-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TxU4AB7jK4OOXW6/WGgMJ+oR7tN2hpiSmBjYB7iW+/V9o9XAps61H3Zk9d/fWqX3 F32dlFexP9ScDiVPPk1A+w== 0000950156-06-000093.txt : 20060310 0000950156-06-000093.hdr.sgml : 20060310 20060310140540 ACCESSION NUMBER: 0000950156-06-000093 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060310 DATE AS OF CHANGE: 20060310 EFFECTIVENESS DATE: 20060310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL APPRECIATION VARIABLE ACCOUNT/MA CENTRAL INDEX KEY: 0000706111 IRS NUMBER: 042461439 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03561 FILM NUMBER: 06678746 BUSINESS ADDRESS: STREET 1: C/O SUN LIFE ASSURANCE CO OF CANADA STREET 2: ONE SUN LIFE EXECUTIVE PARK CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 BUSINESS PHONE: 6179545244 MAIL ADDRESS: STREET 1: C/O SUN LIFE ASSURANCE CO OF CANADA STREET 2: ONE SUN LIFE EXECUTIVE PARK CITY: WELLESLEY HILLS STATE: MA ZIP: 02181 FORMER COMPANY: FORMER CONFORMED NAME: COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT/MA DATE OF NAME CHANGE: 19880121 0000706111 S000002616 CAPITAL APPRECIATION VARIABLE ACCOUNT/MA C000007195 Compass 2 C000007196 Compass 3 C000007197 Compass 3 - Level 2 N-CSR 1 d639331.txt COMPASS CAPITAL APPRECIATION VARIABLE ACCT. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3561 - ------------------------------------------------------------------------------- CAPITAL APPRECIATION VARIABLE ACCOUNT - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 500 Boylston Street, Boston, Massachusetts 02116 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Susan S. Newton 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: December 31 - ------------------------------------------------------------------------------- Date of reporting period: December 31, 2005 - ------------------------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. COMPASS [graphic omitted] PROFESSIONALLY MANAGED COMBINATION FIXED/VARIABLE ANNUITIES FOR PERSONAL INVESTMENTS AND QUALIFIED RETIREMENT PLANS ANNUAL REPORT o DECEMBER 31, 2005 Capital Appreciation Variable Account Global Governments Variable Account Government Securities Variable Account High Yield Variable Account Money Market Variable Account Total Return Variable Account Issued by Sun Life Assurance Company of Canada (U.S.), A Wholly Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc. TABLE OF CONTENTS Letter from the CEO of MFS ........................................ 1 Management Reviews ................................................ 1 Performance Summary ............................................... 5 Portfolio Composition ............................................. 6 Portfolio of Investments .......................................... 12 Financial Statements .............................................. 29 Notes to Financial Statements ..................................... 46 Report of Independent Registered Public Accounting Firm ........... 52 Managers and Officers ............................................. 53 Board Review of Investment Advisory Agreements .................... 57 Proxy Voting Policies and Information ............................. Back Cover Quarterly Portfolio Disclosure .................................... Back Cover - ------------------------------------------------------------------------------- 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. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF - --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO OF MFS DEAR CONTRACT OWNERS, Most investors are familiar with the basic principles of investing - focus on the long term and keep your assets diversified across different investment categories. Still, it is surprising how often we forget these basic lessons. Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s had many people hoping they could become millionaires overnight. But the market decline that started in the spring of 2000 taught everyone how misguided those hopes had been. Now, less than six years after the market taught a harsh lesson in the follies of speculative investing, we are seeing a number of trends that suggest many investors, including professionals, are hoping for overnight miracles again. We see a steady stream of market "gurus" on television news shows, promising to teach amateur investors the strategies that will allow them to get rich quick. Hedge funds - which by their nature move in and out of investments rapidly - have soared in popularity in recent years. We are reminded every day that we live in a "what have you done for me lately?" world, but this mindset should not influence how we invest and manage our money. In fact, investors often fall short of their goals because they traded in and out of investments too frequently and at inopportune times. Throughout our more than 80-year history, MFS' money management process has focused on long-term investment opportunities. We firmly believe that the best way to realize long-term financial goals - be it a college education, a comfortable retirement, or a secure family legacy - is to follow a three- pronged approach that focuses on longer time horizons. Allocate holdings across the major asset classes - including stocks, bonds, and cash. Diversify within each class to take advantage of different market segments and investing styles. And rebalance assets regularly to maintain a desired asset allocation.* This long-term approach requires diligence and patience, two traits that in our experience are essential to capitalizing on the many opportunities the financial markets can offer. Respectfully, /s/ Robert J. Manning Robert J. Manning Chief Executive Officer and Chief Investment Officer MFS Investment Management(R) February 15, 2006 *Asset allocation, diversification, and rebalancing do not guarantee a profit or protect against a loss. The opinions expressed in this letter are those of MFS, and no forecasts can be guaranteed. MANAGEMENT REVIEWS The following management reviews, for the twelve months ended December 31, 2005, exclude the Money Market Variable Account. CAPITAL APPRECIATION VARIABLE ACCOUNT SUMMARY OF RESULTS For the twelve months ended December 31, 2005, Compass 2 provided a total return of -0.32%; Compass 3 provided a total return of -0.42%; and Compass 3 - Level 2 provided a total return of -0.27%. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of 5.26% over the same period for the account's benchmark, the Russell 1000 Growth Index. DETRACTORS FROM PERFORMANCE The technology sector was the largest detractor from relative performance over the period. Poor stock selection was the primary reason for relative under- performance within the sector. Our holdings in printer products company Lexmark International*, security software firm Symantec, and networking and communications manufacturer Cisco Systems disappointed as these stocks underperformed the index over the reporting period. Underweighting Apple Computer*, and not fully participating in the appreciation of the firm's stock, also weighed on relative results. No individual stocks within the leisure sector were among the portfolio's top detractors. Security selection in the industrial goods and services and retailing sectors also dampened results. In industrial goods and services, manufacturing conglomerate Tyco International (not an index constituent) hurt performance. In retailing, online retailer and services provider IAC/InterActiveCorp* held back results. Elsewhere, holdings in motorcycle manufacturer Harley-Davidson* and biotech firm ImClone Systems* hampered results. Our virtual avoidance of drug maker Pfizer*, which outperformed during the period, also held back performance. The portfolio's cash position was also a detractor from relative performance. The portfolio holds cash to buy new holdings and to provide liquidity. In a period when equity markets rose, as measured by the portfolio's benchmark, holding cash hurt performance versus the benchmark, which has no cash position. CONTRIBUTORS TO PERFORMANCE A combination of stock selection and an underweighted position in the financial services sector added to relative results. Nevertheless, no individual stocks within the sector were among the portfolio's top contributors. Stock selection and, to a lesser extent, our underweighted position in the basic materials sector helped relative results. Within the sector, Brazilian iron ore miner Companhia Vale do Rio Doce* (not an index constituent) was among the portfolio's top contributors. Overweighting the energy sector and strong stock selection in the health care sector also boosted relative performance. In energy, seamless steel pipe manufacturer Tenaris* (not an index constituent) aided results. In health care, our holdings in biotech firm Amgen, pharmaceutical and diagnostic company Roche Holding (not an index constituent), and hospital operators HCA* and Community Health Systems* proved favorable. Other individual stocks that contributed to relative performance included drug store chain CVS and microchip and electronics manufacturer Samsung Electronics (not an index constituent). Additionally, not owning International Business Machines (IBM) and underweighting industrial conglomerate General Electric enhanced relative results as both stocks performed poorly relative to the overall index over the period. *Security was not held in the portfolio at period-end. GLOBAL GOVERNMENTS VARIABLE ACCOUNT SUMMARY OF RESULTS For the twelve months ended December 31, 2005, Compass 2 provided a total return of -8.72%; Compass 3 provided a total return of -8.85%; and Compass 3 - Level 2 provided a total return of -8.72%. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of - -6.53% for the account's benchmark, the J.P. Morgan Global Government Bond Index. During the reporting period ended December 31, 2005, the account's benchmark changed from the Citigroup World Government Bond Index to the J.P. Morgan Global Government Bond Index. DETRACTORS FROM PERFORMANCE The portfolio's currency positions acted as a drag on performance. During the first half of the period, the account's lower exposure to the U.S. Dollar hurt relative results, as the dollar appreciated relative to most major currencies. During the period, the benchmark generated a higher level of income than the portfolio. CONTRIBUTORS TO PERFORMANCE The portfolio's duration(1) stance and yield curve(2) positioning aided results throughout the period. The portfolio's positioning in longer-term U.S. and European bonds contributed to performance, as long-term interest rates declined in the U.S. and Europe. Holdings of asset-backed bonds, government agencies, and bonds in the finance sector also bolstered results. Holdings in emerging market debt added to performance, driven primarily by Russian and Mexican bonds. GOVERNMENT SECURITIES VARIABLE ACCOUNT SUMMARY OF RESULTS For the twelve months ended December 31, 2005, Compass 2 provided a total return of 0.91%; Compass 3 provided a total return of 0.82%; and Compass 3 - Level 2 provided a total return of 0.96%. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of 2.63% over the same period for the account's benchmark, the Lehman Brothers U.S. Government/Mortgage Bond Index. DETRACTORS FROM PERFORMANCE Holding lower-yielding issues relative to the portfolio's benchmark held back results for the period. Our underweighted position in 30-year mortgage-backed securities, which outperformed comparable-maturity Treasuries, also detracted from relative performance. CONTRIBUTORS TO PERFORMANCE Toward the end of the period, the portfolio's long duration(1) stance versus the benchmark contributed to performance as long-term interest rates declined. HIGH YIELD VARIABLE ACCOUNT SUMMARY OF RESULTS For the twelve months ended December 31, 2005, Compass 2 provided a total return of 0.47%; Compass 3 provided a total return of 0.37%; and Compass 3 - Level 2 provided a total return of 0.52%. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of 2.74% for the account's benchmark, the Lehman Brothers U.S. High- Yield Corporate Bond Index. DETRACTORS FROM PERFORMANCE Several of our holdings in the more speculative "CCC"-rated(3) sector of the high yield market held back the portfolio's relative performance during the period. Holdings that detracted from relative performance included cable TV operator Charter Communications, auto parts manufacturer Delphi, packaging manufacturer Huntsman Packaging*, electrical contracting and maintenance company Integrated Electrical Services*, and independent power producer Calpine*. Our position in brokerage company Refco* also hurt relative returns as the value of the company's debt declined due to its alleged involvement in fraudulent business practices. CONTRIBUTORS TO PERFORMANCE Our overweighted positions in the debt of commodity chemical companies contributed to the portfolio's relative returns as that sector outperformed the overall index. Attractive supply-demand dynamics, which boosted earnings and cash flows, enabled these companies to decrease leverage. Our position in chemical company Rhodia was among the portfolio's top contributing securities. Several individual holdings performed well during the period, including television broadcaster Paxson Communications, wireline operator Qwest, and oil and gas company Kerr-McGee. *Security was not held in the portfolio at period-end. TOTAL RETURN VARIABLE ACCOUNT SUMMARY OF RESULTS For the twelve months ended December 31, 2005, Compass 2 provided a total return of 1.60%; Compass 3 provided a total return of 1.45%; and Compass 3 - Level 2 provided a total return of 1.60%. These returns, which include the reinvestment of any dividends and capital gains distributions, compare with a return of 4.91% for the account's benchmark, the Standard & Poor's 500 Stock Index (the S&P 500 Stock Index). The account's other benchmark, the Lehman Brothers U.S. Aggregate Bond Index, provided a return of 2.43%. DETRACTORS FROM PERFORMANCE Within the equity portion of the account, security selection in the utilities and communications sector detracted from performance relative to the S&P 500 Stock Index. Holdings in poor-performing independent power producer Calpine* and telecom services provider Verizon Communications held back returns as both stocks lagged the S&P 500 Stock Index. Security selection within the basic materials sector also weighed on results, with newsprint maker Bowater (not an index constituent) among the portfolio's top detractors. A combination of stock selection and an overweighted position in the leisure sector dampened investment results. In particular, overweighting global entertainment conglomerate Viacom negatively impacted the portfolio's performance. Elsewhere, the portfolio's holdings in health care firm Tenet Healthcare hurt relative returns as the stock underperformed the S&P 500 Stock Index. In technology, positions in security software firm Symantec and telecom equipment company Nortel Networks (not an index constituent), and the avoidance of strong-performing Apple Computer, detracted from performance relative to the S&P 500 Stock Index. Overweighting weak-performing home improvement products manufacturer Masco (in the autos and housing sector) and retailer Gap also held back results. During the reporting period, currency exposure within the equity portion of the account was a detractor from performance relative to the S&P 500 Stock Index. All of MFS' equity investment decisions are driven by the fundamentals of each individual opportunity and, as such, it is common for our portfolios to have different currency exposure than the benchmark. Within the fixed income portion of the account, overweighting "BBB"-rated(3) securities held back performance relative to the Lehman Brothers U.S. Aggregate Bond Index. During the period, spreads on "BBB"-rated debt widened, causing bonds within this quality sector to lose value. Specific sectors that detracted from performance included finance and agency-related debt. In the finance sector, bonds of Ford Motor Credit and General Motors Acceptance Corp. hurt relative returns. CONTRIBUTORS TO PERFORMANCE Within the equity portion of the account, a combination of an overweighted position and favorable security selection in the strong-performing energy sector boosted performance relative to the S&P 500 Stock Index. Overweighting a number of energy firms contributed to returns, including oil and gas producer Devon Energy, energy exploration and production company EOG Resources, and offshore drilling company Noble Corp. Positions in drilling rig operator GlobalSantaFe and oil and gas service company Cooper Cameron, neither of which are index constituents, also helped. A combination of stock selection and, to a lesser extent, the portfolio's overweighting in the financial services sector contributed to relative results over the period. Although financial services was a top contributing sector on a relative basis, no individual securities within the sector were among the portfolio's top contributors. An overweighted position and positive security selection within the special products and services sector also aided results. Avoiding poor-performing internet auctioneer eBay benefited returns as the stock underperformed the S&P 500 Stock Index over the period. Elsewhere, underweighting information technology firm International Business Machines (IBM) and computer manufacturer Dell* in the technology sector added to relative performance. In health care, underweighting weak-performing pharmaceutical giant Pfizer* also boosted results. In the industrial goods and services sector, holdings in aerospace and defense firm Lockheed Martin proved beneficial to performance as the stock outperformed the S&P 500 Stock Index. Within the fixed income portion of the account, the portfolio's stance on duration(1) aided performance relative to the Lehman Brothers U.S. Aggregate Bond Index. During the period, the portfolio maintained a shorter duration than the index. Holdings of Treasury securities bolstered performance over the period as did the portfolio's positioning in mortgage-backed and asset-backed securities. *Security was not held in the portfolio at period-end. The views expressed in this report are those of the portfolio managers only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market and other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio's current or future investments. The portfolios are actively managed, and current holdings may be different. Variable annuities are designed for long-term retirement investing, please see your investment professional for more information. (1)Duration is a measure of a portfolio's sensitivity to changes in interest rates. (2)A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. (3)Bonds rated "BBB" or higher are considered investment grade; bonds rated "BB" or lower are considered non-investment grade. INDEX DEFINITIONS J.P. Morgan Global Government Bond Index - measures developed government bond markets around the world. Lehman Brothers U.S. Government/Mortgage Bond Index - measures debt issued by the U.S. Government as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Lehman Brothers U.S. High-Yield Corporate Bond Index - measures the universe of non-investment grade, fixed rate debt. Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded. Lehman Brothers U.S. Aggregate Bond Index - measures the U.S. investment grade, fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Russell 1000 Growth Index - constructed to provide a comprehensive barometer for growth securities in the large-cap segment of the U.S. equity universe. Companies in this index generally have higher price-to-book ratios and higher forecasted growth values. S&P 500 Stock Index - a capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance. It is not possible to invest directly in an index. KEY RISK CONSIDERATIONS CAPITAL APPRECIATION VARIABLE ACCOUNT Stock markets are volatile and can decline due to adverse issuer, political, regulatory or economic conditions. The value of the portfolio's equity investments will fluctuate in response to many factors including company specific factors as well as general market conditions. Foreign investments can be more volatile than U.S. investments. GLOBAL GOVERNMENTS VARIABLE ACCOUNT The portfolio's yield and shares prices change daily based on the credit quality of its investments and changes in interest rates. In general, the value of debt securities will decline when interest rates rise and will increase when interest rates fall. Debt securities with longer maturity dates will be subject to greater price fluctuations than those with shorter maturities. Mortgage securities are subject to prepayment risk which can offer less potential for gains in a declining interest rate environment and greater potential for loss in a rising interest rate environment. Derivatives involve risks different from, and greater than, those of the underlying indicator's in whose value the derivative is based. The value of the derivative can move in unexpected ways and result in unanticipated losses and increased volatility if the value of the underlying indicator(s) does not move in the direction or the extent anticipated. Because MFS may invest a relatively large percentage of the portfolio's assets in issuers located in a single country or a small number of countries, the portfolio's performance could be closely tied to the market, economic, political or regulatory conditions and developments in those countries and could be more volatile than the performance of more geographically diversified portfolios. Foreign investments can be more volatile than U.S. investments. Changes in currency exchange rates may affect the portfolio's net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. Investing in emerging markets can involve risks in addition to those generally associated with investing in more developed foreign markets. MFS may invest a significant percentage of the portfolio's assets in a single issuer or a small number of issuers. GOVERNMENT SECURITIES VARIABLE ACCOUNT The portfolio's yield and share prices change daily based on the credit quality of its investments and changes in interest rates. In general, the value of debt securities will decline when interest rates rise and will increase when interest rates fall. Debt securities with longer maturity dates will be subject to greater price fluctuations than those with shorter maturities. Mortgage securities are subject to prepayment risk which can offer less potential for gains in a declining interest rate environment and greater potential for loss in a rising interest rate environment. Derivatives involve risks different from, and greater than, those of the underlying indicator's in whose value the derivative is based. The value of the derivative can move in unexpected ways and result in unanticipated losses and increased volatility if the value of the underlying indicator(s) does not move in the direction or the extent anticipated. HIGH YIELD VARIABLE ACCOUNT The portfolio's yield and unit prices change daily based on the credit quality of its investments and changes in interest rates. In general, the value of debt securities will decline when interest rates rise and will increase when interest rates fall. Debt securities with longer maturity dates will be subject to greater price fluctuations than those with shorter maturities. Derivatives involve risks different from, and greater than, those of the underlying indicator's in whose value the derivative is based. The value of the derivative can move in unexpected ways and result in unanticipated losses and increased volatility if the value of the underlying indicator(s) does not move in the direction or the extent anticipated. Lower quality debt securities involve substantially greater risk of default and their value can decline significantly over time. Foreign investments can be more volatile than U.S. investments. Investing in emerging markets can involve risks in addition to those generally associated with investing in more developed foreign markets. MONEY MARKET VARIABLE ACCOUNT The portfolio's yield changes daily and is based on changes in interest rates and market conditions, and in response to other economic, political, or financial developments. The value of the portfolio's investments may fluctuate in response to many factors including the performance and valuation of the issuer and general market conditions. Municipal instruments can be volatile and significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal instruments. Foreign investments can be more volatile than U.S. investments. Investors should note that while securities issued by certain U.S. government agencies or instrumentalities are guaranteed by the U.S. government, securities issued by many U.S. government agencies are not guaranteed by the U.S. government. Although the portfolio(s) seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the portfolio. TOTAL RETURN VARIABLE ACCOUNT Stock markets are volatile and can decline due to adverse issuer, political, regulatory or economic conditions. The value of the portfolio's equity investments will fluctuate in response to many factors including company specific factors as well as general market conditions. Foreign investments can be more volatile than U.S. investments. The portfolio's yield and share prices change daily based on the credit quality of its investments and changes in interest rates. In general, the value of debt securities will decline when interest rates rise and will increase when interest rates fall. Debt securities with longer maturity dates will be subject to greater price fluctuations than those with shorter maturities. Derivatives involve risks different from, and greater than, those of the underlying indicator's in whose value the derivative is based. The value of the derivative can move in unexpected ways and result in unanticipated losses and increased volatility if the value of the underlying indicator(s) does not move in the direction or the extent anticipated. When you sell your units, they may be worth more or less than the amount you paid for them. Please see the prospectus for further information regarding these and other risks considerations. PERFORMANCE SUMMARY THESE PERFORMANCE RESULTS REFLECT THE MORTALITY AND EXPENSE CHARGES AND DO NOT INCLUDE THE DEDUCTION OF ANY APPLICABLE CONTRACT OR SURRENDER CHARGES. IF SURRENDER CHARGES AND CONTRACT FEES WERE INCLUDED, THE RESULTS WOULD BE LOWER. YEAR END PERFORMANCE THROUGH DECEMBER 31, 2005 Compass 3 - Compass 2 Compass 3 Level 2 -------- -------- -------- Capital Appreciation (0.32)% (0.42)% (0.27)% Variable Account Global Governments Variable (8.72)% (8.85)% (8.72)% Account Government Securities 0.91% 0.82% 0.96% Variable Account High Yield Variable Account 0.47% 0.37% 0.52% Money Market 1.29% 1.19% 1.34% Variable Account Total Return 1.60% 1.45% 1.60% Variable Account PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR UNITS, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE VISIT SUNLIFE-USA.COM. THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A CONTRACT HOLDER WOULD PAY ON DISTRIBUTIONS OR REDEMPTION OF CONTRACT UNITS. Performance results reflect any applicable expense subsidies, waivers, and