 344,654
Federal Republic of Germany, 4.5s, 2009 644 843,528
Federal Republic of Germany, 5.25s, 2010 160 216,818
Kreditanstalt Fur Wiederaufbau, 3.25s, 2008 220 274,976
-------------
$ 1,679,976
-------------
GREECE -- 1.1%
Republc of Greece, 3.5s, 2008 EUR 114 $ 143,587
-------------
IRELAND -- 4.9%
Republic of Ireland, 4.25s, 2007 EUR 178 $ 231,893
Republic of Ireland, 3.25s, 2009 126 155,832
Republic of Ireland, 5s, 2013 139 184,740
Republic of Ireland, 4.6s, 2016 54 68,630
-------------
$ 641,095
-------------
ITALY -- 4.6%
Republic of Italy, 4.75s, 2013 EUR 238 $ 309,663
Republic of Italy, 5.25s, 2017 220 293,110
-------------
$ 602,773
-------------
MEXICO -- 0.6%
Pemex Project Funding Master Trust
(Oil Services), 8.625s, 2022 $ 72 $ 79,740
-------------
NETHERLANDS -- 5.6%
Kingdom of Netherlands, 5.75s, 2007 EUR 103 $ 139,932
Kingdom of Netherlands, 3.75s, 2009 283 357,516
Kingdom of Netherlands, 5s, 2012 185 246,440
-------------
$ 743,888
-------------
NEW ZEALAND -- 1.6%
Government of New Zealand, 7s, 2009 NZD 95 $ 65,573
Government of New Zealand, 6.5s, 2013 214 145,690
-------------
$ 211,263
-------------
PORTUGAL -- 1.3%
Republic of Portugal, 5.45s, 2013 EUR 127 $ 173,585
-------------
QATAR -- 0.4%
State of Qatar, 9.75s, 2030 $ 37 $ 52,170
-------------
SOUTH AFRICA -- 0.4%
Republic of South Africa, 8.5s, 2017 $ 43 $ 51,278
-------------
SPAIN -- 7.8%
Kingdom of Spain, 6s, 2008 EUR 472 $ 654,618
Kingdom of Spain, 5.35s, 2011 227 309,344
Kingdom of Spain, 5.5s, 2017 50 68,746
-------------
$ 1,032,708
-------------
SWEDEN -- 2.7%
Kingdom of Sweden, 5.5s, 2012 SEK 610 $ 89,845
Spintab AB (Banks & Credit Companies),
5s, 2008 1,900 270,772
-------------
$ 360,617
-------------
UNITED KINGDOM -- 1.4%
United Kingdom Treasury, 5s, 2012 GBP 103 $ 186,765
-------------
Total Foreign Bonds $ 8,982,327
-------------
U.S. BONDS -- 18.4%
ASSET BACKED & SECURITIZED -- 3.4%
Commercial Mortgage Asset Trust,
0s, 2032 ## $ 1,661 $ 94,500
Deutsche Mortgage and Asset Receiving
Corp., 6.538s, 2031 59 64,615
First Union Lehman Brothers Bank,
6.56s, 2035 29 32,862
First Union National Bank Commercial,
0s, 2043 ## 1,783 97,548
First Union National Bank Commercial
Mortgage Trust, 7.39s, 2031 60 69,932
GMAC Commercial Mortgage Security,
Inc., 6.42s, 2035 29 32,774
LB-UBS Commercial Mortgage Trust,
7.95s, 2010 45 54,005
-------------
$ 446,236
-------------
MUNICIPALS -- 1.8%
New Jersey Turnpike Authority Turnpike
Rev., Series A, 6s, 2013 $ 145 $ 172,808
University of California Rev., Series Q,
5s, 2033 65 66,668
-------------
$ 239,476
-------------
U.S. GOVERNMENT AGENCIES -- 5.2%
Federal National Mortgage Assn.,
1.75s, 2008 $ 70,000 $ 686,009
-------------
U.S. TREASURY OBLIGATIONS -- 8.0%
U.S. Treasury Bonds, 8s, 2021 $ 56 $ 75,631
U.S. Treasury Notes, 2s, 2004 217 218,551
U.S. Treasury Notes, 3.5s, 2006 122 126,103
U.S. Treasury Notes, 6.125s, 2007 ### 68 76,104
U.S. Treasury Notes, 3.125s, 2008 32 31,981
U.S. Treasury Notes, 4.25s, 2010 166 193,038
U.S. Treasury Notes, 1.875s, 2013 65 65,005
U.S. Treasury Notes, 4.25s, 2013 265 265,331
-------------
$ 1,051,744
-------------
TOTAL U.S. BONDS $ 2,423,465
-------------
TOTAL BONDS (IDENTIFIED COST, $10,087,491) $ 11,405,792
-------------
</Table>
9
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
SHORT-TERM OBLIGATIONS -- 7.3%
Federal National Mortgage Assn.,
Dsc Note, due 1/02/04 at
Amortized Cost $ 964 $ 963,979
REPURCHASE AGREEMENT -- 5.7%
Morgan Stanley, dated 12/31/03, due 1/2/04, total to be
received $153,008 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account) $ 153 $ 153,000
Merrill Lynch, dated 12/31/03,
due 1/2/04, total to be received
$592,031 (secured by various
U.S. Treasury and Federal Agency
obligations in a jointly traded
account) 592 592,000
-------------
TOTAL REPURCHASE AGREEMENT, AT COST $ 745,000
-------------
CALL OPTIONS PURCHASED
<Caption>
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
Japenese Yen/February/103 $ 49,470 $ 395
Japenese Yen/February/103 49,470 396
-------------
TOTAL CALL OPTIONS PURCHASED
(PREMIUMS PAID, $1,981) $ 791
-------------
TOTAL INVESTMENTS (IDENTIFIED COST, $11,798,451) $ 13,115,562
-------------
OTHER ASSETS,
LESS LIABILITIES -- 0.6% 81,676
-------------
NET ASSETS -- 100.0% $ 13,197,238
=============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2003
GOVERNMENT SECURITIES VARIABLE ACCOUNT
BONDS -- 95.8%
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
MORTGAGE BACKED -- 45.1%
Federal Home Loan Mortgage Corp.,
3.108s, 2035 $ 195 $ 194,025
Federal Home Loan Mortgage Corp.,
5.5s, 2033 1,751 1,773,293
Federal Home Loan Mortgage Corp.,
6.5s, 2032 2,484 2,601,649
Federal Home Loan Mortgage Corp.,
7.5s, 2027-2028 301 323,341
Federal National Mortgage Assn.,
5s, 2018 1,469 1,500,455
Federal National Mortgage Assn.,
5.5s, 2017-2033 9,818 9,985,867
Federal National Mortgage Assn.,
5.976s, 2020 7 7,040
Federal National Mortgage Assn.,
6s, 2016-2033 12,979 13,501,333
Federal National Mortgage Assn.,
6.5s, 2005-2032 8,998 9,418,715
Federal National Mortgage Assn.,
7.5s, 2022-2032 744 796,077
Federal National Mortgage Assn.,
8.5s, 2007 14 14,876
Federal National Mortgage Assn.,
10s, 2018 511 570,784
Financing Corp., 9.8s, 2018 1,290 1,895,615
Financing Corp., 10.35s, 2018 1,150 1,761,332
Government National Mortgage Assn.,
6.5s, 2028 1,210 1,276,673
Government National Mortgage Assn.,
7.5s, 2032 226 240,913
Government National Mortgage Assn.,
11s, 2010-2019 75 84,730
Government National Mortgage Assn.,
12.5s, 2015 19 22,111
Government National Mortgage Assn.,
14s, 2014 2 1,789
Resolution Funding Corp., 8.875s, 2020 1,700 2,370,087
Small Business Administration, 8.4s, 2007 49 51,723
Small Business Administration, 8.7s, 2009 128 137,048
Small Business Administration, 10.05s, 2009 28 30,556
Small Business Administration, 6.34s, 2021 857 930,341
Small Business Administration, 6.44s, 2021 869 947,074
Small Business Administration, 6.625s, 2021 901 989,992
Small Business Administration, 6.07s, 2022 661 707,955
Small Business Administration, 4.89s, 2023 745 740,884
Small Business Administration, 4.98s, 2023 288 288,374
-------------
$ 53,164,652
-------------
U.S. GOVERNMENT AGENCIES-- 35.6%
Aid to Israel, 6.6s, 2008 $ 985 $ 1,062,804
Aid to Peru, 9.98s, 2008 910 1,040,834
Empresa Energetica Cornito Ltd.,
6.07s, 2010 2,838 3,139,083
Federal Home Loan Bank, 2.25s, 2006 4,090 4,090,920
Federal Home Loan Bank, 2.875s, 2006 2,525 2,551,821
Federal Home Loan Bank, 4.5s, 2013 910 896,529
Federal Home Loan Mortgage Corp.,
2.875s, 2006 2,342 2,358,790
Federal Home Loan Mortgage Corp.,
2.75s, 2008 390 383,764
Federal Home Loan Mortgage Corp.,
3.625s, 2008 2,173 2,187,379
Federal Home Loan Mortgage Corp.,
7s, 2010 4,296 5,013,058
</Table>
10
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. GOVERNMENT AGENCIES -- continued
Federal National Mortgage Assn.,
3.25s, 2008 $ 610 $ 605,147
Federal National Mortgage Assn., 6s, 2008 648 718,306
Federal National Mortgage Assn.,
7.25s, 2010 5,684 6,701,641
Federal National Mortgage Assn.,
5.5s, 2011 1,504 1,621,927
Federal National Mortgage Assn.,
5.125s, 2014 1,600 1,605,565
Student Loan Marketing Assn.,
5.25s, 2006 3,520 3,753,204
Tennessee Valley Authority,
0s, to 2012, 8.25s to 2042 2,250 1,524,758
U.S. Department of Housing &
Urban Development, 6.36s, 2016 500 552,766
U.S. Department of Housing &
Urban Development, 6.59s, 2016 2,045 2,225,443
-------------
TOTAL U.S. GOVERNMENT AGENCIES $ 42,033,739
-------------
U.S. TREASURY OBLIGATIONS -- 15.1%
U.S. Treasury Bonds, 12.375s, 2004 $ 755 $ 786,320
U.S. Treasury Bonds, 10.375s, 2012 211 269,198
U.S. Treasury Bonds, 12s, 2013 19 26,251
U.S. Treasury Bonds, 0s, 2017 3,250 1,659,516
U.S. Treasury Bonds, 0s, 2023 1,877 661,377
U.S. Treasury Bonds, 6.875s, 2025 1,470 1,798,280
U.S. Treasury Bonds, 5.25s, 2028 346 348,501
U.S. Treasury Bonds, 6.125s, 2029 375 424,951
U.S. Treasury Bonds, 6.25s, 2030 1,251 1,443,634
U.S. Treasury Bonds, 5.375s, 2031 353 368,127
U.S. Treasury Notes, 1.625s, 2005 3,730 3,744,424
U.S. Treasury Notes, 3.25s, 2007 1,176 1,199,566
U.S. Treasury Notes, 3.375s, 2007 2,961 3,207,934
U.S. Treasury Notes, 5s, 2011 652 700,212
U.S. Treasury Notes, 1.875s, 2013 1,207 1,198,083
-------------
$ 17,836,374
-------------
TOTAL BONDS
(IDENTIFIED COST, $109,030,848) $ 113,034,765
-------------
REPURCHASE AGREEMENT -- 3.3%
Goldman Sachs, dated 12/31/03 due 01/02/04, total to be
received $3,865,213 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at Cost $ 3,865 $ 3,865,000
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $112,895,848) $ 116,899,765
-------------
OTHER ASSETS,
LESS LIABILITIES -- 0.9% 1,105,265
-------------
NET ASSETS -- 100.0% $ 118,005,030
=============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2003
HIGH YIELD VARIABLE ACCOUNT
BONDS -- 92.8%
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- 80.8%
ADVERTISING & BROADCASTING -- 6.0%
Allbritton Communications Co.,
7.75s, 2012 $ 465 $ 482,438
Echostar Broadband, 9.375s, 2009 2,250 2,365,312
Emmis Communications Corp.
0s to 2006, 12.5s to 2011 458 424,223
Granite Broadcasting Corp.,
10.375s, 2005 155 155,194
Granite Broadcasting Corp.,
9.75s, 2010 ## 510 508,725
Lamar Media Corp., 7.25s, 2013 255 274,125
Muzak LLC, 10s, 2009 160 170,400
Paxson Communications Corp.
0s to 2006, 12.25s to 2009 600 526,500
Primedia, Inc., 8.875s, 2011 340 357,850
Radio One, Inc., 8.875s, 2011 250 275,625
Spanish Broadcasting Systems, Inc.,
9.625s, 2009 475 507,062
-------------
$ 6,047,454
-------------
AEROSPACE -- 1.8%
Alliant Techsystems, Inc., 8.5s, 2011 $ 360 $ 396,000
BE Aerospace, Inc., 8.5s, 2010 ## 45 48,263
BE Aerospace, Inc., 8.875s, 2011 150 140,625
Hexcel Corp., 9.75s, 2009 500 523,750
K&F Industries, Inc., 9.25s, 2007 259 267,094
K&F Industries, Inc., 9.625s, 2010 145 162,581
Transdigm, Inc., 8.375s, 2011 230 244,662
-------------
$ 1,782,975
-------------
AIRLINES -- 0.5%
Continental Airlines, Inc., 6.748s, 2017 $ 76 $ 62,792
Continental Airlines, Inc., 6.9s, 2017 81 67,688
Continental Airlines, Inc., 6.795s, 2020 184 155,437
Continental Airlines, Inc., 7.566s, 2020 251 211,924
Delta Air Lines, Inc., 7.92s, 2012 70 63,380
-------------
$ 561,221
-------------
AIRLINES PASS-THROUGH
Airplane Pass-Through Trust,
10.875s, 2019 $ 741 $ 14,816
-------------
APPAREL MANUFACTURERS -- 0.1%
Westpoint Stevens, Inc., 7.875s, 2005** $ 730 $ 94,900
Westpoint Stevens, Inc., 7.875s, 2008** 140 18,200
-------------
$ 113,100
-------------
AUTOMOTIVE -- 4.0%
Advanced Accesory Systems LLC,
10.75s, 2011 $ 85 $ 93,606
Arvinmeritor, Inc., 8.75s, 2012 315 360,675
Collins & Aikman Products Co.,
10.75s, 2011 255 250,538
Cummins, Inc., 9.5s, 2010 ## 155 178,250
Dana Corp., 6.5s, 2009 100 106,125
Dana Corp., 10.125s, 2010 110 128,150
Dana Corp., 9s, 2011 95 114,475
Dura Operating Corp., 9s, 2009 235 235,000
Eagle-Picher, Inc., 9.75s, 2013 ## 155 167,400
Ford Motor Credit Co., 7s, 2013 495 522,066
Metaldyne Corp., 11s, 2012 360 331,200
Metaldyne Corp., 10s, 2013 ## 145 146,450
Tenneco Automotive, Inc., 11.625s, 2009 260 280,800
Tenneco Automative, Inc., 10.25s, 2013 470 534,625
TRW Automotive Acquisition, Inc.,
9.375s, 2013 240 274,200
TRW Automotive Acquisition, Inc., 11s, 2013 275 323,812
Venture Holdings, 9.5s, 2005** 250 6,250
-------------
$ 4,053,622
-------------
</Table>
11
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- continued
BASIC INDUSTRY -- 0.4%
Foamex LP/ Capital Corp., 10.75s, 2009 $ 200 $ 190,500
Trimas Corp., 9.875s, 2012 195 203,288
-------------
$ 393,788
-------------
BROADCAST & CABLE TV -- 3.7%
CCO Holdings LLC, 8.75s, 2013 ## $ 150 $ 152,625
Charter Communications Holdings,
8.625s, 2009 510 444,975
CSC Holdings, Inc., 8.125s, 2009 810 870,750
Directv Holdings LLC, 8.375s, 2013 405 469,800
Insight Midwest Corp., 9.75s, 2009 415 438,863
Mediacom Broadband LLC, 11s, 2013 200 224,500
Mediacom LLC/Capital Corp., 9.5s, 2013 515 545,900
XM Satellite Radio, Inc., 0s, 2009 620 554,192
XM Satellite Radio, Inc., 12s, 2010 50 56,500
-------------
$ 3,758,105
-------------
BUILDING -- 1.9%
Atrium Cos., Inc., 10.5s, 2009 $ 300 $ 321,000
Formica Corp., 10.875s, 2009** 310 54,250
Interface, Inc., 10.375s, 2010 299 316,192
Jacuzzi Brands, Inc., 9.625s, 2010 ## 135 148,500
MMI Products, Inc., 11.25s, 2007 110 89,650
Nortek, Inc., 9.25s, 2007 670 688,425
Nortek, Inc., 9.875s, 2011 30 33,075
Williams Scotsman, Inc., 9.875s, 2007 250 253,125
Williams Scotsman, Inc., 10s, 2008 50 54,813
-------------
$ 1,959,030
-------------
BUSINESS SERVICES -- 1.3%
Iron Mountain, Inc., 8.625s, 2013 $ 280 $ 302,400
Lucent Technologies, Inc., 5.5s, 2008 500 465,000
Xerox Corp., 7.625s, 2013 530 572,400
-------------
$ 1,339,800
-------------
CHEMICALS -- 4.3%
Compass Minerals Group, Inc.,
10s, 2011 $ 305 $ 341,600
Equistar Chemicals LP, 10.625s, 2011 400 439,000
Equistar Chemicals LP, 10.625s, 2011 ## 125 137,179
Huntsman ICI Holdings, 0s, 2009 100 48,250
Huntsman ICI Holdings, 9.875s, 2009 90 98,550
Huntsman ICI Holdings, 10.125s, 2009 750 772,500
IMC Global, Inc., 10.875s, 2013 ## 310 339,450
Johnson Diversey, Inc., 9.625s, 2012 EUR 460 524,809
Johnson Diversey, Inc., 10.67s, 2013 ## $ 200 153,000
Koppers, Inc., 9.875s, 2013 ## 60 66,150
Lyondell Chemical Co., 9.875s, 2007 250 263,750
Lyondell Chemical Co., 11.125s, 2012 35 38,850
Nalco Co., 7.75s, 2011 ## 110 117,700
Nalco Co., 8.875s, 2013 ## 205 217,300
Resolution Performance, 8s, 2009 ## 100 103,500
Rockwood Specialties Group, Inc.,
10.625s, 2011 ## 245 273,175
Sovereign Specialty Chemicals,
11.875s, 2010 425 425,000
-------------
$ 4,359,763
-------------
CONGLOMERATES -- 0.5%
Rexnord Corp., 10.125s, 2012 $ 170 $ 186,150
SPX Corp., 7.5s, 2013 315 342,562
-------------
$ 528,712
-------------
CONSUMER GOODS & SERVICES -- 1.5%
American Safety Razor Co.,
9.875s, 2005 $ 200 $ 200,000
Kindercare Learning Centers, Inc.,
9.5s, 2009 380 385,700
Remington Arms, Inc., 10.5s, 2011 355 378,075
Revlon Consumer Products Corp.,
12s, 2005 $ 120 $ 120,000
Samsonite Corp., 10.75s, 2008 235 243,225
Tempur Pedic, Inc., 10.25s, 2010 ## 146 162,790
-------------
$ 1,489,790
-------------
CONTAINERS -- 0.8%
Graham Packaging Co., 8.75s, 2008 ## $ 285 $ 291,412
Huntsman Packaging Corp., 13s, 2010 370 338,550
Plastipak Holdings, Inc., 10.75s, 2011 175 194,688
-------------
