N-CSRS 1 d676891.txt COMPASS CAPITAL APPRECIATION VARIABLE ACCT. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3561 ------------------------------------------------------------------------------- CAPITAL APPRECIATION VARIABLE ACCOUNT ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 500 Boylston Street, Boston, Massachusetts 02116 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Susan S. Newton Massachusetts Financial Services Company 500 Boylston Street Boston, Massachusetts 02116 ------------------------------------------------------------------------------- (Name and address of agents for service) Registrant's telephone number, including area code: (617) 954-5000 ------------------------------------------------------------------------------- Date of fiscal year end: December 31 ------------------------------------------------------------------------------- Date of reporting period: June 30, 2007 ------------------------------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. COMPASS [Graphic Omitted] PROFESSIONALLY MANAGED COMBINATION FIXED/VARIABLE ANNUITIES FOR PERSONAL INVESTMENTS AND QUALIFIED RETIREMENT PLANS SEMIANNUAL REPORT o JUNE 30, 2007 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 .............................................. 29 Notes to Financial Statements ..................................... 46 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 past year has been a great example of why investors should keep their eyes on the long term. In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it had returned another 8% and continued to reach new highs. But the Dow's upward rise has not been without hiccups. After hitting new records in February, the Dow lost 5.8% between February 20 and March 5, as stocks were sold off around the globe. As we have said before, markets are volatile, and investors should make sure they have an investment plan that can carry them through the peaks and troughs. If you are focused on a long-term investment strategy, the short-term ups and downs of the markets should not necessarily dictate portfolio action on your part. Both the bond and stock markets are cyclical. In our view, investors who remain committed to a long-term plan are more likely to achieve their financial goals. We believe you should not let the headlines guide you in your investment decisions and should be cautious about overreacting to short-term volatility. In any market environment, we believe individual investors are best served by following a three-pronged investment strategy of allocating their holdings across the major asset classes, diversifying within each class, and regularly rebalancing their portfolios to maintain their desired allocations. Of course, these strategies cannot guarantee a profit or protect against a loss. Investing and planning for the long term require 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, 2007 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 96.0% Cash and Other Net Assets 4.0% TOP TEN HOLDINGS General Electric Co. 3.4% ----------------------------------------------- Cisco Systems, Inc. 3.2% ----------------------------------------------- Intel Corp. 3.0% ----------------------------------------------- Oracle Corp. 2.4% ----------------------------------------------- Johnson & Johnson 2.3% ----------------------------------------------- Genzyme Corp. 2.3% ----------------------------------------------- Microsoft Corp. 2.2% ----------------------------------------------- Procter & Gamble Co. 2.1% ----------------------------------------------- Amdocs Ltd. 1.9% ----------------------------------------------- Google, Inc., "A" 1.9% ----------------------------------------------- EQUITY SECTORS Technology 21.5% ----------------------------------------------- Health Care 20.4% ----------------------------------------------- Industrial Goods & Services 10.2% ----------------------------------------------- Retailing 9.3% ----------------------------------------------- Financial Services 7.7% ----------------------------------------------- Consumer Staples 7.0% ----------------------------------------------- Energy 5.6% ----------------------------------------------- Special Products & Services 5.1% ----------------------------------------------- Leisure 4.1% ----------------------------------------------- Transportation 1.9% ----------------------------------------------- Autos & Housing 1.2% ----------------------------------------------- Utilities & Communications 1.1% ----------------------------------------------- Basic Materials 0.9% ----------------------------------------------- Percentages are based on net assets as of 06/30/07. The portfolio is actively managed and current holdings may be different. PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 91.0% Cash and Other Net Assets 9.0% FIXED INCOME SECTORS (i) Non-U.S. Government Bonds 63.9% ----------------------------------------------- U.S. Treasury Securities 9.0% ----------------------------------------------- Commercial Mortgage-Backed Securities 8.4% ----------------------------------------------- U.S. Government Agencies 5.5% ----------------------------------------------- Emerging Markets Bonds 3.1% ----------------------------------------------- Mortgage-Backed Securities 1.1% ----------------------------------------------- CREDIT QUALITY OF BONDS (r) AAA 74.2% ----------------------------------------------- AA 17.9% ----------------------------------------------- A 4.4% ----------------------------------------------- BBB 3.5% ----------------------------------------------- PORTFOLIO FACTS Average Duration (d,i) 5.9 ----------------------------------------------- Average Life (i,m) 8.3 yrs. ----------------------------------------------- Average Maturity (i,m) 10.3 yrs. ----------------------------------------------- Average Credit Quality of Rated Securities (long-term)(a) AA+ ----------------------------------------------- Average Credit Quality of Rated Securities (short-term)(a) A-1 ----------------------------------------------- COUNTRY WEIGHTINGS (i) United States 32.7% ----------------------------------------------- Japan 15.0% ----------------------------------------------- Germany 14.0% ----------------------------------------------- France 5.7% ----------------------------------------------- United Kingdom 5.7% ----------------------------------------------- Canada 5.6% ----------------------------------------------- Spain 4.5% ----------------------------------------------- Austria 3.8% ----------------------------------------------- Ireland 2.5% ----------------------------------------------- Other Countries 10.5% ----------------------------------------------- (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's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. (i) For purposes of this 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 the "AAA"-rating category. Percentages are based on the total market value of investments as of 06/30/07. Percentages are based on net assets as of 06/30/07, unless otherwise noted. The portfolio is actively managed and current holdings may be different. PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 96.7% Cash and Other Net Assets 3.3% FIXED INCOME SECTORS (i) Mortgage-Backed Securities 52.2% ----------------------------------------------- U.S. Government Agencies 24.3% ----------------------------------------------- U.S. Treasury Securities 20.2% ----------------------------------------------- CREDIT QUALITY OF BONDS (r) AAA 100.0% ----------------------------------------------- PORTFOLIO FACTS Average Duration (d,i) 4.5 ----------------------------------------------- Average