adjustments in effect during the period shown. Without these, the results would have been less favorable. See the prospectus for details. All results are historical and assume the reinvestment of any dividends and capital gains distributions. Money Market Variable Account performance results reflect any applicable expense subsidies, waivers and adjustments in effect during the periods shown. Subsidies and fee waivers may be imposed to enhance a portfolio's yield during periods when the portfolio's operating expenses have a significant impact on the portfolio's yield due to lower interest rates. Without such subsidies, waivers and adjustments, the results would have been less favorable. See the prospectus for details. All results are historical and assume the reinvestment of dividends and capital gains. From time to time the variable accounts may receive proceeds from litigation settlements, without which performance would be lower. See notes to financial statements. PORTFOLIO COMPOSITION -- CAPITAL APPRECIATION VARIABLE ACCOUNT PORTFOLIO STRUCTURE Stocks 96.7% Cash & Other Net Assets 3.3% TOP TEN HOLDINGS Cisco Systems, Inc. 3.9% ------------------------------------------------ Wyeth 3.3% ------------------------------------------------ Intel Corp. 2.9% ------------------------------------------------ Samsung Electronics Co. Ltd., GDR 2.7% ------------------------------------------------ Johnson & Johnson 2.6% ------------------------------------------------ Wal-Mart Stores, Inc. 2.6% ------------------------------------------------ QUALCOMM, Inc. 2.5% ------------------------------------------------ Oracle Corp. 2.4% ------------------------------------------------ Gilead Sciences, Inc. 2.4% ------------------------------------------------ Dell, Inc. 2.4% ------------------------------------------------ SECTOR WEIGHTINGS Technology 39.3% ------------------------------------------------ Health Care 22.5% ------------------------------------------------ Retailing 13.0% ------------------------------------------------ Leisure 6.3% ------------------------------------------------ Financial Services 5.7% ------------------------------------------------ Consumer Staples 2.6% ------------------------------------------------ Industrial Goods & Services 2.3% ------------------------------------------------ Transportation 1.6% ------------------------------------------------ Special Products & Services 1.4% ------------------------------------------------ Autos & Housing 1.1% ------------------------------------------------ Energy 0.9% ------------------------------------------------ Percentages are based on net assets as of 12/31/05. The portfolio is actively managed and current holdings may be different. PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT PORTFOLIO STRUCTURE (b) Bonds 88.3% Cash & Other Net Assets 11.7% MARKET SECTORS (b) Non-U.S. Government Bonds 66.6% ------------------------------------------------ Cash & Other Net Assets 11.7% ------------------------------------------------ Commercial Mortgage-Backed Securities 7.3% ------------------------------------------------ U.S. Treasury Securities 4.8% ------------------------------------------------ U.S. Government Agencies 4.6% ------------------------------------------------ Emerging Market Bonds 2.8% ------------------------------------------------ Municipal Bonds 2.2% ------------------------------------------------ CREDIT QUALITY OF BONDS (r) AAA 79.5% ------------------------------------------------ AA 12.9% ------------------------------------------------ A 2.9% ------------------------------------------------ BBB 2.6% ------------------------------------------------ Not Rated 2.1% ------------------------------------------------ PORTFOLIO FACTS Average Duration (d) 4.9 ------------------------------------------------ Average Life (m) 7.8 yrs. ------------------------------------------------ Average Maturity (m) 9.6 yrs. ------------------------------------------------ Average Credit Quality of Rated Securities (a) AA+ ------------------------------------------------ Average Short Term Quality A-1 ------------------------------------------------ COUNTRY WEIGHTINGS (b) United States 31.9% ------------------------------------------------ Germany 14.8% ------------------------------------------------ United Kingdom 13.6% ------------------------------------------------ Japan 7.4% ------------------------------------------------ New Zealand 7.0% ------------------------------------------------ Spain 3.7% ------------------------------------------------ France 3.4% ------------------------------------------------ Finland 3.1% ------------------------------------------------ Belgium 2.6% ------------------------------------------------ All Others 12.5% ------------------------------------------------ (b) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (r) Each security is assigned a rating from Moody's Investors Service. If not rated by Moody's, the rating will be that assigned by Standard & Poor's. Likewise, if not assigned a rating by Standard & Poor's, it will be based on the rating assigned by Fitch, Inc. For those portfolios that hold a security which is not rated by any of the three agencies, the security is considered Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed securities, if any, are included in a "AAA"-rating category. Percentages are based on market value of investments as of 12/31/05. (m) The average maturity shown is calculated using the final stated maturity on the portfolio's holdings without taking into account any holdings which have been pre-refunded to an earlier date or which have a mandatory put date prior to the stated maturity. The average life shown takes into account these earlier dates. (a) The average credit quality of rated securities is based upon a market weighted average of portfolio holdings that are rated by public rating agencies. (d) Duration is a measure of how much a bond fund's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its value. Percentages are based on net assets as of 12/31/05, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT PORTFOLIO STRUCTURE (b) Bonds 97.4% Cash & Other Net Assets 2.6% FIXED INCOME MARKET SECTORS (b) Mortgage-Backed Securities 49.5% ------------------------------------------------ U.S. Government Agencies 33.6% ------------------------------------------------ U.S. Treasury Securities 14.3% ------------------------------------------------ Cash & Other Net Assets 2.6% ------------------------------------------------ CREDIT QUALITY OF BONDS (r) AAA 98.1 ------------------------------------------------ Not Rated 1.9 ------------------------------------------------ PORTFOLIO FACTS Average Duration (d) 4.5 ------------------------------------------------ Average Life (m) 7.7 yrs. ------------------------------------------------ Average Maturity (m) 15.9 yrs. ------------------------------------------------ Average Credit Quality of Rated Securities (a) AAA ------------------------------------------------ Average Short Term Quality A-1 ------------------------------------------------ (b) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (r) Each security is assigned a rating from Moody's Investors Service. If not rated by Moody's, the rating will be that assigned by Standard & Poor's. Likewise, if not assigned a rating by Standard & Poor's, it will be based on the rating assigned by Fitch, Inc. For those portfolios that hold a security which is not rated by any of the three agencies, the security is considered Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed securities, if any, are included in a "AAA"-rating category. Percentages are based on market value of investments as of 12/31/05. (m) The average maturity shown is calculated using the final stated maturity on the portfolio's holdings without taking into account any holdings which have been pre-refunded to an earlier date or which have a mandatory put date prior to the stated maturity. The average life shown takes into account these earlier dates. (a) The average credit quality of rated securities is based upon a market weighted average of portfolio holdings that are rated by public rating agencies. (d) Duration is a measure of how much a bond variable account's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its value. Percentages are based on net assets as of 12/31/05, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT PORTFOLIO STRUCTURE (b) Bonds 94.5% Cash & Other Net Assets 4.1% Stocks 1.0% Convertible Preferred Stocks 0.3% Preferred Stocks 0.1% TOP FIVE INDUSTRIES (b) Utilities - Electric Power 7.3% ------------------------------------------------ Gaming & Lodging 7.2% ------------------------------------------------ Medical & Health Technology & Services 6.2% ------------------------------------------------ Automotive 5.8% ------------------------------------------------ Chemicals 4.9% ------------------------------------------------ CREDIT QUALITY OF BONDS (r) A 0.5% ------------------------------------------------ BBB 7.3% ------------------------------------------------ BB 37.0% ------------------------------------------------ B 39.9% ------------------------------------------------ CCC 13.5% ------------------------------------------------ CC 0.5% ------------------------------------------------ C 0.1% ------------------------------------------------ D 0.1% ------------------------------------------------ Not Rated 1.1% ------------------------------------------------ PORTFOLIO FACTS Average Duration (d) 4.5 ------------------------------------------------ Average Life (m) 7.7 yrs. ------------------------------------------------ Average Maturity (m) 8.1 yrs. ------------------------------------------------ Average Credit Quality of Rated Securities (a) B+ ------------------------------------------------ Average Short Term Quality A-1 ------------------------------------------------ (b) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (r) Each security is assigned a rating from Moody's Investors Service. If not rated by Moody's, the rating will be that assigned by Standard & Poor's. Likewise, if not assigned a rating by Standard & Poor's, it will be based on the rating assigned by Fitch, Inc. For those portfolios that hold a security which is not rated by any of the three agencies, the security is considered Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed securities, if any, are included in a "AAA"-rating category. Percentages are based on market value of investments as of 12/31/05. (m) The average maturity shown is calculated using the final stated maturity on the portfolio's holdings without taking into account any holdings which have been pre-refunded to an earlier date or which have a mandatory put date prior to the stated maturity. The average life shown takes into account these earlier dates. (a) The average credit quality of rated securities is based upon a market weighted average of portfolio holdings that are rated by public rating agencies. (d) Duration is a measure of how much a bond variable account's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its value. Percentages are based on net assets as of 12/31/05, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- MONEY MARKET VARIABLE ACCOUNT PORTFOLIO STRUCTURE (b) Commercial Paper 92.2% Repurchase Agreements 6.2% Certificates of Deposit 1.8% Other Assets Less Liabilities -0.2% SHORT TERM CREDIT QUALITY (r) A-1 100% ------------------------------------------------ MATURITY BREAKDOWN (b) 0 to 29 Days 41.5% ------------------------------------------------ 30 to 59 Days 52.2% ------------------------------------------------ 60 to 89 Days 6.5% ------------------------------------------------ Other Assets Less Liabilities -0.2% ------------------------------------------------ (b) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (r) Each security is assigned a rating from Moody's Investors Service. If not rated by Moody's, the rating will be that assigned by Standard & Poor's. Likewise, if not assigned a rating by Standard & Poor's, it will be based on the rating assigned by Fitch, Inc. For those portfolios that hold a security which is not rated by any of the three agencies, the security is considered Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed securities, if any, are included in a "AAA"-rating category. Percentages are based on market value of investments as of 12/31/05. From time to time "Other Assets Less Liabilities," may be negative due to timing of cash receipts. Percentages are based on net assets as of 12/31/05, unless otherwise noted. The portfolios are actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- TOTAL RETURN VARIABLE ACCOUNT PORTFOLIO STRUCTURE (b) Stocks 59.0% Bonds 40.7% Cash & Other Net Assets 0.3% TOP TEN HOLDINGS (b) Fannie Mae 5.5%, 30 year 4.3% ------------------------------------------------ Bank of America Corp. 2.5% ------------------------------------------------ U.S. Treasury Bonds, 6.25%, 2023 1.9% ------------------------------------------------ Fannie Mae, 6.625%, 2010 1.8% ------------------------------------------------ U.S. Treasury Notes, 6.5%, 2010 1.8% ------------------------------------------------ Sprint Nextel Corp. 1.6% ------------------------------------------------ Wyeth 1.5% ------------------------------------------------ PNC Financial Services Group, Inc. 1.5% ------------------------------------------------ J.P. Morgan Chase & Co. 1.4% ------------------------------------------------ Masco Corp. 1.3% ------------------------------------------------ EQUITY SECTOR WEIGHTINGS Financial Services 15.7% ------------------------------------------------ Energy 6.7% ------------------------------------------------ Utilities & Communications 5.7% ------------------------------------------------ Technology 5.5% ------------------------------------------------ Health Care 4.9% ------------------------------------------------ Industrial Goods & Services 4.3% ------------------------------------------------ Basic Materials 3.8% ------------------------------------------------ Leisure 3.8% ------------------------------------------------ Consumer Staples 3.4% ------------------------------------------------ Retailing 2.9% ------------------------------------------------ Autos & Housing 1.5% ------------------------------------------------ Transportation 0.4% ------------------------------------------------ Special Products & Services 0.4% ------------------------------------------------ FIXED INCOME SECTOR WEIGHTINGS (b) Mortgage-Backed Securities 14.4% ------------------------------------------------ U.S. Treasury Securities 9.5% ------------------------------------------------ High Grade Corporates 9.1% ------------------------------------------------ U.S. Government Agencies 4.6% ------------------------------------------------ Commercial Mortgage-Backed Securities 1.6% ------------------------------------------------ Asset-Backed Securities 0.8% ------------------------------------------------ High Yield Corporates 0.3% ------------------------------------------------ Emerging Market Bonds 0.2% ------------------------------------------------ Non U.S. Government Bonds 0.1% ------------------------------------------------ Residential Mortgage-Backed Securities 0.1% ------------------------------------------------ (b) For purposes of this graphical presentation, the fixed income portion includes both accrued interest on bonds and the equivalent exposure from any derivative holdings, if applicable. Percentages are based on net assets as of 12/31/05, unless otherwise noted. The portfolio is actively managed and current holdings may be different. PORTFOLIO OF INVESTMENTS -- December 31, 2005 CAPITAL APPRECIATION VARIABLE ACCOUNT STOCKS -- 96.7%
Shares/Par Issuer ($) Value ($) APPAREL MANUFACTURERS -- 2.0% Cintas Corp. .............................. 60,300 $ 2,483,154 Nike, Inc., "B" ........................... 29,560 2,565,512 ------------ $ 5,048,666 ------------ AUTOMOTIVE -- 1.1% Harman International Industries, Inc. ..... 29,970 $ 2,932,565 ------------ BANKS & CREDIT COMPANIES -- 2.3% American Express Co. ...................... 38,160 $ 1,963,714 SLM Corp. ................................. 68,260 3,760,443 UBS AG .................................... 3,130 297,820 ------------ $ 6,021,977 ------------ BIOTECHNOLOGY -- 5.3% Amgen, Inc.(n) ............................ 50,200 $ 3,958,772 Genzyme Corp.(n) .......................... 48,240 3,414,427 Gilead Sciences, Inc.(n) .................. 118,830 6,254,023 ------------ $ 13,627,222 ------------ BROADCAST & CABLE TV -- 2.2% Grupo Televisa S.A., ADR .................. 28,170 $ 2,267,685 Univision Communications, Inc., "A"(n) .... 53,700 1,578,243 Walt Disney Co. ........................... 73,600 1,764,192 ------------ $ 5,610,120 ------------ BROKERAGE & ASSET MANAGERS -- 1.2% Chicago Mercantile Exchange Holdings, Inc. 4,070 $ 1,495,684 Merrill Lynch & Co., Inc. ................. 23,000 1,557,790 ------------ $ 3,053,474 ------------ BUSINESS SERVICES -- 1.4% Getty Images, Inc.(n) ..................... 17,580 $ 1,569,367 Infosys Technologies Ltd., ADR ............ 25,800 2,086,188 ------------ $ 3,655,555 ------------ COMPUTER SOFTWARE -- 7.6% Adobe Systems, Inc. ....................... 137,000 $ 5,063,520 Check Point Software Technologies Ltd.(n) 48,700 978,870 Microsoft Corp. ........................... 208,770 5,459,336 Oracle Corp.(n) ........................... 514,680 6,284,243 Symantec Corp.(n) ......................... 110,190 1,928,325 ------------ $ 19,714,294 ------------ COMPUTER SOFTWARE -- SYSTEMS -- 4.8% Amdocs Ltd.(n) ............................ 140,740 $ 3,870,350 Dell, Inc.(n) ............................. 205,480 6,162,345 LG Philips LCD Co. Ltd., ADR(n) ........... 107,300 2,302,658 ------------ $ 12,335,353 ------------ CONSUMER GOODS & SERVICES -- 1.1% Procter & Gamble Co. ...................... 48,600 $ 2,812,968 ------------ ELECTRICAL EQUIPMENT -- 1.9% Cooper Industries Ltd., "A" ............... 17,700 $ 1,292,100 General Electric Co. ...................... 41,500 1,454,575 Tyco International Ltd. ................... 77,160 2,226,838 ------------ $ 4,973,513 ------------ ELECTRONICS -- 11.5% Analog Devices, Inc. ...................... 64,200 $ 2,302,854 Applied Materials, Inc. ................... 82,900 1,487,226 Intel Corp. ............................... 304,220 7,593,331 KLA-Tencor Corp. .......................... 30,600 1,509,498 Marvell Technology Group Ltd.(n) .......... 22,200 1,245,198 Samsung Electronics Co. Ltd., GDR ......... 21,440 7,064,480 SanDisk Corp.(n) .......................... 49,350 3,100,167 Taiwan Semiconductor Manufacturing Co. Ltd., ADR ............................... 229,240 2,271,768 Xilinx, Inc. .............................. 124,210 3,131,334 ------------ $ 29,705,856 ------------ FOOD & DRUG STORES -- 0.9% CVS Corp. ................................. 91,400 $ 2,414,788 ------------ FOOD & NON-ALCOHOLIC BEVERAGES -- 1.5% PepsiCo, Inc. ............................. 66,900 $ 3,952,452 ------------ GAMING & LODGING -- 2.3% Carnival Corp. ............................ 61,910 $ 3,310,328 Royal Caribbean Cruises Ltd. .............. 23,800 1,072,428 Starwood Hotels & Resorts Worldwide, Inc. 24,600 1,570,956 ------------ $ 5,953,712 ------------ GENERAL MERCHANDISE -- 5.2% Kohl's Corp.(n) ........................... 69,100 $ 3,358,260 Target Corp. .............................. 61,980 3,407,041 Wal-Mart Stores, Inc. ..................... 141,210 6,608,628 ------------ $ 13,373,929 ------------ HEALTH MAINTENANCE ORGANIZATIONS -- 1.0% UnitedHealth Group, Inc. .................. 41,900 $ 2,603,666 ------------ INSURANCE -- 2.2% Ace Ltd. .................................. 29,730 $ 1,588,771 American International Group, Inc. ........ 59,170 4,037,169 ------------ $ 5,625,940 ------------ INTERNET -- 2.8% Google, Inc., "A"(n) ...................... 12,740 $ 5,285,316 Yahoo!, Inc.(n) ........................... 52,040 2,038,927 ------------ $ 7,324,243 ------------ LEISURE & TOYS -- 1.2% Electronic Arts, Inc.(n) .................. 60,940 $ 3,187,771 ------------ MACHINERY & TOOLS -- 0.4% Illinois Tool Works, Inc. ................. 12,540 $ 1,103,395 ------------ MEDICAL EQUIPMENT -- 4.6% Advanced Medical Optics, Inc.(n) .......... 65,880 $ 2,753,784 Alcon, Inc. ............................... 18,200 2,358,720 DENTSPLY International, Inc. .............. 15,100 810,719 Medtronic, Inc. ........................... 47,370 2,727,091 St. Jude Medical, Inc.(n) ................. 67,050 3,365,910 ------------ $ 12,016,224 ------------ NETWORK & TELECOM -- 9.3% Cisco Systems, Inc.(n) .................... 588,480 $ 10,074,778 Corning, Inc.(n) .......................... 258,250 5,077,195 Juniper Networks, Inc.(n) ................. 56,000 1,248,800 Nokia Corp., ADR .......................... 66,170 1,210,911 QUALCOMM, Inc. ............................ 148,380 6,392,210 ------------ $ 24,003,894 ------------ OIL SERVICES -- 0.9% Noble Corp. ............................... 32,030 $ 2,259,396 ------------ PERSONAL COMPUTERS & PERIPHERALS -- 3.3% EMC Corp.(n) .............................. 450,900 $ 6,141,258 Network Appliance, Inc.(n) ................ 85,300 2,303,100 ------------ $ 8,444,358 ------------ PHARMACEUTICALS -- 11.6% Abbott Laboratories ....................... 90,840 $ 3,581,821 Eli Lilly & Co. ........................... 80,410 4,550,402 Johnson & Johnson ......................... 110,090 6,616,409 Roche Holding AG .......................... 22,540 3,380,700 Teva Pharmaceutical Industries Ltd., ADR .. 79,290 3,410,263 Wyeth ..................................... 185,020 8,523,871 ------------ $ 30,063,466 ------------ RESTAURANTS -- 0.6% Cheesecake Factory, Inc.(n) ............... 11,700 $ 437,463 P.F. Chang's China Bistro, Inc.(n) ........ 21,900 1,086,897 ------------ $ 1,524,360 ------------ SPECIALTY STORES -- 4.9% Home Depot, Inc. .......................... 77,800 $ 3,149,344 Lowe's Cos., Inc. ......................... 24,800 1,653,168 PETsMART, Inc. ............................ 86,710 2,224,979 Staples, Inc. ............................. 111,500 2,532,165 Williams-Sonoma, Inc.(n) .................. 74,700 3,223,305 ------------ $ 12,782,961 ------------ TRUCKING -- 1.6% FedEx Corp. ............................... 21,070 $ 2,178,427 United Parcel Service, Inc., "B" .......... 26,400 1,983,960 ------------ $ 4,162,387 ------------ Total Stocks (Identified Cost, $242,345,155) $250,288,505 ------------ SHORT-TERM OBLIGATION -- 3.2% General Electric Capital Corp., 4.2%, due 1/03/06, at Amortized Cost(y) .................... $ 8,407,000 $ 8,405,038 ------------ Total Investments (Identified Cost, $250,750,193) ..... $258,693,543 ------------ OTHER ASSETS, LESS LIABILITIES -- 0.1% ................ 263,041 ------------ Net Assets -- 100.0% .................. $258,956,584 ============ See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005 GLOBAL GOVERNMENTS VARIABLE ACCOUNT BONDS -- 87.1%
Shares/Par Issuer ($) Value ($) FOREIGN BONDS -- 67.0% AUSTRALIA -- 1.2% Government of Australia, 6.25%, 2015 ...... AUD 153,000 $ 120,820 ------------ AUSTRIA -- 1.7% Republic of Austria, 5%, 2012 ............. EUR 135,000 $ 176,776 ------------ BELGIUM -- 2.5% Kingdom of Belgium, 3.75%, 2009 ........... EUR 105,000 $ 126,990 Kingdom of Belgium, 5%, 2012 .............. EUR 100,000 131,193 ------------ $ 258,183 ------------ CANADA -- 2.1% Quebec Province, 1.6%, 2013 ............... JPY 25,000,000 $ 216,389 ------------ FINLAND -- 3.0% Republic of Finland, 3%, 2008 ............. EUR 197,000 $ 233,692 Republic of Finland, 5.375%, 2013 ......... EUR 57,000 77,095 ------------ $ 310,787 ------------ FRANCE -- 3.4% Republic of France, 4.75%, 2007 ........... EUR 69,000 $ 83,891 Republic of France, 4.75%, 2012 ........... EUR 73,000 94,582 Republic of France, 6%, 2025 .............. EUR 106,000 168,830 ------------ $ 347,303 ------------ GERMANY -- 14.4% Federal Republic of Germany, 3.5%, 2008 .............................. EUR 91,000 $ 109,228 Federal Republic of Germany, 5.25%, 2010 ............................. EUR 82,000 105,837 Federal Republic of Germany, 3.75%, 2015 ............................. EUR 125,000 153,196 Federal Republic of Germany, 6.25%, 2024 ............................. EUR 189,000 304,294 Federal Republic of Germany, 6.25%, 2030 ............................. EUR 233,000 393,356 KfW Bankengruppe, 2.328%, 2007 ............ EUR 252,000 297,557 Landesbank Baden-Wurttemberg, 2.185%, 2007 ............................ EUR 88,000 104,084 ------------ $ 1,467,552 ------------ IRELAND -- 2.2% Republic of Ireland, 4.25%, 2007 .......... EUR 156,000 $ 188,985 Republic of Ireland, 4.6%, 2016 ........... EUR 29,000 38,044 ------------ $ 227,029 ------------ JAPAN -- 7.4% Development Bank of Japan, 1.4%, 2012 .............................. JPY 37,000,000 $ 319,880 Development Bank of Japan, 1.6%, 2014 .............................. JPY 50,000,000 433,833 ------------ $ 753,713 ------------ MALAYSIA -- 1.2% Petronas Capital Ltd., 7.875%, 2022 ....... $ 100,000 $ 125,179 ------------ MEXICO -- 0.8% Pemex Project Funding Master Trust, 8.625%, 2022 ............................ $ 23,000 $ 28,348 United Mexican States, 8.125%, 2019 ....... 42,000 51,555 ------------ $ 79,903 ------------ NETHERLANDS -- 1.8% Kingdom of Netherlands, 5.75%, 2007 ....... EUR 81,000 $ 98,978 Kingdom of Netherlands, 5%, 2012 .......... EUR 68,697 89,932 ------------ $ 188,910 ------------ NEW ZEALAND -- 6.9% Government of New Zealand, 6%, 2008 ................................ NZD 358,000 $ 244,454 Government of New Zealand, 6.5%, 2013 .............................. NZD 507,000 362,211 Government of New Zealand, 6%, 2015 ................................ NZD 145,000 101,113 ------------ $ 707,778 ------------ QATAR -- 0.5% State of Qatar, 9.75%, 2030 ............... $ 30,000 $ 45,825 ------------ RUSSIA -- 0.3% Gaz Capital S.A., 8.625%, 2034 ............ $ 23,000 $ 29,095 ------------ SPAIN -- 3.6% Kingdom of Spain, 6%, 2008 ................ EUR 132,000 $ 165,453 Kingdom of Spain, 5.35%, 2011 ............. EUR 151,000 199,204 ------------ $ 364,657 ------------ SWEDEN -- 0.5% Kingdom of Sweden, 4%, 2020 ............... SEK 316,832 $ 52,243 ------------ UNITED KINGDOM -- 13.5% United Kingdom Treasury, 5.75%, 2009 ...... GBP 423,000 $ 767,790 United Kingdom Treasury, 5%, 2012 ......... GBP 84,000 151,097 United Kingdom Treasury, 8%, 2015 ......... GBP 204,000 462,577 ------------ $ 1,381,464 ------------ Total Foreign Bonds ................... $ 6,853,606 ------------ U.S. BONDS -- 20.1% ASSET BACKED & SECURITIZED -- 7.3% Commercial Mortgage Asset Trust, FRN, 0.8861%, 2032(a)(i) ......... $ 1,428,151 $ 64,842 Commercial Mortgage Pass-Through Certificate, FRN, 4.5594%, 2017(a) ...... 59,000 58,993 Commercial Mortgage Pass-Through Certificates, FRN, 4.5694%, 2017(a) ..... 100,000 99,938 Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 ..................... 43,137 44,188 First Union National Bank Commercial Mortgage Trust, FRN, 0.9562%, 2043(a)(i) 1,649,628 66,589 IMPAC CMB Trust, FRN, 4.7288%, 2036 ....... 99,736 99,736 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.2133%, 2041 .... 