$ 824,650
-------------
CORPORATE ASSET-BACKED -- 0.9%
Morgan Stanley Capital, Inc.,
7.738s, 2039 $ 430 $ 414,674
Mortgage Capital Funding, Inc.,
7.214s, 2007 500 508,294
-------------
$ 922,968
-------------
ENERGY -- INDEPENDENT -- 2.0%
Chesapeake Energy Corp.,
6.875s, 2016 ## $ 240 $ 247,200
Encore Acquisition Co., 8.375s, 2012 380 411,350
Magnum Hunter Resources, Inc.,
9.6s, 2012 225 255,375
Pioneer Natural Resources Co.,
9.625s, 2010 250 311,105
Pioneer Natural Resources Co.,
7.5s, 2012 10 11,493
Stone Energy Corp., 8.25s, 2011 165 179,438
Vintage Petroleum, Inc., 8.25s, 2012 260 282,750
Westport Resources Corp., 8.25s, 2011 340 374,000
-------------
$ 2,072,711
-------------
ENTERTAINMENT -- 2.1%
AMC Entertainment, Inc., 9.5s, 2011 $ 500 $ 525,000
Premier Parks, Inc., 9.75s, 2007 43 45,096
Regal Cinemas Corp., 9.375s, 2012 470 531,100
Six Flags, Inc., 9.75s, 2013 380 399,950
Six Flags, Inc., 9.625s, 2014 ## 165 172,838
Vail Resorts, Inc., 8.75s, 2009 405 427,275
-------------
$ 2,101,259
-------------
FOOD & NON ALCOHOLIC BEVERAGES -- 0.7%
Merisant Co., 9.5s, 2013 ## $ 335 $ 356,775
Michael Foods, Inc., 8s, 2013 ## 225 234,562
Pinnacle Foods Holding Corp.,
8.25s, 2013 ## 50 51,000
Seminis Vegetable Seeds, Inc.,
10.25s, 2013 ## 50 53,750
-------------
$ 696,087
-------------
FOREST & PAPER PRODUCTS -- 2.9%
Boise Cascade Corp., 7s, 2013 $ 260 $ 270,281
Buckeye Technologies, Inc., 9.25s, 2008 300 303,750
Buckeye Technologies, Inc., 8s, 2010 75 73,500
Buckeye Technologies, Inc., 8.5s, 2013 240 256,800
Fibermark, Inc., 10.75s, 2011 25 15,500
Georgia Pacific Corp., 9.375s, 2013 495 569,250
Graphic Packaging International, Inc.,
8.5s, 2011 ## 70 76,650
Graphic Packaging International, Inc.,
9.5s, 2013 ## 350 386,750
Greif Brothers Corp., 8.875s, 2012 305 335,500
Jefferson Smurfit Corp., 8.25s, 2012 345 374,325
Speciality Paperboard, Inc.,
9.375s, 2006 480 297,600
-------------
$ 2,959,906
-------------
</Table>
12
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- continued
GAMING & LODGING -- 7.6%
Aztar Corp., 8.875s, 2007 $ 290 $ 302,687
Aztar Corp., 9s, 2011 50 54,875
CBRE Escrow, Inc., 9.75s, 2010 ## 55 61,050
Coast Hotels & Casinos, Inc., 9.5s, 2009 295 311,963
Corrections Corp. of America,
9.875s, 2009 205 228,831
Corrections Corp. of America,
7.5s, 2011 150 157,500
Forest City Enterprises, Inc.,
7.625s, 2015 45 47,756
Hilton Hotels Corp., 7.625s, 2012 2,680 3,011,650
HMH Properties, Inc., 8.45s, 2008 1,134 1,182,195
Hollywood Park, Inc., 9.25s, 2007 315 326,025
Host Marriott LP, 9.5s, 2007 250 278,125
Mandalay Resort Group, 9.375s, 2010 315 366,975
MGM Mirage, Inc., 8.5s, 2010 390 447,525
Pinnacle Entertainment, Inc.,
8.75s, 2013 170 172,975
Starwood Hotels & Resorts Corp.,
7.875s, 2012 80 90,000
Venetian Casino Resort LLC, 11s, 2010 450 522,000
Wackenhut Corrections Corp.,
8.25s, 2013 ## 140 148,400
-------------
$ 7,710,532
-------------
HOME CONSTRUCTION -- 0.7%
D. R. Horton, Inc., 8s, 2009 $ 225 $ 254,250
Technical Olympic USA, Inc., 9s, 2010 75 80,625
WCI Communities, Inc., 7.875s, 2013 ## 400 422,000
-------------
$ 756,875
-------------
INDUSTRIAL -- 1.0%
Blount, Inc., 7s, 2005 $ 385 $ 386,925
Blount, Inc., 13s, 2009 215 231,662
Motors & Gears, Inc., 10.75s, 2006 200 162,000
MSW Energy Holdings LLC,
7.375s, 2010 ## 195 203,775
-------------
$ 984,362
-------------
INSURANCE -- PROPERTY & CASUALTY -- 0.5%
Willis Corroon Corp., 9s, 2009 $ 500 $ 525,000
-------------
MACHINERY & TOOLS -- 3.3%
Agco Corp., 9.5s, 2008 $ 605 $ 660,962
Amsted Industries, Inc., 10.25s, 2011 ## 245 270,725
Case New Holland, Inc., 9.25s, 2011 ## 340 380,800
Columbus McKinnon Corp., 8.5s, 2008 175 163,625
Columbus McKinnon Corp., 10s, 2010 110 117,150
JLG Industries Inc., 8.25s, 2008 115 124,919
Joy Global, Inc., 8.75s, 2012 220 245,300
Manitowoc Co., Inc., 10.5s, 2012 85 96,794
Terex Corp., 10.375s, 2011 550 616,000
United Rentals, Inc., 10.75s, 2008 580 652,500
-------------
$ 3,328,775
-------------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES -- 3.2%
Alliance Imaging, Inc., 10.375s, 2011 $ 270 $ 286,200
Beverly Enterprises, Inc., 9.625s, 2009 140 154,700
Fisher Scientific International, Inc.,
8.125s, 2012 174 186,615
Genesis Healthcare Corp., 8s, 2013 ## 45 46,913
HCA Healthcare Co., 7.875s, 2011 1,100 1,254,562
Mariner Health Care, Inc.,
8.25s, 2013 ## 245 248,062
NDC Health Corp., 10.5s, 2012 110 123,750
Prime Medical Services, Inc., 8.75s, 2008 135 130,275
Tenet Healthcare Corp., 6.5s, 2012 305 292,419
Triad Hospitals, Inc., 8.75s, 2009 $ 205 $ 222,169
Triad Hospitals, Inc., 7s, 2013 ## 330 332,475
-------------
$ 3,278,140
-------------
MEDICAL EQUIPMENT -- 0.3%
Alpharma, Inc., 8.625s, 2011 ## $ 290 $ 293,625
-------------
METALS & MINING -- 1.6%
Arch Western Finance LLC,
6.75s, 2013 ## $ 230 $ 236,325
Doe Run Resources Corp., 8.5s, 2008 226 83,641
Kaiser Aluminum & Chemical Corp.,
9.875s, 2049 360 324,000
P&L Coal Holdings Corp., 6.875s, 2013 505 532,775
Steel Dynamics, Inc., 9.5s, 2009 ## 260 288,600
U.S. Steel Corp., 9.75s, 2010 140 157,500
-------------
$ 1,622,841
-------------
NATURAL GAS -- DISTRIBUTION -- 0.3%
Amerigas Partners LLP, 8.875s, 2011 $ 275 $ 302,500
-------------
NATURAL GAS -- PIPELINE -- 3.0%
ANR Pipeline Co., 8.875s, 2010 $ 75 $ 84,375
ANR Pipeline Co., 9.625s, 2021 420 499,275
El Paso Energy Corp., 7.75s, 2013 ## 300 295,500
El Paso Natural Gas Co., 7.625s, 2010 515 529,162
Gulfterra Energy Partners LP,
8.5s, 2010 204 231,540
Northwest Pipeline Corp., 8.125s, 2010 65 72,150
Plains All American Pipeline Corp.,
7.75s, 2012 340 392,275
Southern Natural Gas Co.,
8.875s, 2010 325 365,625
Williams Companies, Inc., 8.625s, 2010 110 124,575
Williams Companies, Inc., 7.125s, 2011 450 475,875
-------------
$ 3,070,352
-------------
OIL SERVICES -- 1.7%
Dresser, Inc., 9.375s, 2011 $ 310 $ 337,125
Gulfmark Offshore, Inc., 8.75s, 2008 625 646,875
Hanover Compressor Co., 0s, 2007 45 33,075
Hanover Compressor Co., 8.625s, 2010 60 63,037
Hanover Equipment Trust, 8.75s, 2011 380 402,800
Parker Drilling Co., 9.625s, 2013 ## 70 72,625
Premcor Refining Group, Inc.,
7.75s, 2012 ## 125 128,750
-------------
$ 1,684,287
-------------
OILS -- 0.4%
Citgo Petroleum Corp., 11.375s, 2011 $ 220 $ 255,200
Tesoro Petroleum Corp., 8s, 2008 105 111,563
-------------
$ 366,763
-------------
POLLUTION CONTROL-- 1.0%
Allied Waste North America, Inc.,
7.875s, 2013 $ 910 $ 985,075
-------------
PRINTING & PUBLISHING -- 2.5%
Dex Media East LLC, 9.875s, 2009 $ 220 $ 251,900
Dex Media West LLC, 8.5s, 2010 ## 30 33,412
Dex Media West LLC, 9.875s, 2013 ## 330 383,625
Dex Media, Inc., 8s, 2013 ## 420 441,000
Hollinger International Publishing, Inc.,
9s, 2010 205 217,812
Hollinger International Publishing, Inc.,
11.875s, 2011 ## 160 173,800
Mail-Well Corp., 9.625s, 2012 185 205,350
Medianews Group, Inc.,
6.875s, 2013 ## 305 310,338
Moore North America Finance, Inc.,
7.875s, 2011 ## 200 226,500
</Table>
13
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- continued
PRINTING & PUBLISHING -- continued
R.H. Donnelley Finance Corp,
8.875s, 2010 $ 95 $ 106,875
R.H. Donnelley Finance Corp.,
10.875s, 2012 160 189,800
-------------
$ 2,540,412
-------------
RAILROAD & SHIPPING -- 0.4%
Kansas City Southern Railway Co.,
7.5s, 2009 $ 360 $ 369,000
-------------
RETAILERS -- 3.5%
Cole National Group, Inc., 8.875s, 2012 $ 675 $ 722,250
Couche-Tard United States LP,
7.5s, 2013 ## 70 73,850
Dollar General Corp., 8.625s, 2010 360 404,550
Finlay Enterprises, Inc., 9s, 2008 250 255,937
Finlay Fine Jewelry Corp., 8.375s, 2008 375 388,125
J.Crew Operating Corp., 10.375s, 2007 485 495,306
Oxford Industries, Inc., 8.875s, 2011 ## 185 202,344
PCA LLC, 11.875s, 2009 360 394,200
Rite Aid Corp, 12.5s, 2006 260 301,600
Rite Aid Corp., 9.5s, 2011 25 28,188
Rite Aid Corp., 9.25s, 2013 295 323,762
-------------
$ 3,590,112
-------------
STEEL -- 0.6%
Commonwealth Aluminum Corp.,
10.75s, 2006 $ 330 $ 336,600
Jorgensen (Earle M. Co.), 9.75s, 2012 275 305,250
WCI Steel, Inc., 10s, 2004 10 3,250
-------------
$ 645,100
-------------
SUPERMARKETS -- 0.7%
Roundys, Inc., 8.875s, 2012 $ 670 $ 715,225
-------------
TELECOMMUNICATIONS -- WIRELINE -- 1.6%
Qwest Capital Funding, Inc., 7.25s, 2011 $ 400 $ 394,000
Qwest Services Corp., 9.125s, 2012 ## 450 516,375
Time Warner Telecom, Inc.,
10.125s, 2011 200 213,000
Worldcom, Inc., 7.5s, 2011 1,450 485,750
-------------
$ 1,609,125
-------------
UTILITIES -- ELECTRIC POWER -- 5.2%
AES Corp., 8.875s, 2011 $ 500 $ 545,000
AES Corp., 8.75s, 2013 ## 300 335,250
AES Corp., 9s, 2015 ## 300 339,000
Allegheny Energy Supply Co.,
8.75s, 2012 ## 300 282,750
Calpine Corp., 8.5s, 2011 300 237,375
Calpine Corp., 8.75s, 2013 ## 570 551,475
Centerpoint Energy Resources Corp.,
7.875s, 2013 ## 439 496,991
CMS Energy Corp., 8.5s, 2011 550 594,000
Dynegy Holdings, Inc., 9.875s, 2010 ## 155 174,375
Dynegy Holdings, Inc., 6.875s, 2011 550 506,687
Illinois Power Co., 11.5s, 2010 180 216,000
NRG Energy, Inc., 8s, 2013 ## 145 152,250
PG&E Corp., 6.875s, 2008 ## 70 75,775
Reliant Resources, Inc.,
9.25s, 2010 ## 230 243,800
Reliant Resources, Inc.,
9.5s, 2013 ## 210 224,700
Teco Energy, Inc., 10.5s, 2007 165 192,638
Teco Energy, Inc., 7.5s, 2010 60 64,200
-------------
$ 5,232,266
-------------
UTILITIES -- TELEPHONE -- 0.3%
Cincinnati Bell, Inc., 7.25s, 2013 ## $ 210 $ 220,500
Cincinnati Bell, Inc., 8.375s, 2014 ## 115 123,625
-------------
$ 344,125
-------------
WIRELESS COMMUNICATIONS -- 6.0%
Alamosa Delaware, Inc., 0s to 2005,
12s to 2009 $ 125 $ 112,500
Alamosa Delaware, Inc., 11s, 2010 175 189,875
American Tower Corp., 9.375s, 2009 200 213,000
American Towers, Inc., 7.25s, 2011 ## 130 132,275
Centennial Cellular Operating Co.,
10.75s, 2008 315 332,325
Crown Castle International Corp.,
7.5s, 2013 ## 315 316,575
Dobson Communications Corp.,
8.875s, 2013 ## 420 425,250
Nextel Communications, Inc.,
7.375s, 2015 2,590 2,784,250
Rural Cellular Corp., 9.75s, 2010 405 395,887
Rural Cellular Corp., 9.875s, 2010 205 218,325
Triton PSC, Inc., 8.75s, 2011 265 261,025
Triton PSC, Inc., 8.5s, 2013 200 215,000
Western Wireless Corp., 9.25s, 2013 505 532,775
-------------
$ 6,129,062
-------------
TOTAL U.S. BONDS $ 82,063,311
-------------
FOREIGN BONDS -- 12.0%
AUSTRALIA -- 0.7%
Burns Phillip Capital Ltd., 9.75s, 2012
(Food & Non Alcoholic Beverages) ## $ 655 $ 700,850
-------------
BELGIUM -- 0.2%
Telenet Communications NV,
9s, 2013(Broadcast & Cable TV) ## EUR 200 $ 259,550
-------------
CANADA -- 4.5%
Abitibi Consolidated, Inc., 8.55s, 2010
(Forest & Paper Products) $ 2,700 $ 3,006,720
Acetex Corp., 10.875s, 2009(Chemicals) 345 382,950
Bombardier Recreational Products,
8.375s, 2013(Industrial) ## 115 120,175
Canwest Media, Inc., 10.625s, 2011
(Advertising & Broadcasting) 100 114,250
Canwest Media, Inc., 7.625s, 2013
(Advertising & Broadcasting) 105 114,975
Norske Skog Canada Ltd., 8.625s, 2011
(Forest & Paper Products) 435 456,750
Russel Metals, Inc., 10s, 2009
(Metals & Mining) 295 313,437
Videotron Life Ltd., 6.875s, 2014
(Broadcast & Cable TV) ## 90 92,925
-------------
$ 4,602,182
-------------
CHILE -- 0.3%
Empresa Nacional de Electric, 8.35s, 2013
(Utilities -- Electric Power) $ 250 $ 281,036
-------------
FRANCE -- 3.2%
Crown European Holdings S.A.,
9.5s, 2011(Containers) $ 425 $ 481,313
Crown European Holdings S.A.,
10.875s, 2013(Containers) 1,710 2,011,387
Rhodia S.A., 8.875s, 2011(Chemicals) ## 335 308,200
Vivendi Universal S.A., 6.25s, 2008
(Advertising & Broadcasting) ## 160 169,400
Vivendi Universal S.A., 9.25s, 2010
(Advertising & Broadcasting) ## 220 260,700
-------------
$ 3,231,000
-------------
</Table>
14
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
FOREIGN BONDS -- continued
GERMANY
Kronos International, Inc., 8.875s,
2009(Chemicals) EUR 15 $ 20,411
-------------
IRELAND -- 0.5%
Eircom FDG, 8.25s, 2013
(Telecommunications-Wireline) $ 140 $ 155,050
MDP Acquisitions PLC, 9.625s, 2012
(Forest & Paper Products) 345 386,400
-------------
$ 541,450
-------------
LUXEMBOURG -- 0.2%
Millicom International Cellular S.A., 10s, 2013
(Wireless Communications) ## $ 200 $ 211,000
-------------
MEXICO -- 0.5%
Corporacion Durango S.A. de C.V.,
13.75s, 2009
(Forest & Paper Products), ## $ 360 $ 216,000
Innova S.A. de C.V., 9.375s, 2013
(Wireless Communications) ## 200 205,250
TFM S.A. de C.V., 12.5s, 2012
(Transportation Services) 51 58,140
-------------
$ 479,390
-------------
NETHERLANDS-- 0.4%
Kappa Beheer BV, 10.625s, 2009
(Forest & Paper Products) $ 350 $ 374,500
-------------
NORWAY -- 0.2%
Ocean Rig Norway AS, 10.25s, 2008
(Oil Services) $ 190 $ 178,600
-------------
RUSSIA -- 0.1%
Gazprom, 9.625s, 2013(Utilities-Gas) ## $ 120 $ 132,300
-------------
SINGAPORE -- 0.2%
Flextronics International Ltd, 6.5s, 2013
(Electronics) $ 165 $ 170,775
-------------
UNITED KINGDOM -- 1.0%
Colt Telecom PLC,
7.625s, 2009
(Telecommunications-Wireline), EUR 400 503,980
Energis PLC, 9.75s, 2009
(Telecommunications-Wireline) $ 275 $ 5,500
Telewest Communications PLC,
11s, 2007(Broadcast & Cable TV)** 160 104,000
Telewest Communications PLC, 0s to 2004,
9.25s to 2009 (Broadcast & Cable TV)** 400 210,000
Telewest Communications PLC, 0s to 2005,
11.375s to 2010
(Broadcast & Cable TV)** 85 41,650
United Biscuits Finance PLC,
10.625s, 2011
(Food & Non Alcoholic Beverages) EUR 80 115,412
-------------
$ 980,542
-------------
TOTAL FOREIGN BONDS $ 12,163,586
-------------
TOTAL BONDS (IDENTIFIED COST, $90,333,715) $ 94,226,897
-------------
<Caption>
SHARES
STOCKS -- 1.7%
U.S. STOCKS -- 0.8%
AUTOMOTIVE -- 0.1%
Hayes Lemmerz International, Inc.* 3,536 $ 64,072
Oxford Automotive, Inc.* 53 11,794
-------------
$ 75,866
-------------
BASIC INDUSTRY
Thermadyne Holdings Corp.* 2,827 $ 34,772
-------------
BROADCAST & CABLE TV -- 0.5%
NTL, Inc.* 6,867 $ 478,973
-------------
CHEMICALS
Sterling Chemicals, Inc.* 384 $ 9,600
-------------
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- continued
MACHINERY & TOOLS
Simonds Industries, Inc.* 823 $ 2,214
-------------
SPECIAL PRODUCTS & SERVICES
Ranger Industries, Inc.* 10,842 $ 542
-------------
TELECOMMUNICATIONS -- WIRELINE
XO Communications, Inc.* 198 $ 1,139
-------------
UTILITIES -- TELEPHONE -- 0.2%
ITC Deltacom, Inc.* 26,300 $ 159,352
-------------
TOTAL U.S. STOCKS $ 762,458
-------------
FOREIGN STOCKS -- 0.9%
NETHERLANDS -- 0.4%
Completel Europe N.V.
