N-CSRS 1 d650971.txt COMPASS CAPITAL APPRECIATION VARIABLE ACCOUNT 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: June 30, 2006 ------------------------------------------------------------------------------- ITEM 1. REPORT TO STOCKHOLDERS. [Graphic Omitted] PROFESSIONALLY MANAGED COMBINATION FIXED/VARIABLE ANNUITIES FOR PERSONAL INVESTMENTS AND QUALIFIED RETIREMENT PLANS SEMIANNUAL REPORT o JUNE 30, 2006 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 Portfolio Composition ............................................. 2 Portfolio of Investments .......................................... 8 Financial Statements .............................................. 26 Notes to Financial Statements ..................................... 43 Investment Advisor ................................................ Back Cover Custodian and Dividend Disbursing Agent ........................... Back Cover Board Review of Investment Advisory Agreement ..................... Back Cover 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: The story is as old as the tortoise and the hare, but we believe it is still relevant today -- "slow and steady" is the way to go when it comes to investing. While financial markets will naturally ebb and flow over time, investors who remain committed to a long-term investment strategy are more likely to achieve their goals than those who consistently chase short-term performance. The first half of 2006 brought a high degree of fluctuation in markets around the globe as varying economic factors pulled markets in opposite directions. The global economy, for example, continued to grow at its fastest pace in three decades -- spurred by increased international trade, good job growth, and wage increases. At the same time, central banks around the world raised interest rates in sync in a collaborative attempt to curb inflation. While this was a positive development in some regions, in other cases, economic and market gains were tempered. What does all of this mean to you as an investor? If you're focused on the long term, these global developments become part of a longer cycle instead of one-time events that can have a significant impact on your portfolio. At MFS(R), our investment management process -- honed over 80 years -- combines a unique teamwork approach with an unwavering focus on helping you realize your long-term financial goals. We believe in a three-pronged investment strategy: o ALLOCATE holdings across the major asset classes -- including stocks, bonds, and cash. o DIVERSIFY within each class to take advantage of different market segments and investing styles. o REBALANCE assets regularly to maintain a desired asset allocation. Of course, these strategies cannot guarantee a profit or protect against a loss. Investing and planning for the long term requires diligence and patience, two traits that in our experience are essential to capitalizing on the many opportunities the financial markets can offer -- through both up and down economic cycles. Respectfully, /s/ Robert J. Manning Robert J. Manning Chief Executive Officer and Chief Investment Officer MFS Investment Management(R) August 15, 2006 The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed. PORTFOLIO COMPOSITION -- CAPITAL APPRECIATION VARIABLE ACCOUNT PORTFOLIO STRUCTURE Common Stocks 95.2% Cash & Other Net Assets 4.8% TOP TEN HOLDINGS Cisco Systems, Inc. 3.3% ------------------------------------------------ General Electric Co. 3.1% ------------------------------------------------ Wal-Mart Stores, Inc. 3.0% ------------------------------------------------ Intel Corp. 2.5% ------------------------------------------------ Google, Inc., "A" 2.4% ------------------------------------------------ Corning, Inc. 2.4% ------------------------------------------------ Procter & Gamble Co. 2.3% ------------------------------------------------ Johnson & Johnson 2.1% ------------------------------------------------ Genzyme Corp. 2.0% ------------------------------------------------ Samsung Electronics Co. Ltd., GDR 1.9% ------------------------------------------------ EQUITY SECTORS Technology 25.7% ------------------------------------------------ Health Care 18.4% ------------------------------------------------ Retailing 12.4% ------------------------------------------------ Industrial Goods & Services 8.1% ------------------------------------------------ Leisure 6.1% ------------------------------------------------ Special Products & Services 5.7% ------------------------------------------------ Financial Services 5.7% ------------------------------------------------ Consumer Staples 4.2% ------------------------------------------------ Energy 3.4% ------------------------------------------------ Transportation 2.2% ------------------------------------------------ Basic Materials 1.4% ------------------------------------------------ Autos & Housing 1.1% ------------------------------------------------ Utilities & Communications 0.8% ------------------------------------------------ Percentages are based on net assets as of 6/30/06. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 83.5% Cash & Other Net Assets 16.5% FIXED INCOME SECTORS (i) Non-U.S. Government Bonds 59.9% -------------------------------------------------------- Commercial Mortgage-Backed Securities 7.9% -------------------------------------------------------- U.S. Government Agencies 7.8% -------------------------------------------------------- U.S. Treasury Securities 5.0% -------------------------------------------------------- Emerging Market Debt 2.7% -------------------------------------------------------- Mortgage-Backed Securities 0.2% -------------------------------------------------------- CREDIT QUALITY OF BONDS (r) AAA 80.3% -------------------------------------------------------- AA 14.3% -------------------------------------------------------- A 2.2% -------------------------------------------------------- BBB 3.2% -------------------------------------------------------- PORTFOLIO FACTS Average Duration (d) 4.4 -------------------------------------------------------- Average Life (m) 7.4 yrs. -------------------------------------------------------- Average Maturity (m) 9.6 yrs. -------------------------------------------------------- Average Credit Quality of Rated Securities(a) AA+ -------------------------------------------------------- Average Short Term Credit Quality A-1 -------------------------------------------------------- COUNTRY WEIGHTINGS (i) United States 37.2% -------------------------------------------------------- Germany 15.6% -------------------------------------------------------- United Kingdom 14.5% -------------------------------------------------------- Japan 10.5% -------------------------------------------------------- France 3.7% -------------------------------------------------------- Finland 3.4% -------------------------------------------------------- Ireland 2.2% -------------------------------------------------------- Canada 2.1% -------------------------------------------------------- Belgium 2.0% -------------------------------------------------------- Other Countries 8.8% -------------------------------------------------------- (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 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. (i) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (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 or pre-paid 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. (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 the total market value of investments as of 6/30/06. Percentages are based on net assets as of 6/30/06, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 96.5% Cash & Other Net Assets 3.5% FIXED INCOME SECTORS (i) Mortgage-Backed Securities 52.7% ------------------------------------------------------ U.S. Government Agencies 38.1% ------------------------------------------------------ U.S. Treasury Securities 5.7% ------------------------------------------------------ CREDIT QUALITY OF BONDS (r) AAA 99.2 ------------------------------------------------------ Not Rated 0.8 ------------------------------------------------------ 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 Credit Quality A-1 ------------------------------------------------------ (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. (i) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (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 or pre-paid 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. (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 6/30/06. Percentages are based on net assets as of 6/30/06, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 95.8% Common Stocks 1.6% Cash & Other Net Assets 1.5% Convertible Preferred Stocks 1.0% Preferred Stocks 0.1% TOP FIVE INDUSTRIES (i) Automotive 9.8% -------------------------------------------------------- Media Non-Cable 7.8% -------------------------------------------------------- Gaming & Lodging 7.6% -------------------------------------------------------- Medical & Health Technology & Services 6.0% -------------------------------------------------------- Chemicals 5.7% -------------------------------------------------------- CREDIT QUALITY OF BONDS (r) BBB 1.2% -------------------------------------------------------- BB 34.5% -------------------------------------------------------- B 44.2% -------------------------------------------------------- CCC 19.2% -------------------------------------------------------- CC 0.2% -------------------------------------------------------- Not Rated 0.7% -------------------------------------------------------- PORTFOLIO FACTS Average Duration (d) 4.7 -------------------------------------------------------- Average Life (m) 7.8 yrs. -------------------------------------------------------- Average Maturity (m) 8.4 yrs. -------------------------------------------------------- Average Credit Quality of Rated Securities (a) B -------------------------------------------------------- Average Short Term Credit Quality A-1 -------------------------------------------------------- (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. (i) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (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 or pre-paid 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. (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 6/30/06. Percentages are based on net assets as of 6/30/06, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- MONEY MARKET VARIABLE ACCOUNT PORTFOLIO STRUCTURE (u) Commercial Paper 88.5% Certificates of Deposit 11.5% SHORT TERM CREDIT QUALITY (q) Average Credit Quality of Short Term Bonds (a) A-1 ------------------------------------------------------ All holdings are rated A-1 ------------------------------------------------------ MATURITY BREAKDOWN (u) 0-29 Days 58.3% ------------------------------------------------------ 30-59 Days 28.1% ------------------------------------------------------ 60-89 Days 3.0% ------------------------------------------------------ 90-366 Days 10.6% ------------------------------------------------------ (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. (q) 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. If not rated by any of the three agencies, the security is considered Not Rated. U.S. Treasuries and U.S. Agency securities are included in the "A-1"-rating category. Percentages are based on the total market value of investments as of 6/30/06. (u) For purposes of this graphical presentation, accrued interest, where applicable, is included. Percentages are based on net assets as of 6/30/06, unless otherwise noted. The portfolio is actively managed, and current holdings may be different. PORTFOLIO COMPOSITION -- TOTAL RETURN VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Common Stocks 60.2% Bonds 38.7% Cash & Other Net Assets 1.1% TOP TEN HOLDINGS (i) Fannie Mae 5.5%, 30 year 4.2% ------------------------------------------------ Bank of America Corp. 2.7% ------------------------------------------------ Merck & Co., Inc. 1.6% ------------------------------------------------ U.S. Treasury Notes, 3.125%, 2009 1.6% ------------------------------------------------ Wyeth 1.5% ------------------------------------------------ U.S. Treasury Notes, 5.625%, 2008 1.5% ------------------------------------------------ U.S. Treasury Bonds, 5.375%, 2031 1.5% ------------------------------------------------ J.P. Morgan Chase & Co. 1.4% ------------------------------------------------ Sprint Nextel Corp. 1.4% ------------------------------------------------ Exxon Mobil Corp. 1.3% ------------------------------------------------ EQUITY SECTORS Financial Services 16.4% ------------------------------------------------ Energy 7.0% ------------------------------------------------ Utilities & Communications 6.7% ------------------------------------------------ Health Care 5.7% ------------------------------------------------ Technology 5.3% ------------------------------------------------ Industrial Goods & Services 4.8% ------------------------------------------------ Consumer Staples 3.7% ------------------------------------------------ Basic Materials 3.6% ------------------------------------------------ Retailing 2.5% ------------------------------------------------ Leisure 2.0% ------------------------------------------------ Autos & Housing 1.6% ------------------------------------------------ Transportation 0.6% ------------------------------------------------ Special Products & Services 0.3% ------------------------------------------------ FIXED INCOME SECTORS (i) Mortgage-Backed Securities 14.1% ------------------------------------------------ High Grade Corporates 9.1% ------------------------------------------------ U.S. Treasury Securities 8.7% ------------------------------------------------ U.S. Government Agencies 3.5% ------------------------------------------------ Commercial Mortgage-Backed Securities 2.1% ------------------------------------------------ Asset-Backed Securities 0.6% ------------------------------------------------ Emerging Market Debt 0.3% ------------------------------------------------ Non U.S. Government Bonds 0.1% ------------------------------------------------ High Yield Corporates 0.1% ------------------------------------------------ Residential Mortgage-Backed Securities 0.1% ------------------------------------------------ (i) For purposes of this graphical presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. Percentages are based on net assets as of 6/30/06, unless otherwise noted. The portfolio is actively managed and current holdings may be different. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006 CAPITAL APPRECIATION VARIABLE ACCOUNT COMMON STOCKS - 95.2% Issuer Shares/Par Value ($) ADVERTISING & BROADCASTING - 1.3% News Corp., "A" ............................. 90,200 $ 1,730,036 Viacom, Inc., "B" (n) ....................... 36,100 1,293,824 -------------- $ 3,023,860 -------------- AEROSPACE - 1.7% United Technologies Corp. ................... 60,800 $ 3,855,936 -------------- APPAREL MANUFACTURERS - 1.4% NIKE, Inc., "B" ............................. 39,660 $ 3,212,460 -------------- AUTOMOTIVE - 1.1% Harman International Industries, Inc. ....... 28,070 $ 2,396,336 -------------- BANKS & CREDIT COMPANIES - 3.3% American Express Co. ........................ 58,860 $ 3,132,529 J.P. Morgan Chase & Co. ..................... 21,500 903,000 SLM Corp. ................................... 58,860 3,114,871 UBS AG ...................................... 3,130 343,361 -------------- $ 7,493,761 -------------- BIOTECHNOLOGY - 5.4% Amgen, Inc. (n) ............................. 58,900 $ 3,842,047 Celgene Corp. (n) ........................... 28,600 1,356,498 Genzyme Corp. (n) ........................... 73,440 4,483,512 Gilead Sciences, Inc. (n) ................... 44,530 2,634,395 -------------- $ 12,316,452 -------------- BROKERAGE & ASSET MANAGERS - 2.4% Chicago Mercantile Exchange Holdings, Inc. .. 7,570 $ 3,718,006 Merrill Lynch & Co., Inc. ................... 23,000 1,599,880 -------------- $ 5,317,886 -------------- BUSINESS SERVICES - 4.7% Amdocs Ltd. (n) ............................. 96,040 $ 3,515,064 Automatic Data Processing, Inc. ............. 24,800 1,124,680 Cintas Corp. ................................ 60,300 2,397,528 First Data Corp. ............................ 78,200 3,522,128 -------------- $ 10,559,400 -------------- CHEMICALS - 1.4% Ecolab, Inc. ................................ 36,600 $ 1,485,228 Monsanto Co. ................................ 18,700 1,574,353 -------------- $ 3,059,581 -------------- COMPUTER SOFTWARE - 4.6% Adobe Systems, Inc. (n) ..................... 117,000 $ 3,552,120 Microsoft Corp. ............................. 183,070 4,265,531 Oracle Corp. (n) ............................ 185,680 2,690,503 -------------- $ 10,508,154 -------------- COMPUTER SOFTWARE - SYSTEMS - 2.5% Apple Computer, Inc. (n) .................... 30,500 $ 1,742,160 Hewlett-Packard Co. ......................... 66,600 2,109,888 LG.Philips LCD Co. Ltd., ADR (n) ............ 100,900 1,828,308 -------------- $ 5,680,356 -------------- CONSUMER GOODS & SERVICES - 3.3% eBay, Inc. (n) .............................. 53,200 $ 1,558,228 Monster Worldwide, Inc. (n) ................. 18,100 772,146 Procter & Gamble Co. ........................ 93,800 5,215,280 -------------- $ 7,545,654 -------------- ELECTRICAL EQUIPMENT - 5.5% Cooper Industries Ltd., "A" ................. 