55,952 56,347 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 4.5694%, 2046 .... 52,080 52,098 Lehman Brothers Floating Rate Commercial Mortgage Trust, FRN, 4.5294%, 2018(a) ... 100,000 99,989 Wachovia Bank Commercial Mortgage Trust, FRN, 4.6594%, 2015 ...................... 22,101 22,110 Wachovia Bank Commercial Mortgage Trust, FRN, 4.6094%, 2015(a) ................... 83,496 83,581 ------------ $ 748,411 ------------ MUNICIPALS -- 2.2% Honolulu, HI, City & County Rev., "A", MBIA, 5%, 2015 .......................... $ 85,000 $ 92,637 Massachusetts State Water Resources Authority, "A", MBIA, 5.25%, 2015 ....... 80,000 88,759 New York, NY, City Municipal Water Finance Authority, Water & Sewer Systems Rev., "D", 5%, 2037 ............. 40,000 41,524 ------------ $ 222,920 ------------ SUPRANATIONAL -- 1.3% Inter-American Development Bank, 1.9%, 2009 .............................. JPY 15,000,000 $ 133,003 ------------ U.S. GOVERNMENT AGENCIES -- 4.6% Aid-Egypt, 4.45%, 2015 .................... $ 12,000 $ 11,759 Fannie Mae, 4.25%, 2007 ................... 171,000 169,459 Freddie Mac, 4.2%, 2007 ................... 99,000 97,706 Small Business Administration, 4.76%, 2025 ............................. 74,000 72,568 Small Business Administration, 5.36%, 2025 ............................. 115,000 116,717 ------------ $ 468,209 ------------ U.S. TREASURY OBLIGATIONS -- 4.7% U.S. Treasury Bonds, 6.25%, 2030 .......... $ 62,000 $ 77,001 U.S. Treasury Bonds, TIPS, 2.375%, 2025 ............................ 39,096 41,091 U.S. Treasury Notes, 3.125%, 2008 ......... 111,000 107,371 U.S. Treasury Notes, 4.25%, 2013 .......... 28,000 27,733 U.S. Treasury Notes, 4%, 2015 ............. 111,000 107,618 U.S. Treasury Notes, TIPS, 2%, 2014 ....... 121,806 121,116 ------------ $ 481,930 ------------ Total U.S. Bonds ...................... $ 2,054,473 ------------ Total Bonds (Identified Cost, $9,131,384) $ 8,908,079 ------------ CALL OPTIONS PURCHASED -- 0% Principal Amount of Issue/Expiration/Price Contracts Value ($) JPY - January 2006 @ $117.30 (Premiums Paid, $2,035) ........................... 23,460,000 $ 915 ------------ PUT OPTIONS PURCHASED -- 0% EUR - January 2006 @ $1.21 (Premiums Paid, $2,296) ................. 210,875 $ 316 ------------ SHORT-TERM OBLIGATION -- 11.9% Issuer Par ($) Value ($) Federal Home Loan Bank, 3.3%, due 1/03/06, at Amortized Cost(y) $ 1,216,000 $ 1,215,777 ------------ Total Investments (Identified Cost, $10,351,492) ............ $ 10,125,087 ------------ OTHER ASSETS, LESS LIABILITIES -- 1.0% ...................................... 100,668 ------------ Net Assets -- 100.0% ........................................ $ 10,225,755 ============ FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS Sales and Purchases in the table below are reported by currency. Net Unrealized Contracts to Contracts Appreciation Deliver/Receive Settlement Date In Exchange For at Value (Depreciation) SALES AUD 414,488 2/06/06 - 2/07/06 $308,563 $303,815 $4,748 CAD 18,760 1/23/06 15,834 16,141 (307) EUR 832,602 1/23/06 - 2/21/06 979,063 987,622 (8,559) GBP 470,243 1/31/06 831,977 808,163 23,814 JPY 15,524,886 1/17/06 - 1/23/06 131,010 131,876 (866) NOK 343,337 1/17/06 51,797 50,895 902 NZD 1,129,290 2/07/06 791,153 767,812 23,341 SEK 433,781 2/06/06 54,423 54,707 (284) ---------- ---------- ------- $3,163,820 $3,121,031 $42,789 ========== ========== ======= PURCHASES CAD 106,703 1/18/06 - 1/26/06 $91,664 $91,796 $132 CHF 66,001 2/16/06 51,797 50,416 (1,381) DKK 612,750 1/17/06 96,801 97,245 444 EUR 522,643 1/18/06 - 2/21/06 621,159 619,410 (1,749) GBP 6,000 1/31/06 10,690 10,312 (378) JPY 275,323,395 1/18/06 2,333,052 2,338,460 5,408 NOK 1,162,846 1/17/06 174,577 172,375 (2,202) NZD 36,821 2/07/06 26,109 25,035 (1,074) SEK 1,835,962 1/17/06 - 2/13/06 231,220 231,487 267 ---------- ---------- ------- $3,637,069 $3,636,536 $ (533) ========== ========== ======= At December 31, 2005 forward foreign currency purchases and sales under master netting agreements excluded above amounted to a net payable of $903 with Merrill Lynch International. At December 31, 2005 the variable account had sufficient cash and/or securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005 GOVERNMENT SECURITIES VARIABLE ACCOUNT BONDS -- 98.5%
Shares/Par Issuer ($) Value ($) AGENCY -- OTHER -- 5.6% Financing Corp., 10.35%, 2018 ............. $ 1,150,000 $ 1,721,415 Financing Corp., 9.4%, 2018 ............... 780,000 1,091,578 Resolution Funding Corp., 8.875%, 2020 .... 1,700,000 2,364,821 ------------ $ 5,177,814 ------------ MORTGAGE BACKED -- 49.5% Fannie Mae, 4.79%, 2012 ................... $ 934,169 $ 924,408 Fannie Mae, 4.73%, 2012 ................... 95,801 94,181 Fannie Mae, 5%, 2013 - 2019 ............... 2,613,526 2,590,822 Fannie Mae, 4.8%, 2013 .................... 90,801 89,586 Fannie Mae, 4.845%, 2013 .................. 264,585 261,235 Fannie Mae, 5.06%, 2013 ................... 106,590 106,295 Fannie Mae, 4.65%, 2013 ................... 251,623 246,987 Fannie Mae, 4.45%, 2014 ................... 324,682 313,233 Fannie Mae, 4.771%, 2014 .................. 648,859 639,730 Fannie Mae, 4.6%, 2014 .................... 126,955 123,575 Fannie Mae, 4.667%, 2014 .................. 850,622 832,589 Fannie Mae, 4.518%, 2014 .................. 163,177 158,229 Fannie Mae, 4.77%, 2014 ................... 107,466 105,439 Fannie Mae, 4.846%, 2014 .................. 911,476 901,829 Fannie Mae, 5.1%, 2014 .................... 138,919 139,316 Fannie Mae, 4.62%, 2015 ................... 182,256 177,239 Fannie Mae, 4.82%, 2015 ................... 343,366 337,771 Fannie Mae, 4.69%, 2015 ................... 89,973 87,896 Fannie Mae, 4.85%, 2015 ................... 89,995 88,857 Fannie Mae, 4.56%, 2015 ................... 163,563 158,378 Fannie Mae, 4.665%, 2015 .................. 110,323 107,585 Fannie Mae, 4.7%, 2015 .................... 126,750 123,896 Fannie Mae, 4.89%, 2015 ................... 89,156 88,263 Fannie Mae, 4.74%, 2015 ................... 100,000 97,783 Fannie Mae, 4.925%, 2015 .................. 351,654 349,502 Fannie Mae, 4.815%, 2015 .................. 117,000 114,948 Fannie Mae, 6%, 2016 - 2034 ............... 3,615,262 3,669,402 Fannie Mae, 6.5%, 2016 - 2032 ............. 1,947,304 2,002,407 Fannie Mae, 4.996%, 2017 .................. 339,216 338,813 Fannie Mae, 5.5%, 2017 - 2035 ............. 14,224,932 14,146,582 Fannie Mae, 4.5%, 2019 - 2020 ............. 4,269,959 4,161,365 Fannie Mae, 4.88%, 2020 ................... 96,655 95,919 Fannie Mae, 7.5%, 2022 - 2031 ............. 277,742 291,354 Freddie Mac, 4.5%, 2013 - 2015 ............ 599,727 595,183 Freddie Mac, 4.375%, 2015 ................. 699,121 683,661 Freddie Mac, 5%, 2024 - 2025 .............. 940,142 938,091 Freddie Mac, 5.5%, 2025 - 2035 ............ 4,384,720 4,352,143 Freddie Mac, 6.5%, 2032 ................... 899,172 923,115 Freddie Mac, 6%, 2034 - 2035 .............. 2,404,682 2,430,662 Freddie Mac, 3.108%, 2035 ................. 47,962 47,700 Ginnie Mae, 5.5%, 2033 .................... 1,926,896 1,942,041 ------------ $ 45,878,010 ------------ U.S. GOVERNMENT AGENCIES -- 27.5% Aid to Israel, 6.6%, 2008 ................. $ 645,242 $ 659,509 Aid to Israel, 0%, 2021 - 2024 ............ 2,041,000 857,548 Aid to Israel, 5.5%, 2023 ................. 1,097,000 1,182,207 Aid to Peru, 9.98%, 2008 .................. 545,950 572,899 Aid-Egypt, 4.45%, 2015 .................... 473,000 463,488 Empresa Energetica Cornito Ltd., 6.07%, 2010 ............................. 2,144,000 2,204,289 Fannie Mae, 4.25%, 2009 ................... 1,073,000 1,057,096 Freddie Mac, 4.2%, 2007 ................... 1,105,000 1,090,559 Freddie Mac, 5.625%, 2011 ................. 3,664,000 3,808,504 Freddie Mac, 5.05%, 2015 .................. 956,000 948,705 Overseas Private Investment Corp., 0%, 2007 ................................ 167,048 168,719 Small Business Administration, 8.4%, 2007 . 4,193 4,246 Small Business Administration, 10.05%, 2009 ............................ 14,685 15,454 Small Business Administration, 8.7%, 2009 . 55,749 58,345 Small Business Administration, 6.34%, 2021 651,355 684,118 Small Business Administration, 6.44%, 2021 628,517 661,378 Small Business Administration, 6.625%, 2021 ............................ 726,862 772,175 Small Business Administration, 6.07%, 2022 502,023 523,644 Small Business Administration, 4.98%, 2023 261,285 260,806 Small Business Administration, 4.89%, 2023 670,561 665,843 Small Business Administration, 4.72%, 2024 689,430 678,236 Small Business Administration, 4.34%, 2024 377,621 362,801 Small Business Administration, 4.77%, 2024 642,861 633,741 Small Business Administration, 5.52%, 2024 352,112 360,395 Small Business Administration, 4.99%, 2024 435,270 434,204 Small Business Administration, 4.86%, 2024 331,773 328,351 Small Business Administration, 4.88%, 2024 308,101 305,184 Small Business Administration, 4.87%, 2024 398,853 394,714 Small Business Administration, 5.11%, 2025 349,706 350,679 Small Business Administration, 4.76%, 2025 566,000 555,047 Tennessee Valley Authority STRIPS, 0%, 2042(i) ............................. 2,250,000 1,747,080 U.S. Department of Housing & Urban Development, 6.36%, 2016 ................ 500,000 530,891 U.S. Department of Housing & Urban Development, 6.59%, 2016 ................ 2,045,000 2,112,143 ------------ $ 25,452,998 ------------ U.S. TREASURY OBLIGATIONS -- 15.9% U.S. Treasury Bonds, 12%, 2013 ............ $ 19,000 $ 22,542 U.S. Treasury Bonds, 5.25%, 2028 .......... 346,000 377,383 U.S. Treasury Bonds, 5.375%, 2031 ......... 1,793,000 2,014,043 U.S. Treasury Bonds, 9.25%, 2016 .......... 409,000 566,800 U.S. Treasury Bonds, 6%, 2026 ............. 123,000 145,044 U.S. Treasury Notes, 5.5%, 2008 ........... 930,000 950,816 U.S. Treasury Notes, 6.5%, 2010(f) ........ 7,119,000 7,679,344 U.S. Treasury Notes, TIPS, 3.625%, 2008 ... 908,618 933,001 U.S. Treasury Notes, TIPS, 3.875%, 2009 ... 666,750 700,764 U.S. Treasury Notes, TIPS, 4.25%, 2010 .... 1,290,375 1,398,846 ------------ $ 14,788,583 ------------ Total Bonds (Identified Cost, $91,003,703) .................. $ 91,297,405 ------------ REPURCHASE AGREEMENT -- 0.6% Morgan Stanley, 4.23%, dated 12/30/05, due 1/03/06, total to be received $561,264 (secured by various U.S. Treasury and Federal Agency obligations in a jointly traded account), at Cost ................ $ 561,000 $ 561,000 ------------ Total Investments (Identified Cost, $91,564,703) ............ $ 91,858,405 ------------ OTHER ASSETS, LESS LIABILITIES - 0.9% ....................................... 813,356 ------------ Net Assets - 100.0% ................................... $ 92,671,761 ============ FUTURES CONTRACTS OUTSTANDING AT DECEMBER 31, 2005: Unrealized Expiration Appreciation Contracts Value Date (Depreciation) U.S. Treasury Note 5 yr (Long) ............. 26 $2,764,938 Mar-06 $ 7,019 U.S. Treasury Note 10 yr (Short) ........... 42 4,595,063 Mar-06 4,337 ------ $11,356 ======= At December 31, 2005, the variable account had sufficient cash and/or securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005 HIGH YIELD VARIABLE ACCOUNT BONDS -- 92.9% Shares/Par Issuer ($) Value ($) ADVERTISING & BROADCASTING -- 4.3% Allbritton Communications Co., 7.75%, 2012 ............................. $ 275,000 $ 276,375 Block Communications, Inc., 8.25%, 2015 (a) ......................... 95,000 94,050 DIRECTV Holdings LLC, 8.375%, 2013 ........ 120,000 129,000 DIRECTV Holdings LLC, 6.375%, 2015 ........ 145,000 141,737 EchoStar DBS Corp., 6.375%, 2011 .......... 465,000 447,562 Granite Broadcasting Corp., 9.75%, 2010 ... 170,000 156,400 Innova S. de R.L., 9.375%, 2013 ........... 110,000 122,100 Intelsat Ltd., 8.625%, 2015 (a) ........... 205,000 207,050 Intelsat Ltd., 0% to 2010, 9.25% to 2015, (a) ...................... 280,000 184,100 Lamar Media Corp., 7.25%, 2013 ............ 135,000 140,063 Lamar Media Corp., 6.625%, 2015 ........... 45,000 45,169 Panamsat Holding Corp., 0% to 2009, 10.375% to 2014 ......................... 480,000 336,000 Paxson Communications Corp., FRN, 10.7769%, 2013 (a) ...................... 350,000 336,438 Sirius Satellite Radio, Inc., 9.625%, 2013 (a) ........................ 155,000 152,675 ------------ $ 2,768,719 ------------ AEROSPACE -- 0.6% Argo-Tech Corp., 9.25%, 2011 .............. $ 180,000 $ 184,500 Transdigm Holding Co., 8.375%, 2011 ....... 180,000 189,450 ------------ $ 373,950 ------------ AIRLINES -- 0.7% Continental Airlines, Inc., 6.9%, 2017 .... $ 73,411 $ 63,693 Continental Airlines, Inc., 6.748%, 2017 .. 74,147 64,973 Continental Airlines, Inc., 6.795%, 2018 .. 120,499 104,711 Continental Airlines, Inc., 7.566%, 2020 .. 243,884 217,437 ------------ $ 450,814 ------------ APPAREL MANUFACTURERS -- 0.4% Levi Strauss & Co., 12.25%, 2012 .......... $ 150,000 $ 167,250 Levi Strauss & Co., 9.75%, 2015 ........... 115,000 119,600 ------------ $ 286,850 ------------ ASSET BACKED & SECURITIZED -- 2.4% Airplane Pass-Through Trust, "D", 10.875%, 2019 (r)(d) .................... $ 740,775 $ 0 ARCap, Inc., "H", 6.1%, 2045 (a) .......... 165,567 153,047 Asset Securitization Corp., FRN, 8.0075%, 2029 ........................... 150,000 159,121 Asset Securitization Corp., FRN, 8.4975%, 2029 (a) ....................... 200,000 182,094 Crest Ltd., 7%, 2040 (a) .................. 154,000 146,962 First Union National Bank Commercial Mortgage Corp., 6.75%, 2032 ............. 165,000 165,380 GMAC Commercial Mortgage Securities, Inc., FRN, 7.661%, 2034 (a) ................... 192,000 208,910 Mortgage Capital Funding, Inc., 7.214%, 2007 ............................ 500,000 511,036 ------------ $ 1,526,550 ------------ AUTOMOTIVE -- 5.1% Delphi Corp., 6.5%, 2013 (d) .............. $ 85,000 $ 42,712 Ford Motor Credit Co., 7%, 2013 ........... 210,000 179,436 Ford Motor Credit Co., 5.625%, 2008 ....... 180,000 157,941 Ford Motor Credit Co., 6.625%, 2008 ....... 271,000 245,812 Ford Motor Credit Co., 5.8%, 2009 ......... 140,000 122,127 Ford Motor Credit Co., 4.95%, 2008 ........ 175,000 156,799 Ford Motor Credit Co., 8.625%, 2010 ....... 190,000 173,278 General Motors Acceptance Corp., 6.125%, 2008 ............................ 215,000 196,882 General Motors Acceptance Corp., 5.85%, 2009 ............................. 200,000 178,925 General Motors Acceptance Corp., 6.75%, 2014 ............................. 854,000 768,276 General Motors Corp., 8.375%, 2033 ........ 167,000 110,220 Lear Corp., 8.11%, 2009 ................... 195,000 181,488 Lear Corp., 5.75%, 2014 ................... 145,000 117,726 Metaldyne Corp., 10%, 2013 ................ 85,000 76,925 Navistar International Corp., 7.5%, 2011 .. 325,000 309,563 TRW Automotive, Inc., 11%, 2013 ........... 83,000 93,168 TRW Automotive, Inc., 9.375%, 2013 ........ 140,000 151,550 ------------ $ 3,262,828 ------------ BROADCAST & CABLE TV -- 3.1% Cablevision Systems Corp., 8%, 2012 ....... $ 155,000 $ 144,925 CCH I Holdings LLC, 9.92%, 2014 (a) ....... 205,000 116,850 CCH I LLC, 11%, 2015 (a) .................. 460,000 386,400 CCO Holdings LLC, 8.75%, 2013 ............. 150,000 142,875 Charter Communications, Inc., 8.625%, 2009 ............................ 153,000 113,220 Charter Communications, Inc., 8.375%, 2014 (a) ........................ 120,000 119,400 CSC Holdings, Inc., 8.125%, 2009 .......... 125,000 126,250 CSC Holdings, Inc., 6.75%, 2012 (a) ....... 215,000 203,175 FrontierVision Holdings LP, 11.875%, 2007 (d) ....................... 50,000 52,562 FrontierVision Holdings LP, "B", 11.875%, 2007 (d) ....................... 80,000 84,100 FrontierVision Operating Partners LP, 11%, 2006 (d) ........................... 195,000 259,350 Mediacom Broadband LLC, 9.5%, 2013 ........ 190,000 185,488 Rogers Cable, Inc., 8.75%, 2032 ........... 35,000 40,250 Videotron Telecom, 6.375%, 2015 (a) ....... 35,000 34,781 ------------ $ 2,009,626 ------------ BUILDING -- 1.2% Goodman Global Holdings, Inc., 7.875%, 2012 (a) ........................ $ 200,000 $ 186,000 Interface, Inc., 10.375%, 2010 ............ 167,000 180,778 Nortek Holdings, Inc., 8.5%, 2014 ......... 140,000 135,100 Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 .......................... 238,000 148,750 Texas Industries, Inc., 7.25%, 2013 (a) ... 105,000 108,938 ------------ $ 759,566 ------------ BUSINESS SERVICES -- 2.0% Iron Mountain, Inc., 8.625%, 2013 ......... $ 240,000 $ 250,200 Iron Mountain, Inc., 7.75%, 2015 .......... 5,000 5,038 Lucent Technologies, Inc., 5.5%, 2008 ..... 135,000 134,325 Lucent Technologies, Inc., 6.45%, 2029 .... 80,000 68,600 Northern Telecom Corp., 7.875%, 2026 ...... 70,000 67,725 Northern Telecom Corp., 6.875%, 2023 ...... 115,000 102,925 SunGard Data Systems, Inc., 10.25%, 2015 (a) ........................ 180,000 180,000 Xerox Corp., 7.625%, 2013 ................. 485,000 511,675 ------------ $ 1,320,488 ------------ CHEMICALS -- 4.8% ARCO Chemical Co., 9.8%, 2020 ............. $ 155,000 $ 173,988 BCP Crystal Holdings Corp., 9.625%, 2014 ............................ 121,000 134,612 Crystal U.S. Holdings LLC, "A", 0% to 2009, 10% to 2014 ................. 62,000 45,570 Crystal U.S. Holdings LLC, "B", 0% to 2009, 10.5% to 2014 ............... 337,000 245,167 Equistar Chemicals LP, 10.625%, 2011 ...... 115,000 126,500 Hercules, Inc., 6.75%, 2029 ............... 205,000 197,312 Huntsman International LLC, 10.125%, 2009 ........................... 197,000 203,402 Huntsman International LLC, 7.375%, 2015 (a) ........................ 310,000 299,150 IMC Global, Inc., 10.875%, 2013 ........... 110,000 126,363 KI Holdings, Inc., 0% to 2009, 9.875% to 2014 .......................... 288,000 188,640 Kronos International, Inc., 8.875%, 2009 .. EUR 15,000 18,564 Lyondell Chemical Co., 11.125%, 2012 ...... $ 130,000 145,438 Lyondell Chemical Co., 9.5%, 2008 ......... 77,000 80,658 Nalco Co., 7.75%, 2011 .................... 110,000 113,025 Nalco Co., 8.875%, 2013 ................... 135,000 141,413 Nell AF S.a.r.L., 8.375%, 2015 (a) ........ 180,000 178,200 NOVA Chemicals Corp., 6.5%, 2012 .......... 135,000 130,781 Resolution Performance Products LLC, 13.5%, 2010 ............................. 130,000 137,475 Rhodia S.A., 8.875%, 2011 ................. 225,000 230,625 Rockwood Specialties Group, Inc., 10.625%, 2011 ........................... 131,000 143,609 Rockwood Specialties, Inc., 7.5%, 2014 .... 50,000 49,813 ------------ $ 3,110,305 ------------ CONSTRUCTION -- 1.6% Beazer Homes USA, Inc., 6.875%, 2015 ...... $ 225,000 $ 215,719 D.R. Horton, Inc., 8%, 2009 ............... 250,000 266,436 Technical Olympic USA, Inc., 9%, 2010 ..... 75,000 75,844 Technical Olympic USA, Inc., 7.5%, 2011 ... 50,000 44,563 Technical Olympic USA, Inc., 7.5%, 2015 ... 150,000 126,000 WCI Communities, Inc., 7.875%, 2013 ....... 210,000 197,925 WCI Communities, Inc., 6.625%, 2015 ....... 105,000 91,350 ------------ $ 1,017,837 ------------ CONSUMER GOODS & SERVICES -- 2.7% ACCO Brands Corp., 7.625%, 2015 ........... $ 50,000 $ 47,125 Bombardier Recreational Products, Inc., 8.375%, 2013 ............................ 150,000 150,187 Church & Dwight Co., Inc., 6%, 2012 ....... 205,000 201,925 GEO Group, Inc., 8.25%, 2013 .............. 75,000 73,312 Playtex Products, Inc., 9.375%, 2011 ...... 180,000 188,550 Revlon Consumer Products Corp., 9.5%, 2011 .............................. 220,000 200,750 Safilo Capital International S.A., 9.625%, 2013 (a) ........................ EUR 320,000 423,951 Samsonite Corp., 8.875%, 2011 ............. $ 210,000 217,350 Service Corp. International, 7%, 2017 (a) .. 215,000 213,388 ------------ $ 1,716,538 ------------ CONTAINERS -- 1.6% Crown Americas, 7.75%, 2015 (a) ........... $ 320,000 $ 331,200 Greif, Inc., 8.875%, 2012 ................. 145,000 154,425 Owens-Brockway Glass Container, Inc., 8.25%, 2013 ............................. 350,000 361,375 Owens-Illinois, Inc., 7.8%, 2018 .......... 75,000 74,625 Plastipak Holdings, Inc., 8.5%, 2015 (a) .. 70,000 70,700 Pliant Corp., 11.125%, 2009 ............... 70,000 62,300 ------------ $ 1,054,625 ------------ DEFENSE ELECTRONICS -- 0.6% L-3 Communications Holdings, Inc., 6.125%, 2014 ............................ $ 230,000 $ 227,700 L-3 Communications Holdings, Inc., 5.875%, 2015 ............................ 130,000 126,100 ------------ $ 353,800 ------------ ELECTRONICS -- 0.5% Flextronics International Ltd., 6.5%, 2013 . $ 305,000 $ 309,956 Magnachip Semiconductor S.A., 8%, 2014 ..... 30,000 28,650 ------------ $ 338,606 ------------ EMERGING MARKET QUASI-SOVEREIGN -- 0.7% Gazprom OAO, 9.625%, 2013 (a) ............. $ 120,000 $ 144,600 Gazprom OAO, 8.625%, 2034 (a) ............. 220,000 278,300 ------------ $ 422,900 ------------ EMERGING MARKET SOVEREIGN -- 0.5% Federal Republic of Brazil, 8.875%, 2019 .. $ 102,000 $ 114,291 Republic of Panama, 9.375%, 2029 .......... 36,000 45,270 Russian Ministry of Finance, 12.75%, 2028 . 84,000 154,073 ------------ $ 313,634 ------------ ENERGY -- INDEPENDENT -- 3.0% Belden & Blake Corp., 8.75%, 2012 ......... $ 145,000 $ 147,900 Chesapeake Energy Corp., 6.875%, 2016 ............................ 375,000 384,375 Chesapeake Energy Corp., 7%, 2014 ......... 254,000 262,890 Chesapeake Energy Corp., 6.375%, 2015 ............................ 240,000 240,000 Clayton Williams Energy, Inc., 7.75%, 2013 ............................. 205,000 196,800 Kerr-McGee Corp., 6.95%, 2024 ............. 210,000 222,743 Newfield Exploration Co., 6.625%, 2014 .... 250,000 254,375 Plains Exploration & Production Co., 7.125%, 2014 ............................ 200,000 207,000 ------------ $ 1,916,083 ------------ ENERGY -- INTEGRATED -- 0.3% Amerada Hess Corp., 7.3%, 2031 ............ $ 170,000 $ 196,738 ------------ ENTERTAINMENT -- 1.2% AMC Entertainment, Inc., 9.5%, 2011 ....... $ 140,000 $ 137,725 AMC Entertainment, Inc., 8.625%, 2012 ..... 210,000 219,450 Loews Cineplex Entertainment Corp., 9%, 2014 ................................ 215,000 217,150 Six Flags, Inc., 9.75%, 2013 .............. 225,000 220,781 ------------ $ 795,106 ------------ FOOD & NON-ALCOHOLIC BEVERAGES -- 1.4% B&G Foods Holding Corp., 8%, 2011 ......... $ 130,000 $ 132,600 Dean Foods Co., 6.625%, 2009 .............. 185,000 188,469 Michael Foods, Inc., 8%, 2013 ............. 250,000 256,250 Smithfield Foods, Inc., 7%, 2011 .......... 220,000 224,400 United Biscuits Finance PLC, 10.625%, 2011 ........................... EUR 80,000 101,256 ------------ $ 902,975 ------------ FOREST & PAPER PRODUCTS -- 3.0% Abitibi-Consolidated, Inc., 8.55%, 2010 ... $ 265,000 $ 268,312 Abitibi-Consolidated, Inc., 7.75%, 2011 ... 95,000 90,488 Buckeye Technologies, Inc., 8.5%, 2013 .... 180,000 180,000 Graphic Packaging International Corp., 9.5%, 2013 .............................. 295,000 281,725 Jefferson Smurfit Corp., 8.25%, 2012 ...... 145,000 139,200 JSG Funding LLC, 11.5%, 2015 (a)(d)(p) .... EUR 310,589 339,841 MDP Acquisitions PLC, 9.625%, 2012 ........ $ 205,000 205,000 Norske Skog Canada Ltd., 8.625%, 2011 ..... 195,000 186,225 Norske Skog Canada Ltd., 7.375%, 2014 ..... 125,000 109,375 Stone Container Corp., 7.375%, 2014 ....... 140,000 127,400 ------------ $ 1,927,566 ------------ GAMING & LODGING -- 7.1% Aztar Corp., 7.875%, 2014 ................. $ 295,000 $ 309,012 Boyd Gaming Corp., 6.75%, 2014 ............ 290,000 287,825 Caesars Entertainment, Inc., 8.875%, 2008 ............................ 80,000 86,500 Caesars Entertainment, Inc., 8.125%, 2011 ............................ 310,000 342,163 Greektown Holdings, 10.75%, 2013 (a) ...... 120,000 119,100 GTECH Holdings Corp., 5.25%, 2014 ......... 225,000 195,165 Host Marriott LP, 7.125%, 2013 ............ 250,000 260,000 Host Marriott LP, 6.375%, 2015 ............ 125,000 124,687 Majestic Star Casino, LLC, 9.5%, 2010 ..... 70,000 73,675 Majestic Star Casino, LLC, 9.75%, 2011 (a) ......................... 60,000 60,600 Mandalay Resort Group, 9.375%, 2010 ....... 175,000 191,625 MGM Mirage, Inc., 8.5%, 2010 .............. 140,000 151,725 MGM Mirage, Inc., 8.375%, 2011 ............ 410,000 438,700 MGM Mirage, Inc., 5.875%, 2014 ............ 195,000 186,225 Penn National Gaming, Inc., 6.75%, 2015 ... 45,000 44,213 Pinnacle Entertainment, Inc., 8.75%, 2013 ............................. 120,000 127,800 Pinnacle Entertainment, Inc., 8.25%, 2012 ............................. 185,000 191,244 Royal Caribbean Cruises Ltd., 6.875%, 2013 ............................ 420,000 444,839 Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 ............................ 450,000 496,125 Station Casinos, Inc., 6.875%, 2016 ....... 15,000 15,338 Station Casinos, Inc., 6.5%, 2014 ......... 190,000 191,900 Wynn Las Vegas LLC, 6.625%, 2014 .......... 260,000 252,850 ------------ $ 4,591,311 ------------ INDUSTRIAL -- 2.7% Amsted Industries, Inc., 10.25%, 2011 (a) . $ 225,000 $ 240,750 Da-Lite Screen Co., Inc., 9.5%, 2011 ...... 140,000 147,000 JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 ............................ 255,000 256,275 JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 .............. 485,000 385,575 Knowledge Learning Corp., 7.75%, 2015 (a) ......................... 125,000 118,750 Milacron Escrow Corp., 11.5%, 2011 ........ 280,000 239,400 Valmont Industries, Inc., 6.875%, 2014 .... 215,000 216,613 Wesco Distribution, Inc., 7.5%, 2017 (a) .. 170,000 171,063 ------------ $ 1,775,426 ------------ INSURANCE -- 0.6% UnumProvident Corp., 7.625%, 2011 ......... $ 180,000 $ 194,131 UnumProvident Finance Co., 6.85%, 2015 (a) ......................... 184,000 191,660 ------------ $ 385,791 ------------ INSURANCE -- PROPERTY & CASUALTY -- 0.4% AXIS Capital Holdings Ltd., 5.75%, 2014 ... $ 140,000 $ 140,030 Marsh & Mclennan Cos., Inc., 5.75%, 2015 ............................. 111,000 111,892 ------------ $ 251,922 ------------ MACHINERY & TOOLS -- 1.9% Case Corp., 7.25%, 2016 ................... $ 150,000 $ 139,875 Case New Holland, Inc., 9.25%, 2011 ....... 250,000 267,500 JLG Industries, Inc., 8.25%, 2008 ......... 125,000 130,938 Terex Corp., 10.375%, 2011 ................ 295,000 312,700 Terex Corp., 7.375%, 2014 ................. 175,000 173,250 United Rentals, Inc., 6.5%, 2012 .......... 140,000 136,325 United Rentals, Inc., 7.75%, 2013 ......... 60,000 58,500 ------------ $ 1,219,088 ------------ MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 6.0% AmerisourceBergen Corp., 5.875%, 2015 (a) ........................ $ 205,000 $ 206,794 CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 .......................... 400,000 245,000 DaVita, Inc., 6.625%, 2013 ................ 125,000 127,187 DaVita, Inc., 7.25%, 2015 ................. 215,000 217,687 Extendicare Health Services, Inc., 6.875%, 2014 ............................ 215,000 210,162 Fisher Scientific International, Inc., 6.75%, 2014 ............................. 45,000 46,912 Fisher Scientific International, Inc., 6.125%, 2015 (a) ........................ 250,000 250,000 HCA, Inc., 7.875%, 2011 ................... 410,000 440,814 HCA, Inc., 6.375%, 2015 ................... 560,000 566,067 Healthsouth Corp., 7.625%, 2012 ........... 180,000 182,700 Lifecare Holdings, Inc., 9.25%, 2013 (a) .. 185,000 146,150 Omnicare, Inc., 6.875%, 2015 .............. 65,000 65,975 Psychiatric Solutions, Inc., 7.75%, 2015 .. 85,000 87,763 Select Medical Corp., 7.625%, 2015 ........ 210,000 202,125 Tenet Healthcare Corp., 9.875%, 2014 ...... 275,000 278,438 Tenet Healthcare Corp., 9.25%, 2015 (a) ... 