(Telephone Services)* EUR 10,711 $ 379,488
Versatel Telecom International N.V.
(Telephone Services)* EUR 7,740 16,871
-------------
$ 396,359
-------------
SWEDEN -- 0.4%
Song Networks Holding AB
(Telephone Services) SEK 46,549 $ 436,834
-------------
UNITED KINGDOM -- 0.1%
Jazztel PLC (Wireless Communications) EUR 165,342 $ 70,830
TOTAL FOREIGN STOCKS $ 904,023
-------------
TOTAL STOCKS (IDENTIFIED COST, $5,097,734) $ 1,666,481
-------------
PREFERRED STOCK 0.4%
AUTOMOTIVE
Hayes Lemmerz International, Inc., 8s*
(Automotive) 11 $ 814
-------------
BROADCAST & CABLE TV -- 0.4%
CSC Holdings, Inc., 11.125s* 3,646 $ 382,830
NTL, Inc., 10.5s (Broadcast & Cable TV) 11 82
-------------
$ 382,912
-------------
TELECOMMUNICATIONS -- WIRELINE
Global Crossings Holdings Ltd. 10.5s* 1,789 $ 17,443
-------------
TELEPHONE SERVICES
Song Networks Holding AB* 5,040 $ 27,327
-------------
TOTAL PREFERRED STOCK
(IDENTIFIED COST, $409,662) $ 428,496
-------------
CONVERTIBLE PREFERRED STOCK -- 0.1%
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
UNITED STATES -- 0.1%
TELEPHONE SERVICES -- 0.1%
Alamosa Holdings, Inc. 7.5s*
(Identified Cost, $107,000) $ 428 $ 136,960
-------------
CONVERTIBLE BOND
UNITED KINGDOM
Jazztel PLC, 12s, 2012
(Wireless Communications) $ 51 $ 32,445
-------------
(Identified Cost $80,613)
<Caption>
SHARES
WARRANTS
GT Group Telecom, Inc.
(Telephone Services)* 1,050 $ 262
Loral Orion Network Systems, Inc.
(Business Services)* 1,000 25
Loral Orion Network Systems, Inc.
(Business Services)* 1,100 31
</Table>
15
<Page>
<Table>
<Caption>
ISSUER SHARES VALUE
WARRANTS -- continued
Metronet Communications Corp.
(Broadcast & Cable TV)* ## 600 $ 6
Ono Finance PLC
(Broadcast & Cable TV)* 1,490 15
Sterling Chemicals, Inc. (Chemicals)* 17 17
Thermadyne Holdings Corp.
(Basic Industries)* 4,471 4,024
Thermadyne Holdings Corp.
(Basic Industries)* 2,705 2,705
XM Satellite Radio, Inc.
(Broadcast & Cable TV)* 425 8,819
XO Communications, Inc.
(Telecommunications-Wireline)* 397 774
XO Communications, Inc.
(Telecommunications-Wireline)* 298 507
XO Communications, Inc.
(Telecommunications-Wireline)* 298 328
-------------
TOTAL WARRANTS
(IDENTIFIED COST, $436,441) $ 17,513
-------------
SHORT-TERM OBLIGATIONS -- 3.0%
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
New Center Asset Trust,
due 1/02/04 at Amortized Cost $ 3,012 $ 3,011,919
-------------
TOTAL INVESTMENTS (IDENTIFIED COST, $99,477,084) $ 99,520,711
-------------
OTHER ASSETS,
LESS LIABILITIES -- 2.0% 1,980,360
-------------
NET ASSETS -- 100.0% $ 101,501,071
=============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2003
MANAGED SECTORS VARIABLE ACCOUNT
STOCKS -- 99.4%
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- 98.7%
BASIC MATERIALS -- 1.1%
3M Co. 8,600 $ 731,258
CONSUMER STAPLES -- 2.5%
Avon Products, Inc. 12,100 $ 816,629
PepsiCo, Inc. 19,000 885,780
-------------
$ 1,702,409
-------------
FINANCIAL SERVICES -- 13.5%
American Express Co. 24,800 $ 1,196,104
American International Group, Inc. 23,400 1,550,952
Bank of New York Co., Inc. 15,900 526,608
Citigroup, Inc. 30,100 1,461,054
Fannie Mae 9,100 683,046
Goldman Sachs Group, Inc. 7,400 730,602
MBNA Corp. 39,700 986,545
Mellon Financial Corp. 16,300 523,393
Merrill Lynch & Co., Inc. 13,000 762,450
Northern Trust Corp. 8,900 413,138
SLM Corp. 9,800 369,264
-------------
$ 9,203,156
-------------
HEALTHCARE -- 16.0%
Abbott Laboratories, Inc. 17,400 $ 810,840
Amgen, Inc.* 16,400 1,013,520
Caremark Rx, Inc.* 15,600 395,148
Genentech, Inc.* 2,100 196,497
Genzyme Corp.* 18,800 927,592
Gilead Sciences, Inc.* 19,200 1,116,288
Guidant Corp. 7,700 463,540
Johnson & Johnson Co. 32,400 1,673,784
Medtronic, Inc. 15,000 729,150
Pfizer, Inc. 65,000 2,296,450
Thermo Electron Corp.* 17,300 435,960
Wyeth 20,300 861,735
-------------
$ 10,920,504
-------------
INDUSTRIAL GOODS & SERVICES -- 4.9%
Danaher Corp. 5,300 $ 486,275
Emerson Electric Co. 6,800 440,300
General Electric Co. 59,000 1,827,820
Illinois Tool Works, Inc. 6,600 553,806
-------------
$ 3,308,201
-------------
LEISURE -- 13.8%
Clear Channel Communications, Inc. 25,800 $ 1,208,214
Comcast Corp., "A"* 33,400 1,097,858
Cox Communications, Inc.* 11,000 378,950
EchoStar Communications Corp., "A"* 21,800 741,200
InterActiveCorp* 29,200 990,756
Lamar Advertising Co., "A"* 12,500 466,500
New York Times Co., "A" 9,300 444,447
Outback Steakhouse, Inc. 6,800 300,628
Starwood Hotels & Resorts Co., "B" 12,200 438,834
Time Warner, Inc.* 57,700 1,038,023
Viacom, Inc., "B" 32,600 1,446,788
Walt Disney Co. 6,500 151,645
Westwood One, Inc.* 19,700 673,937
-------------
$ 9,377,780
-------------
MISCELLANEOUS -- 2.3%
Apollo Group, Inc.,"A"* 8,800 $ 598,400
BISYS Group, Inc.* 25,800 383,904
Career Education Corp.* 7,400 296,518
DST Systems, Inc.* 7,000 292,320
-------------
$ 1,571,142
-------------
RETAIL -- 10.8%
CVS Corp. 7,100 $ 256,452
Home Depot, Inc. 12,700 450,723
Kohl's Corp.* 28,300 1,271,802
</Table>
16
<Page>
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- continued
RETAIL -- continued
Nike, Inc., "B" 8,000 $ 547,680
Staples, Inc.* 21,400 584,220
Target Corp. 35,700 1,370,880
The TJX Cos., Inc. 33,400 736,470
Wal-Mart Stores, Inc. 26,800 1,421,740
Walgreen Co. 12,400 451,112
Williams-Sonoma, Inc.* 6,700 232,959
-------------
$ 7,324,038
-------------
TECHNOLOGY -- 29.6%
ADTRAN, Inc. 15,200 $ 471,200
Analog Devices, Inc. 25,600 1,168,640
BEA Systems, Inc.* 24,400 300,120
Cisco Systems, Inc.* 121,900 2,960,951
Corning, Inc.* 31,800 331,674
Dell, Inc.* 41,400 1,405,944
Ebay, Inc.* 9,700 626,523
IBM Corp. 15,500 1,436,540
Intel Corp. 34,200 1,101,240
Linear Technology Corp. 13,100 551,117
Maxim Integrated Products, Inc. 10,200 507,960
Mercury Interactive Corp.* 13,900 676,096
Microchip Technology, Inc. 18,000 600,480
Microsoft Corp. 112,400 3,095,496
Network Associates, Inc.* 19,000 285,760
Novellus Systems, Inc.* 12,300 517,215
Oracle Corp.* 58,800 776,160
QUALCOMM, Inc. 7,200 388,296
Texas Instruments, Inc. 29,100 854,958
VERITAS Software Corp.* 32,800 1,218,848
Xilinx, Inc.* 23,300 902,642
-------------
$ 20,177,860
-------------
TRANSPORTATION -- 2.7%
Fedex Corp. 11,000 $ 742,500
Southwest Airlines Co. 38,100 614,934
United Parcel Service, Inc., "B" 6,500 484,575
-------------
$ 1,842,009
-------------
UTILITIES & COMMUNICATIONS -- 1.5%
AT&T Wireless Services, Inc.* 77,600 $ 620,024
Sprint Corp. (PCS Group)* 71,800 403,516
-------------
$ 1,023,540
-------------
TOTAL U.S. STOCKS $ 67,181,897
-------------
FOREIGN STOCKS -- 0.7%
BERMUDA -- 0.7%
Ace Ltd. (Financial Services), 11,700 $ 484,614
-------------
TOTAL STOCKS (IDENTIFIED COST, $57,637,875) $ 67,666,511
-------------
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
REPURCHASE AGREEMENT -- 0.4%
Merrill Lynch, dated 12/31/03, due 1/02/04, total to be
received $261,014 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at cost $ 261 $ 261,000
-------------
TOTAL INVESTMENTS (IDENTIFIED COST, $57,898,875) $ 67,927,511
-------------
OTHER ASSETS,
LESS LIABILITIES -- 0.2% 138,761
-------------
NET ASSETS -- 100.0% $ 68,066,272
=============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2003
MONEY MARKET VARIABLE ACCOUNT
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
COMMERCIAL PAPER -- 71.2%
Archer Daniels Midland Co.,
due 3/16/04 $ 571 $ 569,691
Bank of America Corp., due 3/15/04 1,195 1,192,298
Barclays Bank, PLC, due 3/05/04 960 958,140
Barton Capital Corp.,
due 1/08/04 - 1/21/04 1,173 1,172,614
Blue Ridge Asset, due 1/09/04 1,100 1,099,734
Citibank Credit Card,
due 1/13/04 - 2/10/04 1,177 1,175,948
Citigroup, Inc., due 1/12/04 500 499,835
Coca-Cola Co., due 3/05/04 1,184 1,181,832
Dexia Delaware LLC, due 1/09/04 1,165 1,164,718
Edison Asset Securitization LLC,
due 1/13/04 1,000 999,637
Equitable Resources, Inc.,
due 1/13/04 1,163 1,162,597
Falcon Asset Securitization,
due 1/27/04 1,183 1,182,073
Florida Power & Light Co.,
due 2/27/04 1,164 1,162,065
General Electric Capital Corp.,
due 3/03/04 - 4/06/04 1,180 1,176,944
Goldman Sachs Group LP,
due 1/30/04 1,154 1,152,977
Govco, Inc., due 2/23/04 568 567,088
HBOS Treasury Services PLC,
due 2/04/04 1,121 1,119,835
HSBC America, Inc., due 2/06/04 611 610,322
ING America Insurance Holdings,
due 5/27/04 1,176 1,170,574
Jupiter Securitization, due 1/08/04 1,101 1,100,767
Metropolitan Life Funding, Inc.,
due 3/04/04 1,100 1,097,844
Morgan Stanley Dean Witter,
due 1/21/04 1,160 1,159,304
New Center Asset Trust, due 1/02/04 695 694,981
Preferred Receivables Funding,
due 1/15/04 624 623,735
Salomon Smith Barney Holdings, Inc.,
due 3/25/04 682 680,281
Svenska Handelsbanken, Inc,
due 2/25/04 1,164 1,162,062
Thunder Bay Funding, Inc.,
due 1/14/04 1,100 1,099,563
-------------
TOTAL COMMERCIAL PAPER, AT AMORTIZED COST $ 26,937,459
-------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 18.7%
Federal Home Loan Bank,
due 2/26/04 - 6/18/04 $ 5,000 $ 4,980,612
Federal National Mortgage Assn.,
due 4/14/04 2,100 2,093,115
-------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS,
AT AMORTIZED COST AND VALUE $ 7,073,727
-------------
</Table>
17
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
REPURCHASE AGREEMENT -- 10.0%
Goldman Sachs, dated 12/31/03, due 1/2/04, total to be
received $3,775,208 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account,
at Cost $ 3,775 $ 3,775,000
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $37,786,186) $ 37,786,186
-------------
OTHER ASSETS,
LESS LIABILITIES -- 0.1% 21,742
-------------
NET ASSETS -- 100.0% $ 37,807,928
=============
</Table>
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2003
TOTAL RETURN VARIABLE ACCOUNT
STOCKS -- 60.7%
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- 57.3%
AEROSPACE -- 0.8%
Honeywell International, Inc. 3,700 $ 123,691
Lockheed Martin Corp. 21,400 1,099,960
Northrop Grumman Corp. 4,200 401,520
-------------
$ 1,625,171
-------------
BANKS & CREDIT COMPANIES -- 9.0%
American Express Co. 9,200 $ 443,716
Bank of America Corp. 16,870 1,356,854
Bank One Corp. 22,500 1,025,775
Citigroup, Inc. 81,986 3,979,600
Fannie Mae 19,400 1,456,164
FleetBoston Financial Corp. 49,330 2,153,255
Freddie Mac 23,780 1,386,850
J. P. Morgan Chase & Co. 16,300 598,699
Mellon Financial Corp. 92,430 2,967,927
PNC Financial Services Group Co. 8,000 437,840
SouthTrust Corp. 13,001 425,523
SunTrust Banks, Inc. 21,100 1,508,650
U.S. Bancorp 19,152 570,347
Wachovia Corp. 5,899 274,834
Wells Fargo Co. 2,400 141,336
-------------
$ 18,727,370
-------------
BROADCAST & CABLE TV -- 1.7%
Comcast Corp.* 81,630 $ 2,553,386
Comcast Corp., "A"* 1 33
Cox Communications, Inc.* 17,000 585,650
Time Warner, Inc.* 24,500 440,755
-------------
$ 3,579,824
-------------
BROKERAGE & ASSET MANAGERS -- 1.6%
Franklin Resources, Inc. 2,800 $ 145,768
Merrill Lynch & Co., Inc. 38,810 2,276,206
Morgan Stanley Dean Witter & Co. 16,500 954,855
-------------
$ 3,376,829
-------------
CHEMICALS -- 1.8%
Air Products & Chemicals, Inc. 26,220 $ 1,385,203
Dow Chemical Co. 20,600 856,342
Lyondell Chemical Co. 24,240 410,868
PPG Industries, Inc. 17,300 1,107,546
-------------
$ 3,759,959
-------------
COMPUTER SOFTWARE -- 1.2%
Microsoft Corp. 72,040 $ 1,983,982
Network Associates, Inc.* 30,680 461,427
-------------
$ 2,445,409
-------------
COMPUTER SOFTWARE -- SYSTEMS -- 0.6%
Hewlett-Packard Co. 23,700 $ 544,389
IBM Corp. 6,560 607,981
-------------
$ 1,152,370
-------------
CONSUMER GOODS & SERVICES -- 2.2%
Colgate-Palmolive Co. 3,200 $ 160,160
Gillette Co. 11,000 404,030
Kimberly-Clark Corp. 43,900 2,594,051
Newell Rubbermaid, Inc. 59,100 1,345,707
Procter & Gamble Co. 1,320 131,842
-------------
$ 4,635,790
-------------
CONTAINERS -- 0.7%
Owens-Illinois, Inc.* 74,930 $ 890,918
Smurfit-Stone Container Corp.* 33,900 629,523
-------------
$ 1,520,441
-------------
ELECTRICAL EQUIPMENT -- 1.7%
Emerson Electric Co. 12,700 $ 822,325
General Electric Co. 54,520 1,689,030
Tyco International Ltd. 40,910 1,084,115
-------------
$ 3,595,470
-------------
</Table>
18
<Page>
<Table>
<Caption>
ISSUER SHARES VALUE
U.S. STOCKS -- continued
ELECTRONICS -- 0.3%
Texas Instruments, Inc. 23,920 $ 702,770
-------------
ENERGY -- INDEPENDENT -- 1.3%
Devon Energy Corp. 41,870 $ 2,397,476
Unocal Corp. 7,700 283,591
-------------
$ 2,681,067
-------------
ENERGY -- INTEGRATED -- 2.0%
ConocoPhillips Corp. 7,000 $ 458,990
Exxon Mobil Corp. 58,392 2,394,072
Occidental Petroleum Corp. 32,300 1,364,352
-------------
$ 4,217,414
-------------
ENTERTAINMENT -- 1.7%
Viacom, Inc., "B" 71,593 $ 3,177,297
Walt Disney Co. 13,850 323,121
-------------
$ 3,500,418
-------------
FOOD & DRUG STORES -- 0.7%
Kroger Co.* 69,420 $ 1,284,964
Rite Aid Corp.* 19,300 116,572
-------------
$ 1,401,536
-------------
FOOD & NON ALCOHOLIC BEVERAGES -- 1.1%
Archer-Daniels-Midland Co. 53,107 $ 808,289
Kellogg Co. 33,100 1,260,448
PepsiCo, Inc. 5,286 246,433
-------------
$ 2,315,170
-------------
FOREST & PAPER PRODUCTS -- 0.9%
Boise Cascade Corp. 3,600 $ 118,296
Bowater, Inc. 18,440 853,956
International Paper Co. 23,100 995,841
-------------
$ 1,968,093
-------------
GAMING & LODGING -- 0.2%
Hilton Hotels Corp. 14,680 $ 251,468
Starwood Hotels & Resorts Co., "B" 4,600 165,462
-------------
$ 416,930
-------------
GENERAL MERCHANDISE -- 1.0%
May Department Stores Co. 8,300 $ 241,281
Sears, Roebuck & Co. 40,180 1,827,788
-------------
$ 2,069,069
-------------
INSURANCE -- 3.6%
Allstate Corp. 60,810 $ 2,616,046
Chubb Corp. 12,700 864,870
Hartford Financial Services Group, Inc. 36,360 2,146,331
Marsh & McLennan Cos., Inc. 1,700 81,413
MetLife, Inc. 18,600 626,262
Travelers Property Casualty Corp., "A" 72,701 1,219,923
Travelers Property Casualty Corp., "B" 1 17
-------------
$ 7,554,862
-------------
MACHINERY & TOOLS -- 0.3%
Deere & Co. 9,590 $ 623,829
-------------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES -- 0.3%
Tenet Healthcare Corp.* 35,400 $ 568,170
-------------
MEDICAL EQUIPMENT -- 0.4%
Baxter International, Inc. 25,080 $ 765,442
-------------
METALS & MINING -- 0.9%
Alcoa, Inc. 47,440 $ 1,802,720
-------------
NATURAL GAS -- DISTRIBUTION -- 0.2%
National Fuel Gas Co. 16,300 $ 398,372
WGL Holdings, Inc. 4,610 128,112
-------------
$ 526,484
-------------
OIL SERVICES -- 3.9%
BJ Services Co.* 24,750 $ 888,525
Cooper Cameron Corp.* 13,290 619,314
GlobalSantaFe Corp. 91,030 $ 2,260,275
Noble Corp.* 72,055 2,578,128
Schlumberger Ltd. 32,680 1,788,249
-------------
$ 8,134,491
-------------
PHARMACEUTICALS -- 5.0%
Eli Lilly & Co. 10,380 $ 730,025
Johnson & Johnson Co. 53,100 2,743,146
Merck & Co., Inc. 30,260 1,398,012
Pfizer, Inc. 74,200 2,621,486
Schering-Plough Corp. 147,660 2,567,808
Wyeth 6,800 288,660
-------------
$ 10,349,137
-------------