Life (i,m) 6.3 yrs. ----------------------------------------------- Average Maturity (i,m) 13.9 yrs. ----------------------------------------------- Average Credit Quality of Rated Securities (long-term)(a) AAA ----------------------------------------------- Average Credit Quality of Rated Securities (short-term) (a) 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's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. (i) For purposes of this 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 the "AAA"-rating category. Percentages are based on the total market value of investments as of 06/30/07. Percentages are based on net assets as of 06/30/07, unless otherwise noted. The portfolio is actively managed and current holdings may be different. PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT PORTFOLIO STRUCTURE (i) Bonds 89.2% Floating Rate Loans 8.0% Common Stocks 2.0% Cash and Other Net Assets 0.8% Preferred Stocks(o) 0.0% Equity Warrants(o) 0.0% TOP FIVE INDUSTRIES (i) Medical & Health Technology & Services 8.5% ----------------------------------------------- Automotive 6.6% ----------------------------------------------- Gaming & Lodging 6.3% ----------------------------------------------- Broadcasting 5.3% ----------------------------------------------- Printing & Publishing 4.6% ----------------------------------------------- CREDIT QUALITY OF BONDS (r) AAA 2.2% ----------------------------------------------- BBB 2.4% ----------------------------------------------- BB 26.0% ----------------------------------------------- B 53.1% ----------------------------------------------- CCC 15.4% ----------------------------------------------- Not Rated 0.9% ----------------------------------------------- PORTFOLIO FACTS Average Duration (d,i) 4.4 ----------------------------------------------- Average Life (i,m) 7.8 yrs. ----------------------------------------------- Average Maturity (i,m) 8.2 yrs. ----------------------------------------------- Average Credit Quality of Rated Securities (long-term)(a) B+ ----------------------------------------------- Average Credit Quality of Rated Securities (short-term)(a) 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's price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value. (i) For purposes of this 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. (o) Less than 0.1%. (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 the "AAA"-rating category. Percentages are based on the total market value of investments as of 06/30/07. Percentages are based on net assets as of 06/30/07, 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 95.1% Certificates of Deposit 6.0% Other Assets Less Liabilities (1.1)% 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 49.4% ---------------------------------------------- 30 - 59 days 30.8% ---------------------------------------------- 60 - 89 days 17.9% ---------------------------------------------- 90 - 366 days 3.0% ---------------------------------------------- Other Assets Less Liabilities (1.1)% ---------------------------------------------- (a) The average credit quality 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 06/30/07. (u) For purposes of this presentation, accrued interest, where applicable, is included. From time to time "Other Assets Less Liabilities" may be negative due to timing of cash receipts. Percentages are based on net assets as of 06/30/07, 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 59.6% Bonds 38.9% Cash & Other Net Assets 1.5% TOP TEN HOLDINGS (i) Fannie Mae, 5.5%, 30 years 4.0% ----------------------------------------------- Bank of America Corp. 1.9% ----------------------------------------------- Fannie Mae, 6.0%, 30 years 1.7% ----------------------------------------------- U.S. Treasury Notes, 4.5%, 2009 1.6% ----------------------------------------------- Allstate Corp. 1.4% ----------------------------------------------- Genworth Financial, Inc., "A" 1.3% ----------------------------------------------- Citigroup, Inc. 1.3% ----------------------------------------------- U.S. Treasury Notes, 3.125%, 2008 1.3% ----------------------------------------------- Wyeth 1.2% ----------------------------------------------- Exxon Mobil Corp. 1.2% ----------------------------------------------- EQUITY SECTORS Financial Services 17.6% ----------------------------------------------- Health Care 7.4% ----------------------------------------------- Energy 7.2% ----------------------------------------------- Utilities & Communications 4.9% ----------------------------------------------- Industrial Goods & Services 4.8% ----------------------------------------------- Technology 3.9% ----------------------------------------------- Basic Materials 3.0% ----------------------------------------------- Consumer Staples 3.0% ----------------------------------------------- Retailing 2.6% ----------------------------------------------- Autos & Housing 2.3% ----------------------------------------------- Leisure 2.2% ----------------------------------------------- Transportation 0.5% ----------------------------------------------- Special Products & Services 0.2% ----------------------------------------------- FIXED INCOME SECTORS (i) Mortgage-Backed Securities 14.3% ----------------------------------------------- High Grade Corporates 9.6% ----------------------------------------------- U.S. Treasury Securities 8.2% ----------------------------------------------- Commercial Mortgage-Backed Securities 3.9% ----------------------------------------------- U.S. Government Agencies 1.6% ----------------------------------------------- Asset-Backed Securities 0.6% ----------------------------------------------- Emerging Markets Bonds 0.3% ----------------------------------------------- Non-U.S. Government Bonds 0.3% ----------------------------------------------- Residential Mortgage-Backed Securities 0.1% ----------------------------------------------- High Yield Corporates (o) 0.0% ----------------------------------------------- (i) For purposes of this presentation, the bond component includes both accrued interest amounts and the equivalent exposure from any derivative holdings, if applicable. (o) Less than 0.1%. Percentages are based on net assets as of 06/30/07, unless otherwise noted. The portfolio is actively managed and current holdings may be different. PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 CAPITAL APPRECIATION VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) COMMON STOCKS - 96.0% AEROSPACE - 3.3% Embraer-Empresa Brasileira de Aeronautica S.A., ADR ........................................... 26,080 $ 1,257,317 Precision Castparts Corp. ............................. 15,200 1,844,672 United Technologies Corp. ............................. 51,870 3,679,139 --------------- $ 6,781,128 --------------- ALCOHOLIC BEVERAGES - 0.8% Diageo PLC ............................................ 78,900 $ 1,638,584 --------------- APPAREL MANUFACTURERS - 3.0% LVMH Moet Hennessy Louis Vuitton S.A. ................. 25,500 $ 2,938,962 NIKE, Inc., "B" ....................................... 55,400 3,229,266 --------------- $ 6,168,228 --------------- AUTOMOTIVE - 1.2% Bayerische Motoren Werke AG ........................... 17,800 $ 1,154,831 Harman International Industries, Inc. ................. 11,980 1,399,264 --------------- $ 2,554,095 --------------- BIOTECHNOLOGY - 6.4% Amgen, Inc. (a) ....................................... 55,770 $ 3,083,523 Celgene Corp. (a) ..................................... 54,300 3,113,019 Genentech, Inc. (a) ................................... 14,000 1,059,240 Genzyme Corp. (a) ..................................... 