110,000 109,175 Triad Hospitals, Inc., 7%, 2013 ........... 315,000 315,788 U.S. Oncology, Inc., 10.75%, 2014 ......... 180,000 199,800 ------------ $ 3,898,537 ------------ MEDICAL EQUIPMENT -- 0.4% Warner Chilcott Corp., 8.75%, 2015 (a) .... $ 250,000 $ 230,000 ------------ METALS & MINING -- 1.5% Century Aluminum Co., 7.5%, 2014 .......... $ 280,000 $ 275,800 Massey Energy Co., 6.875%, 2013 (a) ....... 195,000 196,706 Peabody Energy Corp., 5.875%, 2016 ........ 275,000 267,781 Russel Metals, Inc., 6.375%, 2014 ......... 220,000 213,400 ------------ $ 953,687 ------------ NATURAL GAS -- DISTRIBUTION -- 0.2% AmeriGas Partners LP, 7.25%, 2015 ......... $ 150,000 $ 153,000 ------------ NATURAL GAS -- PIPELINE -- 3.9% ANR Pipeline Co., 9.625%, 2021 ............ $ 155,000 $ 189,357 Atlas Pipeline Partners LP, 8.125%, 2015 (a) ........................ 65,000 65,569 Colorado Interstate Gas Co., 5.95%, 2015 ............................. 140,000 135,223 El Paso Energy Corp., 7%, 2011 ............ 405,000 401,962 El Paso Energy Corp., 7.625%, 2010 ........ 190,000 199,800 El Paso Energy Corp., 7.75%, 2013 ......... 390,000 404,625 Enterprise Products Operating LP, 6.375%, 2013 ............................ 115,000 120,394 Enterprise Products Operating LP, 5.6%, 2014 .............................. 225,000 224,824 Markwest Energy Partners LP, 6.875%, 2014 (a) ........................ 145,000 133,400 Pacific Energy Partners, LP, 6.25%, 2015 (a) ......................... 80,000 78,800 Transcontinental Gas Pipe Line Corp., 7%, 2011 ................................ 135,000 140,906 Williams Cos., Inc., 7.125%, 2011 ......... 307,000 318,896 Williams Cos., Inc., 7.75%, 2031 .......... 70,000 73,850 ------------ $ 2,487,606 ------------ NETWORK & TELECOM -- 4.4% AT&T Corp., 7.3%, 2011 .................... $ 166,000 $ 183,733 AT&T Corp., 9.75%, 2031 ................... 115,000 144,454 Cincinnati Bell, Inc., 8.375%, 2014 ....... 145,000 142,644 Citizens Communications Co., 9%, 2031 ..... 65,000 65,812 Citizens Communications Co., 9.25%, 2011 ............................. 275,000 303,187 Citizens Communications Co., 6.25%, 2013 ............................. 170,000 164,475 Eircom Funding PLC, 8.25%, 2013 ........... 90,000 96,300 GCI, Inc., 7.25%, 2014 .................... 135,000 133,650 Hawaiian Telecom Communications, Inc., 9.75%, 2013 (a) ......................... 125,000 122,187 Hawaiian Telecom Communications, Inc., 12.5%, 2015 (a) ......................... 30,000 28,050 MCI, Inc., 6.908%, 2007 ................... 123,000 123,923 MCI, Inc., 7.688%, 2009 ................... 143,000 147,648 Qwest Capital Funding, Inc., 7.25%, 2011 ............................. 240,000 243,000 Qwest Corp., 8.875%, 2012 ................. 405,000 456,638 Qwest Corp., 7.875%, 2011 ................. 230,000 247,825 Time Warner Telecom Holdings, Inc., 9.25%, 2014 ............................. 240,000 253,200 ------------ $ 2,856,726 ------------ OIL SERVICES -- 0.6% GulfMark Offshore, Inc., 7.75%, 2014 ...... $ 180,000 $ 187,200 Hanover Compressor Co., 9%, 2014 .......... 190,000 207,100 ------------ $ 394,300 ------------ OILS -- 0.1% Premcor Refining Group, Inc., 7.5%, 2015 .............................. $ 85,000 $ 90,612 ------------ POLLUTION CONTROL -- 0.5% Allied Waste North America, Inc., 7.875%, 2013 ............................ $ 145,000 $ 149,712 Allied Waste North America, Inc., 6.5%, 2010 .............................. 170,000 168,300 ------------ $ 318,012 ------------ PRECIOUS METALS & MINERALS -- 0.4% Freeport-McMoRan Copper & Gold, Inc., 6.875%, 2014 ............................ $ 251,000 $ 253,510 ------------ PRINTING & PUBLISHING -- 2.5% American Media Operations, Inc., 8.875%, 2011 ............................ $ 235,000 $ 199,750 Dex Media East LLC, 12.125%, 2012 ......... 146,000 170,820 Dex Media, Inc., 0% to 2008, 9% to 2013 .............................. 635,000 504,825 Lighthouse International Co. S.A., 8%, 2014 (a) ............................ EUR 170,000 213,159 MediaNews Group, Inc., 6.875%, 2013 ....... $ 205,000 196,031 PRIMEDIA, Inc., 8.875%, 2011 .............. 205,000 189,113 WDAC Subsidiary Corp., 8.375%, 2014 (a) ........................ 150,000 145,313 ------------ $ 1,619,011 ------------ RAILROAD & SHIPPING -- 0.7% Kansas City Southern Railway Co., 7.5%, 2009 .............................. $ 300,000 $ 309,750 TFM S.A. de C.V., 12.5%, 2012 ............. 51,000 58,140 TFM S.A. de C.V., 9.375%, 2012 (a) ........ 102,000 111,690 ------------ $ 479,580 ------------ RESTAURANTS -- 0.3% Carrols Corp., 9%, 2013 ................... $ 200,000 $ 194,500 ------------ RETAILERS -- 2.6% Buhrmann U.S., Inc., 7.875%, 2015 ......... $ 205,000 $ 200,131 Couche-Tard, Inc., 7.5%, 2013 ............. 320,000 329,600 Dollar General Corp., 8.625%, 2010 ........ 230,000 252,425 Finlay Fine Jewelry Corp., 8.375%, 2012 ... 180,000 162,000 GSC Holdings Corp., 8%, 2012 (a) .......... 190,000 178,600 J.C. Penney Corp., Inc., 8%, 2010 ......... 180,000 197,144 Neiman Marcus Group, Inc., 9%, 2015 (a) ............................ 185,000 189,163 Rite Aid Corp., 8.125%, 2010 .............. 195,000 198,413 ------------ $ 1,707,476 ------------ SPECIALTY STORES -- 0.3% Payless ShoeSource, Inc., 8.25%, 2013 ..... $ 195,000 $ 203,775 ------------ STEEL -- 0.5% AK Steel Holding Corp., 7.75%, 2012 ....... $ 220,000 $ 198,550 Chaparral Steel Co., 10%, 2013 ............ 135,000 145,462 ------------ $ 344,012 ------------ TELECOMMUNICATIONS -- WIRELESS -- 3.9% Alamosa Holdings, Inc., 12%, 2009 ......... $ 170,000 $ 185,937 American Tower Corp., 7.125%, 2012 ........ 150,000 154,500 American Towers, Inc., 7.25%, 2011 ........ 130,000 135,200 Centennial Communications Corp., 10%, 2013 (a) ........................... 50,000 50,500 Centennial Communications Corp., 10.125%, 2013 ........................... 120,000 130,500 Dolphin Telecom PLC, 11.5%, 2008 (d) ...... 1,500,000 0 Dolphin Telecom PLC, "B", 14%, 2009 (d) ........................... 530,000 0 IWO Holdings, Inc., 7.9%, 2012 ............ 30,000 31,125 Nextel Communications, Inc., 5.95%, 2014 ............................. 950,000 954,976 Rogers Wireless, Inc., 6.375%, 2014 ....... 250,000 250,625 Rogers Wireless, Inc., 7.5%, 2015 ......... 175,000 189,000 Rural Cellular Corp., 9.875%, 2010 ........ 210,000 221,550 U.S. Unwired, Inc., 10%, 2012 ............. 160,000 180,000 Wind Acquisition Finance S.A., 10.75%, 2015 (a) ........................ 60,000 61,950 ------------ $ 2,545,863 ------------ TIRE & RUBBER -- 0.8% Cooper Standard Automotive, Inc., 8.375%, 2014 ............................ $ 230,000 $ 174,800 Goodyear Tire & Rubber Co., 9%, 2015 (a) ............................ 335,000 329,975 ------------ $ 504,775 ------------ TOBACCO -- 0.5% R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 ............................. $ 185,000 $ 188,700 R.J. Reynolds Tobacco Holdings, Inc., 7.3%, 2015 (a) .......................... 155,000 158,100 ------------ $ 346,800 ------------ TRANSPORTATION -- SERVICES -- 1.2% CHC Helicopter Corp., 7.375%, 2014 ........ $ 155,000 $ 156,744 Hertz Corp., 8.875%, 2014 (a) ............. 135,000 137,531 Stena AB, 9.625%, 2012 .................... 80,000 86,900 Stena AB, 7%, 2016 ........................ 221,000 202,215 Westinghouse Air Brake Technologies Corp., 6.875%, 2013 ............................ 175,000 176,750 ------------ $ 760,140 ------------ UTILITIES -- ELECTRIC POWER -- 7.2% AES Corp., 8.75%, 2013 (a) ................ $ 345,000 $ 375,619 AES Corp., 9%, 2015 (a) ................... 60,000 65,700 Allegheny Energy Supply Co., LLC, 8.25%, 2012 (a) ......................... 285,000 321,337 CMS Energy Corp., 8.5%, 2011 .............. 290,000 315,737 Dynegy Holdings, Inc., 9.875%, 2010 (a) ... 80,000 87,700 Dynegy Holdings, Inc., 10.125%, 2013 (a) ....................... 105,000 118,650 Empresa Nacional de Electricidad S.A., 8.35%, 2013 ............................. 61,000 69,474 Enersis S.A., 7.375%, 2014 ................ 201,000 216,201 FirstEnergy Corp., 6.45%, 2011 ............ 116,000 122,960 Midwest Generation LLC, 8.75%, 2034 ....... 345,000 379,931 Mirant North America LLC, 7.375%, 2013 (a) ........................ 165,000 166,856 Mission Energy Holding Co., 13.5%, 2008 ............................. 180,000 208,800 Nevada Power Co., 6.5%, 2012 .............. 50,000 51,250 Nevada Power Co., 5.875%, 2015 ............ 120,000 119,079 NorthWestern Corp., 5.875%, 2014 .......... 220,000 220,414 NRG Energy, Inc., 8%, 2013 ................ 199,000 221,885 PSEG Energy Holdings LLC, 8.625%, 2008 ............................ 175,000 182,000 Reliant Energy, Inc., 6.75%, 2014 ......... 40,000 34,900 Reliant Resources, Inc., 9.25%, 2010 ...... 80,000 80,000 Reliant Resources, Inc., 9.5%, 2013 ....... 95,000 95,238 Sierra Pacific Power Co., 6.25%, 2012 ..... 105,000 106,575 Sierra Pacific Resources, 8.625%, 2014 .... 65,000 70,329 TECO Energy, Inc., 7%, 2012 ............... 190,000 199,500 Tenaska Alabama Partners LP, 7%, 2021 (a) ............................ 99,329 99,928 Texas Genco LLC, 6.875%, 2014 (a) ......... 125,000 135,313 TXU Corp., 5.55%, 2014 .................... 600,000 569,902 ------------ $ 4,635,278 ------------ Total Bonds (Identified Cost, $60,892,636) .................. $ 60,026,842 ------------ STOCKS -- 1.0% AUTOMOTIVE -- 0.4% Magna International, Inc., "A" ............ 3,000 $ 215,940 ------------ BROADCAST & CABLE TV -- 0.1% Telewest Global, Inc.(n) .................. 2,466 $ 58,740 ------------ FOREST & PAPER PRODUCTS -- 0% Corporacion Durango S.A. de C.V.(n) ....... 7,837 $ 3,388 ------------ METALS & MINING -- 0% Oxford Automotive, Inc.(n) ................ 53 $ 0 ------------ PHARMACEUTICALS -- 0.2% Merck & Co., Inc. ......................... 4,500 $ 143,145 ------------ PRINTING & PUBLISHING -- 0% Golden Books Family Entertainment, Inc. (n) ................................ 21,250 $ 0 ------------ TELECOMMUNICATIONS -- WIRELESS -- 0.1% Vodafone Group PLC, ADR ................... 2,574 $ 55,264 ------------ TELEPHONE SERVICES -- 0.2% NTL, Inc.(n) .............................. 2,203 $ 149,980 ------------ Total Stocks (Identified Cost, $896,150) $ 626,457 ------------ CONVERTIBLE PREFERRED STOCK -- 0.3% AUTOMOTIVE -- 0.3% General Motors Corp., 5.25% (Identified Cost, $236,236) ............. 13,178 $ 196,352 ------------ PREFERRED STOCKS -- 0.1% BROADCAST & CABLE TV -- 0.1% Paxson Communications Corp., 14.25% ....... 8 $ 69,600 ------------ CONSUMER GOODS & SERVICES -- 0% Renaissance Cosmetics, Inc., 14% (n) ...... 975 $ 0 ------------ REAL ESTATE -- 0% HRPT Properties Trust, "B", 8.75% ......... 200 $ 5,180 ------------ TELEPHONE SERVICES -- 0% PTV, Inc., "A", 10% ....................... 10 $ 21 ------------ Total Preferred Stocks (Identified Cost, $69,456) ........... $ 74,801 ------------ WARRANTS -- 0% Strike First Shares/Par Issuer Price Exercise ($) Value ($) GT Group Telecom, Inc. (Telephone Services) (n) ...... $ 0.00 8/01/00 1,050 $ 0 Knology, Inc. (Network & Telecom) (a)(n) .................... 0.10 11/22/97 500 0 Loral Space & Communications LTD. (Business Services) (n) 0.14 1/28/97 1,000 0 Loral Space & Communications LTD. (Business Services) (n) 0.14 1/28/97 1,100 0 Ono Finance (Broadcast & Cable TV) (n) ...................... 0.00 5/31/09 1,225 0 Thermadyne Holdings Corp. ............ (Machinery & Tools) (n) ............ 20.78 5/29/03 2,705 135 XM Satellite Radio, Inc. ............. (Broadcast & Cable TV) (n) ............................ 45.24 9/16/00 425 19,125 XO Communications, Inc., "A" (Telephone Services) (n) ...................... 6.25 5/27/03 397 60 XO Communications, Inc., "B" (Telephone Services) (n) ................................ 7.50 5/27/03 298 30 XO Communications, Inc., "C" (Telephone Services) (n) ................................ 10.00 5/27/03 298 27 -------- Total Warrants (Identified Cost, $203,646) .......................... $ 19,377 -------- SHORT-TERM OBLIGATION -- 3.4% General Electric Capital Corp., 4.2%, due 1/03/06, at Amortized Cost (y) .......................... $ 2,200,000 $ 2,199,487 ------------ Total Investments (Identified Cost, $64,497,611) (k) ........................ $ 63,143,316 ------------ OTHER ASSETS, LESS LIABILITIES -- 2.3% ...................................... 1,512,987 ------------ Net Assets -- 100.0% ........................................ $ 64,656,303 ============ FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS Sales and Purchases in the table below are reported by currency. Net Unrealized Contracts to Contracts Appreciation Deliver/Receive Settlement Date In Exchange For at Value (Depreciation) SALES EUR 895,563 2/21/06 $1,052,372 $1,062,472 $(10,100) ========== ========== ======== PURCHASES SEK 76,260 2/13/06 $ 9,601 $9,623 $ 22 ========== ========== ======== At December 31, 2005 forward foreign currency purchases and sales under master netting agreements excluded above amounted to a net receivable of $1 with Merrill Lynch International. At December 31, 2005 the variable account had sufficient cash and/or securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005 MONEY MARKET VARIABLE ACCOUNT CERTIFICATES OF DEPOSIT -- 1.8% Shares/Par Issuer ($) Value ($) Citibank N.A., 4.33%, due 2/23/06, at Amortized Cost and Value ............. $ 1,000,000 $ 1,000,000 ------------ COMMERCIAL PAPER -- 92.2%(y) American Express Credit Corp., 4.14%, due 1/13/06 ...................... $ 1,868,000 $ 1,865,422 American General Finance Corp., 4.34%, due 2/17/06 ...................... 1,733,000 1,723,181 Bank of America Corp., 4.34%, due 2/17/06 ...................... 1,516,000 1,507,410 Barton Capital LLC, 4.25%, due 1/03/06(t) . 1,709,000 1,708,596 CAFCO LLC, 4.36%, due 2/21/06(t) .......... 1,738,000 1,727,265 Ciesco LLC, 4.34%, due 2/10/06(t) ......... 1,181,000 1,175,305 Citibank Credit Card Issuance Trust, 4.05%, due 1/11/06(t) ................... 1,970,000 1,967,784 Citigroup Funding, Inc., 4.36%, due 2/16/06 ...................... 720,000 715,989 Depfa Bank PLC, 4.17%, due 1/10/06(t) ..... 1,868,000 1,866,053 Dexia Delaware LLC, 4.29%, due 2/01/06 .... 1,734,000 1,727,594 Edison Asset Securitization LLC, 4.18%, due 2/01/06(t) ................... 1,546,000 1,540,435 Falcon Asset Securitization Corp., 4.36%, due 2/16/06(t) ................... 1,727,000 1,717,379 General Electric Capital Corp., 4.36%, due 2/27/06 ...................... 1,726,000 1,714,085 Govco, Inc., 4.26%, due 1/18/06(t) ........ 1,781,000 1,777,417 HBOS Treasury Services PLC, 4.2%, due 2/15/06 ....................... 1,899,000 1,889,030 Hershey Foods Corp., 4.24%, due 2/13/06(t) ................... 1,173,000 1,167,059 ING America Insurance Holdings, Inc., 4.37%, due 3/01/06 ...................... 1,733,000 1,720,588 Jupiter Securitization Corp., 4.34%, due 2/07/06(t) ................... 1,725,000 1,717,306 Kitty Hawk Funding Corp., 4.21%, due 1/25/06(t) ................... 1,887,000 1,881,704 MetLife, Inc., 4.38%, due 3/20/06(t) ...... 1,422,000 1,408,505 New Center Asset Trust, 4.23%, due 1/03/06 ...................... 1,709,000 1,708,598 Old Line Funding LLC, 4.34%, due 2/06/06 ...................... 1,920,000 1,911,667 Park Avenue Receivable Co. LLC, 4.28%, due 1/05/06(t) ................... 1,976,000 1,975,060 Preferred Receivables Funding Corp., 4.34%, due 2/03/06(t) ................... 1,721,000 1,714,153 Ranger Funding Co. LLC, 4.25%, due 1/11/06(t) ................... 513,000 512,394 Scaldis Capital LLC, 4.32%, due 2/28/06(t) ................... 1,666,000 1,654,405 Societe Generale North America, 4.35%, due 2/22/06 ...................... 1,738,000 1,727,080 Svenska Handelsbanken, Inc., 4.03%, due 1/11/06 ...................... 1,988,000 1,985,775 Thunder Bay Funding LLC, 4.05%, due 1/10/06(t) ................... 1,135,000 1,133,851 Thunder Bay Funding LLC, 4.405%, due 3/21/06(t) .................. 590,000 584,297 Toyota Motor Credit Corp., 4.35%, due 2/22/06 ...................... 1,720,000 1,709,193 UBS Finance Delaware LLC, 4.325%, due 2/13/06 ..................... 1,721,000 1,712,109 Windmill Funding Corp., 4.3%, due 1/11/06(t) .................... 1,751,000 1,748,909 ------------ Total Commercial Paper, at Amortized Cost and Value ............................... $ 52,595,598 ------------ REPURCHASE AGREEMENT -- 6.2% Morgan Stanley, 4.23% dated 12/30/05, due 1/03/06, total to be received $3,564,675 (secured by various U.S. Treasury and Federal Agency obligations in a jointly traded account), at Cost ................ $ 3,563,000 $ 3,563,000 ------------ Total Investments, at Amortized Cost and Value .............. $ 57,158,598 ------------ OTHER ASSETS, LESS LIABILITIES - (0.2)% ............................... (135,688) ------------ Net Assets - 100.0% ................................... $ 57,022,910 ============ See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005 TOTAL RETURN VARIABLE ACCOUNT STOCKS -- 59.0%
Shares/Par Issuer ($) Value ($) AEROSPACE -- 1.6% Lockheed Martin Corp. ....................... 22,820 $ 1,452,037 Northrop Grumman Corp. ...................... 13,470 809,682 United Technologies Corp. ................... 13,450 751,990 ------------ $ 3,013,709 ------------ ALCOHOLIC BEVERAGES -- 0.4% Diageo PLC .................................. 40,206 $ 582,236 Molson Coors Brewing Co. .................... 3,530 236,475 ------------ $ 818,711 ------------ AUTOMOTIVE -- 0.1% Johnson Controls, Inc. ...................... 3,700 $ 269,767 ------------ BANKS & CREDIT COMPANIES -- 9.0% American Express Co. ........................ 12,490 $ 642,735 Bank of America Corp. ....................... 105,202 4,855,072 Capital One Financial Corp. ................. 4,530 391,392 Citigroup, Inc. ............................. 48,876 2,371,952 Countrywide Financial Corp. ................. 8,240 281,726 Fannie Mae .................................. 11,300 551,553 Freddie Mac ................................. 2,890 188,861 J.P. Morgan Chase & Co. ..................... 70,132 2,783,539 MBNA Corp. .................................. 6,880 186,792 PNC Financial Services Group, Inc. .......... 48,020 2,969,077 SunTrust Banks, Inc. ........................ 16,880 1,228,189 UBS AG ...................................... 3,539 336,561 Wells Fargo & Co. ........................... 11,040 693,643 ------------ $ 17,481,092 ------------ BIOTECHNOLOGY -- 0.1% MedImmune, Inc.(n) .......................... 4,060 $ 142,181 ------------ BROADCAST & CABLE TV -- 2.2% Viacom, Inc., "B" ........................... 75,148 $ 2,449,825 Walt Disney Co. ............................. 71,970 1,725,121 ------------ $ 4,174,946 ------------ BROKERAGE & ASSET MANAGERS -- 3.5% Ameriprise Financial, Inc. .................. 2,886 $ 118,326 Franklin Resources, Inc. .................... 5,670 533,037 Goldman Sachs Group, Inc. ................... 8,480 1,082,981 Lehman Brothers Holdings, Inc. .............. 6,180 792,091 Mellon Financial Corp. ...................... 70,730 2,422,503 Merrill Lynch & Co., Inc. ................... 20,510 1,389,142 Morgan Stanley .............................. 8,810 499,879 ------------ $ 6,837,959 ------------ BUSINESS SERVICES -- 0.4% Accenture Ltd., "A" ......................... 29,880 $ 862,636 ------------ CHEMICALS -- 1.6% 3M Co. ...................................... 5,890 $ 456,475 Dow Chemical Co. ............................ 7,330 321,201 E.I. du Pont de Nemours & Co. ............... 22,600 960,500 Nalco Holding Co.(n) ........................ 24,090 426,634 PPG Industries, Inc. ........................ 11,350 657,165 Syngenta AG ................................. 2,790 346,775 ------------ $ 3,168,750 ------------ COMPUTER SOFTWARE -- 2.5% Compuware Corp.(n) .......................... 113,300 $ 1,016,301 Microsoft Corp. ............................. 6,680 174,682 Oracle Corp.(n) ............................. 116,750 1,425,518 Symantec Corp.(n) ........................... 130,400 2,282,000 ------------ $ 4,898,501 ------------ COMPUTER SOFTWARE -- SYSTEMS -- 0.7% International Business Machines Corp. ....... 4,430 $ 364,146 Sun Microsystems, Inc.(n) ................... 236,730 991,899 ------------ $ 1,356,045 ------------ CONSTRUCTION -- 1.4% Masco Corp. ................................. 82,590 $ 2,493,392 Sherwin-Williams Co. ........................ 2,700 122,634 ------------ $ 2,616,026 ------------ CONSUMER GOODS & SERVICES -- 0.6% Colgate-Palmolive Co. ....................... 6,700 $ 367,495 Estee Lauder Cos., Inc., "A" ................ 13,360 447,293 Kimberly-Clark Corp. ........................ 4,280 255,302 ------------ $ 1,070,090 ------------ CONTAINERS -- 1.0% Owens-Illinois, Inc.(n) ..................... 86,050 $ 1,810,492 Smurfit-Stone Container Corp.(n) ............ 7,490 106,133 ------------ $ 1,916,625 ------------ ELECTRICAL EQUIPMENT -- 2.0% Cooper Industries Ltd., "A" ................. 3,980 $ 290,540 Emerson Electric Co. ........................ 490 36,603 General Electric Co. ........................ 30,150 1,056,758 Hubbell, Inc., "B" .......................... 3,600 162,432 Tyco International Ltd. ..................... 73,340 2,116,592 W.W. Grainger, Inc. ......................... 2,870 204,057 ------------ $ 3,866,982 ------------ ELECTRONICS -- 0.6% Analog Devices, Inc. ........................ 12,550 $ 450,168 Intel Corp. ................................. 13,600 339,456 Samsung Electronics Co. Ltd., GDR ........... 630 207,585 Xilinx, Inc. ................................ 7,530 189,831 ------------ $ 1,187,040 ------------ ENERGY -- INDEPENDENT -- 1.4% Apache Corp. ................................ 2,500 $ 171,300 Devon Energy Corp. .......................... 29,800 1,863,692 EnCana Corp. ................................ 4,520 204,123 EOG Resources, Inc. ......................... 6,490 476,171 ------------ $ 2,715,286 ------------ ENERGY -- INTEGRATED -- 3.3% Amerada Hess Corp. .......................... 5,730 $ 726,679 BP PLC, ADR ................................. 7,040 452,109 Chevron Corp. ............................... 11,445 649,733 ConocoPhillips .............................. 22,660 1,318,359 Exxon Mobil Corp. ........................... 29,372 1,649,825 TOTAL S.A., ADR ............................. 12,090 1,528,176 ------------ $ 6,324,881 ------------ FOOD & NON-ALCOHOLIC BEVERAGES -- 1.3% Archer Daniels Midland Co. .................. 9,700 $ 239,202 Coca-Cola Co. ............................... 10,750 433,332 H.J. Heinz Co. .............................. 7,240 244,133 Kellogg Co. ................................. 11,600 501,352 Nestle S.A .................................. 1,310 391,372 PepsiCo, Inc. ............................... 7,750 457,870 Sara Lee Corp. .............................. 12,220 230,958 ------------ $ 2,498,219 ------------ FOREST & PAPER PRODUCTS -- 0.7% Bowater, Inc. ............................... 27,320 $ 839,270 International Paper Co. ..................... 10,900 366,349 MeadWestvaco Corp. .......................... 7,810 218,914 ------------ $ 1,424,533 ------------ GAMING & LODGING -- 0.4% Cendant Corp. ............................... 25,610 $ 441,772 International Game Technology ............... 8,000 246,240 ------------ $ 688,012 ------------ GENERAL MERCHANDISE -- 1.1% Family Dollar Stores, Inc. .................. 34,210 $ 848,066 Wal-Mart Stores, Inc. ....................... 25,380 1,187,784 ------------ $ 2,035,850 ------------ HEALTH MAINTENANCE ORGANIZATIONS -- 0.1% CIGNA Corp. ................................. 1,300 $ 145,210 ------------ INSURANCE -- 3.2% Ace Ltd. .................................... 5,760 $ 307,814 AFLAC, Inc. ................................. 800 37,136 Allstate Corp. .............................. 32,460 1,755,112 Chubb Corp. ................................. 2,190 213,853 Conseco, Inc.(n) ............................ 43,530 1,008,590 Genworth Financial, Inc., "A" ............... 17,330 599,271 Hartford Financial Services Group, Inc. ..... 9,990 858,041 Lincoln National Corp. ...................... 7,030 372,801 MetLife, Inc. ............................... 19,190 940,310 XL Capital Ltd., "A" ........................ 2,780 187,316 ------------ $ 6,280,244 ------------ LEISURE & TOYS -- 0.4% Hasbro, Inc. ................................ 6,710 $ 135,408 Mattel, Inc. ................................ 34,310 542,784 ------------ $ 678,192 ------------ MACHINERY & TOOLS -- 0.7% Deere & Co. ................................. 10,360 $ 705,620 Finning International, Inc.(a) .............. 460 14,689 Illinois Tool Works, Inc. ................... 7,580 666,964 ------------ $ 1,387,273 ------------ MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 0.5% Tenet Healthcare Corp.(n) ................... 117,970 $ 903,650 ------------ MEDICAL EQUIPMENT -- 0% Baxter International, Inc. .................. 1,800 $ 67,770 ------------ METALS & MINING -- 0.1% BHP Billiton PLC ............................ 16,630 $ 271,410 ------------ NATURAL GAS -- DISTRIBUTION -- 0.2% AGL Resources, Inc. ......................... 7,320 $ 254,809 Sempra Energy ............................... 3,350 150,214 ------------ $ 405,023 ------------ NETWORK & TELECOM -- 1.7% Cisco Systems, Inc.(n) ...................... 36,270 $ 620,942 Nokia Corp., ADR ............................ 49,170 899,811 Nortel Networks Corp.(n) .................... 586,720 1,795,363 ------------ $ 3,316,116 ------------ OIL SERVICES -- 2.0% BJ Services Co. ............................. 14,310 $ 524,748 Cooper Cameron Corp.(n) ..................... 12,420 514,188 GlobalSantaFe Corp. ......................... 29,250 1,408,388 Noble Corp. ................................. 19,515 1,376,588 ------------ $ 3,823,912 ------------ PHARMACEUTICALS -- 4.2% Abbott Laboratories ......................... 17,640 $ 695,545 Eli Lilly & Co. ............................. 4,970 281,252 Johnson & Johnson ........................... 31,450 1,890,145 Merck & Co., Inc. ........................... 72,710 2,312,905 Wyeth ....................................... 64,830 2,986,718 ------------ $ 8,166,565 ------------ PRINTING & PUBLISHING -- 0.6% Knight-Ridder, Inc. ......................... 9,070 $ 574,131 New York Times Co., "A" ..................... 8,750 231,438 Reed Elsevier PLC ........................... 28,020 262,966 Tribune Co. ................................. 5,510 166,733 ------------ $ 1,235,268 ------------ RAILROAD & SHIPPING -- 0.4% Burlington Northern Santa Fe Corp. .......... 6,570 $ 465,287 Norfolk Southern Corp. ...................... 8,960 401,677 ------------ $ 866,964 ------------ RESTAURANTS -- 0.2% McDonald's Corp. ............................ 10,300 $ 347,316 ------------ SPECIALTY CHEMICALS -- 0.4% Air Products & Chemicals, Inc. .............. 10,350 $ 612,616 L'Air Liquide S.A., Bearer Shares ........... 210 40,366 Praxair, Inc. ............................... 2,300 121,808 ------------ $ 774,790 ------------ SPECIALTY STORES -- 1.8% Circuit City Stores, Inc. ................... 21,970 $ 496,302 Gap, Inc. ................................... 102,030 1,799,809 Lowe's Cos., Inc. ........................... 2,940 195,980 OfficeMax, Inc. ............................. 26,680 676,605 TJX Cos., Inc. .............................. 14,050 326,382 ------------ $ 3,495,078 ------------ TELECOMMUNICATIONS -- WIRELESS -- 0.4% Vodafone Group PLC, ADR ..................... 