PRINTING & PUBLISHING -- 0.9%
New York Times Co., "A" 19,600 $ 936,684
Tribune Co. 18,500 954,600
-------------
$ 1,891,284
-------------
RAILROAD & SHIPPING -- 0.9%
Burlington Northern Santa Fe Railway Co. 28,860 $ 933,621
Union Pacific Corp. 12,300 854,604
-------------
$ 1,788,225
-------------
REAL ESTATE -- 0.4%
Equity Residential Properties Trust 26,760 $ 789,688
Healthcare Reality Trust 1,100 39,325
-------------
$ 829,013
-------------
RESTAURANTS -- 0.3%
McDonald's Corp. 23,500 $ 583,505
-------------
SPECIALTY CHEMICALS -- 0.1%
Praxair, Inc. 3,800 $ 145,160
-------------
SPECIALTY STORES -- 0.4%
Home Depot, Inc. 21,000 $ 745,290
-------------
TELECOMMUNICATIONS -- WIRELESS -- 1.9%
AT&T Wireless Services, Inc.* 359,847 $ 2,875,177
Telephone & Data Systems, Inc. 16,940 1,059,597
-------------
$ 3,934,774
-------------
TELEPHONE SERVICES -- 3.9%
AT&T Corp. 100,974 $ 2,049,772
BellSouth Corp. 24,400 690,520
SBC Communications, Inc. 50,424 1,314,554
Verizon Communications, Inc. 112,216 3,936,537
-------------
$ 7,991,383
-------------
TOBACCO -- 0.6%
Altria Group, Inc. 22,200 $ 1,208,124
-------------
UTILITIES -- ELECTRIC POWER -- 2.8%
Calpine Corp.* 198,400 $ 954,304
Cinergy Corp. 8,100 314,361
Dominion Resources, Inc. 3,400 217,022
Entergy Corp. 5,200 297,076
Exelon Corp. 5,420 359,671
FirstEnergy Corp. 12,530 441,056
FPL Group, Inc. 4,060 265,605
NiSource, Inc. 36,011 790,081
PPL Corp. 13,600 595,000
TXU Corp. 64,090 1,520,215
-------------
$ 5,754,391
-------------
Total U.S. Stocks $ 118,887,384
-------------
FOREIGN STOCKS -- 3.4%
AUSTRALIA -- 0.3%
BHP Billiton Ltd. (Metals & Mining) 58,400 $ 536,022
-------------
FRANCE -- 0.2%
Total Fina S.A.,
ADR (Energy - Integrated) 4,000 $ 370,040
-------------
</Table>
19
<Page>
<Table>
<Caption>
ISSUER SHARES VALUE
FOREIGN STOCKS -- continued
SWITZERLAND -- 1.0%
Novartis AG (Pharmaceuticals) 20,200 $ 916,698
Roche Holdings AG (Pharmaceuticals) 5,900 594,864
Syngenta AG (Chemicals) 7,300 491,465
-------------
$ 2,003,027
-------------
UNITED KINGDOM -- 1.9%
BP Amoco PLC, ADR
(Energy - Integrated) 31,270 $ 1,543,175
Diageo PLC (Alcoholic Beverages)* 27,000 354,243
Reed Elsevier PLC
(Printing & Publishing) 140,900 1,175,198
Vodafone Group PLC, ADR
(Telecommunications - Wireless) 37,959 950,493
-------------
$ 4,023,109
-------------
TOTAL FOREIGN STOCKS $ 6,932,198
-------------
TOTAL STOCKS (IDENTIFIED COST, $109,531,588) $ 125,819,582
-------------
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
BONDS 36.2%
U.S. BONDS -- 35.1%
AEROSPACE -- 0.5%
BAE Systems Holding, Inc., 6.4s, 2011 $ 223 $ 239,708
Boeing Capital Corp., 6.5s, 2012 373 407,817
Northrop Grumman Corp., 7.75s, 2031 326 396,415
-------------
$ 1,043,940
-------------
AIRLINES -- 0.3%
Continental Airlines Pass-Through Trust,
Inc., 6.648s, 2019 $ 606 $ 591,980
Jet Equipment Trust, 11.44s, 2014 ## 300 1,500
-------------
$ 593,480
-------------
AGENC -- OTHER
Small Business Administration,
4.35s, 2023 $ 52 $ 50,111
-------------
ALCOHOLIC BEVERAGES -- 0.1%
Miller Brewing Company, 5.5s, 2013 $ 108 $ 110,337
-------------
ASSET BACKED & SECURITIZED -- 1.8%
Chase Commercial Mortgage
Securities Corp., 6.39s, 2030 $ 369 $ 410,010
Chase Commercial Mortgage
Securities Corp., 7.543s, 2032 118 130,612
Chase Mortgage Finance Trust, 6s, 2017 43 43,561
Criimi Mae Corp., 6.701s, 2030 190 203,499
Criimi Mae Corp., 7s, 2033 320 346,856
CWMBS, Inc. Pass-Through Trust, 8s, 2030 529 537,300
Deutsche Mortgage and
Asset Receiving Corp.,
6.538s, 2031 225 246,415
Federal National Mortgage Assn.,
4.08s, 2031 273 273,410
First Union Lehman Brothers Bank,
6.56s, 2035 101 112,546
GS Mortgage Securities Corp.,
6.06s, 2030 322 336,436
Morgan Stanley Capital I Inc., 0s, 2030 9,471 270,074
Mortgage Capital Funding, Inc.,
6.337s, 2031 326 359,623
Multi Family Capital Access One In,
6.65s, 2024 67 74,851
Residential Accredit Loans, Inc., 7s, 2028 138 138,375
Residential Funding Mortgage Securities,
Inc., 6s, 2016 234 235,080
-------------
$ 3,718,648
-------------
AUTOMOTIVE -- 0.6%
Daimlerchrysler North America Holdings,
6.5s, 2013 $ 163 $ 171,706
Ford Motor Co., 7.45s, 2031 195 197,051
Ford Motor Credit Co., 6.875s, 2006 16 17,077
Ford Motor Credit Co., 7s, 2013 110 116,015
General Motors Acceptance Corp.,
6.875s, 2011 277 298,364
General Motors Acceptance Corp.,
7.25s, 2011 185 202,965
General Motors Acceptance Corp.,
8s, 2031 176 197,642
General Motors Corp., 7.2s, 2011 41 45,079
-------------
$ 1,245,899
-------------
BANKS & CREDIT COMPANIES -- 1.2%
Abbey National Capital, 8.963s, 2049 $ 179 $ 237,674
Bank of America Corp., 7.4s, 2011 299 350,676
Credit Suisse First Bank of America, Inc.,
6.125s, 2011 67 72,945
Credit Suisse First Bank of America, Inc.,
4.625s, 2008 736 765,050
Popular North America, Inc.,
4.25s, 2008 211 214,562
RBS Capital Trust, 6.425s, 2049 161 162,719
Socgen Real Estate Co., 7.64s, 2049 ## 361 407,846
Unicredito Italiano Capital Trust,
9.2s, 2049 208 261,298
-------------
$ 2,472,770
-------------
BROADCAST & CABLE TV -- 0.4%
Cox Communications, Inc., 7.75s, 2010 $ 237 $ 282,329
TCI Communications Financing III,
9.65s, 2027 425 512,125
-------------
$ 794,454
-------------
BROKERAGE & ASSET MANAGERS -- 0.4%
Lehman Brothers Holdings, Inc.,
8.25s, 2007 $ 334 $ 389,318
Morgan Stanley Dean Witter & Co.,
6.1s, 2006 353 381,988
-------------
$ 771,306
-------------
BUILDING -- 0.1%
CRH America, Inc., 6.95s, 2012 $ 208 $ 234,671
-------------
CHEMICALS -- 0.1%
Dow Chemical Co., 5.75s, 2008 $ 162 $ 173,693
-------------
CONGLOMERATES -- 0.4%
General Electric Capital Corp.,
7.5s, 2005 $ 536 $ 577,662
General Electric Capital Corp.,
8.75s, 2007 130 154,105
-------------
$ 731,767
-------------
CONSUMER CYCLICAL -- 0.1%
Cendant Corp., 6.875s, 2006 $ 147 $ 161,280
Cendant Corp., 6.25s, 2008 90 98,174
-------------
$ 259,454
-------------
CORPORATE ASSET-BACKED -- 1.0%
BCF LLC, 7.75s, 2026 ## $ 76 $ 59,928
Bear Stearns Commercial
Mortgage Securities, Inc., 6.8s, 2008 354 376,220
Beneficial Home Equity Loan Trust,
1.239s, 2037 360 356,610
Certificates Funding Corp., 6.716s, 2004 289 294,327
Citibank Credit Card Corp., 6.65s, 2008 623 672,898
First Union-Lehman Brothers
Commercial Mortgage Corp., 7.38s, 2029 90 100,029
</Table>
20
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- continued
CORPORATE ASSET-BACKED -- continued
J.P. Morgan Commercial Mortgage
Finance Corp., 6.613s, 2030 $ 175 $ 193,962
Merrill Lynch Mortgage Investors, Inc.,
6.39s, 2030 99 108,241
-------------
$ 2,162,215
-------------
DEFENSE ELECTRONICS -- 0.1%
Raytheon Co., 6.15s, 2008 $ 217 $ 236,127
-------------
ENERGY -- INDEPENDENT -- 0.2%
Devon Financing Corp., ULC,
6.875s, 2011 $ 348 $ 394,606
-------------
ENERGY -- INTEGRATED -- 0.1%
Amerada Hess Corp., 7.3s, 2031 $ 62 $ 64,021
Phillips Petroleum Co., 8.5s, 2005 40 43,605
-------------
$ 107,626
-------------
ENTERTAINMENT -- 0.3%
AOL Time Warner, Inc., 6.15s, 2007 $ 97 $ 105,539
News America Holdings, Inc.,
6.703s, 2004 215 218,432
Time Warner, Inc., 6.875s, 2018 172 189,146
Time Warner, Inc., 10.15s, 2012 1 1,335
Walt Disney Co., 6.75s, 2006 69 75,048
-------------
$ 589,500
-------------
FINANCIAL INSTITUTIONS -- 0.4%
SLM Corp., 5.375s, 2013 $ 195 $ 200,096
SLM Corp., Medium Term Note,
4s, 2009 153 154,051
SunAmerica Institutional, 5.75s, 2009 441 475,618
-------------
$ 829,765
-------------
FINANCIAL SERVICES -- 0.1%
Countrywide Home Loans, Inc.,
6.85s, 2004 $ 232 $ 237,540
-------------
FOOD & NON ALCOHOLIC BEVERAGES -- 0.2%
Kellogg Co., 6s, 2006 $ 291 $ 311,818
Kraft Foods, Inc., 6.25s, 2012 122 132,963
-------------
$ 444,781
-------------
FOREST & PAPER PRODUCTS -- 0.2%
Meadwestvaco Corp., 6.8s, 2032 $ 104 $ 106,945
Weyerhaeuser Co., 6.75s, 2012 254 277,099
-------------
$ 384,044
-------------
GAMING & LODGING -- 0.2%
Harrahs Operating Co., Inc.,
7.125s, 2007 $ 193 $ 214,923
MGM Mirage, Inc., 8.5s, 2010 179 205,403
-------------
$ 420,326
-------------
INSURANCE -- 0.4%
AIG SunAmerica, 7.6s, 2005 $ 444 $ 482,411
Metlife, Inc., 6.5s, 2032 180 190,866
Prudential Funding Corporation
Medium Term Note 144A, 6.6s, 2008 179 199,261
-------------
$ 872,538
-------------
INSURANCE -- PROPERTY & CASUALTY -- 0.1%
Allstate Corp., 6.125s, 2032 $ 185 $ 190,236
Safeco Corp., 4.875s, 2010 32 32,991
Travelers Property Casualty Corp.,
6.375s, 2033 84 87,592
-------------
$ 310,819
-------------
MACHINERY & TOOLS -- 0.1%
Kennametal, Inc., 7.2s, 2012 $ 211 $ 223,799
-------------
MEDICAL & HEALTH TECHNOLOGY &
SERVICES -- 0.2%
HCA, Inc., 6.95s, 2012 $ 276 $ 295,931
HCA, Inc., 6.25s, 2013 32 32,755
The Healthcare Co., 8.75s, 2010 60 71,444
-------------
$ 400,130
-------------
MORTGAGE BACKED -- 12.5%
Federal Home Loan Pc, 5s, 2017 $ 116 $ 118,243
Federal Home Loan Pc, 4.5s, 2018 705 705,666
Federal Home Loan Pc, 5s, 2018 266 270,990
Federal Home Loan Pc, 5s, 2033 1,185 1,170,299
Federal Home Loan Pc, 5.5s, 2033 1,499 1,517,791
Federal National Mortgage Assn.,
5.722s, 2009 830 894,642
Federal National Mortgage Assn.,
5.5s, 2016 652 676,856
Federal National Mortgage Assn.,
6s, 2016 1,214 1,274,441
Federal National Mortgage Assn.,
5.5s, 2017 665 689,540
Federal National Mortgage Assn.,
6s, 2017 669 702,176
Federal National Mortgage Assn.,
4.5s, 2018 880 882,170
Federal National Mortgage Assn.,
5s, 2018 2,099 2,143,207
Federal National Mortgage Assn.,
6.5s, 2028 443 465,436
Federal National Mortgage Assn.,
7.5s, 2030 55 58,549
Federal National Mortgage Assn.,
6.5s, 2031 1,302 1,361,482
Federal National Mortgage Assn.,
7.5s, 2031 167 178,074
Federal National Mortgage Assn.,
6s, 2032 2,105 2,176,334
Federal National Mortgage Assn.,
6.5s, 2032 1,810 1,893,199
Federal National Mortgage Assn.,
5.5s, 2033 3,929 3,982,532
Federal National Mortgage Assn.,
6s, 2033 1,045 1,080,976
Government National Mortgage Assn.,
7.5s, 2023 139 149,775
Government National Mortgage Assn.,
7.5s, 2024 3 3,330
Government National Mortgage Assn.,
6.5s, 2028 515 543,590
Government National Mortgage Assn.,
5.5s, 2033 1,951 1,985,831
Government National Mortgage Assn.,
6s, 2033 962 1,000,574
-------------
$ 25,925,703
-------------
NATURAL GAS -- PIPELINE -- 0.2%
Kinder Morgan Energy Partners,
6.75s, 2011 $ 315 $ 353,585
Kinder Morgan Energy Partners,
7.75s, 2032 117 139,579
-------------
$ 493,164
-------------
PHARMACEUTICALS
Wyeth, 6.5s, 2034 $ 31 $ 31,627
-------------
POLLUTION CONTROL -- 0.3%
Waste Management, Inc.,
7.375s, 2010 $ 508 $ 587,009
-------------
</Table>
21
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
U.S. BONDS -- continued
PRINTING & PUBLISHING -- 0.1%
BELO Corp., 7.75s, 2027 $ 226 $ 258,220
-------------
REAL ESTATE -- 0.5%
Boston Properities Limited Partnership,
5s, 2015 $ 42 $ 40,113
EOP Operating Limited Partnership,
6.8s, 2009 29 32,526
Simon Property Group Inc., New,
6.75s, 2004 578 580,791
Vornado Reality Trust, 5.625s, 2007 383 408,908
-------------
$ 1,062,338
-------------
TELECOMMUNICATIONS -- WIRELESS -- 0.1%
AT&T Wireless Services, Inc., 7.35s, 2006 $ 107 $ 117,007
AT&T Wireless Services, Inc., 8.75s, 2031 125 154,229
-------------
$ 271,236
-------------
TELECOMMUNICATIONS -- WIRELINE -- 0.8%
Alltel Corporation, 7.875s, 2032 $ 127 $ 154,691
Citizens Communications Co., 8.5s, 2006 125 136,483
Citizens Communications Co.,
7.625s, 2008 254 278,117
Sprint Capital Corp., 6.875s, 2028 124 121,003
Sprint Capital Corp., 7.125s, 2006 77 83,304
Telecomunicaciones de Puerto Rico, Inc.,
6.65s, 2006 270 292,643
Verizon New York, Inc., 6.875s, 2012 486 537,762
-------------
$ 1,604,003
-------------
U.S. GOVERNMENT AGENCIES -- 4.3%
Federal Home Loan Banks,
2.875s, 2006 $ 365 $ 368,877
Federal Home Loan Mortgage Corp.,
2.875s, 2006 1,405 1,415,073
Federal Home Loan Mortgage Corp.,
6s, 2011 94 104,330
Federal National Mortgage Assn.,
5.25s, 2007 1,211 1,303,482
Federal National Mortgage Assn.,
6.625s, 2009 1,286 1,470,514
Federal National Mortgage Assn.,
6.625s, 2010 3,148 3,616,976
Federal National Mortgage Assn.,
5.125s, 2014 285 285,991
Student Loan Marketing Assn.,
5s, 2004 250 254,972
-------------
$ 8,820,215
-------------
U.S. TREASURY OBLIGATIONS -- 5.0%
U.S. Treasury Bonds, 8s, 2021 $ 703 $ 949,435
U.S. Treasury Bonds, 6.25s, 2023 1,834 2,090,402
U.S. Treasury Bonds, 5.375s, 2031 338 352,484
U.S. Treasury Notes, 1.25s, 2005 387 385,972
U.S. Treasury Notes, 1.625s, 2005 52 52,179
U.S. Treasury Notes, 5.75s, 2005 665 713,992
U.S. Treasury Notes, 6.5s, 2005 978 1,045,237
U.S. Treasury Notes, 4.375s, 2007 146 154,606
U.S. Treasury Notes, 4.25s, 2010 736 855,246
U.S. Treasury Notes, 3s, 2012 1,148 1,251,847
U.S. Treasury Notes, 3.875s, 2013 2,475 2,422,792
-------------
$ 10,274,192
-------------
UTILITIES -- ELECTRIC POWER -- 1.7%
Centerpoint Energy Resources Corp.,
7.875s, 2013 ## $ 65 $ 73,586
DTE Energy Co., 7.05s, 2011 238 266,879
Entergy Mississippi, Inc., 6.2s, 2004 256 259,569
Exelon Generation Co. LLC, 6.95s, 2011 77 86,471
FirstEnergy Corp., 6.45s, 2011 72 74,624
GGIB Funding Corp., 7.43s, 2011 $ 122 $ 125,179
Gulf States Utilities Co., 8.25s, 2004 128 130,010
Midamerican Energy Holdings Co.,
3.5s, 2008 118 116,009
Midamerican Energy Holdings Co.,
5.875s, 2012 ## 61 63,960
Midamerican Funding LLC,
6.927s, 2029 454 492,666
Niagara Mohawk Power Corp.,
7.75s, 2006 1 1,117
Northeast Utilities, 8.58s, 2006 155 169,494
Oncor Electric Delivery Co., 7s, 2032 312 344,183
Progress Energy, Inc., 7.1s, 2011 69 77,737
Progress Energy, Inc., 6.85s, 2012 195 217,324
PSE&G Power LLC, 6.95s, 2012 124 139,845
PSE&G Power LLC, 8.625s, 2031 91 117,203
Toledo Edison Co., 7.875s, 2004 320 330,393
TXU Energy Company Llc, 7s, 2013 75 82,950
Waterford 3 Funding Entergy Corp.,
8.09s, 2017 372 423,313
-------------
$ 3,592,512
-------------
TOTAL U.S. BONDS $ 72,734,565
-------------
FOREIGN BONDS -- 1.1%
CANADA -- 0.1%
Hydro Quebec, 6.3s, 2011 $ 262 $ 295,485
-------------
FRANCE -- 0.1%
France Telecom S.A
(Telecommunications - Wireline),
9.75s, 2031 $ 220 $ 292,309
-------------
GERMANY
Deutsche Telekom, 8.75s, 2030 $ 70 $ 89,420
-------------
HONG KONG -- 0.1%
Pccw-Hktc Capital Ltd
(Telecommunications - Wireline),
6s, 2013 $ 150 $ 150,780
-------------
ISRAEL -- 0.1%
Israel St, 4.625s, 2013 $ 112 $ 106,813
-------------
ITALY -- 0.3%
Republic of Italy, 4.625s, 2005 $ 363 $ 377,309
Telecom Italia Cap
(Telecommunications - Wireline),
5.25s, 2013 246 246,490
-------------
$ 623,799
-------------
MEXICO -- 0.3%
Pemex Project Funding Master Trust
(Oil Services), 9.125s, 2010 $ 282 $ 334,170
Pemex Project Funding Master Trust
(Oil Services), 8.625s, 2022 39 43,192
United Mexican States, 8.125s, 2019 85 94,988
United Mexican States, 8s, 2022 55 60,170
-------------
$ 532,520
-------------
SINGAPORE-- 0.1%
DBS Capital Funding Corp.