73,030 4,703,132 Millipore Corp. (a) ................................... 16,100 1,208,949 --------------- $ 13,167,863 --------------- BROADCASTING - 1.1% News Corp., "A" ....................................... 109,750 $ 2,327,798 --------------- BROKERAGE & ASSET MANAGERS - 3.4% Charles Schwab Corp. .................................. 129,220 $ 2,651,594 E*TRADE Financial Corp. (a) ........................... 71,000 1,568,390 Mellon Financial Corp. ................................ 39,470 1,736,680 Merrill Lynch & Co., Inc. ............................. 11,630 972,035 --------------- $ 6,928,699 --------------- BUSINESS SERVICES - 3.9% Amdocs Ltd. (a) ....................................... 101,020 $ 4,022,616 Automatic Data Processing, Inc. ....................... 16,960 822,051 Fidelity National Information Services, Inc ........ 23,800 1,291,864 Western Union Co. ..................................... 97,440 2,029,675 --------------- $ 8,166,206 --------------- CABLE TV - 1.1% Comcast Corp., "A" (a) ................................ 77,600 $ 2,202,261 --------------- COMPUTER SOFTWARE - 6.9% Adobe Systems, Inc. (a) ............................... 91,840 $ 3,687,376 Citrix Systems, Inc. (a) .............................. 31,100 1,047,137 Microsoft Corp. ....................................... 152,340 4,489,460 Oracle Corp. (a) ...................................... 252,540 4,977,563 --------------- $ 14,201,536 --------------- COMPUTER SOFTWARE - SYSTEMS - 1.9% Apple Computer, Inc. (a) .............................. 18,650 $ 2,276,046 Dell, Inc. (a) ........................................ 57,300 1,635,915 --------------- $ 3,911,961 --------------- CONSUMER GOODS & SERVICES - 4.1% Apollo Group, Inc., "A" (a) ........................... 12,700 $ 742,061 Colgate-Palmolive Co. ................................. 26,410 1,712,689 eBay, Inc. (a) ........................................ 56,290 1,811,412 Procter & Gamble Co. .................................. 69,500 4,252,705 --------------- $ 8,518,867 --------------- ELECTRICAL EQUIPMENT - 6.9% Danaher Corp. ......................................... 39,100 $ 2,952,050 General Electric Co. .................................. 185,500 7,100,940 Rockwell Automation, Inc. ............................. 34,160 2,372,070 W.W. Grainger, Inc. ................................... 20,480 1,905,664 --------------- $ 14,330,724 --------------- ELECTRONICS - 5.2% Intel Corp. ........................................... 262,900 $ 6,246,504 KLA-Tencor Corp. ...................................... 36,800 2,022,160 Samsung Electronics Co. Ltd., GDR ..................... 4,665 1,438,191 Taiwan Semiconductor Manufacturing Co. Ltd., ADR ...... 101,444 1,129,072 --------------- $ 10,835,927 --------------- ENERGY - INTEGRATED - 1.8% Exxon Mobil Corp. ..................................... 31,000 $ 2,600,280 Hess Corp. ............................................ 18,300 1,075,843 --------------- $ 3,676,123 --------------- FOOD & BEVERAGES - 2.6% Nestle S.A ............................................ 7,034 $ 2,670,770 PepsiCo, Inc. ......................................... 42,480 2,754,828 --------------- $ 5,425,598 --------------- FOOD & DRUG STORES - 1.6% CVS Caremark Corp. .................................... 91,569 $ 3,337,690 --------------- GAMING & LODGING - 1.5% International Game Technology ......................... 38,830 $ 1,541,551 Royal Caribbean Cruises Ltd. .......................... 38,000 1,633,240 --------------- $ 3,174,791 --------------- GENERAL MERCHANDISE - 2.3% Family Dollar Stores, Inc. ............................ 38,460 $ 1,319,947 Target Corp. .......................................... 55,050 3,501,180 --------------- $ 4,821,127 --------------- HEALTH MAINTENANCE ORGANIZATIONS - 0.8% UnitedHealth Group, Inc. .............................. 32,440 $ 1,658,982 --------------- INSURANCE - 0.5% Aflac, Inc. ........................................... 19,800 $ 1,017,720 --------------- INTERNET - 1.9% Google, Inc., "A" (a) ................................. 7,560 $ 3,956,753 --------------- LEISURE & TOYS - 0.4% Electronic Arts, Inc. (a) ............................. 16,160 $ 764,691 --------------- MAJOR BANKS - 2.1% Bank of New York Co., Inc. (a) ........................ 25,900 $ 1,073,296 State Street Corp. .................................... 48,630 3,326,292 --------------- $ 4,399,588 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.8% Cardinal Health, Inc. ................................. 22,900 $ 1,617,656 --------------- MEDICAL EQUIPMENT - 5.1% Advanced Medical Optics, Inc. (a) ..................... 58,290 $ 2,033,155 Baxter International, Inc. ............................ 18,620 1,049,051 C.R. Bard, Inc. ....................................... 7,000 578,410 DENTSPLY International, Inc. .......................... 46,480 1,778,325 Medtronic, Inc. ....................................... 75,770 3,929,432 St. Jude Medical, Inc. (a) ............................ 29,670 1,231,008 --------------- $ 10,599,381 --------------- NETWORK & TELECOM - 4.4% Cisco Systems, Inc. (a) ............................... 234,640 $ 6,534,724 Juniper Networks, Inc. (a) ............................ 56,100 1,412,037 QUALCOMM, Inc. ........................................ 26,420 1,146,364 --------------- $ 9,093,125 --------------- OIL SERVICES - 3.8% Halliburton Co. ....................................... 28,900 $ 997,050 Noble Corp. ........................................... 32,460 3,165,499 Schlumberger Ltd. ..................................... 36,360 3,088,418 Weatherford International Ltd. (a) .................... 11,720 647,413 --------------- $ 7,898,380 --------------- OTHER BANKS & DIVERSIFIED FINANCIALS - 1.7% American Express Co. .................................. 37,470 $ 2,292,415 Moody's Corp. ......................................... 19,400 1,206,680 --------------- $ 3,499,095 --------------- PERSONAL COMPUTERS & PERIPHERALS - 1.2% EMC Corp. (a) ......................................... 64,480 $ 1,167,088 Network Appliance, Inc. (a) ........................... 44,400 1,296,480 --------------- $ 2,463,568 --------------- PHARMACEUTICALS - 7.3% Allergan, Inc. ........................................ 48,020 $ 2,767,873 Bayer AG .............................................. 13,700 1,037,874 Johnson & Johnson ..................................... 76,570 4,718,243 Roche Holding AG ...................................... 16,640 2,950,981 Wyeth ................................................. 62,770 3,599,232 --------------- $ 15,074,203 --------------- SPECIALTY CHEMICALS - 0.9% Praxair, Inc. ......................................... 26,300 $ 1,893,337 --------------- SPECIALTY STORES - 2.4% Lowe's Cos., Inc. ..................................... 53,570 $ 1,644,063 Nordstrom, Inc. ....................................... 23,500 1,201,320 Staples, Inc. ......................................... 92,170 2,187,194 --------------- $ 5,032,577 --------------- TELEPHONE SERVICES - 1.1% American Tower Corp., "A" (a) ......................... 55,880 $ 2,346,960 --------------- TOBACCO - 0.7% Altria Group, Inc. .................................... 19,870 $ 1,393,682 --------------- TRUCKING - 1.9% FedEx Corp. ........................................... 14,500 $ 1,609,065 United Parcel Service, Inc., "B" ...................... 32,240 2,353,520 --------------- $ 3,962,585 --------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $176,070,677) ..................................... $ 198,841,489 --------------- SHORT-TERM OBLIGATIONS - 3.0% Cargill, Inc., 5.37%, due 7/02/07, at Amortized Cost and Value (t)(y) ..................... $ 6,302,000 $ 6,301,060 --------------- TOTAL INVESTMENTS (IDENTIFIED COST, $182,371,737) ..................................... $ 205,142,549 --------------- OTHER ASSETS, LESS LIABILITIES - 1.0% ............................................... 