37,412 $ 803,236 ------------ TELEPHONE SERVICES -- 3.1% AT&T, Inc. .................................. 21,444 $ 525,164 Sprint Nextel Corp. ......................... 130,180 3,041,005 Verizon Communications, Inc. ................ 81,480 2,454,178 ------------ $ 6,020,347 ------------ TOBACCO -- 1.1% Altria Group, Inc. .......................... 29,520 $ 2,205,734 ------------ TRUCKING -- 0% CNF, Inc. ................................... 1,540 $ 86,071 UTILITIES -- ELECTRIC POWER -- 2.0% Allegheny Energy, Inc.(n) ................... 1,600 $ 50,640 Dominion Resources, Inc. .................... 16,020 1,236,744 Entergy Corp. ............................... 5,680 389,932 Exelon Corp. ................................ 10,320 548,405 FirstEnergy Corp. ........................... 5,200 254,748 FPL Group, Inc. ............................. 11,520 478,771 NRG Energy, Inc.(n) ......................... 2,170 102,250 PPL Corp. ................................... 17,160 504,504 Public Service Enterprise Group, Inc. ....... 2,590 168,272 TXU Corp. ................................... 3,800 190,722 ------------ $ 3,924,988 ------------ Total Stocks (Identified Cost, $102,473,367)............... $114,572,998 ------------ BONDS -- 40.3% ADVERTISING & BROADCASTING -- 0.1% News America Holdings, 8.5%, 2025 ........... $ 99,000 $ 119,112 News America, Inc., 6.2%, 2034 .............. 92,000 91,384 ------------ $ 210,496 ------------ AEROSPACE -- 0.3% Boeing Capital Corp., 6.5%, 2012 ............ $ 263,000 $ 283,888 Northrop Grumman Corp., 7.75%, 2031 ......... 226,000 288,930 ------------ $ 572,818 ------------ AGENCY -- OTHER -- 0% Financing Corp., 9.65%, 2018 ................ $ 45,000 $ 64,741 ------------ AIRLINES -- 0.1% Continental Airlines, Inc., 6.648%, 2017 .... $ 178,209 $ 174,145 ------------ ALCOHOLIC BEVERAGES -- 0.2% Foster's Financial Corp., 5.875%, 2035 (a) .. $ 150,000 $ 146,083 Miller Brewing Co., 5.5%, 2013 (a) .......... 276,000 281,328 ------------ $ 427,411 ------------ ASSET BACKED & SECURITIZED -- 2.4% AmeriCredit Automobile Receivables Trust, 2.18%, 2008 ............................... $ 150,179 $ 149,276 Banc of America Commercial Mortgage, Inc., FRN, 5.182%, 2047 ......................... 102,153 102,333 Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 ................... 82,288 81,981 Blackrock Capital Finance LP, 7.75%, 2026 (a) ........................... 52,828 51,772 Chase Commercial Mortgage Securities Corp., 6.39%, 2030 ............................... 354,043 366,060 Chase Commercial Mortgage Securities Corp., 7.543%, 2009 .............................. 68,558 71,801 Citibank Credit Card Issuance Trust, 6.65%, 2008 ............................... 623,000 627,048 Countrywide Asset-Backed Certificates, FRN, 4.823%, 2035 .............................. 75,000 74,244 CRIIMI MAE CMBS Corp., 6.7%, 2008 (a) ....... 190,000 191,865 CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (a) .............................. 296,207 300,280 Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 .............................. 164,507 168,515 Falcon Franchise Loan LLC, 7.382%, 2010 (a) .......................... 48,716 50,613 Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 ......................... 60,728 61,298 Greenwich Capital Commercial Funding Corp., FRN, 4.305%, 2042 ......................... 107,385 104,571 J.P. Morgan Chase Commercial Mortgage Securities Corp., 4.78%, 2042 ............. 130,000 125,866 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.2133%, 2041 ...... 39,903 40,184 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 ....... 197,476 195,259 J.P. Morgan Commercial Mortgage Finance Corp., 6.613%, 2030 ....................... 137,562 140,772 Morgan Stanley Capital I, Inc., 5.168%, 2042 .............................. 48,533 48,524 Morgan Stanley Capital I, Inc., FRN, 0.567%, 2030 (a)(i) ....................... 7,843,281 139,556 Mortgage Capital Funding, Inc., 6.337%, 2031 .............................. 260,764 266,878 Multi-Family Capital Access One, Inc., 6.65%, 2024 ............................... 50,115 51,729 Residential Asset Mortgage Products, Inc., 3.8%, 2030 ................................ 61,985 61,740 Residential Asset Mortgage Products, Inc., 4.109%, 2035 .............................. 112,691 110,415 Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 ........................ 92,000 90,011 Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 .................... 129,000 128,868 Spirit Master Funding LLC, 5.05%, 2023 (a) ........................... 196,479 192,177 Structured Asset Securities Corp., FRN, 4.67%, 2035 ............................... 298,098 295,175 Wachovia Bank Commercial Mortgage Trust, 5.155%, 2044 .............................. 83,000 84,410 Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 ......................... 185,000 183,570 Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 ......................... 50,000 48,816 Wachovia Bank Commercial Mortgage Trust, FRN, 5.195%, 2044 ......................... 130,000 130,394 ------------ $ 4,736,001 ------------ AUTOMOTIVE -- 0.2% Ford Motor Co., 7.45%, 2031 ................. $ 74,000 $ 50,320 Ford Motor Credit Co., 5.7%, 2010 ........... 193,000 164,062 Ford Motor Credit Co., 4.95%, 2008 .......... 80,000 71,680 General Motors Acceptance Corp., 7.25%, 2011 ............................... 82,000 75,369 General Motors Acceptance Corp., 5.85%, 2009 ............................... 93,000 83,200 ------------ $ 444,631 ------------ BANKS & CREDIT COMPANIES -- 1.9% Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 ............... $ 179,000 $ 243,546 Bank of America Corp., 7.4%, 2011 ........... 299,000 329,356 Bank of America Corp., 5.375%, 2014 ......... 110,000 111,816 Citigroup, Inc., 5%, 2014 ................... 250,000 246,089 Credit Suisse First Boston (USA), Inc., 4.125%, 2010 .............................. 171,000 165,371 Credit Suisse First Boston (USA), Inc., 4.875%, 2010 .............................. 121,000 120,072 DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049 (a) ........... 170,000 188,097 HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (a) ........................... 100,000 103,323 J.P. Morgan Chase & Co., 5.125%, 2014 ....... 215,000 212,831 Mizuho Financial Group, Inc., 5.79%, 2014 (a) ........................... 103,000 106,407 Nordea Bank AB, 5.424% to 2015, FRN to 2049 (a) ........................... 100,000 99,128 Popular North America, Inc., 4.25%, 2008 .... 211,000 206,951 RBS Capital Trust II, 6.425% to 2034, FRN to 2049 ............................... 161,000 168,961 Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (a) ........................... 361,000 375,600 UFJ Finance Aruba AEC, 6.75%, 2013 .......... 45,000 49,134 UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (a) ............. 208,000 240,915 Wachovia Corp., 5.25%, 2014 ................. 343,000 343,455 Wells Fargo National Bank, 4.75%, 2015 ...... 315,000 306,421 ------------ $ 3,617,473 ------------ BROADCAST & CABLE TV -- 0.4% Cox Communications, Inc., 4.625%, 2013 ...... $ 159,000 $ 148,122 TCI Communications Financing III, 9.65%, 2027 ............................... 425,000 459,895 Time Warner Entertainment Co. LP, 10.15%, 2012 .............................. 1,000 1,218 Time Warner Entertainment Co., LP, 8.375%, 2033 ...................................... 75,000 88,594 ------------ $ 697,829 ------------ BROKERAGE & ASSET MANAGERS -- 0.6% Ameriprise Financial, Inc., 5.35%, 2010 ..... $ 113,000 $ 113,774 Goldman Sachs Group, Inc., 5.7%, 2012 ....... 247,000 254,083 Lehman Brothers Holdings, Inc., 8.25%, 2007 ............................... 334,000 349,178 Merrill Lynch & Co., Inc., 5.45%, 2014 ...... 127,000 129,075 Morgan Stanley Group, Inc., 6.75%, 2011 ..... 156,000 167,938 Morgan Stanley Group, Inc., 4.75%, 2014 ..... 78,000 74,807 ------------ $ 1,088,855 ------------ BUILDING -- 0.1% CRH America, Inc., 6.95%, 2012 .............. $ 208,000 $ 226,310 ------------ CHEMICALS -- 0.1% Dow Chemical Co., 5.75%, 2008 ............... $ 162,000 $ 166,186 Dow Chemical Co., 6%, 2012 .................. 15,000 15,765 ------------ $ 181,951 ------------ CONGLOMERATES -- 0.1% Kennametal, Inc., 7.2%, 2012 ................ $ 211,000 $ 229,054 Tyco International Group S.A., 6.75%, 2011 ............................... 40,000 42,056 ------------ $ 271,110 ------------ CONSUMER GOODS & SERVICES -- 0.1% Cendant Corp., 6.875%, 2006 ................. $ 147,000 $ 148,509 ------------ DEFENSE ELECTRONICS -- 0.1% BAE Systems Holdings, Inc., 5.2%, 2015 (a) .. $ 133,000 $ 130,333 Raytheon Co., 6.15%, 2008 ................... 114,000 118,312 ------------ $ 248,645 ------------ EMERGING MARKET QUASI-SOVEREIGN -- 0% Pemex Project Funding Master Trust, 8.625%, 2022 .............................. $ 39,000 $ 48,068 ------------ EMERGING MARKET SOVEREIGN -- 0.2% State of Israel, 4.625%, 2013 ............... $ 112,000 $ 108,291 United Mexican States, 6.625%, 2015 ......... 138,000 151,110 United Mexican States, 6.375%, 2013 ......... 76,000 80,750 ------------ $ 340,151 ------------ ENERGY -- INDEPENDENT -- 0.1% Devon Financing Corp. U.L.C., 6.875%, 2011 .............................. $ 142,000 $ 155,325 ------------ ENERGY -- INTEGRATED -- 0% Amerada Hess Corp., 7.3%, 2031 .............. $ 62,000 $ 71,752 ------------ ENTERTAINMENT -- 0.1% Walt Disney Co., 6.75%, 2006 ................ $ 69,000 $ 69,329 Walt Disney Co., 6.375%, 2012 ............... 156,000 165,004 ------------ $ 234,333 ------------ FINANCIAL INSTITUTIONS -- 0.1% General Electric Capital Corp., 8.75%, 2007 ............................... $ 130,000 $ 136,797 HSBC Finance Corp., 5.25%, 2011 ............. 145,000 145,074 ------------ $ 281,871 ------------ FOOD & NON-ALCOHOLIC BEVERAGES -- 0.2% Cadbury Schweppes PLC, 5.125%, 2013 (a) .......................... $ 270,000 $ 268,487 Kraft Foods, Inc., 6.25%, 2012 .............. 142,000 149,802 ------------ $ 418,289 ------------ FOREST & PAPER PRODUCTS -- 0.2% MeadWestvaco Corp., 6.8%, 2032 .............. $ 69,000 $ 68,918 Weyerhaeuser Co., 6.75%, 2012 ............... 254,000 269,593 ------------ $ 338,511 ------------ INSURANCE -- 0.5% AIG SunAmerica Institutional Funding II, 5.75%, 2009 ............................... $ 441,000 $ 451,390 Genworth Financial, Inc., 5.75%, 2014 ....... 40,000 41,749 ING Group N.V., 5.775% to 2015, FRN to 2049 ............................... 323,000 327,361 MetLife, Inc., 6.5%, 2032 ................... 48,000 53,049 ------------ $ 873,549 ------------ INSURANCE -- PROPERTY & CASUALTY -- 0.4% ACE INA Holdings, Inc., 5.875%, 2014 ........ $ 151,000 $ 156,200 Allstate Corp., 6.125%, 2032 ................ 185,000 194,198 Fund American Cos., Inc., 5.875%, 2013 ...... 117,000 118,060 St. Paul Travelers Cos., Inc., 5.5%, 2015 ... 112,000 112,806 Travelers Property Casualty Corp., 6.375%, 2033 .............................. 84,000 89,449 ------------ $ 670,713 ------------ INTERNATIONAL MARKET QUASI-SOVEREIGN -- 0.1% Hydro-Quebec, 6.3%, 2011 .................... $ 262,000 $ 279,478 ------------ MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 0.1% HCA, Inc., 8.75%, 2010 ...................... $ 40,000 $ 44,240 HCA, Inc., 6.95%, 2012 ...................... 139,000 144,177 ------------ $ 188,417 ------------ METALS & MINING -- 0% Alcan, Inc., 5%, 2015 ....................... $ 83,000 $ 80,513 ------------ MORTGAGE BACKED -- 14.4% Fannie Mae, 5.722%, 2009 .................... $ 415,000 $ 420,851 Fannie Mae, 4.01%, 2013 ..................... 19,354 18,227 Fannie Mae, 4.63%, 2014 ..................... 47,828 46,546 Fannie Mae, 4.518%, 2014 .................... 176,548 171,194 Fannie Mae, 4.846%, 2014 .................... 72,958 72,186 Fannie Mae, 4.925%, 2015 .................... 269,057 267,410 Fannie Mae, 5.5%, 2016 - 2035 ............... 9,845,660 9,788,012 Fannie Mae, 6%, 2016 - 2035 ................. 3,081,304 3,123,789 Fannie Mae, 4.5%, 2018 - 2035 ............... 1,188,446 1,148,762 Fannie Mae, 5%, 2018 - 2035 ................. 2,302,463 2,265,364 Fannie Mae, 6.5%, 2028 - 2034 ............... 1,309,816 1,346,857 Fannie Mae, 7.5%, 2031 ...................... 41,402 43,373 Freddie Mac, 6%, 2016 - 2034 ................ 1,641,423 1,663,641 Freddie Mac, 5%, 2017 - 2035 ................ 2,201,226 2,143,554 Freddie Mac, 4.5%, 2018 - 2035 .............. 1,157,307 1,122,741 Freddie Mac, 5.5%, 2019 - 2035 .............. 1,853,907 1,844,644 Freddie Mac, 6.5%, 2034 ..................... 288,140 295,312 Ginnie Mae, 6.5%, 2028 ...................... 198,805 208,036 Ginnie Mae, 4.5%, 2033 - 2034 ............... 179,900 172,043 Ginnie Mae, 6%, 2033 - 2034 ................. 615,205 630,436 Ginnie Mae, 5.5%, 2033 - 2035 ............... 991,770 999,446 Ginnie Mae, 5%, 2034 ........................ 151,221 149,415 ------------ $ 27,941,839 ------------ NATURAL GAS -- PIPELINE -- 0.2% CenterPoint Energy Resources Corp., 7.875%, 2013 .............................. $ 82,000 $ 93,774 Kinder Morgan Energy Partners LP, 6.75%, 2011 ............................... 165,000 175,739 Kinder Morgan Energy Partners LP, 7.75%, 2032 ............................... 117,000 139,634 ------------ $ 409,147 ------------ NETWORK & TELECOM -- 0.8% BellSouth Corp., 6.55%, 2034 ................ $ 146,000 $ 155,514 Deutsche Telekom International Finance B.V., 8.25%, 2030 ............................... 191,000 242,927 France Telecom S.A., 7.75%, 2011 ............ 53,000 59,198 PCCW-HKTC Capital II Ltd., 6%, 2013 (a) ..... 150,000 153,217 SBC Communications, Inc., 5.1%, 2014 ........ 226,000 220,775 SBC Communications, Inc., 6.15%, 2034 ....... 35,000 35,156 Telecom Italia Capital, 5.25%, 2013 ......... 60,000 58,876 Telecom Italia Capital, 6%, 2034 ............ 97,000 93,445 Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 ............................... 270,000 271,508 Verizon New York, Inc., 6.875%, 2012 ........ 286,000 298,135 ------------ $ 1,588,751 ------------ OIL SERVICES -- 0% Halliburton Co., 5.5%, 2010 ................. $ 50,000 $ 51,068 ------------ OILS -- 0.1% Valero Energy Corp., 6.875%, 2012 ........... $ 111,000 $ 120,949 ------------ PHARMACEUTICALS -- 0.1% Wyeth, 5.25%, 2013 .......................... $ 123,000 $ 124,693 ------------ POLLUTION CONTROL -- 0.1% Waste Management, Inc., 7.375%, 2010 ........ $ 134,000 $ 145,831 ------------ RAILROAD & SHIPPING -- 0.1% CSX Corp., 6.75%, 2011 ...................... $ 35,000 $ 37,507 Union Pacific Corp., 6.125%, 2012 ........... 50,000 52,597 Union Pacific Corp., 5.375%, 2014 ........... 110,000 111,254 ------------ $ 201,358 ------------ REAL ESTATE -- 0.4% Boston Properties, Inc., 5%, 2015 ........... $ 42,000 $ 40,449 EOP Operating LP, 6.8%, 2009 ................ 29,000 30,322 HRPT Properties Trust, 6.25%, 2016 .......... 115,000 117,189 Simon Property Group LP, 5.1%, 2015 ......... 193,000 186,661 Vornado Realty Trust, 5.625%, 2007 .......... 383,000 385,679 ------------ $ 760,300 ------------ RETAILERS -- 0.1% Wal-Mart Stores, Inc., 5.25%, 2035 .......... $ 144,000 $ 139,777 ------------ TELECOMMUNICATIONS -- WIRELESS -- 0.1% AT&T Wireless Services, Inc., 7.35%, 2006 ... $ 107,000 $ 107,451 Cingular Wireless LLC, 6.5%, 2011 ........... 35,000 37,453 Sprint Capital Corp., 6.875%, 2028 .......... 106,000 115,825 ------------ $ 260,729 ------------ U.S. GOVERNMENT AGENCIES -- 4.6% Aid-Egypt, 4.45%, 2015 ...................... $ 152,000 $ 148,943 Fannie Mae, 3.25%, 2006 ..................... 100,000 99,196 Fannie Mae, 3%, 2007 ........................ 244,000 239,135 Fannie Mae, 5.25%, 2007 ..................... 397,000 399,323 Fannie Mae, 6.625%, 2009 - 2010 ............. 3,428,000 3,699,650 Fannie Mae, 6%, 2011 ........................ 165,000 174,510 Fannie Mae, 4.625%, 2014 .................... 250,000 247,054 Federal Home Loan Bank, 3.25%, 2006 ......... 315,000 312,672 Federal Home Loan Bank, 3.75%, 2006 ......... 940,000 933,641 Federal Home Loan Bank, 3.9%, 2008 .......... 40,000 39,334 Freddie Mac, 3.75%, 2006 .................... 1,405,000 1,393,317 Freddie Mac, 4.125%, 2009 ................... 50,000 48,947 Small Business Administration, 4.35%, 2023 ............................... 45,857 44,223 Small Business Administration, 4.77%, 2024 ............................... 113,446 111,837 Small Business Administration, 4.99%, 2024 ............................... 149,235 148,870 Small Business Administration, 5.18%, 2024 ............................... 184,735 186,125 Small Business Administration, 5.52%, 2024 ............................... 260,177 266,297 Small Business Administration, 4.95%, 2025 ............................... 113,351 112,887 Small Business Administration, 5.09%, 2025 ............................... 136,000 136,081 Small Business Administration, 5.39%, 2025 ............................... 106,000 107,590 ------------ $ 8,849,632 ------------ U.S. TREASURY OBLIGATIONS -- 9.3% U.S. Treasury Bonds, 10.375%, 2012 .......... $ 140,000 $ 154,722 U.S. Treasury Bonds, 9.875%, 2015 ........... 175,000 250,018 U.S. Treasury Bonds, 8%, 2021 ............... 37,000 50,975 U.S. Treasury Bonds, 6.25%, 2023 ............ 3,050,000 3,642,130 U.S. Treasury Bonds, 5.375%, 2031 ........... 1,067,000 1,198,541 U.S. Treasury Notes, 7%, 2006 ............... 695,000 704,203 U.S. Treasury Notes, 4.375%, 2007 ........... 146,000 145,880 U.S. Treasury Notes, 4.75%, 2008 ............ 942,000 951,052 U.S. Treasury Notes, 5.5%, 2008 ............. 1,426,000 1,457,918 U.S. Treasury Notes, 5.625%, 2008 ........... 2,004,000 2,058,641 U.S. Treasury Notes, 4%, 2009 ............... 23,000 22,721 U.S. Treasury Notes, 6.5%, 2010 ............. 3,105,000 3,349,398 U.S. Treasury Notes, 3.875%, 2013 ........... 199,000 192,882 U.S. Treasury Notes, 4.75%, 2014 ............ 150,000 153,650 U.S. Treasury Notes, 4.125%, 2015 ........... 192,000 187,793 U.S. Treasury Notes, 4.25%, 2015 ............ 1,376,000 1,358,208 U.S. Treasury Notes, TIPS, 4.25%, 2010 ...... 791,982 858,558 U.S. Treasury Notes, TIPS, 3%, 2012 ......... 1,236,249 1,307,140 ------------ $ 18,044,430 ------------ UTILITIES -- ELECTRIC POWER -- 1.3% Dominion Resources, Inc., 5.15%, 2015 ....... $ 141,000 $ 136,604 DTE Energy Co., 7.05%, 2011 ................. 122,000 131,456 Duke Capital Corp., 8%, 2019 ................ 113,000 134,871 Exelon Generation Co. LLC, 6.95%, 2011 ...... 77,000 83,024 FirstEnergy Corp., 6.45%, 2011 .............. 209,000 221,539 MidAmerican Energy Holdings Co., 5.875%, 2012 .............................. 61,000 62,974 MidAmerican Energy Holdings Co., 3.5%, 2008 ................................ 118,000 113,852 MidAmerican Funding LLC, 6.927%, 2029 ....... 454,000 507,985 Niagara Mohawk Power Corp., 7.75%, 2006 ............................... 1,000 1,011 Northeast Utilities, 8.58%, 2006 ............ 54,240 54,955 Oncor Electric Delivery Co., 7%, 2022 ....... 202,000 224,518 Pacific Gas & Electric Co., 4.8%, 2014 ...... 125,000 121,816 PSEG Power LLC, 8.625%, 2031 ................ 91,000 119,744 PSEG Power LLC, 6.95%, 2012 ................. 71,000 76,944 System Energy Resources, Inc., 5.129%, 2014 (a) .......................... 104,272 100,594 TXU Energy Co., 7%, 2013 .................... 37,000 39,430 Waterford 3 Funding Corp., 8.09%, 2017 ...... 337,724 358,903 ------------ $ 2,490,220 ------------ Total Bonds (Identified Cost, $78,117,682)................. $ 78,220,619 ------------ SHORT-TERM OBLIGATION -- 0.8% General Electric Capital Corp., 4.2%, due 1/03/06, at Amortized Cost(y) ...................... $1,534,000 $ 1,533,642 ------------ Total Investments (Identified Cost, $182,124,691) (k) ..................... $194,327,259 ------------ OTHER ASSETS, LESS LIABILITIES -- (0.1)% .................................. (230,872) ------------ Net Assets -- 100.0% ...................................... $194,096,387 ============ PORTFOLIO FOOTNOTES: (a) SEC Rule 144A restriction. (n) Non-income producing security. (d) Non-income producing security - in default. (y) The rate shown represents an annualized yield at time of purchase. (k) As of December 31, 2005, the High Yield Variable Account had eight securites representing $0 of net assets that were fair valued in accordance with the policies adopted by the Board of Managers. (k) As of December 31, 2005, the Total Return Variable Account had one security representing $14,689 and less than 0.1% of net assets that was fair valued in accordance with the policies adopted by the Board of Managers. (i) Interest only security for which the variable account receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. (f) All or a portion of the security has been segregated as collateral for an open futures contract. (p) Payment-in-kind security. (t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act of 1933. (r) Restricted securities (excluding 144A issues) are not registered under the Securities Act of 1933 and are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The High-Yield Variable Account holds the following restricted security: Current Total Acquisition Acquisition Market % of Security Date Cost Value Net Assets Airplane Pass-Through Trust, "D", 10.875%, 2019 3/13/96 $740,775 $0 0.0% The following abbreviations are used in the Portfolio of Investments and are defined: ADR American Depository Receipt FRN Floating rate note. The interest rate is the rate in effect as of period end. GDR Global Depository Receipt STRIPS Separate trading of Registered Interest and Principal of Securities. TIPS Treasury Inflation Protected Security INSURERS MBIA MBIA Insurance Corp. Abbreviations have been used throughout this report to indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below. AUD Australian Dollar GBP British Pound CAD Canadian Dollar JPY Japanese Yen CHF Swiss Franc NOK Norwegian Krone DKK Danish Krone NZD New Zealand Dollar EUR Euro SEK Swedish Krona See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES -- December 31, 2005 (000 Omitted)
Capital Global Apprecia- Govern- Government High Money Total tion ments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account -------- -------- -------- -------- -------- -------- Assets: Investments -- Investments, cost ........................... $250,750 $ 10,351 $ 91,565 $ 64,497 $ 57,159 $182,125 Unrealized appreciation (depreciation) ...... 7,943 (226) 293 (1,354) -- 12,202 -------- -------- -------- -------- -------- -------- Total investments, at value ............... $258,693 $ 10,125 $ 91,858 $ 63,143 $ 57,159 $194,327 Cash .......................................... 3,554 2 1 507 0* 8 Receivable for forward foreign currency exchange contracts .......................... -- 64 -- 0* -- -- Receivable for forward currency exchange contracts subject to master netting agreements -- -- -- 0* -- -- Receivable for daily variation margin on open futures contracts ........................... -- -- 3 -- -- -- Receivable for investments sold ............... 845 -- -- 65 -- 3 Receivable for units sold ..................... 46 -- 59 11 3 128 Interest and dividends receivable ............. 149 122 1,001 1,1156 1,061 Receivable from Investment Adviser ............ -- 27 -- -- -- -- Receivable from Sponsor ....................... 6 -- 7 4 -- 7 Other assets .................................. 4 -- 2 1 0* 2 -------- -------- -------- -------- -------- -------- Total assets .............................. $263,297 $ 10,340 $ 92,931 $ 64,846 $ 57,168 $195,536 ======== ======== ======== ======== ======== ======== Liabilities: Payable for forward foreign currency exchange contracts ................................... $ -- $ 22 $ -- $ 10 $ -- $ -- Payable for forward currency exchange contracts subject to master netting agreements ......... -- 1 -- -- -- -- Payable for investments purchased ............. 3,813 -- -- 76 -- 925 Payable for units surrendered ................. 461 35 206 45 108 445 Payable to affiliates -- Investment Adviser .......................... 11 0* 3 22 8 Administrative services fee ................. 0* 0* 0* 0* 0* 0* Sponsor ..................................... -- 0* -- -- 3 -- Accrued expenses and other liabilities ........ 55 56 50 57 32 62 -------- -------- -------- -------- -------- -------- Total liabilities ......................... $ 4,340 $ 114 $ 259 $ 190 $ 145 $ 1,440 -------- -------- -------- -------- -------- -------- Net assets .............................. $258,957 $ 10,226 $ 92,672 $ 64,656 $ 57,023 $194,096 ======== ======== ======== ======== ======== ======== * Amount was less than $500. See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES -- December 31, 2005 -- continued (000 Omitted except for unit values) Capital Global Govern- Apprecia- Govern- ment High Money Total tion ments Securities Yield Market Return Unit Variable Variable Variable Variable Variable Variable Unit Value Account Account Account Account Account Account ------ -------- --------- -------- -------- -------- ------- --------- Net assets applicable to contract owners: Capital Appreciation Variable Account -- Compass 2 ......................................... 3,018 $55.446 $167,341 Compass 3 ......................................... 237 36.524 8,641 Compass 3 - Level 2 ............................... 5,248 15.226 79,909 Global Governments Variable Account -- Compass 2 ......................................... 116 $24.865 $2,881 Compass 3 ......................................... 26 24.209 636 Compass 3 - Level 2 ............................... 468 14.221 6,648 Government Securities Variable Account -- Compass 2 ......................................... 1,852 $37.679 $69,764 Compass 3 ......................................... 69 26.295 1,821 Compass 3 - Level 2 ............................... 1,280 15.421 19,736 High Yield Variable Account -- Compass 2 ......................................... 1,323 $36.840 $48,739 Compass 3 ......................................... 47 27.043 1,263 Compass 3 - Level 2 ............................... 937 14.495 13,583 Money Market Variable Account -- Compass 2 ......................................... 1,128 $20.331 $22,944 Compass 3 ......................................... 218 16.638 3,631 Compass 3 - Level 2 ............................... 2,384 12.491 29,785 Total Return Variable Account -- Compass 2 ......................................... 1,349 $46.459 $ 62,709 Compass 3 ......................................... 217 45.236 9,820 Compass 3 - Level 2 ............................... 5,462 21.903 119,637 -------- ------- ------- ------- ------- -------- Net assets applicable to owners of deferred contracts ................. 255,891 10,165 91,321 63,585 56,360 192,166 Reserve for variable annuities -- Compass 2 Contracts ............................................... 2,753 17 1,307 1,026 508 1,268 Compass 3 Contracts ............................................... 1 37 -- 1 16 45 Compass 3 - Level 2 Contracts ..................................... 312 7 44 44 139 617 -------- ------- ------- ------- ------- -------- Net assets ...................................................... $258,957 $10,226 $92,672 $64,656 $57,023 $194,096 ======== ======= ======= ======= ======= ======== See notes to financial statements.
STATEMENTS OF OPERATIONS -- Year Ended December 31, 2005 (000 Omitted)