(Banks & Credit Companies),
7.657s, 2049 $ 170 $ 195,755
-------------
TOTAL FOREIGN BONDS $ 2,286,881
-------------
TOTAL BONDS
(IDENTIFIED COST, $72,563,780) $ 75,021,446
-------------
</Table>
22
<Page>
<Table>
<Caption>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
CONVERTIBLE PREFERRED STOCK -- 0.2%
U.S. STOCKS -- 0.2%
INSURANCE -- 0.1%
Chubb Corp. $ 6,100 $ 174,216
-------------
TELECOMMUNICATIONS -- WIRELESS -- 0.1%
Motorola, Inc., 7.0s 5,200 225,836
-------------
TOTAL CONVERTIBLE PREFERRED STOCK
(IDENTIFIED COST, $374,357) $ 400,052
-------------
<Caption>
SHARES
PREFERRED STOCK -- 0.1%
U.S. STOCKS -- 0.1%
INSURANCE -- 0.1%
Hartford Financial Services Group
Incorporated
(Identified Cost, $283,611) 6,000 $ 354,720
-------------
<Caption>
PRINCIPAL AMOUNT
(000 OMITTED)
SHORT-TERM OBLIGATIONS -- 2.7%
New Center Asset Trust,
due 1/02/04, at Amortized Cost $ 5,552 $ 5,551,851
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $188,305,187) $ 207,147,651
-------------
OTHER ASSETS,
LESS LIABILITIES -- 0.1% 187,821
-------------
NET ASSETS -- 100.0% $ 207,335,472
=============
</Table>
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
CAD=Canadian Dollar
DKK=Danish Kroner
EUR=Euro
GBP=British Pounds
JPY=Japanese Yen
NOK=Norwegian Kroner
NZD=New Zealand Dollar
SEK=Swedish Kroner
See notes to financial statements.
23
<Page>
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 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 $ 272,571 $ 11,054 $ 109,031 $ 99,477
Unrealized appreciation 28,530 1,317 4,004 44
Repurchase agreements, at value 12,240 745 3,865 --
----------- ----------- ----------- -----------
Total investments, at value $ 313,341 $ 13,116 $ 116,900 $ 99,521
Cash 1 0* 0* 27
Receivable for forward foreign currency exchange contracts -- 72 -- --
Receivable for daily variation margin on open future contracts -- 0* -- --
Receivable for investments sold 7,529 -- -- 92
Receivable for units sold 119 1 5 7
Interest and dividends receivable 248 209 1,242 2,013
Receivable from sponsor -- -- 5 1
Other assets 8 0* 1 1
----------- ----------- ----------- -----------
Total assets $ 321,246 $ 13,398 $ 118,153 $ 101,662
=========== =========== =========== ===========
Liabilities:
Payable for forward foreign currency exchange contracts $ -- $ 135 $ -- $ 56
Payable for investments purchased 6,710 2 -- 23
Payable for units surrendered 151 22 93 19
Payable to affiliates --
Investment adviser 6 0* 2 2
Sponsor 2 0* -- --
Accrued expenses and other liabilities 51 42 53 61
----------- ----------- ----------- -----------
Total liabilities $ 6,920 $ 201 $ 148 $ 161
----------- ----------- ----------- -----------
Net assets $ 314,326 $ 13,197 $ 118,005 $ 101,501
=========== =========== =========== ===========
<Caption>
MANAGED MONEY TOTAL
SECTORS MARKET RETURN
VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT
----------- ----------- -----------
Assets:
Investments --
Investments cost $ 57,638 $ 34,011 $ 188,305
Unrealized appreciation 10,029 -- 18,842
Repurchase agreements, at value 261 3,775 --
----------- ----------- -----------
Total investments, at value $ 67,928 $ 37,786 $ 207,147
Cash 1 0* 10
Receivable for forward foreign currency exchange contracts -- -- --
Receivable for daily variation margin on open future contracts -- -- --
Receivable for investments sold 1,082 -- 659
Receivable for units sold 5 42 8
Interest and dividends receivable 55 0* 1,046
Receivable from sponsor -- 4 2
Other assets 1 13 4
----------- ----------- -----------
Total assets $ 69,072 $ 37,845 $ 208,876
=========== =========== ===========
Liabilities:
Payable for forward foreign currency exchange contracts $ -- $ -- $ --
Payable for investments purchased 919 -- 1,425
Payable for units surrendered 57 8 69
Payable to affiliates --
Investment adviser 1 0* 4
Sponsor 0* -- --
Accrued expenses and other liabilities 29 29 43
----------- ----------- -----------
Total liabilities $ 1,006 $ 37 $ 1,541
----------- ----------- -----------
Net assets $ 68,066 $ 37,808 $ 207,335
=========== =========== ===========
</Table>
* Amount less than $500.
See notes to financial statements.
24
<Page>
<Table>
<Caption>
CAPITAL GLOBAL GOVERNMENT HIGH
APPRECIATION GOVERNMENTS SECURITIES YIELD
UNIT VARIABLE VARIABLE VARIABLE VARIABLE
UNIT VALUE ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------ --------- ------------ ----------- ---------- ---------
Net assets applicable to contract owners:
Capital Appreciation Variable Account --
Compass 2 4,040 $ 50.814 $ 205,432
Compass 3 621 33.539 20,828
Compass 3 - Level 2 6,086 13.940 84,839
Global Governments Variable Account --
Compass 2 161 $ 25.169 $ 4,058
Compass 3 41 24.578 1,019
Compass 3 - Level 2 559 14.396 8,051
Government Securities Variable Account --
Compass 2 2,447 $ 36.470 $ 89,203
Compass 3 147 25.501 3,752
Compass 3 - Level 2 1,562 14.912 23,293
High Yield Variable Account --
Compass 2 1,827 $ 34.056 $ 62,201
Compass 3 115 25.048 2,865
Compass 3 - Level 2 2,631 13.386 35,229
Managed Sectors Variable Account --
Compass 2 409 $ 41.525
Compass 3 202 40.837
Compass 3 - Level 2 3,228 13.215
Money Market Variable Account --
Compass 2 1,172 $ 20.188
Compass 3 155 16.553
Compass 3 - Level 2 896 12.390
Total Return Variable Account --
Compass 2 1,688 $ 41.571
Compass 3 453 40.597
Compass 3 - Level 2 5,946 19.599
--------- -------- --------- ---------
Net assets applicable to owners of deferred contracts 311,099 13,128 116,248 100,295
Reserve for variable annuities --
Compass 2 Contracts 2,907 19 1,675 1,161
Compass 3 Contracts 1 42 -- 2
Compass 3 - Level 2 Contracts 319 8 82 43
--------- -------- --------- ---------
Net assets $ 314,326 $ 13,197 $ 118,005 $ 101,501
========= ======== ========= =========
<Caption>
MANAGED MONEY TOTAL
SECTORS MARKET RETURN
VARIABLE VARIABLE VARIABLE
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
Compass 3
Compass 3 - Level 2
Managed Sectors Variable Account --
Compass 2 $ 16,959
Compass 3 8,232
Compass 3 - Level 2 42,662
Money Market Variable Account --
Compass 2 $ 23,584
Compass 3 2,543
Compass 3 - Level 2 11,089
Total Return Variable Account --
Compass 2 $ 70,173
Compass 3 18,353
Compass 3 - Level 2 116,540
--------- -------- ---------
Net assets applicable to owners of deferred contracts 67,853 37,216 205,066
Reserve for variable annuities --
Compass 2 Contracts 94 469 1,379
Compass 3 Contracts 26 21 201
Compass 3 - Level 2 Contracts 93 102 689
--------- -------- ---------
Net assets $ 68,066 $ 37,808 $ 207,335
========= ======== =========
</Table>
See notes to financial statements.
25
<Page>
STATEMENTS OF OPERATIONS -- Year Ended December 31, 2003
(000 Omitted)
<Table>
<Caption>
CAPITAL GLOBAL GOVERNMENT HIGH
APPRECIATION GOVERNMENTS SECURITIES YIELD
VARIABLE VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- -----------
Net investment income (loss):
Income --
Interest $ 104 $ 479 $ 5,101 $ 7,883
Dividends 2,462 -- -- 25
----------- ----------- ----------- -----------
Total investment income $ 2,566 $ 479 $ 5,101 $ 7,908
----------- ----------- ----------- -----------
Expenses --
Mortality and expense risk charges $ 3,670 $ 160 $ 1,607 $ 1,143
Management fee 2,133 92 689 686
Boards of Managers fees 24 1 11 9
Distribution fee 31 2 7 5
Administrative fee 26 1 13 9
Custodian fee 120 17 50 40
Printing 34 4 19 14
Auditing fees 32 40 34 40
Legal fees 3 3 3 3
Miscellaneous 10 1 9 18
----------- ----------- ----------- -----------
Total expenses $ 6,083 $ 321 $ 2,442 $ 1,967
Fees paid indirectly (14) -- (1) (2)
----------- ----------- ----------- -----------
Net expenses $ 6,069 $ 321 $ 2,441 $ 1,965
----------- ----------- ----------- -----------
Net investment income (loss) $ (3,503) $ 158 $ 2,660 $ 5,943
----------- ----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions** $ (471) $ 803 $ 1,504 $ (1,385)
Written option transactions -- 35 -- --
Futures contracts -- (8) -- --
Foreign currency transactions 13 179 -- (14)
----------- ----------- ----------- -----------
Net realized gain (loss) on investments and
foreign currency transactions $ (458) $ 1,009 $ 1,504 $ (1,399)
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 74,555 $ 600 $ (2,844) $ 11,580
Futures contracts -- (11) -- --
Translation of assets and liabilities in
foreign currencies 1 (89) -- (54)
----------- ----------- ----------- -----------
Net unrealized gain (loss) on investments
and foreign currency translation $ 74,556 $ 500 $ (2,844) $ 11,526
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments and foreign currency $ 74,098 $ 1,509 $ (1,340) $ 10,127
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $ 70,595 $ 1,667 $ 1,320 $ 16,070
=========== =========== =========== ===========
<Caption>
MANAGED MONEY TOTAL
SECTORS MARKET RETURN
VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT
----------- ---------- -----------
Net investment income (loss):
Income --
Interest $ 542 $ 635 $ 3,844
Dividends 15 -- 2,482
----------- ----------- -----------
Total investment income $ 557 $ 635 $ 6,326
----------- ----------- -----------
Expenses --
Mortality and expense risk charges $ 776 $ 659 $ 2,426
Management fee 465 249 1,502
Boards of Managers fees 5 4 18
Distribution fee 13 4 29
Administrative fee 6 5 19
Custodian fee 29 11 85
Printing 10 7 18
Auditing fees 28 15 40
Legal fees 2 10 3
Miscellaneous 2 -- 0*
----------- ----------- -----------
Total expenses $ 1,336 $ 964 $ 4,140
Fees paid indirectly 0* 0* 0*
----------- ----------- -----------
Net expenses $ 1,336 $ 964 $ 4,140
----------- ----------- -----------
Net investment income (loss) $ (779) $ (329) $ 2,186
----------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions** $ 2,925 $ -- $ 334
Written option transactions -- -- --
Futures contracts -- -- --
Foreign currency transactions (0)* -- (1)
----------- ----------- -----------
Net realized gain (loss) on investments and
foreign currency transactions $ 2,925 $ -- $ 333
----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 10,825 $ -- $ 26,251
Futures contracts -- -- --
Translation of assets and liabilities in
foreign currencies -- -- 3
----------- ----------- -----------
Net unrealized gain (loss) on investments
and foreign currency translation $ 10,825 $ -- $ 26,254
----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments and foreign currency $ 13,750 $ -- $ 26,587
----------- ----------- -----------
Increase (decrease) in net assets from operations $ 12,971 $ (329) $ 28,773
=========== =========== ===========
</Table>
* Amount less than $500.
** Includes proceeds received from a non-recurring cash settlement in the
amount of $6,006,689 and $140,332 for Capital Appreciation Variable Account
and Managed Sectors Variable Account, respectively, from a class-action
lawsuit against Cendant Corporation.