1,969,064 --------------- NET ASSETS - 100.0% ................................................... $ 207,111,613 --------------- See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 GLOBAL GOVERNMENTS VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) BONDS - 88.4% FOREIGN BONDS - 65.8% AUSTRIA - 3.6% Republic of Austria, 5%, 2012 (z) ...................... EUR 224,000 $ 308,821 ------------ BELGIUM - 2.3% Kingdom of Belgium, 3.75%, 2009 ........................ EUR 149,000 $ 199,288 ------------ CANADA - 5.3% Canada Housing Trust, 4.6%, 2011 ....................... CAD 51,000 $ 47,814 Government of Canada, 5.5%, 2009 ....................... CAD 50,000 47,828 Government of Canada, 4.5%, 2015 ....................... CAD 18,000 16,873 Quebec Province, 1.6%, 2013 ............................ JPY 42,000,000 338,793 ------------ $ 451,308 ------------ DENMARK - 1.1% Kingdom of Denmark, 4%, 2015 ........................... DKK 519,000 $ 90,510 ------------ FINLAND - 1.8% Republic of Finland, 5.375%, 2013 ...................... EUR 108,000 $ 152,180 ------------ FRANCE - 5.6% Republic of France, 6%, 2025 ........................... EUR 196,000 $ 305,946 Republic of France, 4.75%, 2035 ........................ EUR 125,000 169,120 ------------ $ 475,066 ------------ GERMANY - 13.6% Federal Republic of Germany, 3.5%, 2008 ................ EUR 69,000 $ 92,326 Federal Republic of Germany, 5.25%, 2010 ............... EUR 166,000 229,153 Federal Republic of Germany, 3.75%, 2015 ............... EUR 300,000 385,364 Federal Republic of Germany, 6.25%, 2030 ............... EUR 220,000 359,320 KfW Bankengruppe, 1.35%, 2014 .......................... JPY 12,000,000 95,567 ------------ $ 1,161,730 ------------ IRELAND - 2.5% Republic of Ireland, 4.6%, 2016 ........................ EUR 155,000 $ 209,470 ------------ JAPAN - 15.0% Development Bank of Japan, 1.75%, 2010 ................. JPY 7,000,000 $ 57,719 Development Bank of Japan, 1.4%, 2012 .................. JPY 45,000,000 364,448 Development Bank of Japan, 1.6%, 2014 .................. JPY 40,000,000 323,468 Development Bank of Japan, 1.05%, 2023 ................. JPY 55,000,000 375,267 Development Bank of Japan, 2.3%, 2026 .................. JPY 10,000,000 81,366 Japan Finance Corp. for Municipal Enterprises, 2%, 2016 .................................. JPY 10,000,000 81,996 ------------ $ 1,284,264 ------------ MALAYSIA - 1.4% Petronas Capital Ltd., 7.875%, 2022 ................... $ 100,000 $ 118,001 ------------ MEXICO - 1.1% Pemex Project Funding Master Trust, 8.625%, 2022 ..... $ 23,000 $ 28,286 United Mexican States, 6.75%, 2034 .................... 60,000 63,990 ------------ $ 92,276 ------------ NETHERLANDS - 2.0% Kingdom of Netherlands, 3.75%, 2014 .................... EUR 133,000 $ 171,237 ------------ RUSSIA - 0.6% Gazprom International S.A., 7.201%, 2020 ............... $ 51,503 $ 53,161 ------------ SPAIN - 4.3% Kingdom of Spain, 5.35%, 2011 .......................... EUR 266,000 $ 370,800 ------------ UNITED KINGDOM - 5.6% United Kingdom Conversion Loan, 9%, 2011 ............... GBP 38,000 $ 84,981 United Kingdom Treasury, 8%, 2015 ...................... GBP 55,000 128,397 United Kingdom Treasury, 8%, 2021 ...................... GBP 44,000 111,083 United Kingdom Treasury, 4.25%, 2036 ................... GBP 85,000 155,386 ------------ $ 479,847 ------------ TOTAL FOREIGN BONDS ................................................... $ 5,617,959 ------------ U.S. BONDS - 22.6% ASSET BACKED & SECURITIZED - 8.4% Bayview Commercial Asset Trust, FRN, 4.9071%, 2023 (n) . CAD 30,000 $ 28,227 Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.648%, 2048 .................................... $ 100,000 98,098 Commercial Mortgage Asset Trust, FRN, 1.1259%, 2032 (i)(n) ................................... 1,375,678 48,522 Commercial Mortgage Pass-Through Certificates, FRN, 5.51%, 2017 (n) ..................... 59,000 59,029 Commercial Mortgage Pass-Through Certificates, FRN, 5.52%, 2017 (n) ..................... 100,000 100,018 Credit Suisse Commercial Mortgage Trust, 5.509%, 2039 ........................................... 23,010 22,269 Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 ........................................... 15,766 15,774 First Union National Bank Commercial Mortgage Trust, FRN, 1.1829%, 2043 (i)(n) ................................... 1,585,449 44,850 IMPAC CMB Trust, FRN, 5.67%, 2036 ...................... 93,562 93,446 JPMorgan Chase Commercial Mortgage Securities Corp., 5.44%, 2045 .......................... 19,156 18,531 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3802%, 2041 ................... 55,952 54,494 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3866%, 2044 ................... 30,000 28,923 Lehman Brothers Floating Rate Commercial Mortgage Trust, FRN, 5.48%, 2018 (n) ................... 26,075 26,075 Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.204%, 2049 ...................... 50,000 47,458 Wachovia Bank Commercial Mortgage Trust, FRN, 5.795%, 2045 ...................................... 30,000 29,713 ------------ $ 715,427 ------------ MORTGAGE BACKED - 1.1% Fannie Mae, 5.37%, 2013 ................................ $ 24,634 $ 24,317 Fannie Mae, 4.78%, 2015 ................................ 24,348 23,279 Fannie Mae, 5.09%, 2016 ................................ 25,000 24,289 Fannie Mae, 5.424%, 2016 ............................... 24,632 24,415 ------------ $ 96,300 ------------ U.S. GOVERNMENT AGENCIES - 5.5% Aid-Egypt, 4.45%, 2015 ................................. $ 49,000 $ 45,946 Fannie Mae, 4.25%, 2007 ................................ 171,000 170,357 Freddie Mac, 4.2%, 2007 ................................ 99,000 98,542 Small Business Administration, 4.57%, 2025 ............................................ 43,533 40,632 Small Business Administration, 5.21%, 2026 ............................................ 113,346 110,106 ------------ $ 465,583 ------------ U.S. TREASURY OBLIGATIONS - 7.6% U.S. Treasury Bonds, 8%, 2021 .......................... $ 131,000 $ 167,608 U.S. Treasury Bonds, 4.75%, 2037 ....................... 19,000 17,915 U.S. Treasury Notes, 3.125%, 2008 ...................... 1,000 977 U.S. Treasury Notes, 4%, 2010 .......................... 187,000 182,690 U.S. Treasury Notes, 4.75%, 2012 ....................... 121,000 120,093 U.S. Treasury Notes, 4%, 2015 (f) ...................... 174,000 162,935 ------------ $ 652,218 ------------ TOTAL U.S. BONDS ...................................................... $ 1,929,528 ------------ TOTAL BONDS (IDENTIFIED COST, $7,666,981) ....................................... $ 7,547,487 ------------ CALL OPTIONS PURCHASED - 0.0% CHF Currency - July 2007 @ $0.9967 (Premiums Paid, $178) ............................................ CHF 52,736 $ 118 ------------ PUT OPTIONS PURCHASED - 0.0% CAD Currency - July 2007 @ $1.0195 (Premiums Paid, $295) ............................................ CAD 97,380 $ 124 ------------ SHORT-TERM OBLIGATIONS - 3.5% Farmer Mac, 4.825%, due 7/02/07, at Amortized Cost and Value (y) ..................... $ 300,000 $ 299,960 ------------ REPURCHASE AGREEMENTS - 4.4% Goldman Sachs, 4.50%, dated 6/29/07, due 7/02/07, total to be received $377,141 (secured by various U.S. Treasury and Federal Agency obligations and Mortgage Backed securities in a jointly traded account), at Cost ................................... $ 377,000 $ 377,000 ------------ TOTAL INVESTMENTS (IDENTIFIED COST, $8,344,414) (k) ................................... $ 8,224,689 ------------ OTHER ASSETS, LESS LIABILITIES - 3.7% ............................................... 