Capital Global Government High Money Total Appreciation Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account -------- -------- -------- -------- -------- -------- Net investment income (loss): Income -- Interest .................................... $ 386 $ 399 $ 5,011 $ 5,357 $ 1,912 $ 3,993 Dividends ................................... 2,508 -- -- 37 -- 2,525 -------- -------- -------- -------- -------- -------- Total investment income ................... $ 2,894 $ 399 $ 5,011 $ 5,394 $ 1,912 $ 6,518 -------- -------- -------- -------- -------- -------- Expenses -- Mortality and expense risk charges .......... $ 3,478 $ 139 $ 1,246 $ 851 $ 714 $ 2,447 Management fee .............................. 2,076 85 545 491 287 1,496 Boards of Managers fees ..................... 29 1 13 7 8 23 Distribution fee ............................ 17 1 3 2 4 17 Administrative services fee ................. 49 2 17 12 10 35 Custodian fee ............................... 108 34 43 44 23 80 Printing .................................... 43 9 24 24 21 28 Auditing fees ............................... 35 44 40 45 21 47 Legal fees .................................. 16 7 8 8 10 8 Miscellaneous ............................... 31 11 12 12 18 24 -------- -------- -------- -------- -------- -------- Total expenses ............................ $ 5,882 $ 333 $ 1,951 $ 1,496 $ 1,116 $ 4,205 Fees paid indirectly ........................ (12) (0)* (7) (3) (1) (7) Reduction of expenses by Investment Adviser . -- (51) -- -- -- -- -------- -------- -------- -------- -------- -------- Net expenses .............................. $ 5,870 $ 282 $ 1,944 $ 1,493 $ 1,115 $ 4,198 -------- -------- -------- -------- -------- -------- Net investment income (loss) .............. $ (2,976) $ 117 $ 3,067 $ 3,901 $ 797 $ 2,320 -------- -------- -------- -------- -------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) (identified cost basis) -- Investment transactions ..................... $ 34,408 $ 375 $ (341) $ 18 $ 0* $ 10,297 Futures contracts ........................... -- (1) 58 -- -- -- Foreign currency transactions ............... (9) (302) -- 121 -- 5 -------- -------- -------- -------- -------- -------- Net realized gain (loss) on investments and foreign currency transactions ............. $ 34,399 $ 72 $ (283) $ 139 $ 0* $ 10,302 -------- -------- -------- -------- -------- -------- Change in unrealized appreciation (depreciation) -- Investments ................................... $(33,082) $ (1,266) $ (1,919) $ (3,725) $-- $ (9,601) Futures contracts ............................. -- -- 66 -- -- -- Translation of assets and liabilities in foreign currencies .......................... (5) 38 -- 60 -- (12) -------- -------- -------- -------- -------- -------- Net unrealized gain (loss) on investments and foreign currency translation ............................... $(33,087) $ (1,228) $ (1,853) $ (3,665) $-- $ (9,613) -------- -------- -------- -------- -------- -------- Net realized and unrealized gain (loss) on investments and foreign currency .................................. $ 1,312 $ (1,156) $ (2,136) $ (3,526) $ 0* $ 689 -------- -------- -------- -------- -------- -------- Change in net assets from operations ............ $ (1,664) $ (1,039) $ 931 $ 375 $ 797 $ 3,009 ======== ======== ======== ======== ======== ======== * Amount less than $500. See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (000 Omitted)
Capital Appreciation Global Governments Government Securities Variable Account Variable Account Variable Account ---------------------- -------------------- ---------------------- Year Ended December 31, Year Ended December 31, Year Ended December 31, ---------------------- -------------------- ---------------------- 2005 2004 2005 2004 2005 2004 -------- -------- -------- -------- -------- -------- Change in net assets: From operations: Net investment income (loss) ................ $ (2,976) $ (2,078) $ 117 $ 113 $ 3,067 $ 3,252 Net realized gain (loss) on investments and foreign currency transactions ......... 34,399 16,588 72 1,023 (283) 1,187 Net unrealized gain (loss) on investments and foreign currency translation .......... (33,087) 12,496 (1,228) (227) (1,853) (1,846) -------- -------- -------- -------- -------- -------- Change in net assets from operations ...... $ (1,664) $ 27,006 $ (1,039) $ 909 $ 931 $ 2,593 -------- -------- -------- -------- -------- -------- Participant transactions: Accumulation activity: Purchase payments received .................. $ 5,857 $ 7,120 $ 366 $ 375 $ 2,303 $ 1,762 Net transfers between variable and fixed accumulation accounts ..................... (294) (2,841) 977 (604) 821 (4,683) Withdrawals, surrenders, annuitizations, and contract charges ...................... (48,945) (41,093) (2,169) (1,777) (15,664) (12,905) -------- -------- -------- -------- -------- -------- Net accumulation activity ................. $(43,382) $(36,814) $ (826) $ (2,006) $(12,540) $(15,826) -------- -------- -------- -------- -------- -------- Annuitization activity: Annuitizations ................................ $ 167 $ 261 $ 3 $ 0* $ 151 $ (5) Annuity payments and contract charges ......... (425) (513) (6) (6) (249) (308) Net transfers among accounts for annuity reserves .................................... (14) -- -- -- 5 (87) Adjustments to annuity reserves ............... 53 (44) 0* 0* 15 (13) -------- -------- -------- -------- -------- -------- Net annuitization activity .................. $ (219) $ (296) $ (3) $ (6) $ (78) $ (413) -------- -------- -------- -------- -------- -------- Change in net assets from participant transactions ................................ $(43,601) $(37,110) $ (829) $ (2,012) $(12,618) $(16,239) -------- -------- -------- -------- -------- -------- Total change in net assets .................. $(45,265) $(10,104) $ (1,868) $ (1,103) $(11,687) $(13,646) Net assets: At beginning of period ........................ 304,222 314,326 12,094 13,197 104,359 118,005 -------- -------- -------- -------- -------- -------- At end of period .............................. $258,957 $304,222 $ 10,226 $ 12,094 $ 92,672 $104,359 ======== ======== ======== ======== ======== ======== * Amount less than $500. See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS -- continued (000 Omitted)
High Yield Money Market Total Return Variable Account Variable Account Variable Account ---------------------- -------------------- ---------------------- Year Ended December 31, Year Ended December 31, Year Ended December 31, ---------------------- -------------------- ---------------------- 2005 2004 2005 2004 2005 2004 -------- -------- -------- -------- -------- -------- Change in net assets: From operations: Net investment income (loss) ................ $ 3,901 $ 4,654 $ 797 $ (269) $ 2,320 $ 2,485 Net realized gain (loss) on investments and foreign currency transactions ......... 139 (1,716) 0* -- 10,302 13,823 Net unrealized gain (loss) on investments and foreign currency translation .......... (3,665) 2,313 -- -- (9,613) 2,965 -------- -------- -------- -------- -------- -------- Change in net assets from operations ...... $ 375 $ 5,251 $ 797 $ (269) $ 3,009 $ 19,273 -------- -------- -------- -------- -------- -------- Participant transactions: Accumulation activity: Purchase payments received .................. $ 1,227 $ 999 $ 1,798 $ 1,576 $ 5,339 $ 5,581 Net transfers between variable and fixed accumulation accounts ..................... (42) (22,124) 35,078 22,089 14,789 4,317 Withdrawals, surrenders, annuitizations, and contract charges ...................... (12,450) (9,829) (30,896) (11,007) (35,779) (29,151) -------- -------- -------- -------- -------- -------- Net accumulation activity ................. $(11,265) $(30,954) $ 5,980 $ 12,658 $(15,651) $(19,253) -------- -------- -------- -------- -------- -------- Annuitization activity: Annuitizations ................................ $ 21 $ 100 $ 57 $ 96 $ 125 $ 102 Annuity payments and contract charges ......... (169) (207) (156) (179) (426) (432) Net transfers among accounts for annuity reserves .................................... -- -- 156 82 5 4 Adjustments to annuity reserves ............... (74) 77 12 (19) (44) 49 -------- -------- -------- -------- -------- -------- Net annuitization activity .................. $ (222) $ (30) $ 69 $ (20) $ (340) $ (277) -------- -------- -------- -------- -------- -------- Change in net assets from participant transactions ................................ $(11,487) $(30,984) $ 6,049 $ 12,638 $(15,991) $(19,530) -------- -------- -------- -------- -------- -------- Total change in net assets .................. $(11,112) $(25,733) $ 6,846 $ 12,369 $(12,982) $ (257) Net assets: At beginning of period ........................ 75,768 101,501 50,177 37,808 207,078 207,335 -------- -------- -------- -------- -------- -------- At end of period .............................. $ 64,656 $ 75,768 $ 57,023 $ 50,177 $194,096 $207,078 ======== ======== ======== ======== ======== ======== See notes to financial statements.
FINANCIAL HIGHLIGHTS The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 55.625 $ 50.814 $ 39.859 $ 59.446 $ 80.578 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.580 $ 0.744 $ 0.402 $ 0.369 $ 0.598 Expenses .............................. (1.179) (1.109) (0.951) (1.002) (1.401) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ (0.599) $ (0.365) $ (0.549) $ (0.633) $ (0.803) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ 0.420 5.176 11.504 (18.954) (20.329) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (0.179) $ 4.811 $ 10.955 $ (19.587) $ 21.132) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... (0.32) 9.47(b) 27.48(j) (32.95) (26.22) Ratios (%) (to average net assets): Expenses (f) .......................... 2.16 2.14 2.12 2.12 0.79(m) Net investment income ................. (1.08) (0.70) (1.20) (1.36) (1.19)(m) Portfolio turnover (%) .................. 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) .................. 3,018 3,544 4,040 4,521 5,340 Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 36.678 $ 33.539 $ 26.334 $ 39.314 $ 53.342 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.370 $ 0.458 $ 0.260 $ 0.240 $ 0.417 Expenses .............................. (0.795) (0.753) (0.648) (0.688) (1.025) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ (0.425) $ (0.295) $ (0.388) $ (0.448) $ (0.608) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ 0.271 3.434 7.593 (12.532) (13.420) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (0.154) $ 3.139 $ 7.205 $ (12.980) $ (14.028) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... (0.42) 9.36(b) 27.36(j) (33.02) (26.30) Ratios (%) (to average net assets): Expenses (f) .......................... 2.26 2.24 2.22 2.22 0.79(m) Net investment income ................. (1.20) (0.87) (1.31) (1.42) (1.19)(m) Portfolio turnover (%) .................. 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) ......................... 237 413 621 812 999
FINANCIAL HIGHLIGHTS -- continued
Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 15.267 $ 13.940 $ 10.929 $ 16.292 $ 22.072 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.158 $ 0.205 $ 0.109 $ 0.100 $ 0.154 Expenses .............................. (0.316) (0.297) (0.254) (0.260) (0.357) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ (0.158) $ (0.092) $ (0.145) $ (0.160) $ (0.203) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ 0.117 1.419 3.156 (5.203) (5.577) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (0.041) $ 1.327 $ 3.011 $ (5.363) $ (5.780) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... (0.27) 9.52(b) 27.55(j) (32.92) (26.19) Ratios (%) (to average net assets): Expenses (f) .......................... 2.11 2.09 2.07 2.07 0.79(m) Net investment income ................. (1.05) (0.65) (1.17) (1.32) (1.19)(m) Portfolio turnover (%) .................. 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) ......................... 5,248 5,798 6,086 6,148 6,705 (d) Per unit data are based on average number of units outstanding during each year. (m) Excluding mortality and expense risk charges and distribution expense charges. (f) Ratios do not reflect reductions from fees paid indirectly. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (j) The accounts' net asset value and total return calculation include proceeds received on March 26, 2003 for the partial payment of a non- recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of $0.900, $0.594, and $0.247 per unit for Compass 2, Compass 3, and Compass 3 - Level 2, respectively, based on units outstanding on the day the proceeds were received. Excluding the effect of this payment from the ending net ass et value per unit, the Compass 2, Compass 3, and Compass 3 - Level 2 total return per unit value for the year ended December 31, 2003 would have been lower by approximately 2.24%, 2.24%, and 2.25%, respectively. (b) The accounts' net asset value and total return calculation include a non-recurring accrual recorded as a result of an administ rative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The non-recurring accrual resulted in an increase in the net asset value of $0.039, $0.026, and $0.010 per unit for Compass 2, Compass 3, and Compass 3 - Level 2, resp ectively, based on units outstanding on the day the proceeds were recorded. (s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be lower. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
Global Governments Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 27.240 $ 25.169 $ 22.125 $ 18.653 $ 19.378 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.925 $ 0.872 $ 0.877 $ 0.861 $ 0.946 Expenses .............................. (0.651) (0.633) (0.584) (0.486) (0.500) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.274 $ 0.239 $ 0.293 $ 0.375 $ 0.446 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (2.649) 1.832 2.751 3.097 (1.171) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (2.375) $ 2.071 $ 3.044 $ 3.472 $ (0.725) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653 ========== ========== ========== ========== ========== Total Return (%) (r)(k) ............... (8.72) 8.23 13.76 18.61 (3.74) Ratios (%) (to average net assets): Expenses before expense reductions (f) 2.95 2.67 2.47 2.44 1.39(m) Expenses after expense reductions (f) . 2.50 2.50 2.47 2.50(e) 1.28(m) Net investment income ................. 1.04 0.94 1.23 1.73 2.23(m) Portfolio turnover (%) .................. 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) .................. 116 128 161 160 134 Global Governments Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 26.561 $ 24.578 $ 21.638 $ 18.269 $ 19.007 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.949 $ 0.883 $ 0.869 $ 0.846 $ 1.063 Expenses .............................. (0.688) (0.662) (0.600) (0.511) (0.579) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.261 $ 0.221 $ 0.269 $ 0.335 $ 0.484 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (2.613) 1.762 2.671 3.034 (1.222) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (2.352) $ 1.983 $ 2.940 $ 3.369 $ (0.738) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269 ========== ========== ========== ========== ========== Total Return (%) (r)(k) ............... (8.85) 8.07 13.59 18.44 (3.88) Ratios (%) (to average net assets): Expenses before expense reductions (f) 3.10 2.82 2.62 2.56 1.39(m) Expenses after expense reductions (f) . 2.65 2.65 2.62 2.65(e) 1.28(m) Net investment income ................. 0.97 0.85 1.15 1.77 2.23(m) Portfolio turnover (%) .................. 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) .................. 26 28 41 58 68
FINANCIAL HIGHLIGHTS -- continued
Global Governments Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 15.580 $ 14.396 $ 12.655 $ 10.669 $ 11.083 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.526 $ 0.497 $ 0.494 $ 0.499 $ 0.520 Expenses .............................. (0.371) (0.361) (0.331) (0.281) (0.274) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.155 $ 0.136 $ 0.163 $ 0.218 $ 0.246 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (1.514) 1.048 1.578 1.768 (0.660) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ (1.359) $ 1.184 $ 1.741 $ 1.986 $ (0.414) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669 ========== ========== ========== ========== ========== Total Return (%) (r)(k) ............... (8.72) 8.23 13.76 18.61 (3.74) Ratios (%) (to average net assets): Expenses before expense reductions (f) 2.95 2.67 2.47 2.42 1.40(m) Expenses after expense reductions (f) . 2.50 2.50 2.47 2.50(e) 1.28(m) Net investment income ................. 1.04 0.94 1.21 1.70 2.23(m) Portfolio turnover (%) .................. 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) .................. 468 500 559 568 574 (d) Per unit data are based on average number of units outstanding during each year. (r) Certain expenses have been reduced without which performance would have been lower. (m) Excluding mortality and expense risk charges and distribution expense charges. (f) Ratios do not reflect reductions from fees paid indirectly. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense reimbursement agre ement. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
Government Securities Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 37.338 $ 36.470 $ 36.124 $ 33.448 $ 31.520 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 1.936 $ 1.834 $ 1.482 $ 1.862 $ 2.183 Expenses .............................. (0.752) (0.726) (0.711) (0.677) (0.661) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 1.184 $ 1.108 $ 0.771 $ 1.185 $ 1.522 Net realized and unrealized gain (loss) on investments and foreign currency transactions ... (0.843) (0.240) (0.425) 1.491 0.406 ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.341 $ 0.868 $ 0.346 $ 2.676 $ 1.928 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448 ========== ========== ========== ========== ========== Total Return (%) (k) .................. 0.91 2.38 0.96 8.00 6.12 Ratios (%) (to average net assets): Expenses (f) .......................... 2.01 1.97 1.95 1.94 0.66(m) Net investment income ................. 3.09 2.96 2.08 3.19 4.42(m) Portfolio turnover (%) .................. 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) .................. 1,852 2,125 2,447 2,759 3,043 Government Securities Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 26.082 $ 25.501 $ 25.284 $ 23.434 $ 22.105 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 1.316 $ 1.244 $ 1.045 $ 1.300 $ 1.590 Expenses .............................. (0.543) (0.525) (0.514) (0.495) (0.510) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.773 $ 0.719 $ 0.531 $ 0.805 $ 1.080 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (0.560) (0.138) (0.314) 1.045 0.249 ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.213 $ 0.581 $ 0.217 $ 1.850 $ 1.329 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434 ========== ========== ========== ========== ========== Total Return (%) (k) .................. 0.82 2.28 0.86 7.89 6.01 Ratios (%) (to average net assets): Expenses (f) .......................... 2.11 2.07 2.05 2.04 0.66(m) Net investment income ................. 2.96 2.82 2.08 3.36 4.42(m) Portfolio turnover (%) .................. 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) .................. 69 100 147 205 254
FINANCIAL HIGHLIGHTS -- continued
Government Securities Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 15.274 $ 14.912 $ 14.763 $ 13.663 $ 12.868 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.781 $ 0.742 $ 0.597 $ 0.732 $ 0.826 Expenses .............................. (0.299) (0.289) (0.282) (0.267) (0.248) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.482 $ 0.453 $ 0.315 $ 0.465 $ 0.578 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (0.335) (0.091) (0.166) 0.635 0.217 ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.147 $ 0.362 $ 0.149 $ 1.100 $ 0.795 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663 ========== ========== ========== ========== ========== Total Return (%) (k) .................. 0.96 2.43 1.01 8.05 6.17 Ratios (%) (to average net assets): Expenses (f) .......................... 1.96 1.92 1.90 1.89 0.66(m) Net investment income ................. 3.12 2.99 2.10 3.17 4.42(m) Portfolio turnover (%) .................. 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) .................. 1,280 1,377 1,562 1,692 1,617 (d) Per unit data are based on average number of units outstanding during each year. (m) Excluding mortality and expense risk charges and distribution expense charges. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (f) Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
High Yield Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 36.669 $ 34.056 $ 28.505 $ 28.969 $ 29.882 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 2.959 $ 2.857 $ 2.769 $ 3.015 $ 3.684 Expenses .............................. (0.820) (0.770) (0.689) (0.617) (0.699) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 2.139 $ 2.087 $ 2.080 $ 2.398 $ 2.985 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (1.968) 0.526 3.471 (2.862) (3.898) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.171 $ 2.613 $ 5.551 $ (0.464) $ (0.913) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 0.47 7.67 19.47 (1.60) (3.05) Ratios (%) (to average net assets): Expenses (f) .......................... 2.25 2.21 2.20 2.18 0.90(m) Net investment income ................. 5.76 5.91 6.53 7.84 9.16(m) Portfolio turnover (%) .................. 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) .................. 1,323 1,601 1,827 2,069 2,328 High Yield Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 26.943 $ 25.048 $ 20.986 $ 21.349 $ 22.043 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 2.118 $ 2.021 $ 1.964 $ 2.141 $ 3.188 Expenses .............................. (0.620) (0.576) (0.514) (0.469) (0.643) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 1.498 $ 1.445 $ 1.450 $ 1.672 $ 2.545 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (1.398) 0.450 2.612 (2.035) (3.239) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.100 $ 1.895 $ 4.062 $ (0.363) $ (0.694) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 0.37 7.57 19.35 (1.70) (3.15) Ratios (%) (to average net assets): Expenses (f) .......................... 2.35 2.31 2.30 2.28 0.90(m) Net investment income ................. 5.64 5.75 6.41 8.45 9.16(m) Portfolio turnover (%) .................. 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) .................. 47 67 115 178 231
FINANCIAL HIGHLIGHTS -- continued
High Yield Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 14.421 $ 13.386 $ 11.199 $ 11.376 $ 11.728 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 1.142 $ 1.019 $ 1.161 $ 1.220 $ 0.784 Expenses .............................. (0.312) (0.275) (0.286) (0.257) (0.151) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.830 $ 0.744 $ 0.875 $ 0.963 $ 0.633 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ (0.756) 0.291 1.312 (1.140) (0.985) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.074 $ 1.035 $ 2.187 $ (0.177) $ (0.352) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 0.52 7.73 19.53 (1.55) (3.01) Ratios (%) (to average net assets): Expenses (f) .......................... 2.20 2.16 2.15 2.13 0.90(m) Net investment income ................. 5.81 5.77 6.57 6.08 9.16(m) Portfolio turnover (%) .................. 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) .................. 937 971 2,631 2,684 1,131 (d) Per unit data are based on average number of units outstanding during each year. (m) Excluding mortality and expense risk charges and distribution expense charges. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be lo wer. (f) Ratios do not reflect reductions from fees paid indirectly. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
Money Market Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 20.073 $ 20.188 $ 20.322 $ 20.341 $ 19.862 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.661 $ 0.281 $ 0.247 $ 0.382 $ 0.950 Expenses .............................. (0.403) (0.396) (0.381) (0.401) (0.471) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479 Net realized and unrealized gain (loss) on investments .................... (0.000)(w) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341 ========== ========== ========== ========== ========== Total Return (%) (k) .................. 1.29 (0.57) (0.66) (0.09) 2.41 Ratios (%) (to average net assets): Expenses (f) .......................... 1.99 1.96 1.87 1.96 0.65(m) Net investment income (loss) .......... 1.38 (0.56) (0.63) (0.12) 2.51(m) Number of units outstanding at end of period (000 Omitted) .................. 1,128 1,009 1,172 1,626 1,986 Money Market Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 16.443 $ 16.553 $ 16.680 $ 16.712 $ 16.334 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.539 $ 0.229 $ 0.198 $ 0.318 $ 0.784 Expenses .............................. (0.344) (0.339) (0.325) (0.350) (0.406) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378 Net realized and unrealized gain (loss) on investments .................... (0.000)(w) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712 ========== ========== ========== ========== ========== Total Return (%) (k) ................. 1.19 (0.67) (0.76) (0.19) 2.31 Ratios (%) (to average net assets): Expenses (f) .......................... 2.09 2.06 1.97 2.06 0.65(m) Net investment income (loss) .......... 1.42 (0.71) (0.74) (0.14) 2.51(m) Number of units outstanding at end of period (000 Omitted) .................. 218 97 155 186 222
FINANCIAL HIGHLIGHTS -- continued
Money Market Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 12.326 $ 12.390 $ 12.466 $ 12.472 $ 12.172 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.405 $ 0.181 $ 0.131 $ 0.223 $ 0.710 Expenses .............................. (0.240) (0.245) (0.207) (0.229) (0.410) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300 Net realized and unrealized gain (loss) on investments .................... (0.000)(w) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300 ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472 ========== ========== ========== ========== ========== Total Return (%) (k) .................. 1.34 (0.52) (0.61) (0.04) 2.46 Ratios (%) (to average net assets): Expenses (f) .......................... 1.94 1.91 1.82 1.91 0.65(m) Net investment income (loss) .......... 1.39 (0.48) (0.61) (0.01) 2.51(m) Number of units outstanding at end of period (000 Omitted) .................. 2,384 2,259 896 1,113 2,835 (d) Per unit data are based on average number of units outstanding during each year per share. (m) Excluding mortality and expense risk charges and distribution expense charges. (f) Ratios do not reflect reductions from fees paid indirectly. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (w) Per unit amount was less than $0.001. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights tables are 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 accounts' unit class held for the entire period. This information has been audited by the variable accounts' independent registered public accounting firm, whose report, together with the variable accounts' financial statements, are included in this report.