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
--------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
From operations:
Net investment income (loss) $ (3,503) $ (4,601) $ 158 $ 198
Net realized gain (loss) on investments
and foreign currency transactions (458) (124,529) 1,009 497
Net unrealized gain (loss) on investments
and foreign currency translation 74,556 (19,285) 500 1,166
------------ ------------ ------------ ------------
Increase (decrease) in net assets from operations $ 70,595 $ (148,415) $ 1,667 $ 1,861
------------ ------------ ------------ ------------
Participant transactions:
Accumulation activity:
Purchase payments received $ 7,367 $ 10,253 $ 357 $ 436
Net transfers between variable and fixed
accumulation accounts (4,305) (13,000) 621 1,365
Withdrawals, surrenders, annuitizations and
contract charges (30,559) (47,725) (1,497) (1,490)
------------ ------------ ------------ ------------
Net accumulation activity $ (27,497) $ (50,472) $ (519) $ 311
------------ ------------ ------------ ------------
Annuitization activity:
Annuitizations $ 13 $ 40 $ -- $ 1
Annuity payments and contract charges (469) (623) (6) (5)
Net transfers among accounts for annuity reserves (792) (13) (118) 27
Adjustments to annuity reserves 625 465 111 (74)
------------ ------------ ------------ ------------
Net annuitization activity $ (623) $ (131) $ (13) $ (51)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from participant
transactions $ (28,120) $ (50,603) $ (532) $ 260
------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ 42,475 $ (199,018) $ 1,135 $ 2,121
Net assets:
At beginning of period 271,851 470,869 12,062 9,941
------------ ------------ ------------ ------------
At end of period $ 314,326 $ 271,851 $ 13,197 $ 12,062
============ ============ ============ ============
<Caption>
GOVERNMENT SECURITES
VARIABLE ACCOUNT
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
2003 2002
------------ ------------
Increase (decrease) in net assets:
From operations:
Net investment income (loss) $ 2,660 $ 4,376
Net realized gain (loss) on investments
and foreign currency transactions 1,504 1,007
Net unrealized gain (loss) on investments
and foreign currency translation (2,844) 4,771
------------ ------------
Increase (decrease) in net assets from operations $ 1,320 $ 10,154
------------ ------------
Participant transactions:
Accumulation activity:
Purchase payments received $ 2,312 $ 2,179
Net transfers between variable and fixed
accumulation accounts (2,752) 4,607
Withdrawals, surrenders, annuitizations and
contract charges (14,350) (16,712)
------------ ------------
Net accumulation activity $ (14,790) $ (9,926)
------------ ------------
Annuitization activity:
Annuitizations $ 11 $ 39
Annuity payments and contract charges (504) (490)
Net transfers among accounts for annuity reserves (388) 62
Adjustments to annuity reserves 480 (41)
------------ ------------
Net annuitization activity $ (401) $ (430)
------------ ------------
Increase (decrease) in net assets from participant
transactions $ (15,191) $ (10,356)
------------ ------------
Total increase (decrease) in net assets $ (13,871) $ (202)
Net assets:
At beginning of period 131,876 132,078
------------ ------------
At end of period $ 118,005 $ 131,876
============ ============
</Table>
See notes to financial statements.
27
<Page>
<Table>
<Caption>
HIGH YIELD MANAGED SECTORS
VARIABLE ACCOUNT VARIABLE ACCOUNT
------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Increase (decrease) in net assets:
From operations:
Net investment income (loss) $ 5,943 $ 7,007 $ (779) $ (1,083)
Net realized gain (loss) on investments and foreign
currency transactions (1,399) (17,649) 2,925 (16,573)
Net unrealized gain (loss) on investments and foreign
currency translation 11,526 10,942 10,825 (6,684)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $ 16,070 $ 300 $ 12,971 $ (24,340)
----------- ----------- ----------- -----------
Participant transactions:
Accumulation activity:
Purchase payments received $ 1,245 $ 1,286 $ 3,037 $ 3,932
Net transfers between variable and fixed accumulation accounts 1,632 16,395 (169) (5,119)
Withdrawals, surrenders, annuitizations and contract charges (11,148) (10,451) (7,142) (11,761)
----------- ----------- ----------- -----------
Net accumulation activity $ (8,271) $ 7,230 $ (4,274) $ (12,948)
----------- ----------- ----------- -----------
Annuitization activity:
Annuitizations $ -- $ 106 $ -- $ 13
Annuity payments and contract charges (229) (313) (42) (73)
Net transfers among accounts for annuity reserves (363) (4) (53) (21)
Adjustments to annuity reserves 106 14 52 10
----------- ----------- ----------- -----------
Net annuitization activity $ (486) $ (197) $ (43) $ (71)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from participant transactions $ (8,757) $ 7,033 $ (4,317) $ (13,019)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets $ 7,313 $ 7,333 $ 8,654 $ (37,359)
Net assets:
At beginning of period 94,188 86,855 59,412 96,771
----------- ----------- ----------- -----------
At end of period $ 101,501 $ 94,188 $ 68,066 $ 59,412
=========== =========== =========== ===========
</Table>
See notes to financial statements.
28
<Page>
<Table>
<Caption>
MONEY MARKET TOTAL RETURN
VARIABLE ACCOUNT VARIABLE ACCOUNT
--------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
From operations:
Net investment income (loss) $ (329) $ (31) $ 2,186 $ 3,536
Net realized gain (loss) on investments and foreign
currency transactions -- -- 333 (7,793)
Net unrealized gain (loss) on investments and foreign
currency translation -- -- 26,254 (11,303)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from operations $ (329) $ (31) $ 28,773 $ (15,560)
------------ ------------ ------------ ------------
Participant transactions:
Accumulation activity:
Purchase payments received $ 2,440 $ 1,789 $ 5,581 $ 6,095
Net transfers between variable and fixed accumulation
accounts (1,613) (9,692) 596 1,032
Withdrawals, surrenders, annuitizations and contract
charges (13,195) (21,484) (24,545) (27,208)
------------ ------------ ------------ ------------
Net accumulation activity $ (12,368) $ (29,387) $ (18,368) $ (20,081)
------------ ------------ ------------ ------------
Annuitization activity:
Annuitizations $ 121 $ 19 $ 259 $ 180
Annuity payments and contract charges (148) (136) (444) (429)
Net transfers among accounts for annuity reserves (376) 11 (302) (5)
Adjustments to annuity reserves 349 17 61 (209)
------------ ------------ ------------ ------------
Net annuitization activity $ (54) $ (89) $ (426) $ (463)
------------ ------------ ------------ ------------
Decrease in net assets from participant transactions $ (12,422) $ (29,476) $ (18,794) $ (20,544)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets $ (12,751) $ (29,507) $ 9,979 $ (36,104)
Net assets:
At beginning of period 50,559 80,066 197,356 233,460
------------ ------------ ------------ ------------
At end of period $ 37,808 $ 50,559 $ 207,335 $ 197,356
============ ============ ============ ============
</Table>
See notes to financial statements.
29
<Page>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the variable
accounts' financial performance for the past 5 years.
Certain information reflects financial results for a single unit value. The
total returns in the table represent the rate by which an investor would have
earned (or lost) on an investment in the variable account (assuming reinvestment
of all distributions) held for the entire period. This information has been
audited by the fund's independent auditors, whose report, together with the
variable accounts financial statements, are included in this report.
<Table>
<Caption>
CAPITAL APPRECIATION VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 39.859 $ 59.446 $ 80.578 $ 92.242 $ 70.426
----------- ----------- ----------- ----------- -----------
Investment income $ 0.402 $ 0.369 $ 0.598 $ 0.907 $ 0.401
Expenses (0.951) (1.002) (1.401) (1.920) (1.519)
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.549) $ (0.633) $ (0.803) $ (1.013) $ (1.118)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 11.504 (18.954) (20.329) (10.651) 22.934
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 10.955 $ (19.587) $ (21.132) $ (11.664) $ 21.816
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 50.814 $ 39.859 $ 59.446 $ 80.578 $ 92.242
=========== =========== =========== =========== ===========
Total return 27.48%++^ (32.95)%++ (26.22)%++ -- --
Ratios (to average net assets):
Expenses# 2.12% 2.12% 0.79%+ 0.76%+ 0.76%+
Net investment loss (1.20)% (1.36)% (1.19)%+ (1.08)%+ (1.51)%+
Portfolio turnover 104% 80% 123% 140% 85%
Number of units outstanding at end of
period (000 Omitted) 4,040 4,521 5,340 5,818 6,403
<Caption>
CAPITAL APPRECIATION VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 26.334 $ 39.314 $ 53.342 $ 61.123 $ 46.713
----------- ----------- ----------- ----------- -----------
Investment income $ 0.260 $ 0.240 $ 0.417 $ 0.581 $ 0.261
Expenses (0.648) (0.688) (1.025) (1.317) (1.042)
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.388) $ (0.448) $ (0.608) $ (0.736) $ (0.781)
Net realized and unrealized gain (loss) on
investments
and foreign currency transactions 7.593 (12.532) (13.420) (7.045) 15.191
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 7.205 $ (12.980) $ (14.028) $ (7.781) $ 14.410
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 33.539 $ 26.334 $ 39.314 $ 53.342 $ 61.123
=========== =========== =========== =========== ===========
Total return 27.36%++^ (33.02)%++ (26.30)%++ -- --
Ratios (to average net assets):
Expenses# 2.22% 2.22% 0.79%+ 0.76%+ 0.76%+
Net investment loss (1.31)% (1.42)% (1.19)%+ (1.08)%+ (1.51)%+
Portfolio turnover 104% 80% 123% 140% 85%
Number of units outstanding at end of period
(000 Omitted) 621 812 999 1,327 1,824
</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.
++ The total return does not reflect load fees in conjuction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
^ The fund's total return calculation includes proceeds received on March 26,
2003 from a non-recurring litigation settlement recorded as a realized gain
on investment transactions. The proceeds resulted in an increase in the net
asset value of $0.900 and $0.594 per unit for Compass 2 and Compass 3,
respectively, based on units outstanding on the day the proceeds were
received. Excluding the effect of this payment from the fund's ending net
asset value per unit, total return per unit value for the year ended
December 31, 2003 would have been 25.24% and 25.12%, for Compass 2 and
Compass 3, respectively.
See notes to financial statements.
30
<Page>
<Table>
<Caption>
CAPITAL APPRECIATION VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 10.929 $ 16.292 $ 22.072 $ 25.255 $ 19.272
----------- ----------- ----------- ----------- -----------
Investment income $ 0.109 $ 0.100 $ 0.154 $ 0.247 $ 0.109
Expenses (0.254) (0.260) (0.357) (0.513) (0.409)
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.145) $ (0.160) $ (0.203) $ (0.266) $ (0.300)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 3.156 (5.203) (5.577) (2.917) 6.283
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 3.011 $ (5.363) $ (5.780) $ (3.183) $ 5.983
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 13.940 $ 10.929 $ 16.292 $ 22.072 $ 25.255
=========== =========== =========== =========== ===========
Total return 27.55%++^ (32.92)%++ (26.19)%++ -- --
Ratios (to average net assets):
Expenses# 2.07% 2.07% 0.79%+ 0.76%+ 0.76%+
Net investment loss (1.17)% (1.32)% (1.19)%+ (1.08)%+ (1.51)%+
Portfolio turnover 104% 80% 123% 140% 85%
Number of units outstanding at end of period
(000 Omitted) 6,086 6,148 6,705 6,283 5,632
</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.
++ The total return does not reflect load fees in conjuction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
^ The fund's total return calculation includes proceeds received on March 26,
2003 from a non-recurring litigation settlement recorded as a realized gain
on investment transactions. The proceeds resulted in an increase in the net
asset value of $0.247 per unit based on units outstanding on the day the
proceeds were received. Excluding the effect of this payment from the
fund's ending net asset value per unit, total return per unit value for the
year ended December 31, 2003 would have been 25.30% for Compass 3 Level 2.
See notes to financial statements.
31
<Page>
<Table>
<Caption>
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 22.125 $ 18.653 $ 19.378 $ 19.459 $ 20.830
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 0.877 $ 0.861 $ 0.946 $ 1.144 $ 1.095
Expenses (0.584) (0.486) (0.500) (0.471) (0.479)
----------- ----------- ----------- ----------- -----------
Net investment income@ $ 0.293 $ 0.375 $ 0.446 $ 0.673 $ 0.616
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.751 3.097 (1.171) (0.754) (1.987)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 3.044 $ 3.472 $ (0.725) $ (0.081) $ (1.371)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 25.169 $ 22.125 $ 18.653 $ 19.378 $ 19.459
=========== =========== =========== =========== ===========
Total return 13.76%++ 18.61%++ (3.74)%++ -- --
Ratios (to average net assets):
Expenses# 2.47% 2.50% 1.28%+ 1.25%+ 1.11%+
Net investment income@@ 1.23% 1.73% 2.23%+ 3.50%+ 3.07%+
Portfolio turnover 130% 126% 72% 130% 172%
Number of units outstanding at end of period
(000 Omitted) 161 160 134 167 212
</Table>
@ 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:
<Table>
Net investment income@@ $ -- $ 0.850 $ 0.470 $ -- $ --
Ratios (to average net assets):
Expenses# -- 2.44% 1.39%+ -- --
Net investment income@@ -- 1.79% 2.12%+ -- --
</Table>
<Table>
<Caption>
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 21.638 $ 18.269 $ 19.007 $ 19.115 $ 20.492
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 0.869 $ 0.846 $ 1.063 $ 1.103 $ 0.986
Expenses (0.600) (0.511) (0.579) (0.480) (0.442)
----------- ----------- ----------- ----------- -----------
Net investment income@ $ 0.269 $ 0.335 $ 0.484 $ 0.623 $ 0.544
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.671 3.034 (1.222) (0.731) (1.921)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 2.940 $ 3.369 $ (0.738) $ (0.108) $ (1.377)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value-- end of period $ 24.578 $ 21.638 $ 18.269 $ 19.007 $ 19.115
=========== =========== =========== =========== ===========
Total return 13.59%++ 18.44%++ (3.88)%++ -- --
Ratios (to average net assets):
Expenses# 2.62% 2.65% 1.28%+ 1.25%+ 1.11%+
Net investment income@@ 1.15% 1.77% 2.23%+ 3.50%+ 3.07%+
Portfolio turnover 130% 126% 72% 130% 172%
Number of units outstanding at end of period
(000 Omitted) 41 58 68 108 186
</Table>
@ 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:
<Table>
Net investment income@@ $ -- $ 0.840 $ 0.500 $ -- $ --
Ratios (to average net assets):
Expenses# -- 2.56% 1.39%+ -- --
Net investment income@@ -- 1.87% 2.12%+ -- --
</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 $0.080 and $0.080, respectively, increase net realized and
unrealized gains and losses per share by $0.080 and $0.080, 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.
++ The total return does not reflect load fees in conjunction with the
redemption of units.
# 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
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 12.655 $ 10.669 $ 11.083 $ 11.130 $ 11.914
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 0.494 $ 0.499 $ 0.520 $ 0.654 $ 1.826
Expenses (0.331) (0.281) (0.274) (0.270) (0.782)
----------- ----------- ----------- ----------- -----------
Net investment income@ $ 0.163 $ 0.218 $ 0.246 $ 0.384 $ 1.044
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.578 1.768 (0.660) (0.431) (1.828)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 1.741 $ 1.986 $ (0.414) $ (0.047) $ (0.784)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 14.396 $ 12.655 $ 10.669 $ 11.083 $ 11.130
=========== =========== =========== =========== ===========
Total return 13.76%++ 18.61%++ (3.74)%++ -- --
Ratios (to average net assets):
Expenses# 2.47% 2.50% 1.28%+ 1.25%+ 1.11%+
Net investment income@@ 1.21% 1.70% 2.23%+ 3.50%+ 3.07%+
Portfolio turnover 130% 126% 72% 130% 172%
Number of units outstanding at end of period
(000 Omitted) 559 568 574 619 641
</Table>
@ 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:
<Table>
Net investment income@@ $ -- $ 0.490 $ 0.260 $ -- $ --
Ratios (to average net assets):
Expenses# -- 2.42% 1.40%+ -- --
Net investment income@@ -- 1.78% 2.12%+ -- --
</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 $0.040, increase net realized and unrealized gains and losses
per share by $0.00, 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.
++ The total return does not reflect load fees in conjunction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
33
<Page>
<Table>
<Caption>
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 36.124 $ 33.448 $ 31.520 $ 28.523 $ 29.418
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 1.482 $ 1.862 $ 2.183 $ 2.169 $ 2.053
Expenses (0.711) (0.677) (0.661) (0.572) (0.558)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.771 $ 1.185 $ 1.522 $ 1.597 $ 1.495
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.425) 1.491 0.406 1.400 (2.390)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 0.346 $ 2.676 $ 1.928 $ 2.997 $ (0.895)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 36.470 $ 36.124 $ 33.448 $ 31.520 $ 28.523
=========== =========== =========== =========== ===========
Total return 0.96%++ 8.00%++ 6.12%++ -- --
Ratios (to average net assets):
Expenses# 1.95% 1.94% 0.66%+ 0.64%+ 0.63%+
Net investment income@@ 2.08% 3.19% 4.42%+ 5.28%+ 5.06%+
Portfolio turnover 138% 139% 89% 51% 75%
Number of units outstanding at end of period
(000 Omitted) 2,447 2,759 3,043 3,210 4,228
<Caption>
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 25.284 $ 23.434 $ 22.105 $ 20.023 $ 20.672
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 1.045 $ 1.300 $ 1.590 $ 1.476 $ 1.410
Expenses (0.514) (0.495) (0.510) (0.412) (0.407)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.531 $ 0.805 $ 1.080 $ 1.064 $ 1.003
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.314) 1.045 0.249 1.018 (1.652)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 0.217 $ 1.850 $ 1.329 $ 2.082 $ (0.649)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 25.501 $ 25.284 $ 23.434 $ 22.105 $ 20.023
=========== =========== =========== =========== ===========
Total return 0.86%++ 7.89%++ 6.01%++ -- --
Ratios (to average net assets):
Expenses# 2.05% 2.04% 0.66%+ 0.64%+ 0.63%+
Net investment income@@ 2.08% 3.36% 4.42%+ 5.28%+ 5.06%+
Portfolio turnover 138% 139% 89% 51% 75%
Number of units outstanding at end of period
(000 Omitted) 147 205 254 398 701
<Caption>
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 14.763 $ 13.663 $ 12.868 $ 11.639 $ 11.998
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 0.597 $ 0.732 $ 0.826 $ 0.876 $ 0.833
Expenses (0.282) (0.267) (0.248) (0.228) (0.222)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.315 $ 0.465 $ 0.578 $ 0.648 $ 0.611
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.166) 0.635 0.217 0.581 (0.970)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 0.149 $ 1.100 $ 0.795 $ 1.229 $ (0.359)
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 14.912 $ 14.763 $ 13.663 $ 12.868 $ 11.639
=========== =========== =========== =========== ===========
Total return 1.01%++ 8.05%++ 6.17%++ -- --
Ratios (to average net assets):
Expenses# 1.90% 1.89% 0.66%+ 0.64%+ 0.63%+
Net investment income@@ 2.10% 3.17% 4.42%+ 5.28%+ 5.06%+
Portfolio turnover 138% 139% 89% 51% 75%
Number of units outstanding at end of period
(000 Omitted) 1,562 1,692 1,617 1,542 1,641
</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.