15,000 $ 1,393,800 General Electric Co. ........................ 212,000 6,987,520 Rockwell Automation, Inc. ................... 29,100 2,095,491 W.W. Grainger, Inc. ......................... 26,800 2,016,164 -------------- $ 12,492,975 -------------- ELECTRONICS - 7.9% Analog Devices, Inc. ........................ 33,500 $ 1,076,690 Intel Corp. ................................. 299,320 5,672,114 Marvell Technology Group Ltd. (n) ........... 46,900 2,079,077 Samsung Electronics Co. Ltd., GDR ........... 13,840 4,349,220 SanDisk Corp. (n) ........................... 47,750 2,434,295 Xilinx, Inc. ................................ 98,010 2,219,927 -------------- $ 17,831,323 -------------- FOOD & DRUG STORES - 1.2% CVS Corp. ................................... 91,400 $ 2,805,980 -------------- FOOD & NON ALCOHOLIC BEVERAGES - 1.9% PepsiCo, Inc. ............................... 43,000 $ 2,581,720 SYSCO Corp. ................................. 59,800 1,827,488 -------------- $ 4,409,208 -------------- GAMING & LODGING - 3.4% Carnival Corp. .............................. 27,110 $ 1,131,571 International Game Technology ............... 73,100 2,773,414 Las Vegas Sands Corp. (n) ................... 22,900 1,782,994 Starwood Hotels & Resorts, Inc. ............. 33,500 2,021,390 -------------- $ 7,709,369 -------------- GENERAL MERCHANDISE - 5.1% Kohl's Corp. (n) ............................ 33,000 $ 1,950,960 Target Corp. ................................ 55,680 2,721,082 Wal-Mart Stores, Inc. ....................... 140,410 6,763,550 -------------- $ 11,435,592 -------------- HEALTH MAINTENANCE ORGANIZATIONS - 0.8% UnitedHealth Group, Inc. .................... 38,100 $ 1,706,118 -------------- INTERNET - 3.8% Google, Inc., "A" (n) ....................... 12,840 $ 5,384,197 Yahoo!, Inc. (n) ............................ 95,140 3,139,620 -------------- $ 8,523,817 -------------- LEISURE & TOYS - 1.4% Electronic Arts, Inc. (n) ................... 74,640 $ 3,212,506 -------------- MACHINERY & TOOLS - 0.9% Deere & Co. ................................. 23,900 $ 1,995,411 -------------- MEDICAL EQUIPMENT - 4.8% Advanced Medical Optics, Inc. (n) ........... 58,980 $ 2,990,286 C.R. Bard, Inc. ............................. 18,400 1,347,984 DENTSPLY International, Inc. ................ 22,800 1,381,680 Medtronic, Inc. ............................. 84,070 3,944,564 St. Jude Medical, Inc. (n) .................. 35,950 1,165,499 -------------- $ 10,830,013 -------------- NETWORK & TELECOM - 6.1% Cisco Systems, Inc. (n) ..................... 387,080 $ 7,559,672 Corning, Inc. (n) ........................... 220,650 5,337,524 Juniper Networks, Inc. (n) .................. 48,600 777,114 -------------- $ 13,674,310 -------------- OIL SERVICES - 3.4% Noble Corp. ................................. 32,030 $ 2,383,673 Transocean, Inc. (n) ........................ 30,500 2,449,760 Weatherford International Ltd. (n) .......... 55,900 2,773,758 -------------- $ 7,607,191 -------------- PERSONAL COMPUTERS & PERIPHERALS - 0.8% EMC Corp. (n) ............................... 159,000 $ 1,744,230 -------------- PHARMACEUTICALS - 7.4% Allergan, Inc. .............................. 9,800 $ 1,051,148 Eli Lilly & Co. ............................. 70,410 3,891,561 Johnson & Johnson ........................... 77,490 4,643,201 Roche Holding AG ............................ 16,840 2,780,753 Wyeth ....................................... 97,120 4,313,099 -------------- $ 16,679,762 -------------- SPECIALTY STORES - 4.7% Chico's FAS, Inc. (n) ....................... 63,600 $ 1,715,928 Home Depot, Inc. ............................ 45,100 1,614,129 Lowe's Cos., Inc. ........................... 22,500 1,365,075 Staples, Inc. ............................... 111,500 2,711,680 Urban Outfitters, Inc. (n) .................. 45,800 801,042 Williams-Sonoma, Inc. ....................... 68,400 2,329,020 -------------- $ 10,536,874 -------------- TELEPHONE SERVICES - 0.8% American Tower Corp., "A" (n) ............... 56,500 $ 1,758,279 -------------- TRUCKING - 2.2% FedEx Corp. ................................. 19,770 $ 2,310,322 United Parcel Service, Inc., "B" ............ 32,600 2,683,958 -------------- $ 4,994,280 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $214,357,866) ....... $ 214,917,074 -------------- SHORT-TERM OBLIGATIONS - 3.5% (y) Citigroup Funding, Inc., 5.25%, due 7/03/06 ........................ $ 5,951,000 $ 5,949,265 General Electric Capital Corp., 5.27%, due 7/03/06 ........................ 2,021,000 2,020,408 -------------- TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST AND VALUE ........... $ 7,969,673 -------------- TOTAL INVESTMENTS (IDENTIFIED COST, $222,327,539) ....... $ 222,886,747 -------------- OTHER ASSETS, LESS LIABILITIES - 1.3% ................... 2,944,236 -------------- NET ASSETS - 100.0% ..................... $ 225,830,983 ============== See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006 GLOBAL GOVERNMENTS VARIABLE ACCOUNT BONDS - 82.5% Issuer Shares/Par Value ($) FOREIGN BONDS - 61.4% AUSTRIA - 1.8% Republic of Austria, 5%, 2012 .......... EUR 123,000 $ 166,202 -------------- BELGIUM - 2.0% Kingdom of Belgium, 3.75%, 2009 ........ EUR 113,000 $ 144,782 Kingdom of Belgium, 5%, 2012 ........... EUR 34,000 45,973 -------------- $ 190,755 -------------- CANADA - 1.8% Quebec Province, 1.6%, 2013 ............ JPY 20,000,000 $ 172,261 -------------- DENMARK - 0.5% Kingdom of Denmark, 4%, 2015 ........... DKK 278,000 $ 47,224 -------------- FINLAND - 3.3% Republic of Finland, 3%, 2008 .......... EUR 187,000 $ 236,589 Republic of Finland, 5.375%, 2013 ...... EUR 57,000 79,117 -------------- $ 315,706 -------------- FRANCE - 3.6% Republic of France, 4.75%, 2012 ........ EUR 144,000 $ 192,477 Republic of France, 6%, 2025 ........... EUR 54,000 84,452 Republic of France, 4.75%, 2035 ........ EUR 49,000 66,710 -------------- $ 343,639 -------------- GERMANY - 15.3% Bayerische Landesbank, 2.934%, 2006 .... EUR 12,000 $ 15,339 Federal Republic of Germany, 3.5%, 2008 ........................... EUR 60,000 76,482 Federal Republic of Germany, 5.25%, 2010 .......................... EUR 70,000 94,226 Federal Republic of Germany, 3.75%, 2015 .......................... EUR 38,000 47,611 Federal Republic of Germany, 6.25%, 2024 .......................... EUR 177,000 281,315 Federal Republic of Germany, 6.25%, 2030 .......................... EUR 248,000 405,370 KfW Bankengruppe, FRN, 2.844%, 2007 .... EUR 252,000 321,951 Landesbank Baden-Wurttemberg, FRN, 2.764%, 2007 ......................... EUR 88,000 112,501 Landesbank Baden-Wurttemberg, FRN, 2.961%, 2007 ......................... EUR 80,000 102,274 -------------- $ 1,457,069 -------------- IRELAND - 2.1% Republic of Ireland, 4.25%, 2007 ....... EUR 81,000 $ 104,568 Republic of Ireland, 4.6%, 2016 ........ EUR 72,000 95,976 -------------- $ 200,544 -------------- JAPAN - 10.5% Development Bank of Japan, 1.4%, 2012 ........................... JPY 27,000,000 $ 232,970 Development Bank of Japan, 1.6%, 2014 ........................... JPY 60,000,000 516,191 Development Bank of Japan, 1.05%, 2023 .......................... JPY 23,000,000 166,680 Japan Finance Corp., 2%, 2016 .......... JPY 10,000,000 87,776 -------------- $ 1,003,617 -------------- MALAYSIA - 1.2% Petronas Capital Ltd., 7.875%, 2022 .... $ 100,000 $ 114,462 -------------- MEXICO - 0.7% United Mexican States, 8.125%, 2019 .... $ 54,000 $ 61,020 -------------- NETHERLANDS - 0.9% Kingdom of Netherlands, 5%, 2012 ....... EUR 65,697 $ 88,818 -------------- NEW ZEALAND - 0.9% Government of New Zealand, 6%, 2017 .... NZD 142,000 $ 87,714 -------------- RUSSIA - 0.5% Gaz Capital S.A., 8.625%, 2034 ......... $ 10,000 $ 11,423 Gazprom International S.A., 7.201%, 2020 ......................... 39,000 39,503 -------------- $ 50,926 -------------- SPAIN - 1.8% Kingdom of Spain, 5.35%, 2011 .......... EUR 128,000 $ 174,989 -------------- UNITED KINGDOM - 14.5% Network Rail MTN Finance PLC, FRN, 2.913%, 2007 ................................. EUR 297,000 $ 379,664 United Kingdom Treasury, 5.75%, 2009 ... GBP 215,000 408,851 United Kingdom Treasury, 5%, 2012 ...... GBP 205,000 383,207 United Kingdom Treasury, 8%, 2015 ...... GBP 81,000 186,575 United Kingdom Treasury, 4.25%, 2036 ... GBP 10,000 18,208 -------------- $ 1,376,505 -------------- TOTAL FOREIGN BONDS ................ $ 5,851,451 -------------- U.S. BONDS - 21.1% ASSET BACKED & SECURITIZED - 7.8% Bayview Commercial Asset Trust, 4.8086%, 2023 (a) .................... CAD 30,000 $ 26,847 Commercial Mortgage Asset Trust, FRN, 1.1275%, 2032 (a)(i) ...................... $ 1,410,358 58,521 Commercial Mortgage Pass-Through Certificate, FRN, 5.3888%, 2017 (a) ....... 59,000 59,007 Commercial Mortgage Pass-Through Certificates, FRN, 5.3988%, 2017 (a) ...... 100,000 99,982 Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 .............................. 32,811 33,092 First Union National Bank Commercial Mortgage Trust, FRN, 1.1932%, 2043 (a)(i) ...................... 1,628,919 58,803 IMPAC CMB Trust, FRN, 5.6725%, 2036 ......... 98,404 98,906 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.3816%, 2041 ...... 55,952 53,798 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.3988%, 2046 ...... 52,080 52,184 Lehman Brothers Floating Rate Commercial Mortgage Trust, FRN, 5.3588%, 2018 (a) .... 100,000 100,023 Wachovia Bank Commercial Mortgage Trust, FRN, 5.4388%, 2015 (a) .................... 83,496 83,496 Wachovia Bank Commercial Mortgage Trust, FRN, 5.4888%, 2015 (a) .................... 22,101 22,102 -------------- $ 746,761 -------------- EMERGING MARKET QUASI-SOVEREIGN - 0.3% Pemex Project Funding Master Trust, 8.625%, 2022 .............................. $ 23,000 $ 25,714 -------------- MORTGAGE BACKED - 0.3% Fannie Mae, 5.423%, 2016 .................... $ 24,950 $ 24,345 -------------- U.S. GOVERNMENT AGENCIES - 7.7% Aid-Egypt, 4.45%, 2015 ...................... $ 49,000 $ 45,526 Fannie Mae, 4.25%, 2007 ..................... 171,000 168,262 Fannie Mae, 6%, 2011 ........................ 88,000 89,897 Freddie Mac, 4.2%, 2007 ..................... 99,000 97,280 Small Business Administration, 4.57%, 2025 ............................... 47,951 44,130 Small Business Administration, 4.76%, 2025 ............................... 72,450 67,561 Small Business Administration, 5.36%, 2025 ............................... 113,114 109,783 Small Business Administration, 5.21%, 2026 ............................... 120,000 115,307 -------------- $ 737,746 -------------- U.S. TREASURY OBLIGATIONS - 5.0% U.S. Treasury Bonds, 8%, 2021 ............... $ 73,000 $ 93,360 U.S. Treasury Notes, 3.125%, 2008 ........... 101,000 96,636 U.S. Treasury Notes, 4.25%, 2013 ............ 218,000 206,300 U.S. Treasury Notes, 4%, 2015 ............... 87,000 80,169 -------------- $ 476,465 -------------- TOTAL U.S. BONDS ..................................... $ 2,011,031 -------------- TOTAL BONDS (IDENTIFIED COST, $7,894,135)............. $ 7,862,482 -------------- SHORT-TERM OBLIGATIONS - 17.9% Tennessee Valley Authority Discount Notes, 4.95%, due 7/03/06, at Amortized Cost and Value (y) ............................. $ 1,708,000 $ 1,707,530 -------------- TOTAL INVESTMENTS (IDENTIFIED COST, $9,601,665)(k).... $ 9,570,012 -------------- OTHER ASSETS, LESS LIABILITIES - (0.4)% .............................. (38,176) -------------- NET ASSETS - 100.0% .................................. $ 9,531,836 ============== 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 57,000 8/08/06 $42,248 $42,354 $(106) BRL 47,475 7/05/06 21,482 21,898 (416) CAD 3,293 8/11/06 3,000 2,951 49 CLP 11,593,036 7/24/06 21,021 21,497 (476) DKK 282,575 8/28/06 47,612 48,626 (1,014) EUR 231,059 7/17/06 - 8/21/06 290,734 296,039 (5,305) GBP 242,851 8/02/06 455,548 448,995 6,553 JPY 49,915,250 7/18/06 - 8/17/06 439,213 437,381 1,832 NZD 599,558 8/08/06 377,335 363,966 13,369 SGD 37,589 7/03/06 23,507 23,745 (238) TRY 48,401 7/06/06 - 7/10/06 28,349 30,470 (2,121) ---------- ---------- --------- $1,750,049 $1,737,922 $12,127 ========== ========== ========= PURCHASES AUD 103,179 8/08/06 $77,099 $76,667 $(432) BRL 94,950 7/05/06 - 8/02/06 41,652 43,626 1,974 CAD 13,624 8/10/06 12,162 12,207 45 CHF 36,064 8/07/06 30,148 29,593 (555) CLP 11,593,036 7/24/06 21,227 21,497 270 EUR 431,816 7/17/06 - 5/17/07 554,997 552,944 (2,053) GBP 11,625 8/02/06 - 8/08/06 21,456 21,495 39 IDR 175,785,058 7/24/06 18,562 18,888 326 JPY 305,503,540 7/18/06 - 8/17/06 2,798,457 2,676,079 (122,378) KRW 21,138,518 8/07/06 22,316 22,308 (8) MXN 334,877 7/17/06 29,181 29,531 350 MYR 68,471 7/24/06 18,705 18,649 (56) NOK 80,010 7/17/06 12,839 12,863 24 NZD 376,629 8/08/06 232,143 228,635 (3,508) SEK 733,683 8/08/06 - 8/10/06 103,680 102,275 (1,405) SGD 75,178 7/03/06 - 8/03/06 47,298 47,525 227 TRY 48,206 7/06/06 - 7/24/06 30,460 30,344 (116) ---------- ---------- --------- $4,072,382 $3,945,126 $(127,256) ========== ========== =========
At June 30, 2006 forward foreign currency purchases and sales under master netting agreements excluded above amounted to a net receivable of $26,933 with Merrill Lynch International. At June 30, 2006 the variable account had sufficient cash and/or securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006 GOVERNMENT SECURITIES VARIABLE ACCOUNT BONDS - 99.0% Issuer Shares/Par Value ($) AGENCY - OTHER - 6.6% Financing Corp., 9.4%, 2018 ................. $ 780,000 $ 1,029,251 Financing Corp., 10.35%, 2018 ............... 1,150,000 1,620,854 Financing Corp., STRIPS, 0%, 2017 ........... 1,220,000 653,636 Resolution Funding Corp., 8.875%, 2020 ...... 1,700,000 2,212,662 -------------- $ 5,516,403 -------------- MORTGAGE BACKED - 52.7% Fannie Mae, 4.79%, 2012 ..................... $ 934,169 $ 889,439 Fannie Mae, 4.73%, 2012 ..................... 95,025 90,403 Fannie Mae, 5%, 2013 - 2027 ................. 3,012,304 2,919,119 Fannie Mae, 4.8%, 2013 ...................... 89,831 85,719 Fannie Mae, 4.845%, 2013 .................... 262,462 250,280 Fannie Mae, 5.06%, 2013 ..................... 105,729 102,269 Fannie Mae, 4.65%, 2013 ..................... 249,901 239,604 Fannie Mae, 4.45%, 2014 ..................... 322,192 299,357 Fannie Mae, 4.771%, 2014 .................... 483,040 458,817 Fannie Mae, 4.6%, 2014 ...................... 126,015 118,053 Fannie Mae, 4.667%, 2014 .................... 844,258 794,196 Fannie Mae, 4.518%, 2014 .................... 161,818 150,846 Fannie Mae, 4.77%, 2014 ..................... 106,647 100,588 Fannie Mae, 4.847%, 2014 .................... 903,476 857,877 Fannie Mae, 5.1%, 2014 ...................... 138,052 132,582 Fannie Mae, 4.62%, 2015 ..................... 180,945 168,783 Fannie Mae, 4.82%, 2015 ..................... 342,740 323,207 Fannie Mae, 4.69%, 2015 ..................... 89,338 83,662 Fannie Mae, 4.85%, 2015 ..................... 89,397 84,567 Fannie Mae, 4.56%, 2015 ..................... 162,388 150,709 Fannie Mae, 4.665%, 2015 .................... 109,546 102,366 Fannie Mae, 4.7%, 2015 ...................... 125,864 117,874 Fannie Mae, 4.89%, 2015 ..................... 88,555 83,961 Fannie Mae, 4.74%, 2015 ..................... 100,000 93,750 Fannie Mae, 4.925%, 2015 .................... 349,084 331,876 Fannie Mae, 4.815%, 2015 .................... 117,000 110,105 Fannie Mae, 5.48%, 2015 ..................... 129,281 127,103 Fannie Mae, 6.5%, 2016 - 2036 ............... 1,920,972 1,937,610 Fannie Mae, 4.996%, 2017 .................... 331,397 317,188 Fannie Mae, 6%, 2017 - 2034 ................. 2,641,790 2,619,137 Fannie Mae, 5.5%, 2017 - 2135 ............... 13,199,286 12,763,891 Fannie Mae, 4.5%, 2019 - 2020 ............... 3,997,608 3,783,390 Fannie Mae, 4.88%, 2020 ..................... 94,350 91,199 Fannie Mae, 7.5%, 2022 - 2031 ............... 241,013 249,924 Freddie Mac, 4.5%, 2013 - 2015 .............. 599,727 590,356 Freddie Mac, 4.375%, 2015 ................... 643,560 620,546 Freddie Mac, 5%, 2016 - 2025 ................ 2,657,821 2,620,962 Freddie Mac, 6%, 2021 - 2035 ................ 2,777,191 2,749,764 Freddie Mac, 5.5%, 2025 - 2035 .............. 4,296,069 4,140,785 Freddie Mac, 6.5%, 2032 ..................... 799,169 806,682 Ginnie Mae, 5.5%, 2033 ...................... 1,758,754 1,706,868 -------------- $ 44,265,414 -------------- U.S. GOVERNMENT AGENCIES - 30.9% Aid-Egypt, 4.45%, 2015 ...................... $ 473,000 $ 439,466 Aid-Israel, 6.6%, 2008 ...................... 524,434 528,243 Aid-Israel, 0%, 2021 - 2024 ................. 2,041,000 782,311 Aid-Israel, 5.5%, 2023 ...................... 1,097,000 1,088,571 Aid-Peru, 9.98%, 2008 ....................... 454,983 473,433 Empresa Energetica Cornito Ltd., 6.07%, 2010 ............................... 1,957,000 1,968,722 Fannie Mae, 4.25%, 2009 ..................... 1,073,000 1,039,743 Federal Home Loan Bank, 4.625%, 2008 ........ 2,315,000 2,284,843 Freddie Mac, 4.2%, 2007 ..................... 705,000 692,750 Freddie Mac, 4.875%, 2009 ................... 760,000 750,002 Freddie Mac, 5.625%, 2011 ................... 3,214,000 3,230,536 Freddie Mac, 5.05%, 2015 .................... 956,000 924,596 Overseas Private Investment Corp., 0%, 2007 .................................. 170,158 174,199 Small Business Administration, 8.4%, 2007 ................................ 2,164 2,181 Small Business Administration, 10.05%, 2009 .............................. 4,489 4,649 Small Business Administration, 8.7%, 2009 ................................ 