316,404 ------------ NET ASSETS - 100.0% ................................................... $ 8,541,093 ------------ FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 6/30/07 Appreciation and Depreciation in the table below are reported by currency. NET UNREALIZED CONTRACTS TO SETTLEMENT DATE CONTRACTS APPRECIATION TYPE CURRENCY DELIVER/RECEIVE RANGE IN EXCHANGE FOR AT VALUE (DEPRECIATION) ---------------------------------------------------------------------------------------------------------------------------------- APPRECIATION Buy AUD 58,929 8/03/07 $ 49,358 $ 49,922 $ 564 Buy BRL 25,398 7/16/07 12,981 13,137 156 Sell BRL 24,889 7/16/07 12,899 12,874 25 Buy CAD 41,133 7/23/07 38,522 38,726 204 Buy EUR 707,892 9/19/07 947,935 960,705 12,770 Buy GBP 98,594 9/19/07 194,573 197,707 3,134 Sell JPY 14,936,173 7/17/07 123,798 121,573 2,225 Buy MXN 75,992 7/05/07 7,000 7,032 32 Sell MXN 114,590 7/05/07 10,650 10,603 47 Buy NOK 271,902 9/17/07 44,771 46,151 1,380 Buy PLN 52,816 8/31/07 18,768 19,010 242 Buy SEK 514,319 8/03/07 - 9/14/07 74,430 75,352 922 -------- $ 21,701 ======== DEPRECIATION Sell AUD 18,008 8/03/07 $ 15,212 $ 15,257 $ (45) Sell CAD 271 7/23/07 250 256 (6) Sell DKK 135,690 8/13/07 24,424 24,711 (287) Sell EUR 537,209 7/23/07 - 9/19/07 718,331 728,868 (10,537) Sell GBP 77,430 9/17/07 152,616 155,272 (2,656) Buy JPY 7,504,503 7/11/07 - 7/17/07 62,106 61,065 (1,041) Sell JPY 9,621,065 7/17/07 - 8/20/07 78,279 78,451 (172) Buy MXN 226,682 7/05/07 21,006 20,975 (31) Buy MYR 44,148 7/11/07 12,889 12,796 (93) Sell NOK 271,144 9/17/07 45,000 46,022 (1,022) Buy PLN 52,816 7/02/07 19,116 18,984 (132) Sell PLN 52,816 7/02/07 18,742 18,984 (242) Sell SEK 67,438 9/14/07 9,590 9,894 (304) Buy SGD 33,595 8/06/07 22,059 22,026 (33) -------- $(16,601) ======== At June 30, 2007, forward foreign currency purchases and sales under master netting agreements excluded above amounted to a net receivable of $13 with Goldman Sachs & Co. and a net payable of $26,004 with Merrill Lynch International Bank. FUTURES CONTRACTS OUTSTANDING AT 6/30/07 UNREALIZED EXPIRATION APPRECIATION DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION) -------------------------------------------------------------------------------------------------------------------- U.S. Treasury Note 10 yr (Long) ............. 1 $105,703 Sep-07 $481 At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 GOVERNMENT SECURITIES VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) BONDS - 93.4% AGENCY - OTHER - 4.6% Financing Corp., 9.4%, 2018 ........................... $ 780,000 $ 1,023,589 Financing Corp., 10.35%, 2018 ......................... 1,150,000 1,610,504 Financing Corp., STRIPS, 0%, 2017 ..................... 1,220,000 698,726 --------------- $ 3,332,819 --------------- MORTGAGE BACKED - 52.2% Fannie Mae, 5.78%, 2008 ............................... $ 181,026 $ 181,116 Fannie Mae, 4.73%, 2012 ............................... 93,422 90,375 Fannie Mae, 4.79%, 2012 ............................... 934,169 901,347 Fannie Mae, 4.845%, 2013 .............................. 258,041 248,642 Fannie Mae, 5%, 2013 - 2027 ........................... 3,010,057 2,941,327 Fannie Mae, 5.06%, 2013 ............................... 103,932 101,676 Fannie Mae, 4.545%, 2014 .............................. 131,187 124,243 Fannie Mae, 4.6%, 2014 ................................ 124,077 118,356 Fannie Mae, 4.666%, 2014 .............................. 769,285 733,349 Fannie Mae, 4.77%, 2014 ............................... 104,942 100,061 Fannie Mae, 4.839%, 2014 .............................. 863,048 829,076 Fannie Mae, 4.871%, 2014 .............................. 475,735 460,024 Fannie Mae, 5.1%, 2014 ................................ 136,260 133,382 Fannie Mae, 4.56%, 2015 ............................... 159,967 151,334 Fannie Mae, 4.62%, 2015 ............................... 178,245 169,322 Fannie Mae, 4.665%, 2015 .............................. 107,946 102,708 Fannie Mae, 4.69%, 2015 ............................... 88,030 83,925 Fannie Mae, 4.7%, 2015 ................................ 124,037 118,265 Fannie Mae, 4.74%, 2015 ............................... 99,763 94,541 Fannie Mae, 4.815%, 2015 .............................. 117,000 111,242 Fannie Mae, 4.82%, 2015 ............................... 340,038 324,612 Fannie Mae, 4.85%, 2015 ............................... 88,165 84,940 Fannie Mae, 4.89%, 2015 ............................... 87,317 84,299 Fannie Mae, 4.925%, 2015 .............................. 343,786 330,672 Fannie Mae, 5.471%, 2015 .............................. 122,730 122,050 Fannie Mae, 6.5%, 2016 - 2036 ......................... 1,606,013 1,631,410 Fannie Mae, 4.996%, 2017 .............................. 302,077 292,386 Fannie Mae, 5.5%, 2017 - 2035 ......................... 10,361,771 10,061,247 Fannie Mae, 6%, 2017 - 2034 ........................... 2,155,062 2,148,628 Fannie Mae, 4.5%, 2019 - 2020 ......................... 2,935,411 2,792,813 Fannie Mae, 4.88%, 2020 ............................... 89,555 86,900 Fannie Mae, 7.5%, 2022 - 2031 ......................... 174,623 182,661 Freddie Mac, 4.5%, 2013 - 2021 ........................ 480,425 476,834 Freddie Mac, 4.375%, 2015 ............................. 508,421 493,878 Freddie Mac, 5%, 2016 - 2027 .......................... 2,415,965 2,394,441 Freddie Mac, 6%, 2021 - 2035 .......................... 2,433,691 2,426,043 Freddie Mac, 5.5%, 2025 - 2035 ........................ 3,748,504 3,637,137 Freddie Mac, 6.5%, 2032 - 2037 ........................ 725,533 738,410 Ginnie Mae, 5.5%, 2033 ................................ 1,509,006 1,467,531 --------------- $ 37,571,203 --------------- U.S. GOVERNMENT AGENCIES - 19.2% Aid-Egypt, 4.45%, 2015 ................................ $ 473,000 $ 443,518 Aid-Israel, 6.6%, 2008 ................................ 270,727 270,983 Aid-Peru, 9.98%, 2008 ................................. 273,048 279,779 Empresa Energetica Cornito Ltd., 6.07%, 2010 ......................................... 1,567,000 1,582,294 Fannie Mae, 4.625%, 2013 .............................. 213,000 204,657 Farmer Mac, 5.5%, 2011 (n) ............................ 690,000 693,912 Federal Home Loan Bank, 4.625%, 2008 .................. 1,750,000 1,742,400 Federal Home Loan Bank, 5.25%, 2009 ................... 1,065,000 1,065,577 Freddie Mac, 6.625%, 2009 ............................. 673,000 692,731 Overseas Private Investment Corp., 0%, 2007 ............................................ 99,272 108,094 Small Business Administration, 8.7%, 2009 .......................................... 22,295 22,754 Small Business Administration, 10.05%, 2009 ........................................ 3,137 3,200 Small Business Administration, 6.44%, 2021 ......................................... 492,004 503,477 Small Business Administration, 6.625%, 2021 ........................................ 592,463 608,839 Small Business Administration, 4.98%, 2023 ......................................... 231,013 223,335 Small Business Administration, 4.34%, 2024 ......................................... 337,163 312,247 Small Business Administration, 4.77%, 2024 ......................................... 537,075 511,455 Small Business Administration, 4.86%, 2024 ......................................... 297,743 284,318 Small Business Administration, 4.87%, 2024 ......................................... 348,836 332,726 Small Business Administration, 4.88%, 2024 ......................................... 263,124 251,368 Small Business Administration, 4.99%, 2024 ......................................... 