++ The total return does not reflect load fees in conjuction with redemption
of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
34
<Page>
<Table>
<Caption>
HIGH YIELD VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 28.505 $ 28.969 $ 29.882 $ 33.630 $ 31.973
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 2.769 $ 3.015 $ 3.684 $ 3.786 $ 3.424
Expenses (0.689) (0.617) (0.699) (0.725) (0.728)
----------- ----------- ----------- ----------- -----------
Net investment income $ 2.080 $ 2.398 $ 2.985 $ 3.061 $ 2.696
Net realized and unrealized gain (loss) on
investments and foreign currency 3.471 (2.862) (3.898) (6.809) (1.039)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 5.551 $ (0.464) $ (0.913) $ (3.748) $ 1.657
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 34.056 $ 28.505 $ 28.969 $ 29.882 $ 33.630
=========== =========== =========== =========== ===========
Total return 19.47%++ (1.60)%++ (3.05)%++ -- --
Ratios (to average net assets)
Expenses# 2.20% 2.18% 0.90%+ 0.89%+ 0.90%+
Net Investment income@@ 6.53% 7.84% 9.16%+ 9.00%+ 7.93%+
Portfolio turnover 164% 172% 103% 109% 153%
Number of units outstanding at end of period
(000 Omitted) 1,827 2,069 2,328 2,677 3,065
<Caption>
HIGH YIELD VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 20.986 $ 21.349 $ 22.043 $ 24.832 $ 23.633
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 1.964 $ 2.141 $ 3.188 $ 2.730 $ 2.451
Expenses (0.514) (0.469) (0.643) (0.557) (0.552)
----------- ----------- ----------- ----------- -----------
Net investment income $ 1.450 $ 1.672 $ 2.545 $ 2.173 $ 1.899
Net realized and unrealized gain (loss) on
investments and foreign currency 2.612 (2.035) (3.239) (4.962) (0.700)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 4.062 $ (0.363) $ (0.694) $ (2.789) $ 1.199
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 25.048 $ 20.986 $ 21.349 $ 22.043 $ 24.832
=========== =========== =========== =========== ===========
Total return 19.35%++ (1.70)%++ (3.15)%++ -- --
Ratios (to average net assets)
Expenses# 2.30% 2.28% 0.90%+ 0.89%+ 0.90%+
Net Investment income@@ 6.41% 8.45% 9.16%+ 9.00%+ 7.93%+
Portfolio turnover 164% 172% 103% 109% 153%
Number of units outstanding at end of period
(000 Omitted) 115 178 231 297 427
</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 by
$0.02, increase net realized and unrealized gains and losses 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.
++ The total return does not reflect load fees in conjunction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
35
<Page>
<Table>
<Caption>
HIGH YIELD VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 11.199 $ 11.376 $ 11.728 $ 13.193 $ 12.537
----------- ----------- ----------- ----------- -----------
Investment income@@ $ 1.161 $ 1.220 $ 0.784 $ 1.527 $ 1.414
Expenses (0.286) (0.257) (0.151) (0.290) (0.296)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.875 $ 0.963 $ 0.633 $ 1.237 $ 1.118
Net realized and unrealized gain (loss) on
investments and foreign currency 1.312 (1.140) (0.985) (2.702) (0.462)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 2.187 $ (0.177) $ (0.352) $ (1.465) $ 0.656
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 13.386 $ 11.199 $ 11.376 $ 11.728 $ 13.193
=========== =========== =========== =========== ===========
Total return 19.53%++ (1.55)%++ (3.01)%++ -- --
Ratios (to average net assets)
Expenses# 2.15% 2.13% 0.90%+ 0.89%+ 0.90%+
Net Investment income@@ 6.57% 6.08% 9.16%+ 9.00%+ 7.93%+
Portfolio turnover 164% 172% 103% 109% 153%
Number of units outstanding at end of period
(000 Omitted) 2,631 2,684 1,131 2,619 1,001
</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 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.
++ The total return does not reflect load fees in conjunction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
36
<Page>
<Table>
<Caption>
MANAGED SECTORS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 33.716 $ 46.116 $ 72.314 $ 92.865 $ 50.488
----------- ----------- ----------- ----------- -----------
Investment income $ 0.333 $ 0.270 $ 0.465 $ 0.633 $ 0.493
Expenses (0.788) (0.810) (1.179) 1.817 1.236
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.455) $ (0.540) $ (0.714) $ (1.184) $ (0.743)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 8.264 (11.860) (25.484) (19.367) 43.120
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 7.809 $ (12.400) $ (26.198) $ (20.551) $ 42.377
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 41.525 $ 33.716 $ 46.116 $ 72.314 $ 92.865
=========== =========== =========== =========== ===========
Total return 23.16%++^ (26.89)%++ (36.23)%++ -- --
Ratios (to average net assets):
Expenses# 2.12% 2.10% 0.88%+ 0.83%+ 0.84%+
Net investment loss (1.22)% (1.45)% (1.32)%+ (1.39)%+ (1.30)%+
Portfolio turnover 80% 264% 295% 447% 417%
Number of units outstanding at end of period
(000 Omitted) 409 455 573 697 686
<Caption>
MANAGED SECTORS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 33.207 $ 45.487 $ 71.434 $ 91.870 $ 50.021
----------- ----------- ----------- ----------- -----------
Investment income $ 0.321 $ 0.251 $ 0.487 $ 0.602 $ 0.473
Expenses (0.817) (0.852) (1.297) (1.908) (1.290)
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.496) $ (0.601) $ (0.810) $ (1.306) $ (0.817)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 8.126 (11.679) (25.137) (19.130) 42.666
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 7.630 $ (12.280) $ (25.947) $ (20.436) $ 41.849
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 40.837 $ 33.207 $ 45.487 $ 71.434 $ 91.870
=========== =========== =========== =========== ===========
Total return 22.98%++^ (27.00)%++ (36.32)%++ -- --
Ratios (to average net assets):
Expenses# 2.27% 2.25% 0.88%+ 0.83%+ 0.84%+
Net investment loss (1.37)% (1.56)% (1.32)%+ (1.39)%+ (1.30)%+
Portfolio turnover 80% 264% 295% 447% 417%
Number of units outstanding at end of period
(000 Omitted) 202 296 390 576 785
</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.
++ The total return does not reflect load fees in conjuction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
^ The fund's total return calculation includes proceeds received on March 26,
2003 from a non-recurring litigation settlement recorded as a realized gain
on investment transactions. The proceeds resulted in an increase in the net
asset value of $0.083 and $0.081 per unit for Compass 2 and Compass 3,
respectively, based on units outstanding on the day the proceeds were
received. Excluding the effect of this payment from the fund's ending net
asset value per unit, total return per unit value for the year ended
December 31, 2003 would have been 22.92% and 22.73% for Compass 2 and
Compass 3, respectively.
See notes to financial statements.
37
<Page>
<Table>
<Caption>
MANAGED SECTORS VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 10.730 $ 14.676 $ 23.014 $ 29.554 $ 16.068
----------- ----------- ----------- ----------- -----------
Investment income $ 0.106 $ 0.083 $ 0.136 $ 0.201 $ 0.159
Expenses (0.252) (0.259) (0.350) (0.578) (0.401)
----------- ----------- ----------- ----------- -----------
Net investment loss $ (0.146) $ (0.176) $ (0.214) $ (0.377) $ (0.242)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.631 (3.770) (8.124) (6.163) 13.728
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 2.485 $ (3.946) $ (8.338) $ (6.540) $ 13.486
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 13.215 $ 10.730 $ 14.676 $ 23.014 $ 29.554
=========== =========== =========== =========== ===========
Total return 23.16%++^ (26.89)%++ (36.23)%++ -- --
Ratios (to average net assets):
Expenses# 2.12% 2.10% 0.88%+ 0.83%+ 0.84%+
Net investment loss (1.22)% (1.46)% (1.32)%+ (1.39)%+ (1.30)%+
Portfolio turnover 80% 264% 295% 447% 417%
Number of units outstanding at end of period
(000 Omitted) 3,228 3,173 3,559 3,548 3,115
</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.
++ The total return does not reflect load fees in conjuction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
^ The fund's total return calculation includes proceeds received on March 26,
2003 from a non-recurring litigation settlement recorded as a realized gain
on investment transactions. The proceeds resulted in an increase in the net
asset value of $0.026 per unit based on units outstanding on the day the
proceeds were received. Excluding the effect of this payment from the
fund's ending net asset value per unit, total return per unit value for the
year ended December 31, 2003 would have been 22.92% for Compass 3 Level 2.
See notes to financial statements.
38
<Page>
<Table>
<Caption>
MONEY MARKET VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 20.322 $ 20.341 $ 19.862 $ 18.997 $ 18.391
----------- ----------- ----------- ----------- -----------
Investment income $ 0.247 $ 0.382 $ 0.950 $ 1.232 $ 0.960
Expenses (0.381) (0.401) (0.471) (0.367) (0.354)
----------- ----------- ----------- ----------- -----------
Net Increase (decrease) in unit value $ (0.134) $ (0.019) $ 0.479 $ 0.865 $ 0.606
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 20.188 $ 20.322 $ 20.341 $ 19.862 $ 18.997
=========== =========== =========== =========== ===========
Total return (0.66)%++ (0.09)%++ 2.41%++ -- --
Ratios (to average net assets):
Expenses## 1.87% 1.96% 0.65%+ 0.60%+ 0.58%+
Net investment income (0.63)% (0.12)% 2.51%+ 4.45%+ 3.25%+
Number of units outstanding at end of period
(000 Omitted) 1,172 1,626 1,986 3,304 3,749
<Caption>
MONEY MARKET VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 16.680 $ 16.712 $ 16.334 $ 15.638 $ 15.154
----------- ----------- ----------- ----------- -----------
Investment income $ 0.198 $ 0.318 $ 0.784 $ 1.002 $ 0.781
Expenses (0.325) (0.350) (0.406) (0.306) (0.297)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ (0.127) $ (0.032) $ 0.378 $ 0.696 $ 0.484
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 16.553 $ 16.680 $ 16.712 $ 16.334 $ 15.638
=========== =========== =========== =========== ===========
Total return (0.76)%++ (0.19)%++ 2.31%++ -- --
Ratios (to average net assets):
Expenses## 1.97% 2.06% 0.65%+ 0.60%+ 0.58%+
Net investment income (0.74)% (0.14)% 2.51%+ 4.45%+ 3.25%+
Number of units outstanding at end of period
(000 Omitted) 155 186 222 468 863
<Caption>
MONEY MARKET VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 12.466 $ 12.472 $ 12.172 $ 11.636 $ 11.259
----------- ----------- ----------- ----------- -----------
Investment income $ 0.131 $ 0.223 $ 0.710 $ 0.747 $ 0.579
Expenses (0.207) (0.229) (0.410) (0.211) (0.202)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ (0.076) $ (0.006) $ 0.300 $ 0.536 $ 0.377
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 12.390 $ 12.466 $ 12.472 $ 12.172 $ 11.636
=========== =========== =========== =========== ===========
Total return (0.61)%++ (0.04)%++ 2.46%++ -- --
Ratios (to average net assets):
Expenses# 1.82% 1.91% 0.65%+ 0.60%+ 0.58%+
Net investment income (0.61)% (0.01)% 2.51%+ 4.45%+ 3.25%+
Number of units outstanding at end of period
(000 Omitted) 896 1,113 2,835 1,562 3,875
</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.
++ The total return does not reflect load fees in conjunction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
39
<Page>
<Table>
<Caption>
TOTAL RETURN VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 35.950 $ 38.562 $ 39.126 $ 33.729 $ 33.250
----------- ----------- ----------- ----------- -----------
Investment income $ 1.237 $ 1.407 $ 1.513 $ 1.464 $ 1.374
Expenses (0.800) (0.777) (0.830) (0.727) (0.701)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.437 $ 0.630 $ 0.683 $ 0.737 $ 0.673
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 5.184 (3.242) (1.247) 4.660 (0.194)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 5.621 $ (2.612) $ (0.564) $ 5.397 $ 0.479
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 41.571 $ 35.950 $ 38.562 $ 39.126 $ 33.729
=========== =========== =========== =========== ===========
Total return 15.64%++ (6.77)%++ (1.44)%++ -- --
Ratios (to average net assets):
Expenses# 2.10% 2.08% 0.85%+ 0.83%+ 0.83%+
Net investment income 1.13% 1.43% 1.67%+ 2.02%+ 1.90%+
Portfolio turnover 62% 76% 104% 105% 106%
Number of units outstanding at end of period
(000 Omitted) 1,688 1,871 2,080 2,240 2,925
<Caption>
TOTAL RETURN VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 35.160 $ 37.771 $ 38.379 $ 33.134 $ 32.713
----------- ----------- ----------- ----------- -----------
Investment income $ 1.200 $ 1.360 $ 1.599 $ 1.395 $ 1.315
Expenses (0.823) (0.804) (0.939) (0.749) (0.727)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.377 $ 0.556 $ 0.660 $ 0.646 $ 0.588
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 5.060 (3.167) (1.268) 4.599 (0.167)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 5.437 $ (2.611) $ (0.608) $ 5.245 $ 0.421
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 40.597 $ 35.160 $ 37.771 $ 38.379 $ 33.134
=========== =========== =========== =========== ===========
Total return 15.46%++ (6.91)%++ (1.59.)%++ -- --
Ratios (to average net assets):
Expenses# 2.25% 2.23% 0.85%+ 0.83%+ 0.83%+
Net investment income 1.01% 1.61% 1.67+ 2.02%+ 1.90%+
Portfolio turnover 62% 76% 104% 105% 106%
Number of units outstanding at end of period
(000 Omitted) 453 634 838 1,253 2,125
<Caption>
TOTAL RETURN VARIABLE ACCOUNT
----------------------------------------------------------------------------
COMPASS 3 -- LEVEL 2
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Per unit data:*
Net asset value -- beginning of period $ 16.949 $ 18.180 $ 18.445 $ 15.901 $ 15.676
----------- ----------- ----------- ----------- -----------
Investment income $ 0.575 $ 0.658 $ 0.687 $ 0.683 $ 0.642
Expenses (0.376) (0.367) (0.382) (0.343) (0.331)
----------- ----------- ----------- ----------- -----------
Net investment income $ 0.199 $ 0.291 $ 0.305 $ 0.340 $ 0.311
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.451 (1.522) (0.570) 2.204 (0.086)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in unit value $ 2.650 $ (1.231) $ (0.265) $ 2.544 $ 0.225
----------- ----------- ----------- ----------- -----------
Unit value:
Net asset value -- end of period $ 19.599 $ 16.949 $ 18.180 $ 18.445 $ 15.901
=========== =========== =========== =========== ===========
Total return 15.64%++ (6.77)%++ (1.44)%++ -- --
Ratios (to average net assets):
Expenses# 2.10% 2.08% 0.85%+ 0.83%+ 0.83%+
Net investment income 1.11% 1.55% 1.67%+ 2.02%+ 1.90%+
Portfolio turnover 62% 76% 104% 105% 106%
Number of units outstanding at end of period
(000 Omitted) 5,946 6,236 6,537 6,382 6,729
</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.
++ The total return does not reflect load fees in conjuction with the
redemption of units.
# Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
40
<Page>
NOTES TO FINANCIAL STATEMENTS
(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. The 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 -- The variable accounts use independent pricing services
approved by the Board of Trustees wherever possible to value their portfolio
securities. Portfolio securities are valued at current market prices where
current market prices are readily available, or the variable account may fair
value portfolio securities under the direction of the Board of Trustees when a
determination is made that current market prices are not readily available.
Equity securities in the variable accounts' portfolios for which market
quotations are available are valued at the last sale or official closing price
as reported by an independent pricing service 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. Equity securities traded
over the counter are valued at the last sales price traded each day as reported
by an independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers and
dealers. Equity securities for which it is determined that current market prices
are not readily available will be fair valued under the direction of the Board
of Trustees. The variable accounts may also fair value foreign equity securities
in cases where closing market prices are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the variable account
calculates its net asset value (generally, the close of the NYSE) that may
impact the value of securities traded in these foreign markets. In these cases,
the variable account may utilize information from an external vendor or other
sources to adjust closing market prices of foreign equity securities to reflect
what it believes to be the fair value of the securities as of the variable
accounts' valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a frequent
basis. Bonds and other fixed income securities (other than short-term
obligations) in the variable accounts' portfolios are valued at an evaluated bid
price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. 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. Bonds and other fixed income
securities for which it is determined that current market prices are not readily
available will be fair valued under the direction of the Board of Trustees.
Foreign currency options are valued using an internal pricing model approved by
the Board of Trustees that uses market data from an independent pricing service.
Futures contracts are valued at the settlement price as reported by an
independent pricing service on the primary exchange on which they are traded.
Forward foreign currency contracts are valued using spot rates and forward
points as reported by an independent pricing service. Short-term obligations
with a remaining maturity in excess of 60 days will be valued upon
dealer-supplied valuations. All other short-term obligations in the variable
accounts' portfolios are valued at amortized cost, which constitutes market
value as determined by the Board of Trustees. Money market instruments are
valued at amortized cost, which the Trustees have determined in good faith
approximates market value. The variable accounts' use of amortized cost is
subject to the variable accounts' compliance with certain conditions as
specified under Rule 2a-7 of the Investment Company Act of 1940.
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 densure 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
41
<Page>
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 accounts' investment 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 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 accounts' 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 accounts 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 accounts may
enter into contracts with the intent of changing the relative exposure of the
variable accounts' portfolio of securities to different currencies to take
advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded as unrealized until the contract settlement
date. On contract settlement date, the gains or losses are recorded as realized
gains or losses on foreign currency transactions.
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 accounting principles generally accepted in the United States of
America. For the Money Market Variable Account, all premium and discount is
amortized and accreted for financial statement purposes and tax reporting
purposes in accordance with generally accepted accounting principles and federal
tax regulations, respectively. All discount is accreted for tax reporting
purposes as required by federal income tax regulations. Dividends received in
cash are recorded on the ex-dividend date. Some securities may be purchased on a
"when-issued" or "forward delivery" basis, which means that the securities will
be delivered to the variable account at a future date, usually beyond customary
settlement time. 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 0.01%. 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 accounts 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 accounts'
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. Certain 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.
The following variable accounts were a participant in a class-action lawsuit
against Cendant Corporation. On March 26, 2003 the variable account received a
cash settlement recorded as a realized gain on investment transaction. The
proceeds from the non-recurring litigation settlement resulted in an increase in
net asset value per unit based on the units outstanding on the day proceeds were
received.
<Table>
<Caption>
CAPITAL MANAGED
APPRECIATION SECTORS
VARIABLE VARIABLE
ACCOUNT ACCOUNT
-------------------------------------------------------------------------------------------------
Cash Settlement $ 6,006,689 $ 140,332
Increase in net asset value per unit:
Compass 2 Contracts $ 0.900 $ 0.083
Compass 3 Contracts $ 0.594 $ 0.081
Compass 3 Level 2 Contracts $ 0.247 $ 0.026
</Table>
42
<Page>
Excluding the effect of these payments from the variable accounts ending net
asset value per unit, total return for the year ended December 31, 2003 would
have been lower by:
<Table>
<Caption>
CAPITAL MANAGED
APPRECIATION SECTORS
VARIABLE VARIABLE
ACCOUNT ACCOUNT
-------------------------------------------------------------------------------------------------
Compass 2 Contracts 2.24% 0.24%
Compass 3 Contracts 2.24% 0.25%
Compass 3 Level 2 Contracts 2.25% 0.24%
</Table>
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 year ended December 31, 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 year ended December 31, 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 $ (77) $ -- $ (1,467) $ (1,777) $ -- $ (60) $ (303)
Directed brokerage credits (14,233) -- -- -- (10) -- (51)
</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 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 between February 1, 1987 and December 31, 1998 have been calculated
using the 1983 Individual Annuitant Mortality Table. Annuity reserves for
contracts with annuity commencement dates on or after January 1, 1999 have
been calculated using the Annuity Mortality 2000 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.