32,841 33,929 Small Business Administration, 6.34%, 2021 ............................... 605,677 619,781 Small Business Administration, 6.44%, 2021 ............................... 577,724 593,087 Small Business Administration, 6.625%, 2021 .............................. 670,965 693,523 Small Business Administration, 6.07%, 2022 ............................... 482,561 489,299 Small Business Administration, 4.98%, 2023 ............................... 252,825 241,459 Small Business Administration, 4.89%, 2023 ............................... 634,739 602,346 Small Business Administration, 4.72%, 2024 ............................... 668,353 627,444 Small Business Administration, 4.34%, 2024 ............................... 360,854 329,653 Small Business Administration, 4.77%, 2024 ............................... 609,250 572,961 Small Business Administration, 5.52%, 2024 ............................... 338,821 333,662 Small Business Administration, 4.99%, 2024 ............................... 419,842 399,893 Small Business Administration, 4.86%, 2024 ............................... 320,701 302,625 Small Business Administration, 4.88%, 2024 ............................... 294,758 278,326 Small Business Administration, 4.87%, 2024 ............................... 385,488 363,504 Small Business Administration, 5.11%, 2025 ............................... 333,128 318,868 Small Business Administration, 4.76%, 2025 ............................... 554,144 516,747 Tennessee Valley Authority STRIPS, 0% to 2012, 8.25% to 2042 ................. 2,256,000 1,721,779 U.S. Department of Housing & Urban Development, 6.36%, 2016 .................. 500,000 511,091 U.S. Department of Housing & Urban Development, 6.59%, 2016 .................. 2,045,000 2,061,832 -------------- $ 25,996,054 -------------- U.S. TREASURY OBLIGATIONS - 8.8% U.S. Treasury Bonds, 12%, 2013 .............. $ 19,000 $ 21,591 U.S. Treasury Bonds, 9.25%, 2016 ............ 409,000 533,857 U.S. Treasury Bonds, 6%, 2026 ............... 717,000 776,657 U.S. Treasury Bonds, 5.25%, 2028 ............ 346,000 344,378 U.S. Treasury Bonds, 5.375%, 2031 ........... 273,000 277,714 U.S. Treasury Bonds, 4.5%, 2036 ............. 735,000 659,031 U.S. Treasury Notes, 6.5%, 2010 (f) ......... 3,933,000 4,109,218 U.S. Treasury Notes, TIPS, 3.875%, 2009 ..... 674,342 698,471 -------------- $ 7,420,917 -------------- TOTAL BONDS (IDENTIFIED COST, $85,502,173)........... $ 83,198,788 -------------- REPURCHASE AGREEMENTS - 0.4% Issuer Shares/Par Value ($) Goldman Sachs, 5.21%, dated 6/30/06, due 7/03/06, total to be received $334,145 (secured by various U.S. Treasury and Federal Agency obligations in a jointly traded account), at Cost .................. $ 334,000 $ 334,000 -------------- TOTAL INVESTMENTS (IDENTIFIED COST, $85,836,173) (k) .................. $ 83,532,788 -------------- OTHER ASSETS, LESS LIABILITIES - 0.6% ................................. 529,291 -------------- NET ASSETS - 100.0% ................................... $ 84,062,079 ============== FUTURES CONTRACTS OUTSTANDING AT JUNE 30, 2006: Unrealized Expiration Appreciation Description Contracts Value Date (Depreciation) U.S. Treasury Bond (Short) ................. 14 $1,493,188 Sep-06 $ 2,884 U.S. Treasury Note 5 yr (Long) .................. 26 2,688,563 Sep-06 (15,119) U.S. Treasury Note 10 yr (Short) ................. 38 3,984,656 Sep-06 22,642 -------- $ 10,407 ======== At June 30, 2006, 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 (Unaudited) -- June 30, 2006 HIGH YIELD VARIABLE ACCOUNT BONDS - 92.6% Issuer Shares/Par Value ($) ADVERTISING & BROADCASTING - 3.7% Allbritton Communications Co., 7.75%, 2012 ............................... $ 320,000 $ 316,800 EchoStar DBS Corp., 6.375%, 2011 ............ 210,000 201,075 Granite Broadcasting Corp., 9.75%, 2010 ..... 220,000 201,300 Hughes Network Systems LLC, 9.5%, 2014 (a) ............................ 165,000 161,700 Intelsat Ltd., 9.25%, 2016 (a) .............. 175,000 180,687 Intelsat Ltd., 11.25%, 2016 (a) ............. 60,000 61,500 Intelsat Ltd., 0% to 2010, 9.25% to 2015 (a) ......................... 280,000 193,200 Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 .............................. 125,000 125,312 ION Media Networks, Inc., FRN, 11.3183%, 2013 (a) ........................ 305,000 305,763 XM Satellite Radio, Inc., 9.75%, 2014 (a) ... 275,000 251,625 Young Broadcasting, Inc., 10%, 2011 ......... 140,000 124,600 -------------- $ 2,123,562 -------------- AEROSPACE - 1.1% Argo-Tech Corp., 9.25%, 2011 ................ $ 225,000 $ 231,750 DRS Technologies, Inc., 7.625%, 2018 ........ 380,000 378,100 -------------- $ 609,850 -------------- AIRLINES - 0.8% Continental Airlines, Inc., 6.9%, 2017 ...... $ 69,833 $ 65,307 Continental Airlines, Inc., 6.748%, 2017 .... 67,243 63,545 Continental Airlines, Inc., 6.795%, 2018 .... 113,988 107,561 Continental Airlines, Inc., 7.566%, 2020 .... 236,997 230,693 -------------- $ 467,106 -------------- APPAREL MANUFACTURERS - 0.5% Levi Strauss & Co., 12.25%, 2012 ............ $ 150,000 $ 165,750 Levi Strauss & Co., 9.75%, 2015 ............. 115,000 115,000 -------------- $ 280,750 -------------- ASSET BACKED & SECURITIZED - 2.2% ARCap, REIT, Inc., "H", 6.1%, 2045 (a) ...... $ 165,567 $ 144,617 Asset Securitization Corp., FRN, 8.2937%, 2029 ............................. 150,000 154,426 Asset Securitization Corp., FRN, 8.7837%, 2029 (a) ......................... 200,000 188,572 Crest Ltd., 7%, 2040 (a) .................... 154,000 137,859 First Union National Bank Commercial Mortgage Corp., 6.75%, 2032 ............... 165,000 163,130 GMAC Commercial Mortgage Securities, Inc., FRN, 7.9165%, 2034 (a) .................... 192,000 205,172 Wachovia Bank Commericial Real Estate, CDO, 6.52%, 2026 (p)(a) ........................ 250,000 250,000 -------------- $ 1,243,776 -------------- AUTOMOTIVE - 8.2% American Axle & Manufacturing, Inc., 5.25%, 2014 ...................................... $ 180,000 $ 149,400 Cooper Standard Automotive, Inc., 8.375%, 2014 .............................. 345,000 272,119 Ford Motor Credit Co., 4.95%, 2008 .......... 129,000 121,435 Ford Motor Credit Co., 6.625%, 2008 ......... 439,000 417,838 Ford Motor Credit Co., 5.625%, 2008 ......... 255,000 235,891 Ford Motor Credit Co., 5.8%, 2009 ........... 460,000 420,241 Ford Motor Credit Co., 8.625%, 2010 ......... 190,000 177,729 Ford Motor Credit Co., 7%, 2013 ............. 353,000 303,805 General Motors Acceptance Corp., 6.75%, 2014 ............................... 1,321,000 1,226,971 General Motors Acceptance Corp., 8%, 2031 .................................. 805,000 773,726 General Motors Corp., 8.375%, 2033 .......... 153,000 123,165 Goodyear Tire & Rubber Co., 9%, 2015 ........ 430,000 410,650 Lear Corp., 5.75%, 2014 ..................... 85,000 69,275 -------------- $ 4,702,245 -------------- BROADCAST & CABLE TV - 3.4% Cablevision Systems Corp., 8%, 2012 ......... $ 155,000 $ 152,869 CCH I Holdings LLC, 9.92%, 2014 ............. 205,000 123,000 CCH I Holdings LLC, 11%, 2015 ............... 895,000 783,125 CCH II Holdings LLC, 10.25%, 2010 ........... 185,000 185,462 CCO Holdings LLC, 8.75%, 2013 ............... 150,000 146,250 CSC Holdings, Inc., 8.125%, 2009 ............ 125,000 127,187 CSC Holdings, Inc., 6.75%, 2012 (a) ......... 215,000 207,475 Mediacom LLC, 9.5%, 2013 .................... 235,000 233,825 -------------- $ 1,959,193 -------------- BUILDING - 2.2% Goodman Global Holdings, Inc., 7.875%, 2012 .............................. $ 455,000 $ 434,525 Interface, Inc., 10.375%, 2010 .............. 167,000 182,656 Interface, Inc., 9.5%, 2014 ................. 30,000 30,975 Nortek Holdings, Inc., 8.5%, 2014 ........... 185,000 178,988 Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 ............................ 623,000 450,896 -------------- $ 1,278,040 -------------- BUSINESS SERVICES - 2.3% Iron Mountain, Inc., 8.625%, 2013 ........... $ 240,000 $ 240,000 Iron Mountain, Inc., 7.75%, 2015 ............ 5,000 4,775 Nortel Networks Ltd., 10.75%, 2016 (a) ...... 125,000 127,188 Northern Telecom Corp., 6.875%, 2023 ........ 115,000 92,000 SunGard Data Systems, Inc., 10.25%, 2015 (a) .......................... 365,000 377,319 Xerox Corp., 7.625%, 2013 ................... 485,000 488,638 -------------- $ 1,329,920 -------------- CHEMICALS - 5.3% Basell AF SCA, 8.375%, 2015 (a) ............. $ 494,000 $ 474,857 BCP Crystal Holdings Corp., 9.625%, 2014 .... 121,000 131,285 Crystal U.S. Holdings LLC, "A", 0% to 2009, 10% to 2014 ................... 62,000 49,135 Crystal U.S. Holdings LLC, "B", 0% to 2009, 10.5% to 2014 ................. 522,000 408,465 Equistar Chemicals, 10.625%, 2011 ........... 60,000 64,425 Equistar Chemicals, LP, 10.125%, 2008 ....... 120,000 126,300 Hexion U.S. Financial Corp., 9%, 2014 ....... 220,000 222,750 Huntsman International LLC, 10.125%, 2009 ............................. 197,000 199,955 Huntsman International LLC, 7.875%, 2015 (a) .......................... 260,000 243,750 KI Holdings, Inc., 0% to 2009, 9.875% to 2014 ............................ 348,000 248,820 Lyondell Chemical Co., 9.5%, 2008 ........... 72,000 73,980 Lyondell Chemical Co., 11.125%, 2012 ........ 130,000 141,050 Nalco Co., 7.75%, 2011 ...................... 200,000 199,500 Nalco Co., 8.875%, 2013 ..................... 445,000 448,337 Rockwood Specialties Group, Inc., 10.625%, 2011 ............................. 1,000 1,069 -------------- $ 3,033,678 -------------- CONSTRUCTION - 1.1% Beazer Homes USA, Inc., 6.875%, 2015 ........ $ 225,000 $ 204,750 Technical Olympic USA, Inc., 7.5%, 2015 ..... 205,000 170,663 WCI Communities, Inc., 7.875%, 2013 ......... 210,000 184,275 WCI Communities, Inc., 6.625%, 2015 ......... 105,000 87,150 -------------- $ 646,838 -------------- CONSUMER GOODS & SERVICES - 2.5% GEO Group, Inc., 8.25%, 2013 ................ $ 280,000 $ 280,000 Jarden Corp., 9.75%, 2012 ................... 145,000 147,900 Playtex Products, Inc., 9.375%, 2011 ........ 180,000 187,425 Revlon Consumer Products Corp., 9.5%, 2011 ................................ 335,000 293,125 Samsonite Corp., 8.875%, 2011 ............... 210,000 217,875 Service Corp. International, 8%, 2017 (a) ... 215,000 201,025 Simmons Co., 7.875%, 2014 ................... 50,000 46,750 Visant Holding Corp., 8.75%, 2013 (a) ....... 40,000 38,600 -------------- $ 1,412,700 -------------- CONTAINERS - 2.1% Crown Americas, 7.75%, 2015 (a) ............. $ 190,000 $ 187,150 Graham Packaging Co. LP, 9.875%, 2014 .............................. 405,000 400,950 Owens-Brockway Glass Container, Inc., 8.25%, 2013 ...................................... 605,000 606,513 -------------- $ 1,194,613 -------------- DEFENSE ELECTRONICS - 0.8% L-3 Communications Corp., 5.875%, 2015 .............................. $ 255,000 $ 237,787 L-3 Communications Holdings, Inc., 6.125%, 2014 ...................................... 230,000 218,500 -------------- $ 456,287 -------------- ELECTRONICS - 0.8% Flextronics International Ltd., 6.5%, 2013 .. $ 130,000 $ 123,500 Magnachip Semiconductor S.A., 8%, 2014 .................................. 30,000 24,900 Sensata Technologies B.V., 8%, 2014 (a) ..... 290,000 279,850 -------------- $ 428,250 -------------- EMERGING MARKET QUASI-SOVEREIGN - 0.2% Gazprom OAO, 9.625%, 2013 (a) ............... $ 120,000 $ 137,550 -------------- EMERGING MARKET SOVEREIGN - 0.2% Federative Republic of Brazil, 8.875%, 2019 .............................. $ 51,000 $ 56,814 Russian Ministry of Finance, 12.75%, 2028 .............................. 42,000 70,925 -------------- $ 127,739 -------------- ENERGY - INDEPENDENT - 3.5% Chesapeake Energy Corp., 7%, 2014 ........... $ 344,000 $ 332,820 Chesapeake Energy Corp., 6.375%, 2015 .............................. 430,000 398,825 Chesapeake Energy Corp., 6.875%, 2016 .............................. 375,000 354,375 Hilcorp Energy I, 9%, 2016 (a) .............. 105,000 105,787 Newfield Exploration Co., 6.625%, 2014 ...... 360,000 342,900 Quicksilver Resources, Inc., 7.125%, 2016 .............................. 285,000 267,188 Whiting Petroleum Corp., 7%, 2014 ........... 195,000 184,275 -------------- $ 1,986,170 -------------- ENTERTAINMENT - 1.5% AMC Entertainment, Inc., 9.5%, 2011 ......... $ 160,000 $ 157,200 AMC Entertainment, Inc., 11%, 2016 .......... 165,000 176,550 Six Flags, Inc., 8.875%, 2010 ............... 175,000 166,250 Six Flags, Inc., 9.75%, 2013 ................ 355,000 326,156 -------------- $ 826,156 -------------- FOOD & NON ALCOHOLIC BEVERAGES - 0.7% B&G Foods Holding Corp., 8%, 2011 ........... $ 175,000 $ 175,000 Michael Foods, Inc., 8%, 2013 ............... 250,000 245,625 -------------- $ 420,625 -------------- FOREST & PAPER PRODUCTS - 4.1% Buckeye Technologies, Inc., 8%, 2010 ........ $ 65,000 $ 59,475 Buckeye Technologies, Inc., 8.5%, 2013 ...... 375,000 356,250 Graphic Packaging International Corp., 9.5%, 2013 ................................ 470,000 465,300 Jefferson Smurfit Corp., 8.25%, 2012 ........ 740,000 693,750 JSG Funding LLC, 11.5%, 2015 (a)(p) ......... EUR 239,217 311,968 JSG Funding PLC, 7.75%, 2015 ................ $ 25,000 22,625 MDP Acquisitions PLC, 9.625%, 2012 .......... 205,000 211,150 Millar Western Forest Products Ltd., 7.75%, 2013 ............................... 135,000 102,600 Stone Container Corp., 7.375%, 2014 ......... 140,000 123,900 -------------- $ 2,347,018 -------------- GAMING & LODGING - 6.8% Boyd Gaming Corp., 6.75%, 2014 .............. $ 185,000 $ 175,519 Caesars Entertainment, Inc., 8.125%, 2011 .............................. 185,000 194,944 Greektown Holdings, 10.75%, 2013 (a) ........ 220,000 232,100 Host Marriott LP, 7.125%, 2013 .............. 160,000 159,400 Host Marriott LP, 6.375%, 2015 .............. 125,000 117,500 Majestic Star Casino LLC, 9.75%, 2011 (a) ........................... 175,000 175,437 Mandalay Resort Group, 9.375%, 2010 ......... 175,000 184,187 MGM Mirage, Inc., 8.5%, 2010 ................ 140,000 145,425 MGM Mirage, Inc., 8.375%, 2011 .............. 325,000 333,125 MGM Mirage, Inc., 6.75%, 2013 (a) ........... 200,000 190,750 MGM Mirage, Inc., 5.875%, 2014 .............. 195,000 174,769 MGM Mirage, Inc., 6.875%, 2016 (a) .......... 175,000 163,406 Pinnacle Entertainment, Inc., 8.25%, 2012 ............................... 185,000 185,463 Pokagon Gaming Authority, 10.375%, 2014 (a) ......................... 180,000 186,075 Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 .............................. 450,000 469,688 Station Casinos, Inc., 6.5%, 2014 ........... 125,000 116,250 Station Casinos, Inc., 6.875%, 2016 ......... 15,000 13,988 Trump Entertainment Resorts Holdings, Inc., 8.5%, 2015 ................................ 390,000 374,888 Wynn Las Vegas LLC, 6.625%, 2014 ............ 310,000 292,175 -------------- $ 3,885,089 -------------- INDUSTRIAL - 3.2% Amsted Industries, Inc., 10.25%, 2011 (a) ... $ 300,000 $ 321,000 Blount, Inc., 8.875%, 2012 .................. 55,000 54,725 Da-Lite Screen Co., Inc., 9.5%, 2011 ........ 140,000 148,400 Education Management LLC, 8.75%, 2014 (a) ........................... 125,000 123,750 Education Management LLC, 10.25%, 2016 (a) .......................... 80,000 79,600 Interline Brands, Inc., 8.125%, 2014 (a) .... 85,000 84,787 JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 ...................................... 370,000 368,150 JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 ................ 307,000 260,950 Knowledge Learning Corp., 7.75%, 2015 (a) ........................... 125,000 114,375 Milacron Escrow Corp., 11.5%, 2011 .......... 280,000 259,700 -------------- $ 1,815,437 -------------- INSURANCE - 0.6% UnumProvident Corp., 7.625%, 2011 ........... $ 92,000 $ 95,863 UnumProvident Corp., 6.85%, 2015 (a) ........ 274,000 269,359 -------------- $ 365,222 -------------- MACHINERY & TOOLS - 1.9% Case Corp., 7.25%, 2016 ..................... $ 255,000 $ 240,975 Case New Holland, Inc., 9.25%, 2011 ......... 100,000 105,250 Case New Holland, Inc., 7.125%, 2014 (a) .......................... 460,000 439,300 Terex Corp., 10.375%, 2011 .................. 123,000 130,073 Terex Corp., 7.375%, 2014 ................... 175,000 174,125 -------------- $ 1,089,723 -------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 5.9% CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 ............................ $ 425,000 $ 286,875 DaVita, Inc., 6.625%, 2013 .................. 125,000 118,750 DaVita, Inc., 7.25%, 2015 ................... 275,000 264,000 Extendicare Health Services, Inc., 6.875%, 2014 .............................. 215,000 224,675 HCA, Inc., 7.875%, 2011 ..................... 375,000 383,074 HCA, Inc., 6.375%, 2015 ..................... 445,000 412,314 HealthSouth Corp., 10.75%, 2016 (a) ......... 395,000 387,100 Omnicare, Inc., 6.875%, 2015 ................ 375,000 356,250 Select Medical Corp., 7.625%, 2015 .......... 205,000 178,350 Tenet Healthcare Corp., 9.875%, 2014 ........ 210,000 210,000 Triad Hospitals, Inc., 7%, 2013 ............. 245,000 238,263 US Oncology, Inc., 10.75%, 2014 ............. 265,000 287,525 -------------- $ 3,347,176 -------------- METALS & MINING - 1.4% Arch Western Finance LLC, 6.75%, 2013 ....... $ 160,000 $ 153,200 Massey Energy Co., 6.875%, 2013 ............. 450,000 418,500 Peabody Energy Corp., 5.875%, 2016 .......... 275,000 251,625 -------------- $ 823,325 -------------- NATURAL GAS - DISTRIBUTION - 0.5% AmeriGas Partners LP, 7.25%, 2015 ........... $ 150,000 $ 141,750 AmeriGas Partners LP, 7.125%, 2016 .......... 