387,316 373,347 Small Business Administration, 4.76%, 2025 ......................................... 508,842 479,656 Small Business Administration, 5.11%, 2025 ......................................... 307,800 299,139 U.S. Department of Housing & Urban Development, 6.36%, 2016 ............................ 500,000 506,577 U.S. Department of Housing & Urban Development, 6.59%, 2016 ............................ 2,045,000 2,060,575 --------------- $ 13,856,958 --------------- U.S. TREASURY OBLIGATIONS - 17.4% U.S. Treasury Bonds, 9.25%, 2016 ...................... $ 409,000 $ 528,313 U.S. Treasury Bonds, 7.5%, 2016 ....................... 810,000 955,231 U.S. Treasury Bonds, 7.875%, 2021 ..................... 1,785,000 2,246,171 U.S. Treasury Bonds, 6.25%, 2023 ...................... 1,009,000 1,120,385 U.S. Treasury Bonds, 6%, 2026 ......................... 405,000 442,083 U.S. Treasury Bonds, 0%, 2027 ......................... 810,000 282,427 U.S. Treasury Bonds, 5.25%, 2028 ...................... 346,000 348,379 U.S. Treasury Bonds, 4.5%, 2036 ....................... 517,000 468,127 U.S. Treasury Bonds, STRIPS, 0%, 2021 ................. 1,174,000 552,861 U.S. Treasury Notes, 6.5%, 2010 (f) ................... 2,216,000 2,301,697 U.S. Treasury Notes, 12%, 2013 ........................ 19,000 20,444 U.S. Treasury Notes, 4%, 2014 ......................... 1,879,000 1,778,738 U.S. Treasury Notes, TIPS, 3.875%, 2009 ............... 691,745 702,771 U.S. Treasury Notes, TIPS, 2.375%, 2017 ............... 799,250 780,331 --------------- $ 12,527,958 --------------- TOTAL BONDS (IDENTIFIED COST, $69,116,794) ...................................... $ 67,288,938 ---------------- REPURCHASE AGREEMENTS - 3.1% Goldman Sachs, 4.5%, dated 6/29/07, due 7/02/07, total to be received $2,258,847 (secured by various U.S. Treasury and Federal Agency obligations and Mortgage Backed securities in a jointly traded account), at Cost .................... $ 2,258,000 $ 2,258,000 --------------- TOTAL INVESTMENTS (IDENTIFIED COST, $71,374,794) (k) .................................. $ 69,546,938 --------------- OTHER ASSETS, LESS LIABILITIES - 3.5% ............................................... 2,532,756 --------------- NET ASSETS - 100.0% ................................................... $ 72,079,694 --------------- FUTURES CONTRACTS OUTSTANDING AT 6/30/07 UNREALIZED EXPIRATION APPRECIATION DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------ U.S. Treasury Bond (Short) ................ 14 $1,508,500 Sep-07 $ 21,169 U.S. Treasury Note 5 yr (Long) ............ 26 2,706,031 Sep-07 (18,039) U.S. Treasury Note 10 yr (Long) ........... 6 634,219 Sep-07 3,854 ------------------------------------------------------------------------------------------------------------------ $ 6,984 ======== At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 HIGH YIELD VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) BONDS - 87.0% AEROSPACE - 1.9% Bombardier, Inc., 8%, 2014 (n) ........................ $ 151,000 $ 156,285 DRS Technologies, Inc., 7.625%, 2018 .................. 215,000 217,150 Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) .. 390,000 407,536 Vought Aircraft Industries, Inc., 8%, 2011 ............ 255,000 253,725 --------------- $ 1,034,696 --------------- AIRLINES - 0.8% Continental Airlines, Inc., 6.9%, 2017 ................ $ 60,700 $ 59,790 Continental Airlines, Inc., 6.748%, 2017 .............. 64,312 63,106 Continental Airlines, Inc., 6.795%, 2018 .............. 103,686 101,093 Continental Airlines, Inc., 7.566%, 2020 .............. 232,249 232,829 --------------- $ 456,818 --------------- APPAREL MANUFACTURERS - 0.5% Levi Strauss & Co., 12.25%, 2012 ...................... $ 150,000 $ 162,375 Levi Strauss & Co., 9.75%, 2015 ....................... 115,000 123,050 --------------- $ 285,425 --------------- ASSET BACKED & SECURITIZED - 1.6% ARCap REIT, Inc., "H", 6.1%, 2045 (n) ................. $ 165,567 $ 134,606 Asset Securitization Corp., FRN, 8.6363%, 2029 (z) .... 200,000 211,071 Crest Ltd., 7%, 2040 .................................. 154,000 139,539 First Union National Bank Commercial Mortgage Corp., 6.75%, 2032 ......................... 165,000 165,086 Wachovia Credit, CDO, FRN, 6.71%, 2026 (z) ..................................... 250,000 243,025 --------------- $ 893,327 --------------- AUTOMOTIVE - 5.4% Ford Motor Co., 7.45%, 2031 ........................... $ 155,000 $ 123,806 Ford Motor Credit Co., 9.75%, 2010 .................... 960,000 1,002,418 Ford Motor Credit Co., 8.625%, 2010 ................... 190,000 192,980 Ford Motor Credit Co., 7%, 2013 ....................... 143,000 132,489 Ford Motor Credit Co., 8%, 2016 ....................... 270,000 258,619 Ford Motor Credit Co., FRN, 8.105%, 2012 .............. 160,000 159,594 General Motors Corp., 8.375%, 2033 .................... 603,000 550,238 Goodyear Tire & Rubber Co., 9%, 2015 .................. 230,000 247,825 TRW Automotive, Inc., 7%, 2014 (n) .................... 265,000 252,413 TRW Automotive, Inc., 7.25%, 2017 (n) ................. 30,000 28,575 --------------- $ 2,948,957 --------------- BROADCASTING - 5.0% Allbritton Communications Co., 7.75%, 2012 ............ $ 355,000 $ 356,775 Bonten Media Acquisition Co., 9%, 2015 (n)(p) ......... 135,000 131,625 CanWest MediaWorks LP, 9.25%, 2015 (z) ................ 120,000 120,300 Clear Channel Communications, Inc., 5.5%, 2014 ........ 535,000 457,192 Intelsat Bermuda Ltd., 11.25%, 2016 ................... 480,000 537,600 Intelsat Bermuda Ltd., FRN, 8.8719%, 2015 ............. 120,000 122,550 Intelsat Ltd., 0% to 2010, 9.25% to 2015 .............. 235,000 193,288 ION Media Networks, Inc., FRN, 11.6056%, 2013 (n) ..... 170,000 175,950 Univision Communications, Inc., 9.75%, 2015 (n)(p) .... 665,000 656,688 --------------- $ 2,751,968 --------------- BUILDING - 1.6% Builders FirstSource, Inc., FRN, 9.61%, 2012 .......... $ 145,000 $ 146,813 Interface, Inc., 10.375%, 2010 ........................ 167,000 179,525 Interface, Inc., 9.5%, 2014 ........................... 30,000 32,325 Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 ..... 216,000 156,600 Nortek Holdings, Inc., 8.5%, 2014 ..................... 215,000 204,788 Ply Gem Industries, Inc., 9%, 2012 .................... 190,000 170,763 --------------- $ 890,814 --------------- BUSINESS SERVICES - 1.1% Nortel Networks Ltd., 10.75%, 2016 (n) ................ $ 140,000 $ 154,700 SunGard Data Systems, Inc., 10.25%, 2015 .............. 410,000 433,575 --------------- $ 588,275 --------------- CABLE TV - 2.8% CCH I Holdings LLC, 11%, 2015 ......................... $ 350,000 $ 365,313 CCH II Holdings LLC, 10.25%, 2010 ..................... 230,000 240,350 CCO Holdings LLC, 8.75%, 2013 ......................... 335,000 340,863 CSC Holdings, Inc., 6.75%, 2012 ....................... 355,000 337,250 NTL Cable PLC, 9.125%, 2016 ........................... 228,000 238,830 --------------- $ 1,522,606 --------------- CHEMICALS - 3.4% Equistar Chemicals LP, 10.125%, 2008 .................. $ 129,000 $ 134,160 Equistar Chemicals LP, 10.625%, 2011 .................. 34,000 35,785 Innophos, Inc., 8.875%, 2014 .......................... 265,000 274,275 KI Holdings, Inc., 0% to 2009, 9.875% to 2014 ......... 348,000 297,540 Koppers, Inc., 9.875%, 2013 ........................... 220,000 234,850 Momentive Performance Materials, Inc., 11.5%, 2016 (n) 265,000 267,650 Mosaic Co., 7.625%, 2016 (n) .......................... 305,000 311,863 Nalco Co., 8.875%, 2013 ............................... 285,000 295,688 --------------- $ 1,851,811 --------------- CONSUMER GOODS & SERVICES - 4.9% ACCO Brands Corp., 7.625%, 2015 ....................... $ 250,000 $ 245,625 Corrections Corp. of America, 6.25%, 2013 ............. 