43
<Page>
(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 accrued daily and paid monthly.
<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>
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 up to the following annual percentage
rates of the variable accounts' average daily net assets:
<Table>
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 $ 289,655,334 $ 315,649,941
Global Governments Variable Account 10,996,458 9,971,564
Government Securities Variable -- 9,306,503
High Yield Variable Account 138,207,798 143,106,464
Managed Sectors Variable Account 49,007,312 52,262,883
Money Market Variable Account* 1,460,788,160 1,478,217,338
Total Return Variable Account 68,406,520 79,915,425
</Table>
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 $ 4,323,435 $ 4,599,853
Government Securities Variable Account 170,773,394 174,065,629
Total Return Variable Account 48,368,328 47,924,417
</Table>
*Purchases and sales of investments for Money Market Variable Account consist
solely of short-term obligations.
44
<Page>
(7) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as
follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2003 (OOO 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 52 $ 2,088 (57) $ (1,996) (476) $ (21,416)
Compass 3 Contracts 104 3,003 (236) (6,888) (59) (1,700)
Compass 3 Level 2 Contracts 205 2,276 338 4,579 (605) (7,443)
------------ ------------ ------------
$ 7,367 $ (4,305) $ (30,559)
============ ============ ============
Global Government Variable Account
Compass 2 Contracts 1 $ 22 15 $ 346 (15) $ (365)
Compass 3 Contracts 9 195 (19) (422) (7) (165)
Compass 3 Level 2 Contracts 12 140 52 697 (73) (967)
------------ ------------ ------------
$ 357 $ 621 $ (1,497)
============ ============ ============
Government Securities Variable Account
Compass 2 Contracts 25 $ 845 (39) $ (1,440) (298) $ (10,778)
Compass 3 Contracts 33 816 (71) (1,792) (20) (512)
Compass 3 Level 2 Contracts 47 651 29 480 (206) (3,060)
------------ ------------ ------------
$ 2,312 $ (2,752) $ (14,350)
============ ============ ============
High Yield Variable Account
Compass 2 Contracts 17 $ 475 30 $ 1,123 (289) $ (9,021)
Compass 3 Contracts 19 413 (65) (1,440) (17) (392)
Compass 3 Level 2 Contracts 33 357 53 1,949 (139) (1,735)
------------ ------------ ------------
$ 1,245 $ 1,632 $ (11,148)
============ ============ ============
Managed Sectors Variable Account
Compass 2 Contracts 10 $ 340 2 $ 215 (58) $ (2,163)
Compass 3 Contracts 42 1,477 (114) (4,104) (22) (789)
Compass 3 Level 2 Contracts 114 1,220 294 3,720 (353) (4,190)
------------ ------------ ------------
$ 3,037 $ (169) $ (7,142)
============ ============ ============
Money Market Variable Account
Compass 2 Contracts 27 $ 498 (138) $ (2,740) (343) $ (6,957)
Compass 3 Contracts 71 1,160 (63) (1,035) (39) (635)
Compass 3 Level 2 Contracts 65 782 168 2,162 (450) (5,603)
------------ ------------ ------------
$ 2,440 $ (1,613) $ (13,195)
============ ============ ============
Total Return Variable Account
Compass 2 Contracts 21 $ 727 14 $ 822 (218) $ (8,126)
Compass 3 Contracts 71 2,577 (208) (7,554) (44) (1,622)
Compass 3 Level 2 Contracts 140 2,277 396 7,328 (826) (14,797)
------------ ------------ ------------
$ 5,581 $ 596 $ (24,545)
============ ============ ============
<Caption>
YEAR ENDED DECEMBER 31, 2003 (OOO OMITTED)
---------------------------------------------------------
NET NET NET
ACCUMULATION ANNUITIZATION INCREASES
ACTIVITY ACTIVITY (DECREASE)
--------------------------- ------------- ------------
UNITS DOLLARS DOLLARS DOLLARS
------------ ------------ ------------- ------------
Capital Appreciation Variable Account
Compass 2 Contracts (481) $ (21,324) $ (565) $ (21,889)
Compass 3 Contracts (191) (5,585) (34) (5,619)
Compass 3 Level 2 Contracts (62) (588) (24) (612)
------------ ------------ ------------
$ (27,497) $ (623) $ (28,120)
============ ============ ============
Global Government Variable Account
Compass 2 Contracts 1 $ 3 $ (6) $ (3)
Compass 3 Contracts (17) (392) (2) (394)
Compass 3 Level 2 Contracts 9 (130) (5) (135)
------------ ------------ ------------
$ (519) $ (13) $ (532)
============ ============ ============
Government Securities Variable Account
Compass 2 Contracts (312) $ (11,373) $ (377) $ (11,750)
Compass 3 Contracts (58) (1,488) 0 (1,488)
Compass 3 Level 2 Contracts (130) (1,929) (24) (1,953)
------------ ------------ ------------
$ (14,790) $ (401) $ (15,191)
============ ============ ============
High Yield Variable Account
Compass 2 Contracts (242) $ (7,423) $ (480) $ (7,903)
Compass 3 Contracts (63) (1,419) 0 (1,419)
Compass 3 Level 2 Contracts (53) 571 (6) 565
------------ ------------ ------------
$ (8,271) $ (486) $ (8,757)
============ ============ ============
Managed Sectors Variable Account
Compass 2 Contracts (46) $ (1,608) $ (23) $ (1,631)
Compass 3 Contracts (94) (3,416) (8) (3,424)
Compass 3 Level 2 Contracts 55 750 (12) 738
------------ ------------ ------------
$ (4,274) $ (43) $ (4,317)
============ ============ ============
Money Market Variable Account
Compass 2 Contracts (454) $ (9,199) $ (128) $ (9,327)
Compass 3 Contracts (31) (510) (11) (521)
Compass 3 Level 2 Contracts (217) (2,659) 85 (2,574)
------------ ------------ ------------
$ (12,368) $ (54) $ (12,422)
============ ============ ============
Total Return Variable Account
Compass 2 Contracts (183) $ (6,577) $ (462) $ (7,039)
Compass 3 Contracts (181) (6,599) (107) (6,706)
Compass 3 Level 2 Contracts (290) (5,192) 143 (5,049)
------------ ------------ ------------
$ (18,368) $ (426) $ (18,794)
============ ============ ============
</Table>
45
<Page>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2002 (OOO 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 (OOO 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>
46
<Page>
(8) 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 the variable
accounts for the year ended December 31, 2003, ranged from $58 to $1,995. The
variable accounts had no borrowings during the year.
(9) 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>
CONTRACTS TO CURRENCY
SETTLEMENT DATE DELIVER/RECEIVE ABBREVIATIONS IN EXCHANGE FOR
- -------------------------------------------------------------------------------------------------------------------
Global Governments Variable Account Sales 1/13/04 88,839 AUD $ 64,998
1/13/04 49,110 CAD 37,214
2/9/04 1,261,381 DKK 207,772
1/13/04-1/26/04 1,867,145 EUR 2,242,739
1/13/04 428,178 NOK 63,750
3/15/04 328,840 NZD 210,757
1/13/04-2/9/04 3,107,521 SEK 415,947
-----------
$ 3,243,177
===========
Purchases 1/13/04 171,677 AUD $ 120,069
1/13/04 102,310 CAD 77,925
1/13/04 311,766 EUR 383,650
1/13/04 407,886 GBP 692,649
3/15/04 377,523,594 JPY 3,516,779
1/13/04 856,181 NOK 128,294
1/13/04-2/9/04 637,517 SEK 85,891
-----------
$ 5,005,257
===========
High Yield Variable Account Sales 1/13/04 561,935 EUR $ 655,779
1/13/04 200,000 EUR 247,920
-----------
$ 903,699
===========
<Caption>
NET UNREALIZED
CONTRACTS APPRECIATION
AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------
Global Governments Variable Account $ 66,788 $ (1,790)
37,978 (764)
213,176 (5,404)
2,351,247 (108,508)
64,204 (454)
213,595 (2,838)
431,300 (15,353)
------------- --------------
$ 3,378,288 $ (135,111)
============= ==============
$ 129,065 $ 8,996
79,119 1,194
392,668 9,018
727,377 34,728
3,532,166 15,387
128,382 88
88,483 2,592
------------- --------------
$ 5,077,260 $ 72,003
============= ==============
High Yield Variable Account $ 707,756 $ (51,977)
251,899 (3,979)
------------- --------------
$ 959,655 $ (55,956)
============= ==============
</Table>
See page 23 for an explanation of abbreviations used to indicate amounts shown
in currencies other than U.S. Dollar.
At December 31, 2003, the variable accounts had sufficient cash and/or
securities to cover any commitments under these contracts.
FUTURES CONTRACTS
<Table>
<Caption>
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
----------------------------------------------------------------------------------------------------------------
Global Governments Variable Account Japan Govt Bond 10yr March 2004 1 Long $ (1,777)
</Table>
At December 31, 2003, the variable accounts had sufficient cash and/or
securities to cover any margin requirements under these contracts.
On December 31, 2003, the Global Government Variable Account recorded a
Receivable for daily variation margin on open future contracts of $0. This
balance was due to the fact that December 31, 2003, January 1, 2004, and January
2, 2004 were holidays for all Japanese futures exchanges and banks. Therefore,
all trading activity and issuance of settlement prices with respect to Japanese
exchanges on these dates was halted.
(10) LEGAL PROCEEDINGS
Massachusetts Financial Services Company ("MFS"), the Variable Account's
investment adviser, has reached agreement with the Securities and Exchange
Commission ("SEC"), the New York Attorney General ("NYAG") and the Bureau of
Securities Regulation of the State of New Hampshire ("NH") to settle
administrative proceedings alleging false and misleading information in certain
retail fund prospectuses regarding market timing and related matters. These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the regulators'
view indicated that the funds prohibited market timing. MFS did not limit
trading activity in 11 domestic large cap stock, high grade bond and money
market funds. The complaints by these regulatory authorities did not involve the
Variable Account, but rather involved MFS' retail funds. MFS' former Chief
Executive Officer, John W. Ballen, and former President, Kevin R. Parke, have
also reached agreement with the SEC. Under the terms of the settlements, MFS and
the executives neither admit nor deny wrongdoing.
47
<Page>
Under the terms of the settlements, a $225 million pool will be established and
funded by MFS for distribution to retail fund shareholders. MFS has further
agreed with the NYAG to reduce its management fees by approximately $25 million
annually over the next five years, and not to increase certain management fees
during this period. MFS will also pay an administrative fine to NH in the amount
of $1 million. In addition, MFS and the retail funds will adopt certain
governance changes.
Messrs. Ballen and Parke have agreed to temporary suspensions from association
with any registered investment company or investment adviser, will pay
approximately $315,000 each to the SEC, and resigned their positions as trustees
of all MFS funds, and Mr. Ballen resigned his position as President of all MFS
funds.
MFS and certain MFS funds and their trustees and affiliates have been named as
defendants in class action and other lawsuits alleging similar claims concerning
market timing and seeking damages of unspecified amounts.
In November 2003, the SEC and Morgan Stanley DW, Inc. (Morgan Stanley) settled
an enforcement action against Morgan Stanley relating to the undisclosed receipt
of fees from certain mutual fund companies in return for preferred marketing of
their funds. MFS was one of the 14 fund companies reported to be on Morgan
Stanley's preferred list. As a result, MFS has been under investigation by the
SEC relating to its directed brokerage and revenue-sharing arrangements with
various distributors of its products, including Morgan Stanley. MFS is
cooperating with the SEC's investigation, which is ongoing. The outcome of this
investigation is not yet determinable and may result in sanctions, compensation
payments or other financial penalties.
Although MFS does not believe that these regulatory developments will have a
material adverse effect on the Variable Account, there can be no assurance that
these developments and/or the ongoing adverse publicity resulting from these
developments will not result in increased redemptions, reduced sales or other
adverse consequences.
This report is prepared for the general information of contract owners. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
48
<Page>
INDEPENDENT AUDITOR'S REPORT
TO THE PARTICIPANTS IN AND THE BOARD OF MANAGERS OF 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 AND
THE BOARD OF DIRECTORS OF SUN LIFE INSURANCE COMPANY OF CANADA (U.S.):
We have audited the accompanying statements of assets and liabilities of 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 Accounts"), including the portfolios of investments, as
of December 31, 2003, and the related statements of operations for the year then
ended, statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Variable Accounts' management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Variable Accounts as of December 31, 2003, the results of their operations for
the year then ended, the changes in their net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 17, 2004
49
<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 (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).
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 MANAGERS
J. KERMIT BIRCHFIELD Member of Board of Managers and Chairman (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).
MANAGERS EMERITUS
GARTH MARSTON Member of Board of Managers Emeritus (born 4/28/26)
Retired.
SAMUEL ADAMS(2)** Member of Board of Managers Emeritus (born 10/19/25)
Retired.
OFFICERS
JOHN W. BALLEN(3)++ 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).
ROBERT J. MANNING(4)++ President (born 10/20/63)
Massachusetts Financial Services Company, Chief Executive Officer, President,
Chief Investment Officer and Director.
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 36 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").
(2) Retired December 31, 2003 and became a Manager Emeritus.
(3) Resigned February 6, 2004.
(4) Appointed on February 6, 2004.
* "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 was an "interested person" of
MFS because the law firm of Kirkpatrick & Lockhart, LLP, where Mr. Adams was
Of Counsel, has served as counsel to some investment companies managed by
MFS, and to MFS and its affiliates within the past two fiscal years of the
Accounts.
++ MFS Investment Management(R)
(C) 2004 MFS Investment Management(R)
MFS(R)investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA.
CO-ANN 02/04 45M
<Page>
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR that applies
to the Registrant's principal executive officer and principal financial and
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Birchfield, Bishop, Steinhart and Wright, members of the Audit
Committee, have been determined by the Board of Managers in their reasonable
business judgment to meet the definition of "audit committee financial expert"
as such term is defined in the instructions to Form N-CSR. In addition, Messrs.
Birchfield, Bishop, Steinhart and Wright are each "independent" members of the
Audit Committee as defined in the instructions to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Managers has appointed Deloitte & Touche LLP ("Deloitte") to
serve as independent accountants to the Registrant. In addition, Deloitte may
provide non-audit related services to the Registrant and/or to the
Registrants' investment adviser, Massachusetts Financial Services Company
("MFS") and to various entities either controlling, controlled by, or under
common control with MFS that provide ongoing services to the Funds ("MFS
Related Entities").
For the fiscal years ended December 31, 2003 and 2002, audit fees billed to
the Registrant by Deloitte were as follows:
<Table>
<Caption>
REGISTRANT'S
AUDIT FEES
-----------------------
Fees billed by Deloitte: 2003 2002
-------- -------
Government Securities Variable Account $24,900 $24,900
</Table>
For the fiscal years ended December 31, 2003 and 2002, fees for
audit-related, tax and other services provided to the Registrants, MFS and
MFS Related Entities were as follows:
<Table>
<Caption>
TOTAL
AUDIT-RELATED FEES(1) TAX FEES(2) ALL OTHER FEES(3) NON-AUDIT FEES
------------------- ------------------- ------------------ -------------------
Fees billed by Deloitte: 2003 2002 2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- ------- -------- -------- --------
To Government Securities Variable Account $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
To MFS and MFS Related Entities 365,360 227,650 222,195 227,513 94,000 350,771 491,555 805,934
-------- -------- -------- -------- ------- -------- -------- --------
TOTAL FEES BILLED $365,360 $227,650 $222,195 $227,513 $94,000 $350,771 $491,555 $805,934
</Table>
(1) There were no Audit-Related services provided to the Registrant by
Deloitte for the fiscal years ended December 31, 2003 and 2002. Audit-Related
Fees for MFS and MFS Related entities includes fees for internal control
reviews, due diligence related to acquisitions, attestation services not
required by statue or regulation and quarterly reviews of investment
diversification status related to insurance company separate accounts.
(2) Fees included in the Tax Fees category comprise all services performed by
professional staff in the independent accountant's tax division except those
services related to the audit. This category includes fees for tax
compliance, tax planning, and tax advice. Tax compliance, tax advice, and tax
planning services include preparation of original and amended tax returns,
tax advice related to income recognition and distribution policies, tax
advice on the tax implication of acquisitions and dispositions of assets and
advice regarding application of certain Internal Revenue Code sections.
(3) All Other Fees includes fees for services related to financial
information system implementation, consultation on internal cost allocations,
and in 2002, staff assistance in preparing certain information required for
tax disclosures in financial reports.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Managers relating to the pre-approval of audit and
non-audit related services:
Pre-approval is needed for all planned and anticipated audit and
permissible non-audit services rendered to the Registrant and all
permissible non-audit services rendered to MFS or MFS Related Entities
if the services relate directly to the operations and/or financial
reporting of the Registrant. In the event such services arise between
regular meetings of the Audit Committee and it is not practical to seek
pre-approval at the next regular meeting of the Audit Committee, such
services may be referred to the Chair of the Audit Committee for
approval; provided that, the Chair may not approve any individual
engagement for such services exceeding $50,000 or multiple engagements
for such services in the aggregate exceeding $100,000 between such
regular meetings of the Audit Committee. Any engagement approved by the
Chair between regular meetings of the Audit Committee shall be
presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Registrant and MFS and MFS Related Entities
disclosed above were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee
approval after the start of the engagement with respect to services other
than audit review or attest services, if certain conditions are satisfied.
ITEM 4(f): Not applicable.
ITEM 4(h): Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not required at this time. [Required for reporting periods ending after January
1, 2004 (beginning with N-CSR's filed at the end of March 2004, for January 31,
2004 reporting period).]
<Page>
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal financial officer and principal executive
officer have concluded that those disclosure controls and procedures
provide reasonable assurance that the material information required to be
disclosed by the registrant on this report is recorded, processed,
summarized and reported within the time periods specified in the Securities
and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. 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: Code of Ethics attached hereto.
(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(b) 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.
<Page>
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 GOVERNMENT SECURITIES VARIABLE ACCOUNT
By (Signature and Title)* ROBERT J. MANNING
------------------------------------------------------
Robert J. Manning, President
Date: February 23, 2004
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* ROBERT J. MANNING
------------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: February 23, 2004
---------------------
By (Signature and Title)* RICHARD M. HISEY
------------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting
Officer)
Date: February 23, 2004
------------------
* Print name and title of each signing officer under his or her signature.