175,000 164,063 -------------- $ 305,813 -------------- NATURAL GAS - PIPELINE - 2.2% ANR Pipeline Co., 9.625%, 2021 .............. $ 155,000 $ 180,784 Atlas Pipeline Partners LP, 8.125%, 2015 (a) .......................... 185,000 184,306 Colorado Interstate Gas Co., 5.95%, 2015 ............................... 140,000 127,229 El Paso Energy Corp., 7%, 2011 .............. 335,000 330,394 El Paso Energy Corp., 7.75%, 2013 ........... 170,000 171,275 Transcontinental Gas Pipe Line Corp., 7%, 2011 .................................. 135,000 136,350 Williams Cos., Inc., 7.125%, 2011 ........... 132,000 132,000 -------------- $ 1,262,338 -------------- NETWORK & TELECOM - 3.9% Cincinnati Bell, Inc., 8.375%, 2014 ......... $ 260,000 $ 256,100 Citizens Communications Co., 9.25%, 2011 ............................... 275,000 295,625 Citizens Communications Co., 9%, 2031 ....... 340,000 344,250 Hawaiian Telecom Communications, Inc., 9.75%, 2013 ............................... 165,000 167,887 Hawaiian Telecom Communications, Inc., 12.5%, 2015 ............................... 50,000 52,375 Nordic Telephone Co. Holdings, 8.875%, 2016 (a) .......................... 145,000 148,988 Qwest Corp., 7.875%, 2011 ................... 195,000 197,438 Qwest Corp., 8.875%, 2012 ................... 405,000 427,275 Time Warner Telecom Holdings, Inc., 9.25%, 2014 ...................................... 90,000 92,250 Verizon New York, Inc., 7.375%, 2032 ........ 141,000 138,995 Windstream Corp., 8.625%, 2016 (a) .......... 130,000 132,113 -------------- $ 2,253,296 -------------- OIL SERVICES - 1.0% Basic Energy Services, Inc., 7.125%, 2016 (a) .................................. $ 230,000 $ 213,900 GulfMark Offshore, Inc., 7.75%, 2014 ........ 180,000 175,500 Hanover Compressor Co., 9%, 2014 ............ 190,000 198,550 -------------- $ 587,950 -------------- PHARMACEUTICALS - 0.5% Warner Chilcott Corp., 8.75%, 2015 .......... $ 250,000 $ 257,500 -------------- PRINTING & PUBLISHING - 3.8% American Media Operations, Inc., 8.875%, 2011 .............................. $ 235,000 $ 207,975 Dex Media, Inc., 0% to 2008, 9% to 2013 ..... 635,000 534,987 Dex Media, Inc., 0% to 2008, 9% to 2013 ..... 300,000 252,750 MediaNews Group, Inc., 6.875%, 2013 ......... 330,000 300,300 PRIMEDIA, Inc., 8.875%, 2011 ................ 205,000 196,800 PRIMEDIA, Inc., 8%, 2013 .................... 80,000 71,600 R.H. Donnelley Corp., 8.875%, 2016 (a) ...... 295,000 297,581 WDAC Subsidiary Corp., 8.375%, 2014 (a) .......................... 320,000 314,400 -------------- $ 2,176,393 -------------- RAILROAD & SHIPPING - 0.4% TFM S.A. de C.V., 9.375%, 2012 .............. $ 202,000 $ 215,130 TFM S.A. de C.V., 12.5%, 2012 ............... 26,000 28,665 -------------- $ 243,795 -------------- RESTAURANTS - 0.3% Denny's Corp. Holdings, Inc., 10%, 2012 ..... $ 150,000 $ 149,250 -------------- RETAILERS - 2.6% Buhrmann U.S., Inc., 7.875%, 2015 ........... $ 275,000 $ 271,563 Couche-Tard, Inc., 7.5%, 2013 ............... 180,000 179,100 Dollar General Corp., 8.625%, 2010 .......... 140,000 147,350 Jean Coutu Group (PJC), Inc., 7.625%, 2012 .............................. 160,000 155,200 Jean Coutu Group (PJC), Inc., 8.5%, 2014 ................................ 180,000 165,600 Neiman Marcus Group, Inc., 9%, 2015 (a) .............................. 185,000 193,325 Neiman Marcus Group, Inc., 10.375%, 2015 (a) ......................... 115,000 122,187 Steinway Musical Instruments, Inc., 7%, 2014 (a) .............................. 265,000 256,388 -------------- $ 1,490,713 -------------- SPECIALTY STORES - 1.0% GSC Holdings Corp., 8%, 2012 ................ $ 340,000 $ 340,000 Payless ShoeSource, Inc., 8.25%, 2013 ....... 195,000 201,581 -------------- $ 541,581 -------------- STEEL - 0.4% Chaparral Steel Co., 10%, 2013 .............. $ 225,000 $ 245,250 -------------- SUPERMARKETS - 0.2% Pathmark Stores, Inc., 8.75%, 2012 .......... $ 90,000 $ 85,500 -------------- TELECOMMUNICATIONS - WIRELESS - 2.0% Alamosa Holdings, Inc., 12%, 2009 ........... $ 170,000 $ 180,625 Centennial Communications Corp., 10%, 2013 ................................. 50,000 49,500 Centennial Communications Corp., 10.125%, 2013 ............................. 120,000 126,300 Rogers Wireless, Inc., 6.375%, 2014 ......... 250,000 238,125 Rogers Wireless, Inc., 7.5%, 2015 ........... 175,000 176,750 Rural Cellular Corp., 9.875%, 2010 .......... 210,000 216,038 Wind Acquisition Finance S.A., 10.75%, 2015 (a) .......................... 165,000 175,313 -------------- $ 1,162,651 -------------- TOBACCO - 0.6% Reynolds American, Inc., 7.25%, 2012 (a) .... $ 185,000 $ 181,300 Reynolds American, Inc., 7.3%, 2015 (a) ..... 155,000 150,156 -------------- $ 331,456 -------------- TRANSPORTATION - SERVICES - 1.4% Hertz Corp., 8.875%, 2014 (a) ............... $ 360,000 $ 369,000 Stena AB, 9.625%, 2012 ...................... 80,000 85,000 Stena AB, 7%, 2016 .......................... 221,000 203,320 Westinghouse Air Brake Technologies Corp., 6.875%, 2013 .............................. 125,000 121,875 -------------- $ 779,195 -------------- UTILITIES - ELECTRIC POWER - 4.8% Edison Mission Energy, 7.75%, 2016 (a) ...... $ 125,000 $ 122,812 Empresa Nacional de Electricidad S.A., 8.35%, 2013 ............................... 175,000 188,398 Enersis S.A., 7.375%, 2014 .................. 101,000 102,249 Midwest Generation LLC, 8.75%, 2034 ......... 345,000 365,700 Mirant North America LLC, 7.375%, 2013 (a) .......................... 500,000 482,500 Mission Energy Holding Co., 13.5%, 2008 ............................... 180,000 200,700 NRG Energy, Inc., 7.375%, 2016 .............. 770,000 750,750 Reliant Energy, Inc., 6.75%, 2014 ........... 40,000 36,800 Reliant Resources, Inc., 9.25%, 2010 ........ 80,000 80,000 Reliant Resources, Inc., 9.5%, 2013 ......... 95,000 95,475 TXU Corp., 5.55%, 2014 ...................... 335,000 303,850 -------------- $ 2,729,234 -------------- TOTAL BONDS (IDENTIFIED COST, $53,989,464)............ $ 52,939,953 -------------- COMMON STOCKS - 1.6% AUTOMOTIVE - 0.5% Magna International, Inc., "A" .............. 3,800 $ 273,486 -------------- CHEMICALS - 0.3% Huntsman Corp. (n) .......................... 9,100 $ 157,612 -------------- CONTAINERS - 0.3% Crown Holdings, Inc. (n) .................... 11,500 $ 179,055 -------------- ENERGY - INDEPENDENT - 0.2% Foundation Coal Holdings, Inc. .............. 2,970 $ 139,382 -------------- METALS & MINING - 0.0% Oxford Automotive, Inc. (n) ................. 53 $ 0 -------------- PRINTING & PUBLISHING - 0.0% Golden Books Family Entertainment, Inc. (n) . 21,250 $ 0 -------------- SPECIALTY CHEMICALS - 0.0% Sterling Chemicals, Inc. (n) ................ 5 $ 69 -------------- TELECOMMUNICATIONS - WIRELESS - 0.1% Vodafone Group PLC, ADR ..................... 2,574 $ 54,826 -------------- TELEPHONE SERVICES - 0.2% NTL, Inc. ................................... 3,715 $ 92,503 XO Holdings, Inc. (n) ....................... 67 295 -------------- $ 92,798 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $967,820) ........... $ 897,228 -------------- FLOATING RATE LOANS (r)(g) - 1.5% AUTOMOTIVE - 0.4% Lear Corp., Term Loan, 7.93%, 2014 .......... $ 219,993 $ 217,999 -------------- CONTAINERS - 0.4% Bluegrass Container Co. LLC, Second Lien Term Loan, 2013 (o) ....................... 208,000 $ 208,000 -------------- GAMING & LODGING - 0.7% Gulfside Casino, Inc., Term Loan B, 2012 (o) 398,024 $ 398,024 -------------- TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $826,157) ........................ $ 824,023 -------------- CONVERTIBLE PREFERRED STOCKS - 1.0% AUTOMOTIVE - 0.6% General Motors Corp., "B", 5.25% ............ 18,528 $ 342,768 -------------- REAL ESTATE - 0.4% Mills Corp., 6.75% (a) ...................... 200 $ 167,000 Mills Corp., "F", 6.75% ..................... 100 83,500 -------------- $ 250,500 -------------- TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST, $547,281) ........... ............ $ 593,268 -------------- PREFERRED STOCKS - 0.1% ADVERTISING & BROADCASTING - 0.1% Ion Media Networks, Inc. .................... 8 $ 68,800 -------------- CONSUMER GOODS & SERVICES - 0.0% Renaissance Cosmetics, Inc., 14% (n) ........ 975 $ 0 -------------- REAL ESTATE - 0.0% HRPT Properties Trust, REIT, "B" ............ 200 $ 5,200 -------------- TELEPHONE SERVICES - 0.0% PTV, Inc., "A" (n) .......................... 10 $ 30 -------------- TOTAL PREFERRED STOCKS (IDENTIFIED COST, $69,456) ......................... $ 74,030 -------------- WARRANTS - 0.0% Strike First Issuer Price Exercise Shares/Par Value ($) BROADCAST & CABLE TV - 0.0% XM Satellite Radio, Inc.(n) .............. $45.24 9/16/00 364 $ 2,730 ------------ BUSINESS SERVICES - 0.0% Loral Space & Communications Ltd. (n) $0.14 1/28/97 1,000 $ 0 Loral Space & Communications Ltd. (n) 0.14 1/28/97 1,100 0 ------------ $ 0 ------------ NETWORK & TELECOM - 0.0% Knology, Inc. (a)(n) .... $0.10 11/22/97 500 $ 1,083 ------------ SPECIALTY CHEMICALS - 0.0% Sterling Chemicals, Inc. Inc.(n) ............... $52.00 12/31/02 8 $ 1 ------------ TELEPHONE SERVICES - 0.0% GT Group Telecom, Inc.(n) ............... $0.00 8/01/00 1,050 $ 0 XO Holdings, Inc., "A"(n) ................ 6.25 5/27/03 532 458 XO Holdings, Inc., "B"(n) ................ 7.50 5/27/03 399 180 XO Holdings, Inc., "C"(n) ................ 10.00 5/27/03 399 120 ------------ $ 758 ------------ TOTAL WARRANTS (IDENTIFIED COST, $161,375) ............ $ 4,572 ------------ SHORT-TERM OBLIGATIONS - 1.8% New Center Asset Trust, 5.28%, due 7/03/06, at Amortized Cost and Value (y) $1,033,000 $ 1,032,697 ------------- TOTAL INVESTMENTS (IDENTIFIED COST, $57,594,250) (k) .................. $ 56,365,771 ------------- OTHER ASSETS, LESS LIABILITIES - 1.4% ................................. 816,935 ------------- NET ASSETS - 100.0% ................................... $ 57,182,706 ============= FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS Sales and Purchases in the table below are reported by currency. Net Unrealized Contracts to Settlement In Exchange Contracts Appreciation Deliver/Receive Date For at Value (Depreciation) SALES EUR 285,735 8/21/06 $362,768 $366,622 $(3,854) ======== ======== ======= PURCHASES EUR 141,954 7/17/06 $183,559 $181,717 $(1,842) ======== ======== ======= At June 30, 2006, the variable account had sufficient cash and/or securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006 MONEY MARKET VARIABLE ACCOUNT CERTIFICATES OF DEPOSIT - 11.4% Issuer Shares/Par Value ($) BANKS & CREDIT COMPANIES - 11.4% Citibank N.A., 5.17%, 8/23/06 ............... $ 1,000,000 $ 1,000,000 Credit Suisse First Boston, NY, 4.985%, 9/13/06 ........................... 1,635,000 1,635,000 Dexia Credit Local, 5.315%, 8/8/06 .......... 1,631,000 1,631,000 Fortis Bank, NY, 5.51%, 11/28/06 ............ 1,152,000 1,152,000 Natexis Banques Populaires, NY, 5.075%, 7/27/06 ........................... 799,000 799,000 -------------- TOTAL CERTIFICATES OF DEPOSIT, AT AMORTIZED COST AND VALUE ........................ $ 6,217,000 -------------- COMMERCIAL PAPER (y) - 88.5% ASSET BACKED & SECURITIZED - 0.9% Yorktown Capital LLC, 5.09%, due 7/07/06 (t) .................... $ 465,000 $ 464,606 -------------- BANKS & CREDIT COMPANIES - 24.4% Abbey National North America LLC, 5.1%, due 7/21/06 ......................... $ 1,580,000 $ 1,575,524 Bank of America Corp., 4.89%, due 7/03/06 ........................ 115,000 114,969 Bank of America Corp., 5.03%, due 10/23/06 ....................... 1,364,000 1,342,274 Calyon North America, Inc., 5.05%, due 8/02/06 ........................ 1,622,000 1,614,719 Citigroup Funding, Inc., 5.25%, due 8/08/06 ........................ 606,000 602,642 Depfa Bank PLC, 4.96%, due 7/13/06 (t) ...... 1,620,000 1,617,322 HBOS Treasury Services PLC, 5.39%, due 9/29/06 ........................ 1,654,000 1,631,712 ING America Insurance Holdings, Inc., 4.94%, due 7/14/06 ............................... 1,620,000 1,617,110 Svenska Handelsbanken, Inc., 5.16%, due 8/07/06 ........................ 1,589,000 1,580,573 UBS Financial Delaware LLC, 5.055%, due 7/05/06 ....................... 1,598,000 1,597,102 -------------- $ 13,293,947 -------------- BROKERAGE & ASSET MANAGERS - 5.9% Goldman Sachs Group, Inc., 4.89%, due 7/07/06 ........................ $ 1,617,000 $ 1,615,682 Merrill Lynch & Co., Inc., 4.9%, due 7/10/06 ......................... 1,618,000 1,616,018 -------------- $ 3,231,700 -------------- FINANCIAL INSTITUTIONS - 51.8% Alpine Securitization Corp., 5.01%, due 7/05/06 (t) .................... $ 1,607,000 $ 1,606,105 American Express Credit Corp., 5.05%, due 7/21/06 ........................ 1,606,000 1,601,494 American General Finance Corp., 5.05%, due 8/07/06 ........................ 1,623,000 1,614,576 CRC Funding LLC, 5.24%, due 8/14/06 (t) .................... 1,622,000 1,611,612 Ciesco LLC, 5.02%, due 7/06/06 (t) .......... 1,155,000 1,154,195 Ciesco LLC, 5.15%, due 8/04/06 (t) .......... 429,000 426,913 Edison Asset Securitization LLC, 5.04%, due 8/09/06 (t) .................... 1,611,000 1,602,204 FCAR Owner Trust, 5.08%, due 7/06/06 ........ 1,577,000 1,575,887 Falcon Asset Securitization Corp., 5.28%, due 7/03/06 (t) .................... 773,000 772,773 General Electric Capital Corp., 5.38%, due 10/26/06 ....................... 1,660,000 1,630,975 General Re Corp., 4.94%, due 7/17/06 ........ 695,000 693,474 Kitty Hawk Funding Corp., 5.25%, due 7/20/06 (t) .................... 1,612,000 1,607,533 New Center Asset Trust, 5.24%, due 7/20/06 ........................ 1,612,000 1,607,542 Old Line Funding LLC, 5.05%, due 7/10/06 (t) .................... 713,000 712,100 Old Line Funding LLC, 5.2%, due 8/03/06 (t) ..................... 1,071,000 1,065,895 Preferred Receivables Funding Corp., 5.05%, due 7/18/06 (t) ........................... 1,618,000 1,614,142 Ranger Funding Co. LLC, 5.08%, due 7/21/06 (t) .................... 1,612,000 1,607,451 Scaldis Capital LLC, 5%, due 7/03/06 (t) .... 1,607,000 1,606,554 Sheffield Receivables Corp., 5.09%, due 8/03/06 (t) .................... 1,795,000 1,786,625 Thunder Bay Funding LLC, 5.04%, due 7/07/06 (t) .................... 1,603,000 1,601,653 Windmill Funding Corp., 5.13%, due 8/01/06 (t) .................... 782,000 778,546 -------------- $ 28,278,249 -------------- INSURANCE - 2.9% Metlife Funding, Inc., 5.03%, due 7/20/06 ... $ 244,000 $ 243,352 Metlife, Inc., 4.91%, due 7/10/06 (t) ....... 1,362,000 1,360,328 -------------- $ 1,603,680 -------------- NETWORK & TELECOM - 2.6% BellSouth Corp., 5.05%, due 7/17/06 (t) ..... $ 1,430,000 $ 1,426,790 -------------- TOTAL COMMERCIAL PAPER, AT AMORTIZED COST AND VALUE .......................................... $ 48,298,972 -------------- TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE .......................................... $ 54,515,972 -------------- OTHER ASSETS, LESS LIABILITIES - 0.1% ................................ 82,953 -------------- NET ASSETS - 100.0% .................................. $ 54,598,925 ============== See portfolio footnotes and notes to financial statements. PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006 TOTAL RETURN VARIABLE ACCOUNT COMMON STOCKS - 60.2% Issuer Shares/Par Value ($) ADVERTISING & BROADCASTING - 1.1% CBS Corp., "B" .............................. 46,919 $ 1,269,159 Grupo Televisa S.A., ADR .................... 5,700 110,067 Viacom, Inc., "B" (n) ....................... 11,185 400,870 Walt Disney Co. ............................. 4,580 137,400 -------------- $ 1,917,496 -------------- AEROSPACE - 1.9% Lockheed Martin Corp. ....................... 21,100 $ 1,513,714 Northrop Grumman Corp. ...................... 12,620 808,437 United Technologies Corp. ................... 17,620 1,117,460 -------------- $ 3,439,611 -------------- ALCOHOLIC BEVERAGES - 0.6% Diageo PLC .................................. 45,856 $ 770,519 Molson Coors Brewing Co. .................... 3,500 237,580 -------------- $ 1,008,099 -------------- APPAREL MANUFACTURERS - 0.3% NIKE, Inc., "B" ............................. 7,290 $ 590,490 -------------- AUTOMOTIVE - 0.2% Johnson Controls, Inc. ...................... 4,750 $ 390,545 -------------- BANKS & CREDIT COMPANIES - 9.2% American Express Co. ........................ 11,270 $ 599,789 Bank of America Corp. ....................... 99,568 4,789,221 Bank of New York Co., Inc. .................. 25,700 827,540 Capital One Financial Corp. ................. 6,020 514,409 Citigroup, Inc. ............................. 41,006 1,978,129 Countrywide Financial Corp. ................. 11,530 439,062 Fannie Mae .................................. 15,420 741,702 Freddie Mac ................................. 2,710 154,497 J.P. Morgan Chase & Co. ..................... 61,752 2,593,584 PNC Financial Services Group, Inc. .......... 30,740 2,157,026 SunTrust Banks, Inc. ........................ 15,810 1,205,671 UBS AG ...................................... 3,825 418,784 Wells Fargo & Co. ........................... 3,510 235,451 -------------- $ 16,654,865 -------------- BIOTECHNOLOGY - 0.1% Amgen, Inc. (n) ............................. 1,470 $ 95,888 -------------- BROKERAGE & ASSET MANAGERS - 3.2% Franklin Resources, Inc. .................... 5,370 $ 466,170 Goldman Sachs Group, Inc. ................... 7,180 1,080,087 KKR Private Equity Investments LP, IEU (n) .. 6,600 144,540 Lehman Brothers Holdings, Inc. .............. 10,570 688,636 Mellon Financial Corp. ...................... 61,010 2,100,574 Merrill Lynch & Co., Inc. ................... 12,530 871,587 Morgan Stanley .............................. 