Total Return Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 45.729 $ 41.571 $ 35.950 $ 38.562 $ 39.126 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 1.521 $ 1.450 $ 1.237 $ 1.407 $ 1.513 Expenses .............................. (0.970) (0.905) (0.800) (0.777) (0.830) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.551 $ 0.545 $ 0.437 $ 0.630 $ 0.683 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ 0.179 3.613 5.184 (3.242) (1.247) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.730 $ 4.158 $ 5.621 $ (2.612) $ (0.564) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 1.60 10.00(b) 15.64 (6.77) (1.44) Ratios (%) (to average net assets): Expenses (f) .......................... 2.12 2.11 2.10 2.08 0.85(m) Net investment income ................. 1.18 1.25 1.13 1.43 1.67(m) Portfolio turnover (%) .................. 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) .................. 1,349 1,511 1,688 1,871 2,080 Total Return Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 44.592 $ 40.597 $ 35.160 $ 37.771 $ 38.380 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 1.450 $ 1.375 $ 1.200 $ 1.360 $ 1.599 Expenses .............................. (1.019) (0.929) (0.823) (0.804) (0.939) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.431 $ 0.446 $ 0.377 $ 0.556 $ 0.660 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........................ 0.213 3.549 5.060 (3.167) (1.269) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.644 $ 3.995 $ 5.437 $ (2.611) $ (0.609) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 1.45 9.84(b) 15.46 (6.91) (1.59) Ratios (%) (to average net assets): Expenses (f) .......................... 2.27 2.26 2.25 2.23 0.85(m) Net investment income ................. 0.97 1.07 1.01 1.61 1.67(m) Portfolio turnover (%) .................. 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) .................. 217 315 453 634 838
FINANCIAL HIGHLIGHTS -- continued
Total Return Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------------ 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Per unit data: (d) Net asset value -- beginning of period $ 21.559 $ 19.599 $ 16.949 $ 18.180 $ 18.446 ---------- ---------- ---------- ---------- ---------- Investment income ..................... $ 0.710 $ 0.676 $ 0.575 $ 0.658 $ 0.687 Expenses .............................. (0.457) (0.425) (0.376) (0.367) (0.382) ---------- ---------- ---------- ---------- ---------- Net investment income ............. $ 0.253 $ 0.251 $ 0.199 $ 0.291 $ 0.305 Net realized and unrealized gain (loss on investments and foreign currency transactions ........................ 0.091 1.709 2.451 (1.522) (0.571) ---------- ---------- ---------- ---------- ---------- Change in unit value .................. $ 0.344 $ 1.960 $ 2.650 $ (1.231) $ (0.266) ---------- ---------- ---------- ---------- ---------- Unit value: Net asset value -- end of period ...... $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180 ========== ========== ========== ========== ========== Total Return (%) (k)(s) ............... 1.60 10.00(b) 15.64 (6.77) (1.44) Ratios (%) (to average net assets): Expenses (f) .......................... 2.12 2.11 2.10 2.08 0.85(m) Net investment income ................. 1.17 1.24 1.11 1.55 1.67(m) Portfolio turnover (%) .................. 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) .................. 5,462 5,646 5,946 6,236 6,537 (d) Per unit data are based on average number of units outstanding during each year. (m) Excluding mortality and expense risk charges and distribution expense charges. (f) Ratios do not reflect reductions from fees paid indirectly. (k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. (b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an administative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The non-recurring accrual did not have a material impact on the net asset value per unit based on the units outstanding on the day the proceeds were recorded. (s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be lower. See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (1) BUSINESS AND ORGANIZATION Capital Appreciation Variable Account, Global Governments Variable Account, Government Securities Variable Account, High Yield 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. The variable accounts operate as open-end 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 U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. The Capital Appreciation Variable Account, Global Governments Variable Account, High Yield Variable Account and Total Return Variable Account can invest in foreign securities, including securities of emerging market issuers. 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 markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries. Investment Valuations - Money market instruments are valued at amortized cost, which approximates market value. Amortized cost involves valuing an instrument at its cost as adjusted for amortization of premium or accretion of discount rather than its current market value. The variable accounts' use of amortized cost is subject to the variable accounts' compliance with Rule 2a-7 of the Investment Company Act of 1940. The amortized cost value of an instrument can be different from the market value of an instrument. Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as reported by an independent pricing service on the market or exchange on which they are primarily traded. For securities for which there were no sales during the day, equity securities are generally valued at the last quoted bid price as reported by an independent pricing service on the market or exchange on which they are primarily traded. Debt instruments (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated bid price as reported by an independent pricing service. Values of debt instruments obtained from pricing services can utilize both dealer-supplied valuations and electronic data processing techniques which take into account 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. Short- term instruments with a maturity at issuance of 365 days or less are generally valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or closing price as reported by an independent pricing service on the exchange on which they are primarily traded. For exchange-traded options in which there were no sales during the day, exchange-traded options are generally valued at the last quoted bid price as reported by an independent pricing service on the exchange on which they are primarily traded. Options not traded on an exchange are generally valued as reported by an independent pricing service or on the basis of quotations obtained from brokers and dealers. Foreign currency options are generally valued using an external pricing model that uses market data from an independent source. Futures contracts are generally valued at settlement price as reported by an independent pricing service on the exchange on which they are primarily traded. For futures contracts in which there were no sales during the day, futures contracts are generally valued at the last quoted bid price as reported by an independent pricing service on the exchange on which they are primarily traded. Forward foreign currency contracts are generally valued at the mean of bid and asked prices based on rates reported by an independent pricing service. Securities and other assets generally valued on the basis of information from an independent pricing service may also be valued on the basis of information from brokers and dealers. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars based upon exchange rates provided by an independent source. When pricing-service information or market quotations are not readily available, securities are priced at fair value as determined under the direction of the Board of Managers. For example, in valuing securities that trade principally on foreign markets, events reasonably determined to be significant (such as certain movements 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 variable account's valuation time 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 account's valuation time. Fair valuation of foreign equity securities may occur frequently based on an assessment that events which occur on a fairly regular basis (such as U.S. market movements) are significant. Repurchase Agreements - Each variable account may enter into repurchase agreements with institutions that the variable accounts' investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. The variable accounts require that the securities collateral in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the variable accounts to obtain those securities in the event of a default under the repurchase agreement. The variable accounts monitor, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the variable accounts under each such repurchase agreement. The variable accounts, along with other affiliated entities of Massachusetts Financial Services Company (MFS), may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Inflation-Adjusted Debt Securities - Certain variable accounts invest in inflation-adjusted debt securities issued by the U.S. Treasury. The variable account may also invest in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted by references to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security's original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation. Foreign Currency Translation - Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed. Derivative Risk - Certain variable accounts may invest in derivatives for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the variable accounts use derivatives as an investment to gain market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative's original cost. Derivative instruments include purchased options and forward foreign currency exchange contracts for the Global Governments Variable Account, futures contracts for the Government Securities Variable Account, and forward foreign currency exchange contracts for the High Yield Variable Account. Purchased Options - Certain variable accounts may purchase call or put options for a premium. Purchasing call options may be a hedge against an anticipated increase in the dollar cost of securities to be acquired or to increase the variable account's exposure to the underlying instrument. Purchasing put options may hedge against a decline in the value of portfolio securities. The premium paid is included as an investment in the Statement of Assets and Liabilities and is subsequently adjusted to the current value of the option. Premiums paid for purchased options which have expired are treated as realized losses on investments in the Statement of Operations. Premiums paid for purchased options which are exercised or closed are added to the amount paid or offset against the proceeds on the underlying security or financial instrument to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid. 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 accounts are 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 accounts 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 accounts. Upon entering into such contracts, the variable accounts bear the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the variable accounts 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 the contract. 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 accounts may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. The variable accounts 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 U.S. generally accepted accounting principles. 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. Dividends received in cash are recorded on the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. The variable accounts may receive proceeds from litigation settlements involving its portfolio holdings. Any proceeds received are reflected in realized gain/loss in the Statement of Operations, or in unrealized gain/loss if the security is still held by the variable accounts. The Capital Appreciation Variable Account was a participant in a class-action lawsuit against Cendant Corporation. On March 19, 2004 the Capital Appreciation Variable Account received the remaining cash settlement in the amount of $622,626, recorded as a realized gain on investment transactions. Fees Paid Indirectly - The variable accounts' custody fee is reduced according to an arrangement that measures the value of cash deposited with the custodian by the variable account. During the year ended December 31, 2005 each variable accounts' custodian fees were reduced under this arrangement. Certain variable accounts have entered into a commission recapture agreement, under which certain brokers will credit the variable accounts a portion of the commissions generated, to offset certain expenses of the variable accounts. For the year ended December 31, 2005, the variable accounts' custodian expenses were reduced under this agreement. These amounts are shown as a reduction of total expenses on the Statement of Operations.
Capital Global Government High Money Total Appreciation Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account - ------------------------------------------------------------------------------------------------------------------------------ Balance credits ................... $6,934 $320 $6,512 $2,582 $917 $3,684 Commission recapture credits ...... 5,149 -- -- 48 -- 2,831
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, 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 to 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 the current payment period are calculated using an assumed interest rate of 4%. Required adjustments are accomplished by transfers to or from the Sponsor. (5) TRANSACTIONS WITH AFFILIATES Investment Adviser - Each variable account has an investment advisory agreement with MFS to provide overall investment advisory and administrative services, and general office facilities. The management fee is computed daily and paid monthly at the following annual rate based on a percentage of each account's average daily net assets:
Annual Rate of Management Fee Annual Rate of Management Fee Based on Average Based on Average Effective Daily Net Assets Daily Net Assets Management Not Exceeding $300 Million In Excess of $300 Million Fees - ----------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Variable Account ..... 0.75% 0.675% 0.75% Global Governments Variable Account ....... 0.75% 0.675% 0.75% Government Securities Variable Account .... 0.55% 0.495% 0.55% High Yield Variable Account ............... 0.675%(a) 0.675%(a) 0.73% Money Market Variable Account ............. 0.50%(b) 0.50%(b) 0.50% Total Return Variable Account ............. 0.75% 0.675% 0.75%
(a) High Yield Variable Account: The management fee is 0.675% for one year starting September 1, 2005. Prior to September 1, 2005 the management fee was 0.75% of the first $300 million of average daily net assets and 0.675% in excess of $300 million of average daily net assets. (b) The management fee for the Money Market Variable Account is reduced to 0.45% of the average daily net assets in excess of $500 million. The Investment Adviser has contractually agreed to pay certain variable accounts' operating expenses, exclusive of taxes, extraordinary expenses, brokerage and transaction costs, mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges, such that operating expenses do not exceed 1.25% annually of the average daily net assets of each variable account. For the year ended December 31, 2005 the reduction for the Global Governments Variable Account amounted to $50,605 and is reflected as a reduction of total expenses in the Statement of Operations. Administrator - MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to certain variable accounts for which MFS acts as investment adviser. Under an administrative services agreement, the variable accounts may partially reimburse MFS the costs incurred to provide these services, subject to review and approval by the Board of Managers. Each variable account is allocated a portion of these administrative costs based on its size and relative average net assets. The administrative services fee incurred for the year ended December 31, 2005 was equivalent to the following annual effective rate of the variable accounts' average daily net assets:
Capital Global Government High Money Total Appreciation Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account - ----------------------------------------------------------------------------------------------------------------------------------- Percent of average daily net assets .... 0.0176% 0.0176% 0.0176% 0.0176% 0.0179% 0.0177% ====== ====== ====== ====== ====== ======
Managers' and Officers' Compensation - Each variable account pays compensation to Independent Managers in the form of a retainer, attendance fees, and additional compensation to the Board chairperson. Each variable account does not pay compensation directly to officers or members of the Board of Managers who are affiliated with the Investment Adviser or the Sponsor. Certain officers and Managers of the variable accounts are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). Other - These variable accounts and certain other MFS funds (the funds) have entered into a services agreement (the Agreement) which provides for payment of fees by the funds to Tarantino LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the funds and the sole member of Tarantino LLC. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO. The funds can terminate the Agreement with Tarantino LLC at any time under the terms of the Agreement. For the year ended December 31, 2005, the fees paid to Tarantino LLC were as follows: Capital Appreciation Variable Account .... $1,329 Global Governments Variable Account ...... 54 Government Securities Variable Account ... 475 High Yield Variable Account .............. 297 Money Market Variable Account ............ 274 Total Return Variable Account ............ 957 The variable accounts' Investment Adviser, MFS, was the subject of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. As a result, proceeds in the amount of $227,161 for the Capital Appreciation Variable Account were accrued on July 28, 2004 and paid to the account on February 16, 2005. (6) PORTFOLIO SECURITIES Purchases and sales of investments, other than U.S. government securities, purchased option transactions, and short-term obligations were as follows:
Purchases Sales - -------------------------------------------------------------------------------------------------- Capital Appreciation Variable Account ........ $344,209,358 $385,121,297 Global Governments Variable Account .......... 10,400,599 12,026,787 Government Securities Variable Account ....... 1,726,742 1,740,455 High Yield Variable Account .................. 33,947,961 42,342,324 Total Return Variable Account ................ 64,603,774 79,162,051 Purchases and sales of U.S. government securities, other than purchased option transactions and short-term obligations, were as follows: Purchases Sales - -------------------------------------------------------------------------------------------------- Global Governments Variable Account .......... $ 4,486,862 $ 4,280,566 Government Securities Variable Account ....... 64,725,545 73,411,865 Total Return Variable Account ................ 31,601,279 27,704,707
Purchase and sales of investments for Money Market Variable Account, which consist solely of short-term obligations, amounted to $781,113,628 and $777,947,943, respectively, excluding repurchase agreements. (7) PARTICIPANT TRANSACTIONS The changes in net assets from changes in numbers of outstanding units were as follows:
Year Ended December 31, 2005 (000 Omitted) ---------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuitiza- Net Payments Accumulation and Contract Accumulation tion Increase Received Account Charges Activity Activity (Decrease) ----------- ---------------- ---------------- ---------------- ----- -------- Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars ----- ------- ----- ------- ----- ------- ----- ------- ------- ------- Capital Appreciation Variable Account Compass 2 Contracts ..................... 35 $1,936 (21) $(1,091) (540) $(29,700) (526) $(28,855) $(212) $(29,067) Compass 3 Contracts ..................... 38 1,358 (152) (5,445) (62) (2,250) (176) (6,337) 0* (6,337) Compass 3 - Level 2 Contracts ........... 171 2,563 412 6,242 (1,133) (16,995) (550) (8,190) (7) (8,197) ------ ------- -------- -------- ----- -------- $5,857 $(294) $(48,945) $(43,382) $(219) $(43,601) ====== ======= ======== ======== ===== ======== Global Governments Variable Account Compass 2 Contracts ..................... 1 $29 12 $324 (25) $(653) (12) $(300) $1 $(299) Compass 3 Contracts ..................... 4 103 0* 7 (6) (157) (2) (47) (3) (50) Compass 3 - Level 2 Contracts ........... 16 234 43 646 (91) (1,359) (32) (479) (1) (480) ------ ------- -------- -------- ----- -------- $366 $977 $(2,169) $(826) $(3) $(829) ====== ======= ======== ======== ===== ======== Government Securities Variable Account Compass 2 Contracts ..................... 31 $1,174 7 $275 (311) $(11,710) (273) $(10,261) $(68) $(10,329) Compass 3 Contracts ..................... 13 341 (29) (746) (15) (383) (31) (788) -- (788) Compass 3 - Level 2 Contracts ........... 51 788 84 1,292 (232) (3,571) (97) (1,491) (10) (1,501) ------ ------- -------- -------- ----- -------- $2,303 $821 $(15,664) $(12,540) $(78) $(12,618) ====== ======= ======== ======== ===== ======== High Yield Variable Account Compass 2 Contracts ..................... 18 $671 (27) $(1,007) (269) $(9,848) (278) $(10,184) $(200) $(10,384) Compass 3 Contracts ..................... 9 250 (15) (416) (14) (371) (20) (537) (8) (545) Compass 3 - Level 2 Contracts ........... 21 306 100 1,381 (155) (2,231) (34) (544) (14) (558) ------ ------- -------- -------- ----- -------- $1,227 $(42) $(12,450) $(11,265) $(222) $(11,487) ====== ======= ======== ======== ===== ======== Money Market Variable Account Compass 2 Contracts ..................... 12 $326 349 $7,007 (242) $(4,879) 119 $2,454 $9 $2,463 Compass 3 Contracts ..................... 33 568 142 2,330 (54) (884) 121 2,014 4 2,018 Compass 3 - Level 2 Contracts ........... 71 904 2,082 25,741 (2,028) (25,133) 125 1,512 56 1,568 ------ ------- -------- -------- ----- -------- $1,798 $35,078 $(30,896) $5,980 $69 $6,049 ====== ======= ======== ======== ===== ======== Total Return Variable Account Compass 2 Contracts ..................... 11 $557 104 $4,770 (277) $(12,683) (162) $(7,356) $(135) $(7,491) Compass 3 Contracts ..................... 31 1,416 (84) (3,724) (45) (2,024) (98) (4,332) (86) (4,418) Compass 3 - Level 2 Contracts ........... 156 3,366 635 13,743 (975) (21,072) (184) (3,963) (119) (4,082) ------ ------- -------- -------- ----- -------- $5,339 $14,789 $(35,779) $(15,651) $(340) $(15,991) ====== ======= ======== ======== ===== ======== * Less than 500. On July 18, 2005, $41,059,121 was transferred to the Money Market Variable Account from the Managed Sectors Variable Account as a result of its termination. Year Ended December 31, 2004 (000 Omitted) -------------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuitiza- Net Payments Accumulation and Contract Accumulation tion Increase Received Account Charges Activity Activity (Decrease) ----------- ---------------- ---------------- ---------------- ----- -------- Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars ----- ------- ----- ------- ----- ------- ----- ------- ------- ------- Capital Appreciation Variable Account Compass 2 Contracts ..................... 38 $1,960 (30) $(1,561) (504) $(26,042) (496) $(25,643) $(264) $(25,907) Compass 3 Contracts ..................... 72 2,460 (201) (6,881) (79) (2,675) (208) (7,096) 1 (7,095) Compass 3 - Level 2 Contracts ........... 190 2,700 393 5,601 (871) (12,376) (288) (4,075) (33) (4,108) ------ ------- -------- -------- ----- -------- $7,120 $(2,841) $(41,093) $(36,814) $(296) $(37,110) ====== ======= ======== ======== ===== ======== Global Governments Variable Account Compass 2 Contracts ..................... 2 $45 (16) $(379) (19) $(487) (33) $(821) $(2) $(823) Compass 3 Contracts ..................... 5 130 (15) (380) (3) (78) (13) (328) (3) (331) Compass 3 - Level 2 Contracts ........... 14 200 11 155 (84) (1,212) (59) (857) (1) (858) ------ ------- -------- -------- ----- -------- $375 $(604) $(1,777) $(2,006) $(6) $(2,012) ====== ======= ======== ======== ===== ======== Government Securities Variable Account Compass 2 Contracts ..................... 21 $777 (100) $(3,640) (243) $(8,929) (322) $(11,792) $(382) $(12,174) Compass 3 Contracts ..................... 18 461 (44) (1,132) (21) (559) (47) (1,230) -- (1,230) Compass 3 - Level 2 Contracts ........... 35 524 6 89 (226) (3,417) (185) (2,804) (31) (2,835) ------ ------- -------- -------- ----- -------- $1,762 $(4,683) $(12,905) $(15,826) $(413) $(16,239) ====== ======= ======== ======== ===== ======== High Yield Variable Account Compass 2 Contracts ..................... 11 $378 (31) $(1,003) (206) $(7,129) (226) $(7,754) $(49) $(7,803) Compass 3 Contracts ..................... 12 301 (48) (1,217) (12) (289) (48) (1,205) (0)* (1,205) Compass 3 - Level 2 Contracts ........... 24 320 (1,507) (19,904) (177) (2,411) (1,660) (21,995) 19 (21,976) ------ ------- -------- -------- ----- -------- $999 $(22,124) $(9,829) $(30,954) $(30) $(30,984) ====== ======= ======== ======== ===== ======== Money Market Variable Account Compass 2 Contracts ..................... 13 $262 125 $2,531 (301) $(6,058) (163) $(3,265) $13 $(3,252) Compass 3 Contracts ..................... 54 896 (78) (1,291) (34) (556) (58) (951) (10) (961) Compass 3 - Level 2 Contracts ........... 34 418 1,685 20,849 (356) (4,393) 1,363 16,874 (23) 16,851 ------ ------- -------- -------- ----- -------- $1,576 $22,089 $(11,007) $12,658 $(20) $12,638 ====== ======= ======== ======== ===== ======== Total Return Variable Account Compass 2 Contracts ..................... 14 $590 54 $2,308 (245) $(10,438) (177) $(7,540) $(149) $(7,689) Compass 3 Contracts ..................... 52 2,180 (136) (5,641) (54) (2,231) (138) (5,692) (88) (5,780) Compass 3 - Level 2 Contracts ........... 139 2,811 379 7,650 (818) (16,482) (300) (6,021) (40) (6,061) ------ ------- -------- -------- ----- -------- $5,581 $4,317 $(29,151) $(19,253) $(277) $(19,530) ====== ======= ======== ======== ===== ======== * Less than $500.