180,000 172,800 GEO Group, Inc., 8.25%, 2013 .......................... 280,000 288,750 Jarden Corp., 7.5%, 2017 .............................. 220,000 217,250 Kar Holdings, Inc., 10%, 2015 (n) ..................... 385,000 375,375 Playtex Products, Inc., 9.375%, 2011 .................. 180,000 184,950 Realogy Corp., 10.5%, 2014 (n) ........................ 100,000 95,250 Realogy Corp., 12.375%, 2015 (n) ...................... 340,000 310,250 Service Corp. International, 7.375%, 2014 ............. 115,000 115,575 Service Corp. International, 7%, 2017 ................. 370,000 352,425 Visant Holding Corp., 8.75%, 2013 ..................... 315,000 327,600 --------------- $ 2,685,850 --------------- CONTAINERS - 1.7% Berry Plastics Holding Corp., 8.875%, 2014 ............ $ 175,000 $ 177,188 Graham Packaging Co. LP, 9.875%, 2014 ................. 165,000 166,856 Greif, Inc., 6.75%, 2017 .............................. 165,000 161,288 Owens-Brockway Glass Container, Inc., 8.25%, 2013 ..... 390,000 403,650 --------------- $ 908,982 --------------- DEFENSE ELECTRONICS - 0.9% L-3 Communications Corp., 6.125%, 2014 ................ $ 310,000 $ 292,175 L-3 Communications Corp., 5.875%, 2015 ................ 210,000 194,775 --------------- $ 486,950 --------------- ELECTRONICS - 2.1% Avago Technologies Finance, 11.875%, 2015 ............. $ 165,000 $ 184,388 Freescale Semiconductor, Inc., 10.125%, 2016 (n) ...... 580,000 545,200 NXP B.V./NXP Funding LLC, 7.875%, 2014 ................ 110,000 108,350 NXP B.V./NXP Funding LLC, 9.5%, 2015 .................. 100,000 98,500 Spansion LLC, 11.25%, 2016 (z) ........................ 185,000 190,550 --------------- $ 1,126,988 --------------- EMERGING MARKET SOVEREIGN - 1.0% Republic of Argentina, FRN, 5.475%, 2012 .............. $ 303,750 $ 288,512 Republic of Venezuela, 7%, 2018 ....................... 141,000 124,433 Republic of Venezuela, 6%, 2020 ....................... 155,000 125,395 --------------- $ 538,340 --------------- ENERGY - INDEPENDENT - 3.8% Chaparral Energy, Inc., 8.875%, 2017 (n) .............. $ 235,000 $ 232,063 Chesapeake Energy Corp., 7%, 2014 ..................... 184,000 182,620 Chesapeake Energy Corp., 6.375%, 2015 ................. 305,000 290,894 Cimarex Energy Co., 7.125%, 2017 ...................... 180,000 175,500 Forest Oil Corp., 7.25%, 2019 (n) ..................... 150,000 145,500 Hilcorp Energy I LP, 7.75%, 2015 (n) .................. 90,000 87,300 Hilcorp Energy I LP, 9%, 2016 (n) ..................... 240,000 248,400 Mariner Energy, Inc., 8%, 2017 ........................ 190,000 188,575 Newfield Exploration Co., 6.625%, 2014 ................ 255,000 246,075 Plains Exploration & Production Co., 7%, 2017 ......... 35,000 33,163 Quicksilver Resources, Inc., 7.125%, 2016 ............. 260,000 250,900 --------------- $ 2,080,990 --------------- ENTERTAINMENT - 0.5% AMC Entertainment, Inc., 8%, 2014 ..................... $ 95,000 $ 93,100 AMC Entertainment, Inc., 11%, 2016 .................... 165,000 182,325 --------------- $ 275,425 --------------- FINANCIAL INSTITUTIONS - 2.7% General Motors Acceptance Corp., 6.875%, 2011 ......... $ 558,000 $ 548,879 General Motors Acceptance Corp., 6.75%, 2014 .......... 825,000 790,066 General Motors Acceptance Corp., 8%, 2031 ............. 155,000 158,500 --------------- $ 1,497,445 --------------- FOOD & BEVERAGES - 1.0% B&G Foods Holding Corp., 8%, 2011 ..................... $ 175,000 $ 175,000 Del Monte Corp., 6.75%, 2015 .......................... 185,000 176,213 Michael Foods, Inc., 8%, 2013 ......................... 175,000 176,750 --------------- $ 527,963 --------------- FOREST & PAPER PRODUCTS - 1.7% Buckeye Technologies, Inc., 8%, 2010 .................. $ 65,000 $ 65,000 Buckeye Technologies, Inc., 8.5%, 2013 ................ 375,000 383,438 Jefferson Smurfit Corp., 8.25%, 2012 .................. 254,000 252,095 JSG Funding PLC, 7.75%, 2015 .......................... 25,000 25,031 MDP Acquisitions PLC, 9.625%, 2012 .................... 19,000 19,903 Millar Western Forest Products, 7.75%, 2013 ........... 235,000 202,394 --------------- $ 947,861 --------------- GAMING & LODGING - 5.6% Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (n) $ 30,000 $ 29,550 Great Canadian Gaming Corp., 7.25%, 2015 (n) .......... 155,000 154,225 Greektown Holdings, 10.75%, 2013 (n) .................. 155,000 164,300 Harrah's Entertainment, Inc., 5.75%, 2017 ............. 500,000 400,000 Majestic Star Casino LLC, 9.75%, 2011 ................. 260,000 251,550 Mandalay Resort Group, 9.375%, 2010 ................... 175,000 184,625 MGM Mirage, Inc., 8.5%, 2010 .......................... 140,000 146,475 MGM Mirage, Inc., 8.375%, 2011 ........................ 365,000 373,213 MGM Mirage, Inc., 6.75%, 2013 ......................... 200,000 190,000 MGM Mirage, Inc., 5.875%, 2014 ........................ 195,000 176,475 Pinnacle Entertainment, Inc., 8.25%, 2012 ............. 185,000 190,550 Station Casinos, Inc., 6.5%, 2014 ..................... 390,000 345,150 Wimar Opco LLC, 9.625%, 2014 (n) ...................... 280,000 269,500 Wynn Las Vegas LLC, 6.625%, 2014 ...................... 215,000 207,206 --------------- $ 3,082,819 --------------- INDUSTRIAL - 1.2% Blount, Inc., 8.875%, 2012 ............................ $ 245,000 $ 247,450 JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 ..... 370,000 386,188 --------------- $ 633,638 --------------- INSURANCE - HEALTH - 0.2% Centene Corp., 7.25%, 2014 ............................ $ 130,000 $ 128,700 --------------- INSURANCE - PROPERTY & CASUALTY - 0.3% USI Holdings Corp., 9.75%, 2015 (n) ................... $ 165,000 $ 164,175 --------------- MACHINERY & TOOLS - 0.7% Case New Holland, Inc., 7.125%, 2014 .................. $ 370,000 $ 374,625 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 7.4% Advanced Medical Optics, Inc., 7.5%, 2017 (n) ......... $ 210,000 $ 198,450 Community Health Systems, Inc., 8.875%, 2015 (z) ...... 350,000 354,813 Cooper Cos., Inc., 7.125%, 2015 (n) ................... 270,000 267,300 DaVita, Inc., 6.625%, 2013 ............................ 125,000 122,031 DaVita, Inc., 7.25%, 2015 ............................. 445,000 439,438 HCA, Inc., 6.375%, 2015 ............................... 395,000 335,750 HCA, Inc., 9.25%, 2016 (n) ............................ 810,000 862,650 HealthSouth Corp., 10.75%, 2016 ....................... 190,000 206,150 Omnicare, Inc., 6.875%, 2015 .......................... 135,000 128,250 Psychiatric Solutions, Inc., 7.75%, 2015 .............. 295,000 291,681 U.S. Oncology, Inc., 10.75%, 2014 ..................... 365,000 390,550 Universal Hospital Services, Inc., 8.5%, 2015 (n)(p) .. 155,000 153,450 Universal Hospital Services, Inc., FRN, 8.7594%, 2015 (n) 45,000 45,000 Vanguard Health Holding II, 9%, 2014 .................. 130,000 128,700 VWR Funding, Inc., 10.25%, 2015 (p)(z) ................ 135,000 134,663 --------------- $ 4,058,876 --------------- METALS & MINING - 4.2% Arch Western Finance LLC, 6.75%, 2013 ................. $ 470,000 $ 451,200 Chaparral Steel Co., 10%, 2013 ........................ 225,000 245,531 FMG Finance Ltd., 10.625%, 2016 (n) ................... 275,000 327,250 Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 ..... 220,000 232,100 Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 .... 455,000 485,713 Peabody Energy Corp., 5.875%, 2016 .................... 225,000 210,375 Peabody Energy Corp., 7.375%, 2016 .................... 175,000 178,500 PNA Group, Inc., 10.75%, 2016 (n) ..................... 