6,790 429,196 -------------- $ 5,780,790 -------------- BUSINESS SERVICES - 0.3% Accenture Ltd., "A" ......................... 19,020 $ 538,646 -------------- CHEMICALS - 1.5% 3M Co. ...................................... 5,490 $ 443,427 Dow Chemical Co. ............................ 6,870 268,136 E.I. du Pont de Nemours & Co. ............... 12,730 529,568 Nalco Holding Co. (n) ....................... 22,450 395,794 PPG Industries, Inc. ........................ 12,030 793,980 Syngenta AG ................................. 2,660 353,174 -------------- $ 2,784,079 -------------- COMPUTER SOFTWARE - 2.4% Compuware Corp. (n) ......................... 132,000 $ 884,400 Oracle Corp. (n) ............................ 80,090 1,160,504 Symantec Corp. (n) .......................... 145,320 2,258,273 -------------- $ 4,303,177 -------------- COMPUTER SOFTWARE - SYSTEMS - 1.1% Dell, Inc. (n) .............................. 52,070 $ 1,271,029 Hewlett-Packard Co. ......................... 5,200 164,736 Sun Microsystems, Inc. (n) .................. 123,910 514,227 -------------- $ 1,949,992 -------------- CONSTRUCTION - 1.4% D.R. Horton, Inc. ........................... 7,100 $ 169,122 Masco Corp. ................................. 73,930 2,191,285 Sherwin-Williams Co. ........................ 2,520 119,650 -------------- $ 2,480,057 -------------- CONSUMER GOODS & SERVICES - 0.5% Alberto-Culver Co. .......................... 4,800 $ 233,856 Estee Lauder Cos., Inc., "A" ................ 17,540 678,272 -------------- $ 912,128 -------------- CONTAINERS - 1.0% Owens-Illinois, Inc. (n) .................... 105,090 $ 1,761,308 Smurfit-Stone Container Corp. (n) ........... 6,550 71,657 -------------- $ 1,832,965 -------------- ELECTRICAL EQUIPMENT - 2.1% Cooper Industries Ltd., "A" ................. 3,230 $ 300,132 General Electric Co. ........................ 33,040 1,088,998 Tyco International Ltd. ..................... 79,890 2,196,975 W.W. Grainger, Inc. ......................... 3,300 248,259 -------------- $ 3,834,364 -------------- ELECTRONICS - 0.5% Analog Devices, Inc. ........................ 7,700 $ 247,478 Intel Corp. ................................. 30,190 572,101 Xilinx, Inc. ................................ 7,100 160,815 -------------- $ 980,394 -------------- ENERGY - INDEPENDENT - 1.9% Apache Corp. ................................ 23,160 $ 1,580,670 Devon Energy Corp. .......................... 26,310 1,589,387 EOG Resources, Inc. ......................... 3,600 249,624 -------------- $ 3,419,681 -------------- ENERGY - INTEGRATED - 3.7% BP PLC, ADR ................................. 5,540 $ 385,639 Chevron Corp. ............................... 10,045 623,393 ConocoPhillips .............................. 20,350 1,333,536 Exxon Mobil Corp. ........................... 38,882 2,385,411 Hess Corp. .................................. 14,220 751,527 TOTAL S.A., ADR ............................. 17,940 1,175,429 -------------- $ 6,654,935 -------------- FOOD & NON ALCOHOLIC BEVERAGES - 1.3% Archer Daniels Midland Co. .................. 3,060 $ 126,317 Coca-Cola Co. ............................... 7,980 343,300 Kellogg Co. ................................. 17,940 868,834 Nestle S.A .................................. 1,523 477,843 PepsiCo, Inc. ............................... 7,290 437,692 Sara Lee Corp. .............................. 10,080 161,482 -------------- $ 2,415,468 -------------- FOREST & PAPER PRODUCTS - 0.6% Bowater, Inc. ............................... 33,480 $ 761,670 International Paper Co. ..................... 5,910 190,893 MeadWestvaco Corp. .......................... 7,270 203,051 -------------- $ 1,155,614 -------------- GENERAL MERCHANDISE - 1.2% Federated Department Stores, Inc. ........... 5,060 $ 185,196 Saks, Inc. .................................. 53,600 866,712 Wal-Mart Stores, Inc. ....................... 24,430 1,176,793 -------------- $ 2,228,701 -------------- HEALTH MAINTENANCE ORGANIZATIONS - 0.3% CIGNA Corp. ................................. 1,620 $ 159,586 WellPoint, Inc. (n) ......................... 5,300 385,681 -------------- $ 545,267 -------------- INSURANCE - 4.0% Ace Ltd. .................................... 5,360 $ 271,162 AFLAC, Inc. ................................. 5,110 236,849 Allstate Corp. .............................. 38,970 2,132,828 Chubb Corp. ................................. 4,470 223,053 Conseco, Inc. (n) ........................... 50,920 1,176,252 Genworth Financial, Inc., "A" ............... 29,520 1,028,477 Hartford Financial Services Group, Inc. ..... 10,080 852,768 MetLife, Inc. ............................... 18,880 966,845 Safeco Corp. ................................ 4,610 259,774 -------------- $ 7,148,008 -------------- LEISURE & TOYS - 0.4% Hasbro, Inc. ................................ 6,290 $ 113,912 Mattel, Inc. ................................ 39,150 646,367 -------------- $ 760,279 -------------- MACHINERY & TOOLS - 0.8% Deere & Co. ................................. 9,700 $ 809,853 Finning International, Inc. (a) ............. 460 15,313 Illinois Tool Works, Inc. ................... 7,900 375,250 Ingersoll-Rand Co. Ltd., "A" ................ 6,210 265,664 -------------- $ 1,466,080 -------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.3% Tenet Healthcare Corp. (n) .................. 80,390 $ 561,122 -------------- MEDICAL EQUIPMENT - 0.3% Baxter International, Inc. .................. 1,680 $ 61,757 Pall Corp. .................................. 18,000 504,000 -------------- $ 565,757 -------------- METALS & MINING - 0.1% BHP Billiton PLC ............................ 12,010 $ 232,757 -------------- NATURAL GAS - PIPELINE - 0.0% Williams Cos., Inc. ......................... 2,400 $ 56,064 -------------- NETWORK & TELECOM - 1.3% Cisco Systems, Inc. (n) ..................... 32,820 $ 640,975 Nortel Networks Corp. (n) ................... 782,450 1,752,688 -------------- $ 2,393,663 -------------- OIL SERVICES - 1.4% GlobalSantaFe Corp. ......................... 21,650 $ 1,250,288 Noble Corp. ................................. 16,195 1,205,232 -------------- $ 2,455,520 -------------- PHARMACEUTICALS - 4.7% Abbott Laboratories ......................... 5,400 $ 235,494 Eli Lilly & Co. ............................. 12,830 709,114 Johnson & Johnson ........................... 30,710 1,840,143 Merck & Co., Inc. ........................... 78,910 2,874,691 Wyeth ....................................... 62,380 2,770,296 -------------- $ 8,429,738 -------------- PRINTING & PUBLISHING - 0.5% New York Times Co., "A" ..................... 35,080 $ 860,863 -------------- RAILROAD & SHIPPING - 0.6% Burlington Northern Santa Fe Corp. .......... 8,220 $ 651,435 Norfolk Southern Corp. ...................... 8,370 445,451 -------------- $ 1,096,886 -------------- SPECIALTY CHEMICALS - 0.4% Air Products & Chemicals, Inc. .............. 6,720 $ 429,542 Praxair, Inc. ............................... 3,940 212,760 -------------- $ 642,302 -------------- SPECIALTY STORES - 1.0% Gap, Inc. ................................... 19,250 $ 334,950 Home Depot, Inc. ............................ 8,800 314,952 OfficeMax, Inc. ............................. 26,180 1,066,835 -------------- $ 1,716,737 -------------- TELECOMMUNICATIONS - WIRELESS - 0.2% Vodafone Group PLC, ADR ..................... 19,736 $ 420,377 -------------- TELEPHONE SERVICES - 3.4% AT&T, Inc. .................................. 19,974 $ 557,075 Embarq Corp. (n) ............................ 9,373 384,199 Sprint Nextel Corp. ......................... 123,370 2,466,166 TELUS Corp. ................................. 8,450 348,072 Verizon Communications, Inc. ................ 69,630 2,331,909 -------------- $ 6,087,421 -------------- TOBACCO - 1.3% Altria Group, Inc. .......................... 30,670 $ 2,252,098 -------------- TRUCKING - 0.0% Con-way, Inc. ............................... 650 $ 37,655 -------------- UTILITIES - ELECTRIC POWER - 3.1% Dominion Resources, Inc. .................... 15,750 $ 1,177,943 Edison International ........................ 6,300 245,700 Entergy Corp. ............................... 1,850 130,888 Exelon Corp. ................................ 9,640 547,841 FirstEnergy Corp. ........................... 4,810 260,750 FPL Group, Inc. ............................. 54,270 2,245,693 NRG Energy, Inc. (n) ........................ 3,900 187,902 PPL Corp. ................................... 10,800 348,840 Public Service Enterprise Group, Inc. ....... 2,920 193,070 TXU Corp. ................................... 3,560 212,852 -------------- $ 5,551,479 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $97,741,040) ..................... $ 108,648,058 -------------- BONDS - 38.4% ADVERTISING & BROADCASTING - 0.1% News America Holdings, 8.5%, 2025 ........... $ 99,000 $ 111,883 News America, Inc., 6.2%, 2034 .............. 42,000 38,115 -------------- $ 149,998 -------------- AEROSPACE - 0.2% Boeing Capital Corp., 6.5%, 2012 ............ $ 263,000 $ 272,035 -------------- AGENCY - OTHER - 0.0% Financing Corp., 9.65%, 2018 ................ $ 45,000 $ 60,937 -------------- AIRLINES - 0.1% Continental Airlines, Inc., 6.648%, 2017 .... $ 170,274 $ 169,312 -------------- ASSET BACKED & SECURITIZED - 2.7% AmeriCredit Automobile Receivables Trust, 2.18%, 2008 ............................... $ 50,072 $ 49,908 Banc of America Commercial Mortgage, Inc., FRN, 4.857%, 2043 ......................... 200,000 186,019 Banc of America Commercial Mortgage, Inc., FRN, 5.354%, 2047 ......................... 102,153 97,180 Banc of America Commercial Mortgage, Inc., FRN, 5.354%, 2047 ......................... 100,000 95,553 Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.1406%, 2040 (a) ............. 250,000 250,232 Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 ....... 82,288 77,996 Blackrock Capital Finance LP, 7.75%, 2026 (a) ........................... 46,206 45,744 Chase Commercial Mortgage Securities Corp., 7.543%, 2032 .............................. 63,787 64,836 Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3997%, 2044 ................. 200,000 194,137 Countrywide Asset-Backed Certificates, FRN, 4.823%, 2035 .............................. 75,000 74,162 CRIIMI MAE CMBS Corp., 6.7%, 2008 (a) ............................ 190,000 190,283 CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (a) .................................. 179,009 179,484 Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 .............................. 125,125 126,198 Falcon Franchise Loan LLC, 7.382%, 2010 (a) .......................... 44,241 45,112 GE Commercial Mortgage Corp., FRN, 5.5185%, 2044 ...................................... 130,000 124,930 Greenwich Capital Commercial Funding Corp., 4.305%, 2042 .............................. 107,385 102,669 Greenwich Capital Commercial Funding Corp., FRN, 6.1101%, 2016 ........................ 100,000 100,547 Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 ......................... 60,728 58,644 J.P. Morgan Chase Commercial Mortgage Securities Corp., 4.78%, 2042 ............. 152,000 139,863 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.3816%, 2041 ...... 39,903 38,367 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.4723%, 2043 ...... 200,000 192,336 J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 ....... 197,476 186,193 Merrill Lynch Mortgage Trust, FRN, 5.8444%, 2039 ...................................... 197,000 194,107 Morgan Stanley Capital I, Inc., 5.168%, 2042 .............................. 48,533 46,220 Morgan Stanley Capital I, Inc., FRN, 0.7263%, 2030 (a)(i) ...................... 7,710,875 118,768 Multi-Family Capital Access One, Inc., 6.65%, 2024 ............................... 46,821 47,466 Residential Asset Mortgage Products, Inc., 4.109%, 2035 .............................. 112,691 110,239 Residential Asset Mortgage Products, Inc., 3.8%, 2030 ................................ 18,544 18,465 Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 ........................ 92,000 88,626 Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 .................... 129,000 126,720 Spirit Master Funding LLC, 5.05%, 2023 (a) ........................... 192,144 178,609 Structured Asset Securities Corp., FRN, 4.67%, 2035 ............................... 298,098 293,270 Wachovia Bank Commercial Mortgage Trust, 4.935%, 2042 .............................. 200,000 186,983 Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 ......................... 50,000 46,537 Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 ......................... 185,000 174,706 Wachovia Bank Commercial Mortgage Trust, FRN, 5.118%, 2042 ......................... 200,000 189,239 Wachovia Bank Commercial Mortgage Trust, FRN, 5.3699%, 2044 ........................ 130,000 123,777 Wachovia Bank Commercial Mortgage Trust, FRN, 5.4908%, 2044 ........................ 149,000 142,727 Wachovia Bank Commercial Mortgage Trust, FRN, 5.962%, 2045 (a) ..................... 140,000 140,755 -------------- $ 4,847,607 -------------- AUTOMOTIVE - 0.1% Johnson Controls, Inc., 5.5%, 2016 .......... $ 136,000 $ 129,039 -------------- BANKS & CREDIT COMPANIES - 2.1% Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 ............... $ 179,000 $ 217,175 Bank of America Corp., 7.4%, 2011 ........... 189,000 201,099 Bank of America Corp., 5.375%, 2014 ......... 110,000 106,477 Barclays Bank PLC, 6.86% to 2032, FRN to 2049 (a) ........................... 150,000 150,000 Citigroup, Inc., 5%, 2014 ................... 250,000 233,992 Credit Suisse First Boston (USA), Inc., 4.125%, 2010 .............................. 171,000 162,463 Credit Suisse First Boston (USA), Inc., 4.875%, 2010 .............................. 121,000 117,279 DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049 (a) ........... 170,000 181,090 HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (a) ........... 100,000 97,426 Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (a) ........... 190,000 180,295 MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 ............... 200,000 192,918 Nordea Bank AB, 5.424% to 2015, FRN to 2049 (a) ........................... 100,000 91,762 RBS Capital Trust II, 6.425% to 2034, FRN to 2049 ............................... 161,000 150,341 Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (a) ............................... 361,000 368,651 UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 ............... 190,000 187,183 UFJ Finance Aruba AEC, 6.75%, 2013 .......... 145,000 151,058 UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (a) ............. 208,000 231,363 Wachovia Corp., 5.25%, 2014 ................. 343,000 327,139 Wells Fargo National Bank, 4.75%, 2015 ...... 315,000 290,828 Woori Bank, FRN, 6.125%, 2016 (a) ........... 220,000 216,872 -------------- $ 3,855,411 -------------- BROADCAST & CABLE TV - 0.3% Cox Communications, Inc., 4.625%, 2013 .............................. $ 159,000 $ 142,714 TCI Communications Financing III, 9.65%, 2027 ............................... 425,000 453,158 -------------- $ 595,872 -------------- BROKERAGE & ASSET MANAGERS - 0.6% Goldman Sachs Group, Inc., 5.7%, 2012 ....... $ 137,000 $ 135,670 Lehman Brothers Holdings, Inc., 8.25%, 2007 ............................... 334,000 341,898 Merrill Lynch & Co., Inc., 5.45%, 2014 ...... 127,000 122,600 Merrill Lynch & Co., Inc., 6.05%, 2016 ...... 200,000 198,683 Morgan Stanley Group, Inc., 6.75%, 2011 ............................... 156,000 161,963 Morgan Stanley Group, Inc., 4.75%, 2014 ............................... 78,000 71,512 -------------- $ 1,032,326 -------------- BUILDING - 0.1% CRH America, Inc., 6.95%, 2012 .............. $ 208,000 $ 215,734 -------------- BUSINESS SERVICES - 0.1% Cisco Systems, Inc., 5.5%, 2016 ............. $ 135,000 $ 129,631 -------------- CONGLOMERATES - 0.1% Kennametal, Inc., 7.2%, 2012 ................ $ 211,000 $ 220,064 -------------- CONSUMER GOODS & SERVICES - 0.2% Cendant Corp., 6.875%, 2006 ................. $ 147,000 $ 147,145 Fortune Brands, Inc., 5.125%, 2011 .......... 158,000 151,324 -------------- $ 298,469 -------------- DEFENSE ELECTRONICS - 0.1% BAE Systems Holdings, Inc., 5.2%, 2015 (a) ............................ $ 103,000 $ 95,906 Raytheon Co., 6.15%, 2008 ................... 114,000 115,114 -------------- $ 211,020 -------------- EMERGING MARKET QUASI-SOVEREIGN - 0.0% Pemex Project Funding Master Trust, 8.625%, 2022 .............................. $ 39,000 $ 43,602 -------------- EMERGING MARKET SOVEREIGN - 0.2% State of Israel, 4.625%, 2013 ............... $ 112,000 $ 103,723 United Mexican States, 6.375%, 2013 ......... 111,000 111,278 United Mexican States, 6.625%, 2015 ......... 10,000 10,125 United Mexican States, 5.625%, 2017 ......... 100,000 93,000 -------------- $ 318,126 -------------- ENERGY - INDEPENDENT - 0.2% Devon Financing Corp. U.L.C., 6.875%, 2011 .............................. $ 51,000 $ 53,025 Nexen, Inc., 5.875%, 2035 ................... 100,000 88,282 Ocean Energy, Inc., 7.25%, 2011 ............. 84,000 88,542 XTO Energy, Inc., 5.65%, 2016 ............... 190,000 180,166 -------------- $ 410,015 -------------- ENTERTAINMENT - 0.1% Walt Disney Co., 6.375%, 2012 ............... $ 156,000 $ 160,080 -------------- FINANCIAL INSTITUTIONS - 0.2% Countrywide Financial Corp., 6.25%, 2016 ............................... $ 171,000 $ 167,603 General Electric Capital Corp., 8.75%, 2007 ............................... 130,000 133,349 HSBC Finance Corp., 5.25%, 2011 ............. 