(8) LINE OF CREDIT The variable accounts and other affiliated funds participate in a $1 billion unsecured line of credit provided by a syndication of banks under a 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 Federal Reserve funds rate plus 0.35%. In addition, a commitment fee, based on the average daily, unused portion of the line of credit, is allocated among the participating variable accounts at the end of each calendar quarter. The commitment fee allocated to each variable account for the year ended December 31, 2005 is included in miscellaneous expense on the Statement of Operations and was as follows: Commitment fee - -------------------------------------------------------------------- Capital Appreciation Variable Account ........ $1,767 Global Governments Variable Account .......... 67 Government Securities Variable Account ....... 626 High Yield Variable Account .................. 418 Money Market Variable Account ................ 393 Total Return Variable Account ................ 1,313 The variable accounts had no significant borrowings during the year ended December 31, 2005. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, Money Market Variable Account and Total Return Variable Account and the Board of Directors of Sun Life Insurance Company of Canada: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Capital Appreciation Variable Account, Global Governments Variable Account, Government Securities Variable Account, High Yield Variable Account, Money Market Variable Account and Total Return Variable Account (the "Variable Accounts") as of December 31, 2005, and the related statements of operations for the year then ended, the 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Variable Accounts are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Variable Accounts' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial positions of Capital Appreciation Variable Account, Global Governments Variable Account, Government Securities Variable Account, High Yield Variable Account, Money Market Variable Account and Total Return Variable Account as of December 31, 2005, 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 their 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 23, 2006 COMPASS VARIABLE ACCOUNTS MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND The Members of the Boards of Managers ("Members") and the officers of each Account, as of February 1, 2006, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Member and officer is 500 Boylston Street, Boston, Massachusetts 02116. - -----------------------------------------------------------------------------------------------------------------------------------
POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2) - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED MEMBERS - ----------------------------------------------------------------------------------------------------------------------------------- C. James Prieur(3) Member July 1999 Sun Life Assurance Company of Canada, (born 04/21/51) President and Chief Operating Officer - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- David D. Horn(3) Member April 1986 Private investor; Retired; Sun Life Assurance (born 06/07/41) Company of Canada, Former Senior Vice President and General Manager for the United States (until 1997) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT MEMBERS - ----------------------------------------------------------------------------------------------------------------------------------- J. Kermit Birchfield Chairman May 1997 Consultant; Century Partners, Inc. (born 01/08/40) (investments), Managing Director; Displaytech, Inc. (manufacturer of liquid crystal display technology), Director - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Robert C. Bishop Member May 2001 AutoImmune Inc. (pharmaceutical product (born 01/13/43) development), Chairman, President and Chief Executive Officer; Caliper Life Sciences Corp. (laboratory analytical instruments), Director; Millipore Corporation (purification/filtration products), Director; Quintiles Transnational Corp. (contract services to the medical industry), Director - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Frederick H. Dulles Member May 2001 Ten State Street LLP (law firm), Partner; (born 03/12/42) McFadden, Pilkington & Ward LLP (solicitors and registered foreign lawyers), Partner (until June 2003); Jackson & Nash, LLP (law firm), Of Counsel (January 2000 to November 2000) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Marcia A. Kean Member April 2005 Feinstein Kean Healthcare (consulting), Chief (born 06/30/48) Executive Officer (since December 2002), Managing Director (January 1991 until May 2001); Ardais Corporation (biotech products), Senior Vice President - Commercialization (February 2002 until 2002) - ----------------------------------------------------------------------------------------------------------------------------------- (1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously since appointment. (2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies"). (3) "Interested person" of the 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 Series. The address of Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. (4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued - -----------------------------------------------------------------------------------------------------------------------------------
POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Ronald G. Steinhart Member May 2001 Private investor; Bank One, Texas N.A., Vice (born 06/15/40) 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 (until January 2006); United Auto Group, Inc. (automotive retailer), Director - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Haviland Wright Member May 2001 Hawaii Small Business Development Center, (born 07/21/48) Kaua'l Center, Center Director (since March 2002); Displaytech, Inc. (manufacturer of liquid crystal display technology), Chairman and Chief Executive Officer (until March 2002) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- MEMBERS EMERITUS - ----------------------------------------------------------------------------------------------------------------------------------- Samuel Adams Member Emeritus Retired (aborn 10/19/25) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS - ----------------------------------------------------------------------------------------------------------------------------------- Maria F. Dwyer(4) President November 2005 Massachusetts Financial Services Company, (born 12/01/58) Executive Vice President and Chief Regulatory Officer (since March 2004); Fidelity Management & Research Company, Vice President (prior to March 2004); Fidelity Group of Funds, President and Treasurer (prior to March 2004) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Tracy Atkinson(4) Treasurer September 2005 Massachusetts Financial Services Company, (born 12/30/64) Senior Vice President (since September 2004); PricewaterhouseCoopers LLP, Partner (prior to September 2004) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Christopher R. Bohane(4) Assistant Secretary July 2005 Massachusetts Financial Services Company, Vice (born 01/18/74) and Assistant Clerk President and Senior Counsel (since April 2003); Kirkpatrick & Lockhart LLP (law firm), Associate (prior to April 2003); Nvest Services Company, Assistant Vice President and Associate Counsel (prior to January 2001) - ----------------------------------------------------------------------------------------------------------------------------------- (1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously since appointment. (2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies"). (3) "Interested person" of the 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 Series. The address of Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. (4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued - -----------------------------------------------------------------------------------------------------------------------------------
POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Ethan D. Corey(4) Assistant Secretary July 2005 Massachusetts Financial Services Company, (born 11/21/63) and Assistant Clerk Special Counsel (since December 2004); Dechert LLP (law firm), Counsel (prior to December 2004) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- David L. DiLorenzo(4) Assistant Treasurer July 2005 Massachusetts Financial Services Company, (born 08/10/68) Vice President (since June 2005); JP Morgan Investor Services, Vice President (January 2001 to June 2005); State Street Bank, Vice President and Corporate Audit Manager (prior to January 2001) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Timothy M. Fagan(4) Assistant Secretary September 2005 Massachusetts Financial Services Company, (born 07/10/68) and Assistant Clerk Vice President and Senior Counsel (since September 2005); John Hancock Advisers, LLC, Vice President and Chief Compliance Officer (September 2004 to August 2005) Senior Attorney (prior to September 2004); John Hancock Group of Funds, Vice President and Chief Compliance Officer (September 2004 to December 2004) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Mark D. Fischer(4) Assistant Treasurer July 2005 Massachusetts Financial Services Company, (born 10/27/70) Vice President (since May 2005); JP Morgan Investment Management Company, Vice President (prior to May 2005) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Brian T. Hourihan(4) Assistant Secretary September 2004 Massachusetts Financial Services Company, (born 11/11/64) and Assistant Clerk Vice President, Senior Counsel and Assistant Secretary (since June 2004); Affiliated Managers Group, Inc., Chief Legal Officer/Centralized Compliance Program (January to April 2004); Fidelity Research & Management Company, Assistant General Counsel (prior to January 2004) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Ellen Moynihan(4) Assistant Treasurer May 1997 Massachusetts Financial Services Company, Vice (born 11/13/57) President - ----------------------------------------------------------------------------------------------------------------------------------- (1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously since appointment. (2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies"). (3) "Interested person" of the 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 Series. The address of Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. (4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued - -----------------------------------------------------------------------------------------------------------------------------------
POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Susan S. Newton(4) Assistant Secretary May 2005 Massachusetts Financial Services Company, (born 03/07/50) and Assistant Clerk Senior Vice President and Assistant General Counsel (since April 2005); John Hancock Advisers, LLC, Senior Vice President, Secretary and Chief Legal Officer (prior to April 2005); John Hancock Group of Funds, Senior Vice President, Secretary and Chief Legal Officer (prior to April 2005) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Susan A. Pereira(4) Assistant Secretary July 2005 Massachusetts Financial Services Company, (born 11/05/70) and Assistant Clerk Vice President and Senior Counsel (since June 2004); Bingham McCutchen LLP (law firm), Associate (January 2001 to June 2004); Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Associate (prior to January 2001) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Frank L. Tarantino Independent Chief September 2004 Tarantino LLC (provider of compliance (born 03/07/44) Compliance Officer services), Principal (since June 2004); CRA Business Strategies Group (consulting services), Executive Vice President (April 2003 to June 2004); David L. Babson & Co. (investment adviser), Managing Director, Chief Administrative Officer and Director (February 1997 to March 2003) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- James O. Yost (4) Assistant Treasurer April 1992 Massachusetts Financial Services Company, Senior (born 06/12/60) Vice President - ----------------------------------------------------------------------------------------------------------------------------------- (1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously since appointment. (2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies"). (3) "Interested person" of the 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 Series. The address of Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. (4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. The Accounts do not hold annual meetings for the purpose of electing Members, and Members are not elected for fixed terms. Each Member and officer holds office until his or her successor is chosen and qualified, or until his or her earlier death, resignation, retirement or removal. All Members currently serve as Members of each Account and have served in that capacity since originally elected or appointed. All of the Members are also Trustees of the 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 Member serves as a Trustee or Manager of 34 Accounts/Series. The Statement of Additional Information contains further information about the Members and is available without charge upon request by calling 1-800-752-7215.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENTS The Investment Company Act of 1940 requires that both the full Board of Managers and a majority of the non-interested ("independent") Managers, voting separately, annually approve the continuation of each Variable Account's investment advisory agreement with Massachusetts Financial Services Company (MFS) on behalf of the Variable Accounts. The Managers consider matters bearing on the Variable Accounts and their advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Managers met several times over the course of three months beginning in May and ending in July 2005 ("contract review meetings") for the specific purpose of considering whether to approve the continuation of the investment advisory agreements for the Variable Accounts. The independent Managers were assisted in their evaluation of the investment advisory agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS management during various contract review meetings. The independent Managers were also assisted in this process by the Variable Accounts' Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Managers. In connection with their deliberations, the Managers, including the independent Managers, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. Each investment advisory agreement was considered separately for each Variable Account, although the Managers also took into account the common interests of all Variable Accounts in their review. As described below, the Managers considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreements and other arrangements with the Variable Accounts. In connection with their contract review meetings, the Managers received and relied upon materials which included, among other items: (i) information provided by Lipper Inc. on the investment performance of each Variable Account for various time periods ended December 31, 2004, compared to the investment performance of a group of funds with substantially similar investment classifications/objectives (the "Lipper performance universe"), as well as the investment performance of a group of funds identified by objective criteria suggested by MFS ("peer funds"), (ii) information provided by Lipper Inc. on each Variable Account's advisory fees and other expenses compared to the advisory fees and other expenses of comparable funds identified by Lipper (the "Lipper expense group"), as well as the advisory fees and other expenses of peer funds identified by objective criteria suggested by MFS, (iii) information provided by MFS on the advisory fees of comparable portfolios of its other clients, including institutional separate account and other clients, (iv) information as to whether, and to what extent applicable, expense waivers, reimbursements or fee "breakpoints" are observed for a Variable Account, (v) information regarding MFS' financial results and financial condition, including MFS' and certain of its affiliates' estimated profitability from services performed for the Variable Accounts, (vi) MFS' views regarding the outlook for the mutual fund industry and its strategic business plans, (vii) descriptions of various functions performed by MFS for the Variable Accounts, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS' senior management and other personnel providing investment advisory, administrative and other services to the Variable Accounts. The comparative performance, fee and expense information prepared and provided by Lipper Inc. was not independently verified, and the independent Managers did not independently verify any information provided to them by MFS. The Managers' conclusion as to the continuation of the investment advisory agreements was based on comprehensive consideration of all information provided to the Managers and not the result of any single factor. Some of the factors that figured particularly in the Managers' deliberations are described below for each Variable Account, while individual Managers may have given different weight to various factors and evaluated the information presented as a whole differently than another Manager. The Managers recognized that the fee arrangements for the Variable Accounts reflect years of review and discussion between the independent Managers and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Managers' conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years. Based on information provided by Lipper Inc. and MFS, the Managers compared each Variable Account's total return investment performance to the performance of peer groups of funds and its Lipper performance universe over the one-, three- and five-year periods. The Managers did not rely on performance results for more recent periods, including those shown elsewhere in this report. In the course of their deliberations, the Managers took into account information provided by MFS during contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year. For Variable Accounts whose performance lagged their peer groups, they discussed MFS' efforts to improve such Variable Account's performance. After reviewing this information, the Managers concluded, within the context of their overall conclusions regarding the investment advisory agreements, that they were satisfied with MFS' responses and efforts relating to investment performance. In assessing the reasonableness of each Variable Account's advisory fee, the Managers considered, among other information, each Variable Account's advisory fee and the total expense ratio as a percentage of average net assets, compared to the advisory fees and total expense ratios of peer groups of funds based on information provided by Lipper Inc. and MFS. The Managers also considered the advisory fees charged by MFS to institutional accounts. In comparing these fees, the Managers considered the generally broader scope of services provided by MFS to the Variable Accounts than those provided to institutional accounts. The Managers also considered the higher demands placed on MFS' investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Variable Accounts, and the impact on MFS and related expenses due to the more extensive regulatory regime to which the Variable Accounts are subject, compared to institutional accounts. The Managers also considered whether a Variable Account is likely to benefit from any economies of scale due to future asset growth. In this regard, the Managers reviewed the adequacy of breakpoints, and considered if breakpoints should be implemented for any Variable Accounts that did not have them. The Managers also considered information prepared by MFS relating to its costs and profits with respect to each Variable Account and other investment companies and accounts advised by MFS, as well as MFS' methodologies used to determine and allocate its costs to the Variable Accounts and other accounts and products for purposes of estimating profitability. After reviewing these and other factors described below, the Managers concluded that the advisory fees charged to the Variable Accounts represent reasonable compensation in light of the nature and quality of the services being provided by MFS. In addition, the Managers considered MFS' resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Variable Accounts. The Managers also considered the financial resources of MFS and its affiliation with Sun Life Financial, Inc. The Managers further considered any advantages and possible disadvantages of having an adviser which also serves other investment companies as well as institutional accounts. The Managers also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Variable Accounts by MFS and its affiliates under agreements and plans other than the investment advisory agreements. The Managers also considered the nature, extent and quality of certain other services MFS performs or arranges on the Variable Accounts' behalf, including securities lending programs, directed expense payment programs, class action recovery programs, and MFS' interaction with third-party service providers, principally custodians and sub-custodians. The Managers concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Variable Accounts were satisfactory. The Managers also considered the benefits to MFS from the use of the Variable Accounts' portfolio brokerage commissions to pay for research and other similar services (including MFS' current policy not to use "soft dollars" generated by Variable Account portfolio transactions to pay for third-party research), and various other factors. Additionally, the Managers considered so-called "fall-out benefits" to MFS such as reputational value derived from serving as investment manager to the Variable Accounts, and determined that any such benefits derived by MFS were reasonable and fair. Based on their evaluation of factors that they deemed to be material, including those factors described above, and the individual Variable Account factors noted below, the Board of Managers, including a majority of the independent Managers, concluded that the investment advisory agreements should be continued for an additional one-year period, commencing September 1, 2005. CAPITAL APPRECIATION VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 24th percentile relative to the other funds in the peer universe for the one- year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 55th percentile for the three-year period and the 60th percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. Based on the nature and quality of services provided by MFS, the Board of Managers concluded that the Variable Account's performance was satisfactory. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate and total expense ratio were each approximately at the median of such fees and expenses of funds in the Lipper expense group. The Managers also concluded that the existing breakpoints were sufficient to allow the Variable Account to benefit from economies of scale as its assets grow. The Managers concluded that the fees were reasonable in light of the nature and quality of services provided. GLOBAL GOVERNMENTS VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 53rd percentile relative to the other funds in the peer universe for the one-year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 48th percentile for the three-year period and the 54th percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. In considering performance, the Managers noted the management team's conservative investment strategy relative to its category peers and the limited number of entrants in the Lipper category. Taking these factors into consideration, the Managers concluded that the Variable Account's performance was adequate. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate was lower than, and the total expense ratio was higher than, the median of such fees and expenses of funds in the Lipper expense group. The Managers further concluded that the existing breakpoints were sufficient to allow the Variable Account to benefit from economies of scale as its assets grow. The Managers concluded that the fees were reasonable in light of the nature and quality of services provided. GOVERNMENT SECURITIES VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 41st percentile relative to the other funds in the peer universe for the one-year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 53rd percentile for the three-year period and the 38th percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. Based on the nature and quality of services provided by MFS, the Board of Managers concluded that the Variable Account's performance was satisfactory. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate and total expense ratio were each approximately at the median of such fees and expenses of funds in the Lipper expense group. The Managers also concluded that the existing breakpoints were sufficient to allow the Variable Account to benefit from economies of scale as its assets grow. The Managers concluded that the fees were reasonable in light of the nature and quality of services provided. HIGH YIELD VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 65th percentile relative to the other funds in the peer universe for the one-year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 63rd percentile for the three-year period and the 83rd percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. In considering performance, the Managers noted that MFS had changed portfolio management responsibilities for the Variable Account in 2004 and added enhancements to the investment process. Taking these factors into consideration, the Managers concluded that the Variable Account's performance was adequate. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate and total expense ratio were each higher than the median of such fees and expenses of funds in the Lipper expense group. Based on the recommendation of the Contract Review Committee, the Managers noted that MFS agreed to voluntarily reduce its advisory fee to an annual rate of 0.675% of all net assets effective September 1, 2005, through August 31, 2006. The Managers concluded that the reduced fees were reasonable in light of the nature and quality of services provided. MONEY MARKET VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 71st percentile relative to the other funds in the peer universe for the one-year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 70th percentile for the three-year period and the 73rd percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. In considering performance, the Managers noted the management team's conservative investment strategy and the very narrow dispersion of returns in the Lipper category. Taking these factors into consideration, the Managers concluded that the Variable Account's performance was adequate. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate and total expense ratio were each higher than the median of such fees and expenses of funds in the Lipper expense group. The Managers also concluded that the existing breakpoints were sufficient to allow the Variable Account to benefit from economies of scale as its assets grow. The Managers concluded that the fees were reasonable in light of the nature and quality of services provided. TOTAL RETURN VARIABLE ACCOUNT The Managers noted the Variable Account's total return performance was in the 7th percentile relative to the other funds in the peer universe for the one-year period (the 1st percentile being the best performers and the 100th percentile being the worst performers). The total return performance of the Variable Account was in the 20th percentile for the three-year period and the 8th percentile for the five-year period ended December 31, 2004, relative to the Lipper performance universe. Based on the nature and quality of services provided by MFS, the Board of Managers concluded that the Variable Account's performance was satisfactory. In considering the fees, the Managers noted that MFS currently observes a voluntary expense limitation for the Variable Account, which may not be changed without the Managers' approval. The Managers noted from the Lipper data that the Variable Account's effective advisory fee rate and total expense ratio were each higher than the median of such fees and expenses of funds in the Lipper expense group. The Managers also concluded that the existing breakpoints were sufficient to allow the Variable Account to benefit from economies of scale as its assets grow. The Managers concluded that the fees were reasonable in light of the nature and quality of services provided. A discussion regarding the Board's most recent review and renewal of the accounts' Investment Advisory Agreement with MFS is available by clicking on "Sun Life Annuities" in the "Products and Performance" section of the MFS Web site (mfs.com). INVESTMENT ADVISER Massachusetts Financial Services Company 500 Boylston Street, Boston, MA 02116-3741 CUSTODIAN AND DIVIDEND DISBURSING AGENT State Street Bank and Trust Company 225 Franklin Street, Boston, MA 02110-2875 PROXY VOTING POLICIES AND INFORMATION A general description of the accounts' proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC's website at http://www.sec.gov. Information regarding how the accounts voted proxies relating to portfolio securities during the most recent twelve month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC's website at http://www.sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The accounts will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The accounts' Form N-Q may be reviewed and copied at the: Public Reference Room Securities and Exchange Commission Washington, D.C. 20549 0102 Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The accounts' Form N-Q is available on the EDGAR database on the Commission's Internet website at http:// www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfor@sec.gov or by writing the Public Reference Section at the above address. Sun Life Financial Distributors Inc. COUS-ANN-12/05 26M 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 Form N-CSR that applies to the Registrant's principal executive officer and principal financial and accounting officer. The Registrant has amended its Code of Ethics to reflect that the Registrant's Principal Financial Officer and Principal Executive Officer have changed. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Messrs. J. Kermit Birchfield, Robert C. Bishop, Ronald G. Steinhart and Haviland Wright, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of "audit committee financial expert" as such term is defined in Form N-CSR. In addition, Messrs. J. Kermit Birchfield, Robert C. Bishop, Ronald G. Steinhart and Haviland Wright are "independent" members of the Audit Committee as defined in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ITEMS 4(a) THROUGH 4(d) AND 4(g): The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve as independent accountants to the Registrant (the "Account"). The tables below set forth the audit fees billed to the Account as well as fees for non-audit services provided to the Account and/or to the Account's 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 Account ("MFS Related Entities"). For the fiscal years ended December 31, 2005 and 2004, audit fees billed to the Account by Deloitte were as follows: Audit Fees FEES BILLED BY DELOITTE: 2005 2004 ---- ---- Capital Appreciation Variable $33,085 $30,150 Account For the fiscal years ended December 31, 2005 and 2004, fees billed by Deloitte for audit-related, tax and other services provided to the Account and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3) FEES BILLED BY DELOITTE: 2005 2004 2005 2004 2005 2004 ---- ---- ---- ---- ---- ---- Capital Appreciation $0 $0 $0 $0 $0 $0 Variable Account To MFS and MFS Related $841,371 $1,046,170 $0 $67,000 $403,825 $572,500 Entities of Capital Appreciation Variable Account* AGGREGATE FEES FOR NON-AUDIT SERVICES: 2005 2004 $1,680,652 $2,079,720 To Capital Appreciation Variable Account, MFS and MFS Related Entities# * This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Account (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex). # This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Funds and for non-audit services rendered to MFS and the MFS Related Entities. (1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under "Audit Fees," including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal control reviews. (2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis. (3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to sales tax refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and analysis of certain portfolio holdings verses investment styles.
ITEM 4(e)(1): Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to the pre-approval of audit and non-audit related services: To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Funds and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre-approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-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 pre-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 Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (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): The Registrant's Audit Committee has considered whether the provision by a Registrant's independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant's principal auditors. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the Registrant. ITEM 6. SCHEDULE OF INVESTMENTS A schedule of investments of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the Registrant. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the Registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the Registrant. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant's Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) Based upon their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) 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 second fiscal quarter covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. 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. 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) CAPITAL APPRECIATION VARIABLE ACCOUNT By (Signature and Title)* MARIA F. DWYER ----------------------------------------------------- Maria F. Dwyer, President Date: February 24, 2006 ----------------- 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)* MARIA F. DWYER ----------------------------------------------------- Maria F. Dwyer, President (Principal Executive Officer) Date: February 24, 2006 ----------------- By (Signature and Title)* TRACY ATKINSON ----------------------------------------------------- Tracy Atkinson, Treasurer (Principal Financial Officer and Accounting Officer) Date: February 24, 2006 ----------------- * Print name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 ex99_ethics-639331.txt CODE OF ETHICS EXHIBIT 12(A)(1) SEPTEMBER 2003 (AS REVISED FEBRUARY, 2004, MAY, 2005, SEPTEMBER, 2005 AND NOVEMBER, 2005) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE This code of ethics (this "Code") has been adopted by the funds (collectively, "Funds" and each, "Fund") under supervision of the MFS Funds Board and Compass Board of Trustees/Managers (the "Boards") and applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers" each of whom is set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance by the Funds with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. II. CONDUCT GUIDELINES Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. In addition, each Covered Officer should not place his or her personal interests ahead of the Funds' interests and should endeavor to act honestly and ethically. In furtherance of the foregoing, each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting for any Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; and o not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund. The following activities, which could create the appearance of a conflict of interest, are permitted only with the approval of the Funds' Chief Legal Officer ("CLO"): o service as a director on the board of any "for profit" company; o running for political office; o the receipt of any Fund business-related gift in excess of $300; o the receipt of any entertainment from any company with which a Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any material ownership interest in, or any consulting or employment relationship with, any Fund service providers (e.g., custodian banks, audit firms), other than the Funds' investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares, other than an interest arising from the Covered Officer's employment or securities ownership. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or outside the Fund, including to the Fund's trustees and auditors, and to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his or her area of Fund responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance within his or her area of Fund responsibility with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; o annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; o annually report to the CLO affiliations and relationships which are or may raise the appearance of a conflict of interest with the Covered Officer's duties to the Funds, as identified in the annual Trustee and Officer Questionnaire; o not retaliate against any other Covered Officer or any officer or employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify the CLO promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The CLO is responsible for applying this Code to specific situations in which questions are presented under it, granting waivers upon consultation with the appropriate Board or its designee, investigating violations, and has the authority to interpret this Code in any particular situation. The CLO will report requests for waivers to the appropriate Board (or a designee thereof) promptly upon receipt of a waiver request and will periodically report to the appropriate Board any approvals granted since the last report. The CLO will take all appropriate action to investigate any potential violations reported to him or her and to report any violations to the appropriate Board. If the Board concurs that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer. Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's codes of ethics under Rule 17j-1 under the Investment Company Act and any other codes or policies or procedures adopted by the Funds or their investment adviser or other service providers are separate requirements and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Board, including a majority of independent trustees. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code and under the direction of the CLO will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Funds' Board, its counsel, counsel to the Board's independent trustees and senior management and the board of directors of the Fund's investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. EXHIBIT A PERSONS COVERED BY THIS CODE OF ETHICS Funds' Principal Executive Officer: Maria F. Dwyer Funds' Principal Financial Officer: Tracy Atkinson EX-99.CERT 3 ex99_cert-639331.txt CERTIFICATION EX-99.CERT CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Tracy Atkinson, certify that: 1. I have reviewed this report on Form N-CSR of Capital Appreciation Variable Account; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2006 TRACY ATKINSON ----------------- --------------------------------------- Tracy Atkinson Treasurer (Principal Financial Officer and Accounting Officer) EX-99.CERT CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Maria F. Dwyer, certify that: 1. I have reviewed this report on Form N-CSR of Capital Appreciation Variable Account; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2006 MARIA F. DWYER ----------------- --------------------------------------- Maria F. Dwyer President (Principal Executive Officer) EX-99.906CERT CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, Tracy Atkinson, certify that, to my knowledge: 1. The Form N-CSR (the "Report") of Capital Appreciation Variable Account (the "Registrant") fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 24, 2006 TRACY ATKINSON ----------------- --------------------------------------- Tracy Atkinson Treasurer (Principal Financial Officer and Accounting Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. EX-99.906CERT CAPITAL APPRECIATION VARIABLE ACCOUNT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT I, Maria F. Dwyer, certify that, to my knowledge: 1. The Form N-CSR (the "Report") of Capital Appreciation Variable Account (the "Registrant") fully complies for the period covered by the Report with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 24, 2006 MARIA F. DWYER ----------------- --------------------------------------- Maria F. Dwyer President (Principal Executive Officer) A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----