145,000 141,619 -------------- $ 442,571 -------------- FOOD & NON ALCOHOLIC BEVERAGES - 0.4% Cadbury Schweppes PLC, 5.125%, 2013 (a) .......................... $ 270,000 $ 253,627 Diageo Finance B.V., 5.5%, 2013 ............. 190,000 184,930 Miller Brewing Co., 5.5%, 2013 (a) .......... 276,000 264,817 -------------- $ 703,374 -------------- FOREST & PAPER PRODUCTS - 0.0% MeadWestvaco Corp., 6.8%, 2032 .............. $ 69,000 $ 64,645 -------------- GAMING & LODGING - 0.1% Marriott International, Inc., 6.2%, 2016 .... $ 139,000 $ 136,571 -------------- INSURANCE - 0.5% AIG SunAmerica Institutional Funding II, 5.75%, 2009 ............................... $ 441,000 $ 441,251 American International Group, Inc., 5.05%, 2015 (a) ........................... 150,000 139,936 ING Groep N.V., 5.775% to 2015, FRN to 2049 ............................... 223,000 211,607 MetLife, Inc., 6.5%, 2032 ................... 48,000 47,914 -------------- $ 840,708 -------------- INSURANCE - PROPERTY & CASUALTY - 0.2% Allstate Corp., 6.125%, 2032 ................ $ 185,000 $ 173,428 Fund American Cos., Inc., 5.875%, 2013 ...... 117,000 112,261 St. Paul Travelers Cos., Inc., 5.5%, 2015 ... 112,000 105,787 -------------- $ 391,476 -------------- INTERNATIONAL MARKET QUASI-SOVEREIGN - 0.2% Hydro-Quebec, 6.3%, 2011 .................... $ 262,000 $ 269,556 -------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.2% Cardinal Health, Inc., 5.85%, 2017 .......... $ 145,000 $ 138,254 HCA, Inc., 8.75%, 2010 ...................... 40,000 42,171 HCA, Inc., 6.95%, 2012 ...................... 139,000 135,682 -------------- $ 316,107 -------------- METALS & MINING - 0.0% Alcan, Inc., 5%, 2015 ....................... $ 28,000 $ 25,870 -------------- MORTGAGE BACKED - 14.1% Fannie Mae, 5.722%, 2009 .................... $ 415,000 $ 413,250 Fannie Mae, 4.01%, 2013 ..................... 19,191 17,466 Fannie Mae, 4.63%, 2014 ..................... 47,456 44,469 Fannie Mae, 4.518%, 2014 .................... 175,077 163,206 Fannie Mae, 4.847%, 2014 .................... 72,318 68,668 Fannie Mae, 4.925%, 2015 .................... 267,091 253,924 Fannie Mae, 5.5%, 2016 - 2035 ............... 9,117,963 8,811,168 Fannie Mae, 6%, 2017 - 2036 ................. 2,906,603 2,882,452 Fannie Mae, 5%, 2018 - 2035 ................. 2,545,868 2,425,254 Fannie Mae, 4.5%, 2018 - 2035 ............... 1,131,237 1,058,694 Fannie Mae, 6.5%, 2031 - 2036 ............... 976,884 984,923 Fannie Mae, 7.5%, 2031 ...................... 35,014 36,217 Freddie Mac, 6%, 2016 - 2036 ................ 1,622,747 1,607,477 Freddie Mac, 5%, 2017 - 2035 ................ 2,240,867 2,108,753 Freddie Mac, 4.5%, 2018 - 2035 .............. 907,332 851,793 Freddie Mac, 5.5%, 2020 - 2035 .............. 1,725,741 1,667,524 Freddie Mac, 6.5%, 2034 ..................... 232,153 233,613 Ginnie Mae, 6%, 2033 - 2034 ................. 504,101 500,690 Ginnie Mae, 4.5%, 2033 - 2034 ............... 168,573 154,116 Ginnie Mae, 5%, 2033 - 2034 ................. 186,912 176,826 Ginnie Mae, 5.5%, 2033 - 2035 ............... 916,048 888,936 Ginnie Mae, 6.5%, 2035 - 2036 ............... 107,313 108,268 -------------- $ 25,457,687 -------------- NATURAL GAS - PIPELINE - 0.2% CenterPoint Energy Resources Corp., 7.875%, 2013 .............................. $ 82,000 $ 89,134 Kinder Morgan Energy Partners LP, 6.75%, 2011 ............................... 165,000 168,559 Kinder Morgan Energy Partners LP, 5.125%, 2014 .............................. 46,000 41,994 Kinder Morgan Energy Partners LP, 7.75%, 2032 ............................... 71,000 76,406 -------------- $ 376,093 -------------- NETWORK & TELECOM - 0.4% AT&T, Inc., 6.15%, 2034 ..................... $ 35,000 $ 32,121 BellSouth Corp., 6.55%, 2034 ................ 146,000 139,024 PCCW-HKTC Capital II Ltd., 6%, 2013 (a) .............................. 99,000 93,897 Telecom Italia Capital, 5.25%, 2013 ......... 60,000 55,468 Telecom Italia Capital, 6%, 2034 ............ 97,000 83,752 Telefonica Europe B.V., 7.75%, 2010 ......... 50,000 53,042 Verizon New York, Inc., 6.875%, 2012 ........ 286,000 289,802 -------------- $ 747,106 -------------- OIL SERVICES - 0.0% Halliburton Co., 5.5%, 2010 ................. $ 50,000 $ 49,527 -------------- OILS - 0.1% Valero Energy Corp., 6.875%, 2012 ........... $ 111,000 $ 115,058 -------------- PHARMACEUTICALS - 0.2% Allergan, Inc., 5.75%, 2016 (a) ............. $ 160,000 $ 155,464 Wyeth, 5.5%, 2013 ........................... 123,000 119,744 -------------- $ 275,208 -------------- POLLUTION CONTROL - 0.1% Waste Management, Inc., 7.375%, 2010 ........ $ 134,000 $ 141,347 -------------- RAILROAD & SHIPPING - 0.0% CSX Corp., 6.75%, 2011 ...................... $ 35,000 $ 36,316 Union Pacific Corp., 6.125%, 2012 ........... 50,000 50,544 -------------- $ 86,860 -------------- REAL ESTATE - 0.5% Boston Properties, Inc., REIT, 5%, 2015 ..... $ 42,000 $ 38,529 EOP Operating LP, REIT, 6.8%, 2009 .......... 29,000 29,613 HRPT Properties Trust, REIT, 6.25%, 2016 ............................... 157,000 153,896 ProLogis, REIT, 5.75%, 2016 ................. 179,000 172,552 Simon Property Group LP, 5.1%, 2015 ......... 193,000 178,373 Vornado Realty Trust, REIT, 5.625%, 2007 .............................. 383,000 381,377 -------------- $ 954,340 -------------- RETAILERS - 0.4% Home Depot, Inc., 5.4%, 2016 ................ $ 181,000 $ 173,503 Limited Brands, Inc., 5.25%, 2014 ........... 165,000 150,700 May Department Stores Co., 5.75%, 2014 ............................... 150,000 145,688 Wal-Mart Stores, Inc., 5.25%, 2035 .......... 194,000 169,270 -------------- $ 639,161 -------------- TELECOMMUNICATIONS - WIRELESS - 0.0% Cingular Wireless LLC, 6.5%, 2011 ........... $ 35,000 $ 35,866 -------------- U.S. GOVERNMENT AGENCIES - 3.5% Aid-Egypt, 4.45%, 2015 ...................... $ 152,000 $ 141,224 Fannie Mae, 3.25%, 2006 ..................... 100,000 99,832 Fannie Mae, 3%, 2007 ........................ 244,000 239,973 Fannie Mae, 5.25%, 2007 ..................... 397,000 396,064 Fannie Mae, 6.625%, 2009 - 2010 ............. 1,428,000 1,487,926 Fannie Mae, 6%, 2011 ........................ 165,000 168,556 Federal Home Loan Bank, 3.25%, 2006 ......... 315,000 314,645 Federal Home Loan Bank, 3.75%, 2006 ......... 940,000 936,201 Federal Home Loan Bank, 3.9%, 2008 .......... 40,000 39,010 Freddie Mac, 3.75%, 2006 .................... 1,405,000 1,396,378 Small Business Administration, 4.35%, 2023 ............................... 42,901 39,434 Small Business Administration, 4.77%, 2024 ............................... 107,515 101,111 Small Business Administration, 5.18%, 2024 ............................... 176,207 170,049 Small Business Administration, 5.52%, 2024 ............................... 250,356 246,544 Small Business Administration, 4.99%, 2024 ............................... 143,946 137,106 Small Business Administration, 4.95%, 2025 ............................... 110,764 106,475 Small Business Administration, 5.09%, 2025 ............................... 133,394 127,212 Small Business Administration, 5.39%, 2025 ............................... 103,984 101,077 -------------- $ 6,248,817 -------------- U.S. TREASURY OBLIGATIONS - 8.5% U.S. Treasury Bonds, 10.375%, 2012 .......... $ 140,000 $ 149,417 U.S. Treasury Bonds, 8%, 2021 ............... 37,000 47,320 U.S. Treasury Bonds, 6.25%, 2023 ............ 1,659,000 1,829,696 U.S. Treasury Bonds, 5.375%, 2031 ........... 2,549,000 2,593,011 U.S. Treasury Notes, 7%, 2006 ............... 99,000 99,039 U.S. Treasury Notes, 4.375%, 2007 ........... 146,000 144,882 U.S. Treasury Notes, 5.625%, 2008 ........... 2,704,000 2,725,337 U.S. Treasury Notes, 4.75%, 2008 ............ 942,000 933,574 U.S. Treasury Notes, 3.125%, 2009 ........... 3,000,000 2,845,542 U.S. Treasury Notes, 4%, 2009 ............... 23,000 22,293 U.S. Treasury Notes, 6.5%, 2010 ............. 1,148,000 1,199,436 U.S. Treasury Notes, 5%, 2011 ............... 1,400,000 1,396,555 U.S. Treasury Notes, 3.875%, 2013 ........... 199,000 185,241 U.S. Treasury Notes, 4.25%, 2013 ............ 250,000 236,582 U.S. Treasury Notes, 4.75%, 2014 ............ 150,000 146,326 U.S. Treasury Notes, TIPS, 4.25%, 2010 ...... 801,007 850,945 -------------- $ 15,405,196 -------------- UTILITIES - ELECTRIC POWER - 1.3% Dominion Resources, Inc., 5.15%, 2015 ....... $ 141,000 $ 129,608 Duke Capital Corp., 8%, 2019 ................ 53,000 59,924 Exelon Generation Co. LLC, 6.95%, 2011 ............................... 74,000 77,157 FirstEnergy Corp., 6.45%, 2011 .............. 209,000 212,662 MidAmerican Energy Holdings Co., 3.5%, 2008 ................................ 118,000 113,211 MidAmerican Energy Holdings Co., 5.875%, 2012 ...................................... 61,000 60,511 MidAmerican Funding LLC, 6.927%, 2029 .............................. 454,000 481,232 Northeast Utilities, 8.58%, 2006 ............ 54,240 54,394 Oncor Electric Delivery Co., 7%, 2022 ....... 152,000 157,522 Pacific Gas & Electric Co., 4.8%, 2014 ...... 45,000 41,933 Progress Energy, Inc., 7.1%, 2011 ........... 204,000 212,803 PSEG Power LLC, 6.95%, 2012 ................. 71,000 73,668 PSEG Power LLC, 5.5%, 2015 .................. 90,000 84,889 System Energy Resources, Inc., 5.129%, 2014 (a) .......................... 94,907 91,296 TXU Energy Co., 7%, 2013 .................... 132,000 134,737 Waterford 3 Funding Corp., 8.09%, 2017 ...... 332,449 338,586 -------------- $ 2,324,133 -------------- TOTAL BONDS (IDENTIFIED COST, $71,274,772) ........... $ 69,166,555 -------------- SHORT-TERM OBLIGATIONS - 0.5% New Center Asset Trust, 5.28%, due 7/03/06, at Amortized Cost and Value (y) ............................... $ 890,000 $ 889,739 -------------- TOTAL INVESTMENTS (IDENTIFIED COST, $169,905,551) (k) ................ $ 178,704,352 -------------- OTHER ASSETS, LESS LIABILITIES - 0.9% ................................ 1,648,296 -------------- NET ASSETS - 100.0% .................................. $ 180,352,648 ============== PORTFOLIO FOOTNOTES: (a) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate values and percentages of net assets of these securities were as follows for each variable account: Global Governments Variable Account ................. $ 508,781 5.3% High Yield Variable Account ......................... $11,052,607 19.3% Total Return Variable Account ....................... $ 3,776,702 2.1% (f) All or a portion of the security has been segregated as collateral for an open futures contract. (g) The rate shown represents a weighted average coupon rate on settled positions at period end. (i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. (k) As of June 30, 2006, the Global Governments Variable Account held securities fair valued in accordance with the policies adopted by the Board of Managers, aggregating $7,811,290 and 81.62% of market value. An independent pricing service provided an evaluated bid for 80.43% of the market value. (k) As of June 30, 2006, the Government Securities Variable Account held securities fair valued in accordance with the policies adopted by the Board of Managers, aggregating $82,897,485 and 99.24% of market value. All of these security values were provided by an independent pricing service using an evaluated bid. (k) As of June 30, 2006, the High Yield Variable Account held securities fair valued in accordance with the policies adopted by the Board of Managers, aggregating $52,348,372 and 92.87% of market value. All of these security values were provided by an independent pricing service using an evaluated bid. (k) As of June 30, 2006, the Total Return Variable Account held securities fair valued in accordance with the policies adopted by the Board of Managers, aggregating $68,236,936 and 38.18% of market value. An independent pricing service provided an evaluated bid for 38.10% of the market value. (n) Non-income producing security. (o) All or a portion of this position has not settled. Upon settlement date, interest rates will be determined. (p) Payment-in-kind security. (r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium. (t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act of 1933. (y) The rate shown represents an annualized yield at time of purchase. The following abbreviations are used in the Portfolio of Investments and are defined: ADR American Depository Receipt CDO Collateralized Debt Obligation FRN Floating Rate Note. The interest rate is the rate in effect as of period end. GDR Global Depository Receipt IEU International Equity Unit REIT Real Estate Investment Trust STRIPS Separate Trading of Registered Interest and Principal of Securities TIPS Treasury Inflation Protected Security 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 JPY Japanese Yen BRL Brazilian Real KRW Korean Won CAD Canadian Dollar MXN Mexican Peso CHF Swiss Franc MYR Malaysian Ringgit CLP Chilian Peso NOK Norwegian Krone DKK Danish Krone NZD New Zealand Dollar EUR Euro SEK Swedish Krona GBP British Pound SGD Singapore Dollar IDR Indonesia Rupiah TRY Turkish Lira See notes to financial statements. STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2006 (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 -------- -------- -------- -------- -------- -------- Assets: Investments -- Investments, cost .................... $222,328 $ 9,602 $ 85,836 $ 57,594 $ 54,516 $169,906 Unrealized appreciation (depreciation) 559 (32) (2,303) (1,228) -- 8,798 -------- -------- -------- -------- -------- -------- Total investments, at value ........ $222,887 $ 9,570 $ 83,533 $ 56,366 $ 54,516 $178,704 Cash ................................... -- 2 -- 398 0* 4 Receivable for forward foreign currency exchange contracts ................... -- 31 -- -- -- -- Receivable for forward currency exchange contracts subject to master netting agreements ........................... -- 27 -- -- -- -- Receivable for investments sold ........ 4,421 181 -- 1,109 -- 1,331 Receivable for units sold .............. 41 -- 19 1 95 9 Interest and dividends receivable ...... 144 104 899 1,040 38 888 Receivable from Investment Adviser ..... -- 6 -- -- -- -- Receivable from sponsor ................ 2 -- 8 -- 1 6 Other assets ........................... 5 -- 2 1 2 4 -------- -------- -------- -------- -------- -------- Total assets ....................... $227,500 $ 9,921 $ 84,461 $ 58,915 $ 54,652 $180,946 ======== ======== ======== ======== ======== ======== Liabilities: Payable to custodian ................... $ 59 $ 47 $ 22 $-- $-- $-- Payable for forward foreign currency exchange contracts ................... -- 146 -- 6 -- -- Payable for daily variation margin on open futures contracts ............... -- -- 22 -- -- -- Payable for investments purchased ...... 1,368 142 -- 1,603 -- 427 Payable for units surrendered .......... 172 2 312 69 23 97 Payable to affiliates -- Investment Adviser ................... 5 -- 1 1 1 4 Administrative services fee .......... 0* 0* 0* 0* 0* 0* Sponsor .............................. -- 0* -- 1 -- -- Accrued expenses and other liabilities . 65 52 42 52 29 65 -------- -------- -------- -------- -------- -------- Total liabilities .................. $ 1,669 $ 389 $ 399 $ 1,732 $ 53 $ 593 -------- -------- -------- -------- -------- -------- Net assets ....................... $225,831 $ 9,532 $ 84,062 $ 57,183 $ 54,599 $180,353 ======== ======== ======== ======== ======== ======== * Amount less than $500. See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2006 -- continued (000 Omitted except for unit values)
Capital Global Government High Money Total Appreciation Governments 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 ................................. 2,704 $53.799 $145,369 Compass 3 ................................. 177 35.422 6,263 Compass 3 - Level 2 ....................... 4,816 14.777 71,167 Global Governments Variable Account -- Compass 2 ................................. 102 $25.310 $2,581 Compass 3 ................................. 20 24.624 489 Compass 3 - Level 2 ....................... 442 14.476 6,403 Government Securities Variable Account -- Compass 2 ................................. 1,702 $37.158 $63,250 Compass 3 ................................. 50 25.918 1,284 Compass 3 - Level 2 ....................... 1,189 15.212 18,085 High Yield Variable Account -- Compass 2 ................................. 1,191 $37.412 $44,540 Compass 3 ................................. 38 27.449 1,044 Compass 3 - Level 2 ....................... 717 14.724 10,551 Money Market Variable Account -- Compass 2 ................................. 1,043 $20.618 $21,513 Compass 3 ................................. 163 16.864 2,747 Compass 3 - Level 2 ....................... 2,345 12.670 29,715 Total Return Variable Account -- Compass 2 ................................. 1,245 $46.986 $ 58,495 Compass 3 ................................. 175 45.715 8,012 Compass 3 - Level 2 ....................... 5,059 22.151 $112,068 -------- ------ ------- ------- ------- -------- Net assets applicable to owners of deferred contracts ......... 222,799 9,473 82,619 56,135 53,975 178,575 Reserve for variable annuities -- Compass 2 Contracts ....................................... 2,742 20 1,404 1,001 495 1,197 Compass 3 Contracts ....................................... 1 37 -- 1 7 42 Compass 3 - Level 2 Contracts ............................. 289 2 39 46 122 539 -------- ------ ------- ------- ------- -------- Net assets .............................................. $225,831 $9,532 $84,062 $57,183 $54,599 $180,353 ======== ====== ======= ======= ======= ======== See notes to financial statements.
STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2006 (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 ............................. $ 139 $ 189 $ 2,298 $ 2,460 $ 1,284 $ 1,983 Dividends ............................ 1,050 -- -- 24 -- 1,210 -------- -------- -------- -------- -------- -------- Total investment income ............ $ 1,189 $ 189 $ 2,298 $ 2,484 $ 1,284 $ 3,193 -------- -------- -------- -------- -------- -------- Expenses -- Mortality and expense risk charges ... $ 1,554 $ 60 $ 556 $ 396 $ 339 $ 1,160 Management fee ....................... 923 36 242 235 135 704 Board of Managers fees ............... 12 1 4 3 3 9 Distribution risk fee ............... 6 0* 1 1 2 6 Administrative services fee .......... 25 2 9 6 5 19 Custodian fee ........................ 37 31 22 39 10 53 Printing ............................. 11 1 5 5 7 7 Auditing fees ........................ 16 21 19 21 10 23 Legal fees ........................... 3 0* 1 1 1 2 Miscellaneous ........................ 13 1 5 43 10 -------- -------- -------- -------- -------- -------- Total expenses ..................... $ 2,600 $ 153 $ 864 $ 711 $ 515 $ 1,993 Fees paid indirectly ................. (2) (0)* (3) (2) (0)* (2) Reduction of expenses by Investment Adviser ............................. -- (32) -- (23) -- -- -------- -------- -------- -------- -------- -------- Net expenses ....................... $ 2,598 $ 121 $ 861 $ 686 $ 515 $ 1,991 -------- -------- -------- -------- -------- -------- Net investment income (loss) ....... $ (1,409) $ 68 $ 1,437 $ 1,798 $ 769 $ 1,202 -------- -------- -------- -------- -------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) (identified cost basis) -- Investment transactions .............. $ 2,091 $ (153) $ (236) $ (867) $-- $ 4,475 Futures contracts .................... -- 4 165 -- -- -- Foreign currency transactions ........ (1) 176 -- (43) -- (0)* -------- -------- -------- -------- -------- -------- Net realized gain (loss) on investments and foreign currency transactions ..................... $ 2,090 $ 27 $ (71) $ (910) $-- $ 4,475 -------- -------- -------- -------- -------- -------- Change in unrealized appreciation (depreciation) -- Investments .......................... $ (7,384) $ 194 $ (2,597) $ 126 $-- $ (3,403) Futures contracts .................... -- -- (1) -- -- -- Translation of assets and liabilities in foreign currencies ............... 2 (123) -- 4 -- 1 -------- -------- -------- -------- -------- -------- Net unrealized gain (loss) on investments and foreign currency translation ...................... $ (7,382) $ 71 $ (2,598) $ 130 $-- $ (3,402) -------- -------- -------- -------- -------- -------- Net realized and unrealized gain (loss) on investments and foreign currency ................. $ (5,292) $ 98 $ (2,669) $ (780) $-- $ 1,073 -------- -------- -------- -------- -------- -------- Change in net assets from operations ... $ (6,701) $ 166 $ (1,232) $ 1,018 $ 769 $ 2,275 ======== ======== ======== ======== ======== ======== * 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 ---------------------- ----------------------- ---------------------- Six Months Six Months Six Months Ended Ended Ended June 30, Year Ended June 30, Year Ended June 30, Year Ended 2006 December 31, 2006 December 31, 2006 December 31, (Unaudited) 2005 (Unaudited) 2005 (Unaudited) 2005 --------- --------- --------- --------- --------- --------- Change in net assets: From operations: Net investment income (loss) ................... $ (1,409) $ (2,976) $ 68 $ 117 $ 1,437 $ 3,067 Net realized gain (loss) on investments and foreign currency transactions ............ 2,090 34,399 27 72 (71) (283) Net unrealized gain (loss) on investments and foreign currency translation ............. (7,382) (33,087) 71 (1,228) (2,598) (1,853) --------- --------- --------- --------- --------- --------- Change in net assets from operations ......... $ (6,701) $ (1,664) $ 166 $ (1,039) $ (1,232) $ 931 --------- --------- --------- --------- --------- --------- Participant transactions: Accumulation activity: Purchase payments received ..................... $ 2,450 $ 5,857 $ 169 $ 366 $ 589 $ 2,303 Net transfers between variable and fixed accumulation accounts ........................ (3,111) (294) (83) 977 (416) 821 Withdrawals, surrenders, annuitizations, and contract charges ............................. (25,805) (48,945) (942) (2,169) (7,655) (15,664) --------- --------- --------- --------- --------- --------- Net accumulation activity .................... $ (26,466) $ (43,382) $ (856) $ (826) $ (7,482) $ (12,540) --------- --------- --------- --------- --------- --------- Annuitization activity: Annuitizations ................................... $ 266 $ 167 $ 0* $ 3 $ 208 $ 151 Annuity payments and contract charges ............ (220) (425) (4) (6) (105) (249) Net transfers among accounts for annuity reserves -- (14) -- -- -- 5 Adjustments to annuity reserves .................. (5) 53 0* 0* 1 15 --------- --------- --------- --------- --------- --------- Net annuitization activity ..................... $ 41 $ (219) $ (4) $ (3) $ 104 $ (78) --------- --------- --------- --------- --------- --------- Change in net assets from participant transactions $ (26,425) $ (43,601) $ (860) $ (829) $ (7,378) $ (12,618) --------- --------- --------- --------- --------- --------- Total change in net assets ..................... $ (33,126) $ (45,265) $ (694) $ (1,868) $ (8,610) $ (11,687) Net assets: At beginning of period ........................... 258,957 304,222 10,226 12,094 92,672 104,359 --------- --------- --------- --------- --------- --------- At end of period ................................. $ 225,831 $ 258,957 $ 9,532 $ 10,226 $ 84,062 $ 92,672 ========= ========= ========= ========= ========= ========= * 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 ---------------------- ----------------------- ---------------------- Six Months Six Months Six Months Ended Ended Ended June 30, Year Ended June 30, Year Ended June 30, Year Ended 2006 December 31, 2006 December 31, 2006 December 31, (Unaudited) 2005 (Unaudited) 2005 (Unaudited) 2005 --------- --------- --------- --------- --------- --------- Change in net assets: From operations: Net investment income .......................... $ 1,798 $ 3,901 $ 769 $ 797 $ 1,202 $ 2,320 Net realized gain (loss) on investments and foreign currency transactions ............ (910) 139 -- 0* 4,475 10,302 Net unrealized gain (loss) on investments and foreign currency translation ............. 130 (3,665) -- -- (3,402) (9,613) --------- --------- --------- --------- --------- --------- Change in net assets from operations ......... $ 1,018 $ 375 $ 769 $ 797 $ 2,275 $ 3,009 --------- --------- --------- --------- --------- --------- Participant transactions: Accumulation activity: Purchase payments received ..................... $ 454 $ 1,227 $ 783 $ 1,798 $ 2,489 $ 5,339 Net transfers between variable and fixed accumulation accounts ........................ (3,746) (42) 2,476 35,078 1,329 14,789 Withdrawals, surrenders, annuitizations, and contract charges ............................. (5,152) (12,450) (6,400) (30,896) (19,649) (35,779) --------- --------- --------- --------- --------- --------- Net accumulation activity .................... $ (8,444) $ (11,265) $ (3,141) $ 5,980 $ (15,831) $ (15,651) --------- --------- --------- --------- --------- --------- Annuitization activity: Annuitizations ................................... $ 52 $ 21 $ 37 $ 57 $ 18 $ 125 Annuity payments and contract charges ............ (93) (169) (92) (156) (205) (426) Net transfers among accounts for annuity reserves -- -- -- 156 -- 5 Adjustments to annuity reserves .................. (6) (74) 3 12 -- (44) --------- --------- --------- --------- --------- --------- Net annuitization activity ..................... $ (47) $ (222) $ (52) $ 69 $ (187) $ (340) --------- --------- --------- --------- --------- --------- Change in net assets from participant transactions ................................... $ (8,491) $ (11,487) $ (3,193) $ 6,049 $ (16,018) $ (15,991) --------- --------- --------- --------- --------- --------- Total change in net assets ..................... $ (7,473) $ (11,112) $ (2,424) $ 6,846 $ (13,743) $ (12,982) Net assets: At beginning of period ........................... 64,656 75,768 57,023 50,177 194,096 207,078 --------- --------- --------- --------- --------- --------- At end of period ................................. $ 57,183 $ 64,656 $ 54,599 $ 57,023 $ 180,353 $ 194,096 ========= ========= ========= ========= ========= ========= * Amount less than $500. See notes to financial statements.
FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period.
Capital Appreciation Variable Account -------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446 $ 80.578 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.274 $ 0.580 $ 0.744 $ 0.402 $ 0.369 $ 0.598 Expenses .......................... (0.600) (1.179) (1.109) (0.951) (1.002) (1.401) --------- --------- --------- --------- --------- --------- Net investment loss ........... $ (0.326) $ (0.599) $ (0.365) $ (0.549) $ (0.633) $ (0.803) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (1.321) 0.420 5.176 11.504 (18.954) (20.329) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (1.647) $ (0.179) $ 4.811 $ 10.955 $ (19.587) $ (21.132) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 53.799 $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... (2.97)(n) (0.32) 9.47(b) 27.48(j) (32.95) (26.22) Ratios (%) (to average net assets): Expenses (f) ...................... 2.15(a) 2.16 2.14 2.12 2.12 0.79(m) Net investment loss ............... (1.12)(a) (1.08) (0.70) (1.20) (1.36) (1.19)(m) Portfolio turnover (%) .............. 36 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) ........... 2,704 3,018 3,544 4,040 4,521 5,340 Capital Appreciation Variable Account -------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period .............. $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314 $ 53.342 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.173 $ 0.370 $ 0.458 $ 0.260 $ 0.240 $ 0.417 Expenses .......................... (0.403) (0.795) (0.753) (0.648) (0.688) (1.025) --------- --------- --------- --------- --------- --------- Net investment loss ........... $ (0.230) $ (0.425) $ (0.295) $ (0.388) $ (0.448) $ (0.608) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.872) 0.271 3.434 7.593 (12.532) (13.420) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (1.102) $ (0.154) $ 3.139 $ 7.205 $ (12.980) $ (14.028) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 35.422 $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... (3.02)(n) (0.42) 9.36(b) 27.36(j) (33.02) (26.30) Ratios (%) (to average net assets): Expenses (f) ...................... 2.25(a) 2.26 2.24 2.22 2.22 0.79(m) Net investment loss ............... (1.36)(a) (1.20) (0.87) (1.31) (1.42) (1.19)(m) Portfolio turnover (%) .............. 36 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) ........... 177 237 413 621 812 999
FINANCIAL HIGHLIGHTS -- continued
Capital Appreciation Variable Account -------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292 $ 22.072 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.074 $ 0.158 $ 0.205 $ 0.109 $ 0.100 $ 0.154 Expenses .......................... (0.160) (0.316) (0.297) (0.254) (0.260) (0.357) --------- --------- --------- --------- --------- --------- Net investment loss ........... $ (0.086) $ (0.158) $ (0.092) $ (0.145) $ (0.160) $ (0.203) Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.363) 0.117 1.419 3.156 (5.203) (5.577) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (0.449) $ (0.041) $ 1.327 $ 3.011 $ (5.363) $ (5.780) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 14.777 $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... (2.95)(n) (0.27) 9.52(b) 27.55(j) (32.92) (26.19) Ratios (%) (to average net assets): Expenses (f) ...................... 2.10(a) 2.11 2.09 2.07 2.07 0.79(m) Net investment loss ............... (1.19)(a) (1.05) (0.65) (1.17) (1.32) (1.19)(m) Portfolio turnover (%) .............. 36 130 65 104 80 123 Number of units outstanding at end of period (000 Omitted) ........... 4,816 5,248 5,798 6,086 6,148 6,705 (a) Annualized. (b) The accounts' net asset value and total return calculation include a non-recurring accrual recorded as a result of an administrative 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, respectively, based on units outstanding on the day the proceeds were recorded. (d) Per unit data are based on average number of units outstanding during each year. (f) Ratios do not reflect reductions from fees paid indirectly. (j) The accounts' net asset value and total return calculation includes 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 proceedsresulted 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 asset 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. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. (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 table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period.
Global Governments Variable Account -------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period .............. $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653 $ 19.378 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.401 $ 0.925 $ 0.872 $ 0.877 $ 0.861 $ 0.946 Expenses .......................... (0.258) (0.651) (0.633) (0.584) (0.486) (0.500) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.143 $ 0.274 $ 0.239 $ 0.293 $ 0.375 $ 0.446 Net realized and unrealized gain (loss) on investments and foreign currency transactions ... 0.302 (2.649) 1.832 2.751 3.097 (1.171) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.445 $ (2.375) $ 2.071 $ 3.044 $ 3.472 $ (0.725) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 25.310 $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r) ........... 1.79(n) (8.72) 8.23 13.76 18.61 (3.74) Ratios (%) (to average net assets): Expenses before expense reductions (f) ................... 3.17(a) 2.95 2.67 2.47 2.44 1.39(m) Expenses after expense reductions (f) ................... 2.50(a) 2.50 2.50 2.47 2.50(e) 1.28(m) Net investment income ............. 1.39(a) 1.04 0.94 1.23 1.73 2.23(m) Portfolio turnover (%) .............. 48 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) ....... 102 116 128 161 160 134 Global Governments Variable Account -------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269 $ 19.007 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.463 $ 0.949 $ 0.883 $ 0.869 $ 0.846 $ 1.063 Expenses .......................... (0.258) (0.688) (0.662) (0.600) (0.511) (0.579) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.205 $ 0.261 $ 0.221 $ 0.269 $ 0.335 $ 0.484 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... 0.210 (2.613) 1.762 2.671 3.034 (1.222) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.415 $ (2.352) $ 1.983 $ 2.940 $ 3.369 $ (0.738) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 24.624 $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r) ........... 1.71(n) (8.85) 8.07 13.59 18.44 (3.88) Ratios (%) (to average net assets): Expenses before expense reductions (f) .................. 3.32(a) 3.10 2.82 2.62 2.56 1.39(m) Expenses after expense reductions (f) .................. 2.65(a) 2.65 2.65 2.62 2.65(e) 1.28(m) Net investment income ............. 1.32(a) 0.97 0.85 1.15 1.77 2.23(m) Portfolio turnover (%) .............. 48 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) ....... 20 26 28 41 58 68
FINANCIAL HIGHLIGHTS -- continued
Global Governments Variable Account -------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 ------------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period .............. $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669 $ 11.083 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.262 $ 0.526 $ 0.497 $ 0.494 $ 0.499 $ 0.520 Expenses .......................... (0.169) (0.371) (0.361) (0.331) (0.281) (0.274) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.093 $ 0.155 $ 0.136 $ 0.163 $ 0.218 $ 0.246 Net realized and unrealized gain (loss) on investments and foreign currency transactions ... 0.162 (1.514) 1.048 1.578 1.768 (0.660) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.255 $ (1.359) $ 1.184 $ 1.741 $ 1.986 $ (0.414) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 14.476 $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r) ........... 1.79(n) (8.72) 8.23 13.76 18.61 (3.74) Ratios (%) (to average net assets): Expenses before expense reductions (f) ................... 3.17(a) 2.95 2.67 2.47 2.42 1.40(m) Expenses after expense reductions (f) ................... 2.50(a) 2.50 2.50 2.47 2.50(e) 1.28(m) Net investment income ............. 1.39(a) 1.04 0.94 1.21 1.70 2.23(m) Portfolio turnover (%) .............. 48 144 128 130 126 72 Number of units outstanding at end of period (000 Omitted) ........... 442 468 500 559 568 574 (a) Annualized. (d) Per unit data are based on the average number of units outstanding during each year. (e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense reimbursement agreement. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. (r) Certain expenses have been reduced without which performance would have been lower. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period.
Government Securities Variable Account ------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448 $ 31.520 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.993 $ 1.936 $ 1.834 $ 1.482 $ 1.862 $ 2.183 Expenses .......................... (0.373) (0.752) (0.726) (0.711) (0.677) (0.661) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.620 $ 1.184 $ 1.108 $ 0.771 $ 1.185 $ 1.522 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (1.141) (0.843) (0.240) (0.425) 1.491 0.406 --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (0.521) $ 0.341 $ 0.868 $ 0.346 $ 2.676 $ 1.928 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 37.158 $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. (1.38)(n) 0.91 2.38 0.96 8.00 6.12 Ratios (%) (to average net assets): Expenses (f) ...................... 2.00(a) 2.01 1.97 1.95 1.94 0.66(m) Net investment income ............. 3.27(a) 3.09 2.96 2.08 3.19 4.42(m) Portfolio turnover (%) .............. 13 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) ....... 1,702 1,852 2,125 2,447 2,759 3,043 Government Securities Variable Account -------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434 $ 22.105 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.657 $ 1.316 $ 1.244 $ 1.045 $ 1.300 $ 1.590 Expenses .......................... (0.263) (0.543) (0.525) (0.514) (0.495) (0.510) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.394 $ 0.773 $ 0.719 $ 0.531 $ 0.805 $ 1.080 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.771) (0.560) (0.138) (0.314) 1.045 0.249 --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (0.377) $ 0.213 $ 0.581 $ 0.217 $ 1.850 $ 1.329 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 25.918 $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. (1.43)(n) 0.82 2.28 0.86 7.89 6.01 Ratios (%) (to average net assets): Expenses (f) ...................... 2.10(a) 2.11 2.07 2.05 2.04 0.66(m) Net investment income ............. 3.13(a) 2.96 2.82 2.08 3.36 4.42(m) Portfolio turnover (%) .............. 13 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) ...... 50 69 100 147 205 254
FINANCIAL HIGHLIGHTS -- continued
Government Securities Variable Account ------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663 $ 12.868 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.400 $ 0.781 $ 0.742 $ 0.597 $ 0.732 $ 0.826 Expenses .......................... (0.148) (0.299) (0.289) (0.282) (0.267) (0.248) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.252 $ 0.482 $ 0.453 $ 0.315 $ 0.465 $ 0.578 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.461) (0.335) (0.091) (0.166) 0.635 0.217 --------- --------- --------- --------- --------- --------- Change in unit value .............. $ (0.209) $ 0.147 $ 0.362 $ 0.149 $ 1.100 $ 0.795 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 15.212 $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. (1.36)(n) 0.96 2.43 1.01 8.05 6.17 Ratios (%) (to average net assets): Expenses (f) ...................... 1.95(a) 1.96 1.92 1.90 1.89 0.66(m) Net investment income ............. 3.30(a) 3.12 2.99 2.10 3.17 4.42(m) Portfolio turnover (%) .............. 13 69 89 138 139 89 Number of units outstanding at end of period (000 Omitted) ....... 1,189 1,280 1,377 1,562 1,692 1,617 (a) Annualized. (d) Per unit data are based on the average number of units outstanding during each year. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period.
High Yield Variable Account -------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period .............. $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969 $ 29.882 --------- --------- --------- --------- --------- --------- Investment income ................. $ 1.513 $ 2.959 $ 2.857 $ 2.769 $ 3.015 $ 3.684 Expenses .......................... (0.418) (0.820) (0.770) (0.689) (0.617) (0.699) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 1.095 $ 2.139 $ 2.087 $ 2.080 $ 2.398 $ 2.985 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.523) (1.968) 0.526 3.471 (2.862) (3.898) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.572 $ 0.171 $ 2.613 $ 5.551 $ (0.464) $ (0.913) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 37.412 $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r)(s) ........ 1.55(n) 0.47 7.67 19.47 (1.60) (3.05) Ratios (%) (to average net assets): Expenses before expense reductions (f) .................. 2.31(a) 2.28(o) 2.21 2.20 2.18 0.90(m) Expenses after expense reductions (f) .................. 2.23(a) 2.25 -- -- -- -- Net investment income ............. 5.74(a) 5.76 5.91 6.53 7.84 9.16(m) Portfolio turnover (%) .............. 45 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) ........... 1,191 1,323 1,601 1,827 2,069 2,328 High Yield Variable Account ------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349 $ 22.043 --------- --------- --------- --------- --------- --------- Investment income ................. $ 1.062 $ 2.118 $ 2.021 $ 1.964 $ 2.141 $ 3.188 Expenses .......................... (0.311) (0.620) (0.576) (0.514) (0.469) (0.643) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.751 $ 1.498 $ 1.445 $ 1.450 $ 1.672 $ 2.545 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.345) (1.398) 0.450 2.612 (2.035) (3.239) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.406 $ 0.100 $ 1.895 $ 4.062 $ (0.363) $ (0.694) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 27.449 $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r)(s) ........ 1.50(n) 0.37 7.57 19.35 (1.70) (3.15) Ratios (%) (to average net assets): Expenses before expense reductions (f) .................. 2.41(a) 2.38(o) 2.31 2.30 2.28 0.90(m) Expenses after expense reductions (f) .................. 2.33(a) 2.35 -- -- -- -- Net investment income ............. 5.60(a) 5.64 5.75 6.41 8.45 9.16(m) Portfolio turnover (%) .............. 45 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) ........... 38 47 67 115 178 231
FINANCIAL HIGHLIGHTS -- continued High Yield Variable Account -------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376 $ 11.728 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.584 $ 1.142 $ 1.019 $ 1.161 $ 1.220 $ 0.784 Expenses .......................... (0.160) (0.312) (0.275) (0.286) (0.257) (0.151) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.424 $ 0.830 $ 0.744 $ 0.875 $ 0.963 $ 0.633 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.195) (0.756) 0.291 1.312 (1.140) (0.985) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.229 $ 0.074 $ 1.035 $ 2.187 $ (0.177) $ (0.352) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 14.724 $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(r)(s) ........ 1.58(n) 0.52 7.73 19.53 (1.55) (3.01) Ratios (%) (to average net assets): Expenses before expense reductions (f) .................. 2.26(a) 2.23(o) 2.16 2.15 2.13 0.90(m) Expenses after expense reductions (f) .................. 2.18(a) 2.20 -- -- -- -- Net investment income ............. 5.76(a) 5.81 5.77 6.57 6.08 9.16(m) Portfolio turnover (%) .............. 45 53 81 164 172 103 Number of units outstanding at end of period (000 Omitted) ........... 717 937 971 2,631 2,684 1,131 (a) Annualized. (d) Per unit data are based on the average number of units outstanding during each year. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. (o) Due to a revision, the ratios of expenses before expense reductions for the year ended December 31, 2005 not previously reported, were 2.28%, 2.38% and 2.23% for Compass 2, Compass 3 and Compass 3 - Level 2, respectively. There was no impact to net assets or the expenses charged to the shareholder. (r) Certain expenses have been reduced without which performance would have been lower. (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 table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period. Money Market Variable Account ------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341 $ 19.862 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.486 $ 0.661 $ 0.281 $ 0.247 $ 0.382 $ 0.950 Expenses .......................... (0.199) (0.403) (0.396) (0.381) (0.401) (0.471) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.287 $ 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 .............. $ 0.287 $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 20.618 $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. 1.41(n) 1.29 (0.57) (0.66) (0.09) 2.41 Ratios (%) (to average net assets): Expenses (f) ...................... 1.94(a) 1.99 1.96 1.87 1.96 0.65(m) Net investment income (loss) ...... 2.85(a) 1.38 (0.56) (0.63) (0.12) 2.51(m) Number of units outstanding at end of period (000 Omitted) ..... 1,043 1,128 1,009 1,172 1,626 1,986
Money Market Variable Account --------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712 $ 16.334 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.393 $ 0.539 $ 0.229 $ 0.198 $ 0.318 $ 0.784 Expenses .......................... (0.167) (0.344) (0.339) (0.325) (0.350) (0.406) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.226 $ 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 .............. $ 0.226 $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 16.864 $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. 1.36(n) 1.19 (0.67) (0.76) (0.19) 2.31 Ratios (%) (to average net assets): Expenses (f) ...................... 2.04(a) 2.09 2.06 1.97 2.06 0.65(m) Net investment income (loss) ...... 2.71(a) 1.42 (0.71) (0.74) (0.14) 2.51(m) Number of units outstanding at end of period (000 Omitted) ..... 163 218 97 155 186 222
FINANCIAL HIGHLIGHTS -- continued Money Market Variable Account -------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472 $ 12.172 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.297 $ 0.405 $ 0.181 $ 0.131 $ 0.223 $ 0.710 Expenses .......................... (0.118) (0.240) (0.245) (0.207) (0.229) (0.410) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.179 $ 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 .............. $ 0.179 $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300 --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 12.670 $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472 ========= ========= ========= ========= ========= ========= Total Return (%) (k) .............. 1.43(n) 1.34 (0.52) (0.61) (0.04) 2.46 Ratios (%) (to average net assets): Expenses (f) ...................... 1.89(a) 1.94 1.91 1.82 1.91 0.65(m) Net investment income (loss) ...... 2.87(a) 1.39 (0.48) (0.61) (0.01) 2.51(m) Number of units outstanding at end of period (000 Omitted) ........... 2,345 2,384 2,259 896 1,113 2,835 (a) Annualized. (d) Per unit data are based on the average number of units outstanding during each year. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. (w) Per unit amount was less than $0.001. See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual period and the past 5 fiscal 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 (assuming reinvestment of all distributions) held for the entire period. Total Return Variable Account -------------------------------------------------------------------------------------- Compass 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562 $ 39.126 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.813 $ 1.521 $ 1.450 $ 1.237 $ 1.407 $ 1.513 Expenses .......................... (0.210) (0.970) (0.905) (0.800) (0.777) (0.830) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.603 $ 0.551 $ 0.545 $ 0.437 $ 0.630 $ 0.683 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.076) 0.179 3.613 5.184 (3.242) (1.247) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.527 $ 0.730 $ 4.158 $ 5.621 $ (2.612) $ (0.564) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 46.986 $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... 1.13(n) 1.60 10.00(b) 15.64 (6.77) (1.44) Ratios (%) (to average net assets): Expenses (f) ...................... 2.13(a) 2.12 2.11 2.10 2.08 0.85(m) Net investment income ............. 2.52(a) 1.18 1.25 1.13 1.43 1.67(m) Portfolio turnover (%) .............. 22 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) ........... 1,245 1,349 1,511 1,688 1,871 2,080 Total Return Variable Account -------------------------------------------------------------------------------------- Compass 3 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771 $ 38.380 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.765 $ 1.450 $ 1.375 $ 1.200 $ 1.360 $ 1.599 Expenses .......................... (0.198) (1.019) (0.929) (0.823) (0.804) (0.939) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.567 $ 0.431 $ 0.446 $ 0.377 $ 0.556 $ 0.660 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.088) 0.213 3.549 5.060 (3.167) (1.269) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.479 $ 0.644 $ 3.995 $ 5.437 $ (2.611) $ (0.609) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 45.715 $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... 1.06(n) 1.45 9.84(b) 15.46 (6.91) (1.59) Ratios (%) (to average net assets): Expenses (f) ...................... 2.28(a) 2.27 2.26 2.25 2.23 0.85(m) Net investment income ............. 2.39(a) 0.97 1.07 1.01 1.61 1.67(m) Portfolio turnover (%) .............. 22 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) ........... 175 217 315 453 634 838
FINANCIAL HIGHLIGHTS -- continued Total Return Variable Account -------------------------------------------------------------------------------------- Compass 3 - Level 2 -------------------------------------------------------------------------------------- Six Months Ended Years Ended December 31, June 30, 2006 ---------------------------------------------------------------------- (Unaudited) 2005 2004 2003 2002 2001 --------- --------- --------- --------- --------- --------- Per unit data: (d) Net asset value -- beginning of period ............. $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180 $ 18.446 --------- --------- --------- --------- --------- --------- Investment income ................. $ 0.379 $ 0.710 $ 0.676 $ 0.575 $ 0.658 $ 0.687 Expenses .......................... (0.098) (0.457) (0.425) (0.376) (0.367) (0.382) --------- --------- --------- --------- --------- --------- Net investment income ......... $ 0.281 $ 0.253 $ 0.251 $ 0.199 $ 0.291 $ 0.305 Net realized and unrealized gain (loss) on investments and foreign currency transactions ........... (0.033) 0.091 1.709 2.451 (1.522) (0.571) --------- --------- --------- --------- --------- --------- Change in unit value .............. $ 0.248 $ 0.344 $ 1.960 $ 2.650 $ (1.231) $ (0.266) --------- --------- --------- --------- --------- --------- Unit value: Net asset value -- end of period .. $ 22.151 $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180 ========= ========= ========= ========= ========= ========= Total Return (%) (k)(s) ........... 1.13(n) 1.60 10.00(b) 15.64 (6.77) (1.44) Ratios (%) (to average net assets): Expenses (f) ...................... 2.13(a) 2.12 2.11 2.10 2.08 0.85(m) Net investment income ............. 3.34(a) 1.17 1.24 1.11 1.55 1.67(m) Portfolio turnover (%) .............. 22 49 64 62 76 104 Number of units outstanding at end of period (000 Omitted) ........... 5,063 5,462 5,646 5,946 6,236 6,537 (a) Annualized. (b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an administrative 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. (d) Per unit data are based on the average number of units outstanding during each year. (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. (m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges. (n) Not annualized. (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 (Unaudited) (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. Each money market fund's use of amortized cost is subject to the fund's compliance with Rule 2a-7 under 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 reported that day, equity securities are generally valued at the last quoted daily bid quotation 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 or composite bid 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 397 days or less are generally valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as reported by an independent pricing service on the exchange on which they are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation 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 at broker-dealer bid quotation. 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 last posted settlement price as reported by an independent pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as reported by an independent pricing service on the market on which they are primarily traded. Forward foreign currency contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates reported by an independent pricing service for proximate time periods. Securities and other assets generally valued on the basis of information from an independent pricing service may also be valued at a broker-dealer bid quotation. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates reported by an independent pricing service. The Board of Managers has delegated primary responsibility for determining or causing to be determined the value of the variable accounts' investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Managers. Under the variable accounts' valuation policies and procedures, market quotations are not considered to be readily available for many types of debt instruments. These investments are generally valued at fair value based on information from independent pricing services. The adviser may rely on independent pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the variable accounts' net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of investments used to determine the variable accounts' net asset value may differ from quoted or published prices for the same investments. In addition, investments may be valued at fair value if the adviser determines that an investment's value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the variable accounts' net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the variable accounts' net asset value may be deemed to have a material affect on the value of securities traded in foreign markets. Accordingly, the variable accounts' foreign equity securities may often be valued at fair value. 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 account 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 accounts 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 forward currency exchange contracts and futures contracts for the Global Governments Variable Account, futures contracts for the Government Securities Variable Account, and forward 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 account each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses by the variable 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. Loans and Other Direct Debt Instruments - Certain variable accounts may invest in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which obligate the variable account to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary. Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. 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. For all other variable accounts, all premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted principles; and all discount is accreted for tax reporting purposes as required by federal income tax regulations. Certain variable accounts earn certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, consent fees, and prepayment fees. These fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the variable account is informed of the dividend if such information is obtained subsequent to 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. 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 accounts. This amount, for the six months ended June 30, 2006 is shown as a reduction of total expenses on the Statement of Operations. 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 variable account's average daily net assets:
Annual Rate of Management Fee Annual Rate of Based on Average Management Fee Daily Net Assets Based on Average Effective Not Exceeding $300 Daily Net Assets Management 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 ...................... 0.75%(a) 0.675%(a) 0.675% 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 investment adviser has agreed in writing to reduce its management fee to 0.675% of average daily net assets until August 31, 2006. This management fee reduction amounted to $23,484 which is shown as a reduction of total expenses in the Statement of Operations. (b) Money Market Variable Account: The investment adviser has agreed in writing to reduce its management fee to 0.45% of average daily net assets in excess of $500 million, which may be rescinded or changed with the Board of Managers approval. For the six months ended June 30, 2006, the variable account's average daily net assets did not exceed $500 million, and therefore, the management fee was not reduced. The Investment Adviser has agreed in writing to pay each 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 six months ended June 30, 2006 each variable accounts' actual operating expenses, (except for the Global Governments Variable Account), did not exceed the limit and therefore, the investment adviser did not pay any portion of the variable accounts' expenses. For the six months ended June 30, 2006 the reduction of the Global Governments Variable Account amounted to $32,370 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 funds for which MFS acts as investment adviser. Under an administrative services agreement, the funds may partially reimburse MFS the costs incurred to provide these services, subject to review and approval by the Board of Managers. Prior to June 1, 2006, each fund was allocated a portion of these administrative costs based on its size and relative average net assets. Effective June 1, 2006, each fund is charged an annual fixed amount of $10,000 plus a fee based on calendar year average net assets. The administrative services fee incurred for the six months ended June 30, 2006 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 ......... 0.0203% 0.0321% 0.0202% 0.0200% 0.0201% 0.0203% ====== ====== ====== ====== ====== ======
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, MFD and 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. The funds can terminate the Agreement with Tarantino LLC at any time under the terms of the Agreement. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO. For the six months ended June 30, 2006 the fees paid to Tarantino LLC was the following: Capital Appreciation Variable Account .......................... $601 Global Governments Variable Account ............................ 23 Government Securities Variable Account ......................... 212 High Yield Variable Account .................................... 151 Money Market Variable Account .................................. 130 Total Return Variable Account .................................. 452 (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 ....... $85,325,378 $115,400,221 Global Governments Variable Account ......... 2,516,288 3,858,239 Government Securities Variable Account ...... 4,450 398,775 High Yield Variable Account ................. 26,745,345 31,385,736 Total Return Variable Account ............... 30,773,120 40,416,693 Purchases and sales of Money Market Variable Account, exclusive of securities subject to repurchase agreements, aggregated $361,585,000 and $364,248,000, respectively. Purchases and sales of U.S. Government Securities, other than purchased option transactions and short-term obligations, were as follows: Purchases Sales --------------------------------------------------------------------------- Global Governments Variable Account ......... $ 1,365,263 $ 1,075,642 Government Securities Variable Account ...... 10,880,299 15,700,546 Total Return Variable Account ............... 10,808,724 17,085,220 (7) PARTICIPANT TRANSACTIONS The changes in net assets from changes in numbers of outstanding units were as follows:
Six Months Ended June 30, 2006 (000 Omitted) ---------------------------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuiti- Net Payments Accumulation and Contract Accumulation zation Increase Received Account Charges Activity Activity (Decrease) ------------- --------------- ---------------- ---------------- -------- -------- Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars ----- ------- ----- ------- ---- -------- ---- -------- -------- -------- Capital Appreciation Variable Account Compass 2 Contracts . 15 $ 869 (40) $(2,274) (289) $(16,208) (314) $(17,613) $ 58 $(17,555) Compass 3 Contracts . 12 434 (53) (1,965) (19) (716) (60) (2,247) (1) (2,248) Compass 3 - Level 2 Contracts ........ 75 1,147 69 1,128 (576) (8,881) (432) (6,606) (16) (6,622) ------- -------- -------- -------- -------- -------- $ 2,450 $ (3,111) $(25,805) $(26,466) $ 41 $(26,425) ======= ======== ======== ======== ======== ======== Global Governments Variable Account Compass 2 Contracts . 1 $ 22 0* $ 17 (15) $ (380) (14) $ (341) $ 2 $ (339) Compass 3 Contracts . 3 76 (7) (166) (3) (65) (6) (155) (1) (156) Compass 3 - Level 2 Contracts ......... 6 71 4 66 (35) (497) (26) (360) (5) (365) ------- -------- -------- -------- -------- -------- $ 169 $ (83) $ (942) $ (856) $ (4) $ (860) ======= ======== ======== ======== ======== ======== Government Securities Variable Account Compass 2 Contracts . 6 $ 231 (14) $ (509) (142) $ (5,300) (150) $ (5,578) $ 108 $ (5,470) Compass 3 Contracts . 5 131 (20) (537) (4) (112) (19) (518) -- (518) Compass 3 - Level 2 Contracts ......... 15 227 41 630 (147) (2,243) (91) (1,386) (4) (1,390) ------- -------- -------- -------- -------- -------- $ 589 $ (416) $ (7,655) $ (7,482) $ 104 $ (7,378) ======= ======== ======== ======== ======== ======== High Yield Variable Account Compass 2 Contracts . 6 $ 203 (32) $(1,209) (106) $ (3,969) (132) $ (4,975) $ (48) $ (5,023) Compass 3 Contracts . 3 96 (9) (241) (3) (93) (9) (238) 0* (238) Compass 3 - Level 2 Contracts ........ 11 155 (157) (2,296) (74) (1,090) (220) (3,231) 1 (3,230) ------- -------- -------- -------- -------- -------- $ 454 $ (3,746) $ (5,152) $ (8,444) $ (47) $ (8,491) ======= ======== ======== ======== ======== ======== Money Market Variable Account Compass 2 Contracts . 6 $ 122 21 $ 430 (112) $ (2,291) (85) $ (1,739) $ (23) $ (1,762) Compass 3 Contracts . 15 247 (55) (912) (15) (260) (55) (925) (9) (934) Compass 3 - Level 2 Contracts ......... 33 414 234 2,958 (306) (3,849) (39) (477) (20) (497) ------- -------- -------- -------- -------- -------- $ 783 $ 2,476 $ (6,400) $ (3,141) $ (52) $ (3,193) ======= ======== ======== ======== ======== ======== Total Return Variable Account Compass 2 Contracts . 6 $ 259 24 $ 1,144 (134) $ (6,338) (104) $ (4,935) $ (93) $ (5,028) Compass 3 Contracts . 14 638 (39) (1,809) (17) (762) (42) (1,933) (4) (1,937) Compass 3 - Level 2 Contracts ......... 71 1,592 89 1,994 (563) (12,549) (403) (8,963) (90) (9,053) ------- -------- -------- -------- -------- -------- $ 2,489 $ 1,329 $(19,649) $(15,831) $ (187) $(16,018) ======= ======== ======== ======== ======== ======== *Amount less than 500.
Year Ended December 31, 2005 (000 Omitted) ---------------------------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuiti- Net Payments Accumulation and Contract Accumulation zation 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) ======= ======== ======== ======== ======== ======== *Amount less than 500.
(8) LINE OF CREDIT The variable accounts and other affiliated funds participate in a $1 billion unsecured committed line of credit provided by a syndication of banks under a credit agreement. In addition, the variable accounts and other affiliated funds have established uncommitted borrowing arrangements with certain banks. Borrowings may be made for temporary financing needs. Interest is charged to each fund, 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 committed line of credit, is allocated among the participating funds at the end of each calendar quarter. The commitment fee allocated to each variable account for the six months ended June 30, 2006 is included in miscellaneous expense on the statement of operations and was as follows: Commitment fee ------------------------------------------------------------------------- Capital Appreciation Variable Account .................... $1,387 Global Governments Variable Account ...................... 53 Government Securities Variable Account ................... 485 High Yield Variable Account .............................. 351 Money Market Variable Account ............................ 98 Total Return Variable Account ............................ 1,043 The variable accounts had no significant borrowings during the six months ended June 30, 2006. 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 BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT A discussion regarding the Board's most recent review and renewal of the accounts' Investment Advisory Agreement with MFS will be available on or before November 1, 2006 by clicking on "Sun Life Annuities" in the "Products and Performance" section of the MFS Web site (mfs.com). 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 Web site 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 Web site 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 100 F Street, NE, Room 1580 Washington, D.C. 20549 0102 Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-5850. The accounts' Form N-Q is available on the EDGAR database on the Commission's Internet Web site 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-SEM-6/06 24M ITEM 2. CODE OF ETHICS. The Registrant has not amended any provision in its Code of Ethics (the "Code") that relates to any element of the Code's definition enumerated in paragraph (b) of Item 2 of this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the Registrant. ITEM 6. SCHEDULE OF INVESTMENTS A schedule of investments for each series 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 effectiveness 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 of the period 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. (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. NOTICE A copy of the Amended and Restated Declaration of Trust of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant. 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: August 23, 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: August 23, 2006 --------------- By (Signature and Title)* TRACY ATKINSON ----------------------------------------------------- Tracy Atkinson, Treasurer (Principal Financial Officer and Accounting Officer) Date: August 23, 2006 --------------- * Print name and title of each signing officer under his or her signature.