155,000 168,950 --------------- $ 2,299,619 --------------- NATURAL GAS - DISTRIBUTION - 0.7% AmeriGas Partners LP, 7.125%, 2016 .................... $ 200,000 $ 196,500 Inergy LP, 6.875%, 2014 ............................... 175,000 165,813 --------------- $ 362,313 --------------- NATURAL GAS - PIPELINE - 2.2% Atlas Pipeline Partners LP, 8.125%, 2015 .............. $ 270,000 $ 269,325 El Paso Performance-Linked Trust, CLN, 7.75%, 2011 (n) 275,000 283,250 Transcontinental Gas Pipe Line Corp., 7%, 2011 ........ 135,000 139,725 Williams Cos., Inc., 7.125%, 2011 ..................... 132,000 135,300 Williams Cos., Inc., 8.75%, 2032 ...................... 150,000 173,625 Williams Partners LP, 7.25%, 2017 ..................... 205,000 206,025 --------------- $ 1,207,250 --------------- NETWORK & TELECOM - 3.3% Cincinnati Bell, Inc., 8.375%, 2014 ................... $ 300,000 $ 303,000 Citizens Communications Co., 9.25%, 2011 .............. 225,000 243,000 Nordic Telephone Co. Holdings, 8.875%, 2016 (n) ....... 205,000 217,300 Qwest Capital Funding, Inc., 7.25%, 2011 .............. 175,000 174,125 Qwest Corp., 7.875%, 2011 ............................. 95,000 99,038 Qwest Corp., 8.875%, 2012 ............................. 300,000 323,250 Time Warner Telecom Holdings, Inc., 9.25%, 2014 ....... 165,000 174,900 Windstream Corp., 8.625%, 2016 ........................ 185,000 195,638 Windstream Corp., 7%, 2019 ............................ 60,000 57,300 --------------- $ 1,787,551 --------------- OIL SERVICES - 1.8% Basic Energy Services, Inc., 7.125%, 2016 ............. $ 340,000 $ 324,700 Bristow Group, Inc., 7.5%, 2017 (z) ................... 115,000 115,288 Compagnie Generale de Geophysique-Veritas, 7.75%, 2017 255,000 258,188 GulfMark Offshore, Inc., 7.75%, 2014 .................. 110,000 111,100 Hanover Compressor Co., 9%, 2014 ...................... 190,000 200,925 --------------- $ 1,010,201 --------------- PHARMACEUTICALS - 0.3% Warner Chilcott Corp., 8.75%, 2015 .................... $ 169,000 $ 173,648 --------------- PRINTING & PUBLISHING - 3.6% American Media Operations, Inc., 10.25%, 2009 ......... $ 295,000 $ 280,250 Dex Media, Inc., 0% to 2008, 9% to 2013 ............... 425,000 400,031 Dex Media, Inc., 0% to 2008, 9% to 2013 ............... 300,000 282,375 Idearc, Inc., 8%, 2016 ................................ 590,000 595,900 Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 (n) .... 130,000 91,650 R.H. Donnelley Corp., 8.875%, 2016 .................... 305,000 317,200 --------------- $ 1,967,406 --------------- RETAILERS - 1.4% Buhrmann U.S., Inc., 7.875%, 2015 ..................... $ 260,000 $ 256,100 Couche-Tard, Inc., 7.5%, 2013 ......................... 145,000 146,088 Neiman Marcus Group, Inc., 9%, 2015 (p) ............... 185,000 197,950 Rite Aid Corp., 9.5%, 2017 (n) ........................ 170,000 163,200 --------------- $ 763,338 --------------- SPECIALTY STORES - 1.4% Claire's Stores, Inc., 9.25%, 2015 (n) ................ $ 200,000 $ 190,000 Claire's Stores, Inc., 10.5%, 2017 (z) ................ 80,000 73,000 Michaels Stores, Inc., 11.375%, 2016 (n) .............. 260,000 271,700 Payless ShoeSource, Inc., 8.25%, 2013 ................. 210,000 213,675 --------------- $ 748,375 --------------- SUPERMARKETS - 0.6% Stater Brothers Holdings, Inc., 7.75%, 2015 (n) ....... $165,000 $ 165,413 SUPERVALU, Inc., 7.5%, 2014 ........................... 185,000 189,625 --------------- $ 355,038 --------------- TELECOMMUNICATIONS - WIRELESS - 1.0% Centennial Communications Corp., 10%, 2013 ............ $ 50,000 $ 53,625 Centennial Communications Corp., 10.125%, 2013 ........ 120,000 128,700 MetroPCS Wireless, Inc., 9.25%, 2014 (n) .............. 80,000 82,600 Wind Acquisition Finance S.A., 10.75%, 2015 (n) ....... 250,000 286,875 --------------- $ 551,800 --------------- TRANSPORTATION - SERVICES - 1.0% Hertz Corp., 8.875%, 2014 ............................. $ 360,000 $ 375,300 Stena AB, 7%, 2016 .................................... 181,000 181,000 --------------- $ 556,300 --------------- U.S. TREASURY OBLIGATIONS - 2.0% U.S. Treasury Bonds, 4.5%, 2036 ....................... $ 1,244,000 $ 1,126,403 --------------- UTILITIES - ELECTRIC POWER - 3.7% AES Corp., 9.375%, 2010 ............................... $ 255,000 $ 271,256 Edison Mission Energy, 7%, 2017 (n) ................... 510,000 480,675 Edison Mission Energy, 7.625%, 2027 (n) ............... 70,000 66,150 Mirant North American LLC, 7.375%, 2013 ............... 240,000 245,400 NRG Energy, Inc., 7.375%, 2016 ........................ 665,000 666,663 Reliant Energy, Inc., 7.875%, 2017 .................... 285,000 277,163 --------------- $ 2,007,307 --------------- TOTAL BONDS (IDENTIFIED COST, $47,602,931) ............................ $ 47,660,873 --------------- COMMON STOCKS - 2.0% CABLE TV - 0.4% Comcast Corp., "A" (a) ................................ 5,200 $ 146,224 Time Warner Cable, Inc. (a) ........................... 2,800 109,676 --------------- $ 255,900 --------------- CONSUMER GOODS & SERVICES - 0.1% Central Garden & Pet Co. (a) .......................... 2,300 $ 28,198 --------------- ELECTRONICS - 0.1% Intel Corp. ........................................... 2,300 $ 54,648 --------------- ENERGY - INDEPENDENT - 0.4% Chesapeake Energy Corp. ............................... 1,600 $ 55,360 Foundation Coal Holdings, Inc. ........................ 3,860 156,870 --------------- $ 212,230 --------------- ENERGY - INTEGRATED - 0.1% Chevron Corp. ......................................... 700 $ 58,968 --------------- FOREST & PAPER PRODUCTS - 0.1% Louisiana-Pacific Corp. ............................... 2,600 $ 49,192 --------------- MAJOR BANKS - 0.1% Bank of America Corp. ................................. 600 $ 29,334 JPMorgan Chase & Co. .................................. 600 29,070 --------------- $ 58,404 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.1% Omnicare, Inc. ........................................ 1,700 $ 61,302 --------------- METALS & MINING - 0.0% Oxford Automotive, Inc. (a) ........................... 53 $ 0 --------------- NATURAL GAS - PIPELINE - 0.1% Williams Cos., Inc. ................................... 2,300 $ 72,726 --------------- PHARMACEUTICALS - 0.1% Johnson & Johnson ..................................... 900 $ 55,458 --------------- PRINTING & PUBLISHING - 0.0% Golden Books Family Entertainment, Inc. (a) ............................................ 21,250 $ 0 --------------- REAL ESTATE - 0.2% Host Hotels & Resorts, Inc., REIT ..................... 5,000 $ 115,600 --------------- TELEPHONE SERVICES - 0.2% Windstream Corp. ...................................... 6,500 $ 95,940 --------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $1,064,431) ..................... $ 1,118,566 --------------- FLOATING RATE LOANS (g)(r) - 8.0% AUTOMOTIVE - 1.1% Ford Motor Co., Term Loan B, 8.36%, 2013 .............. $ 426,238 $ 427,689 Mark IV Industries, Inc., Second Lien Term Loan, 11.1%, 2011 ................................... 169,464 169,958 --------------- $ 597,647 --------------- BROADCASTING - 0.2% Gray Television, Inc., Term Loan, 6.85%, 2014 ......... $ 128,430 $ 127,868 --------------- BUILDING - 0.1% Building Materials Holding Corp., Second Lien Term Loan, 11.13%, 2014 ........................ $ 69,143 $ 67,645 --------------- CABLE TV - 0.9% Charter Communications Operating LLC, Term Loan, 7.36%, 2014 ................................... $ 135,676 $ 134,286 CSC Holdings, Inc., Incremental Term Loan, 7.07%, 2013 ......................................... 197,927 197,698 Mediacom Illinois LLC, Term Loan A, 6.86%, 2012 ....... 177,515 175,962 --------------- $ 507,946 --------------- CHEMICALS - 0.5% Celanese AG, Term Loan B, 7.1%, 2014 .................. $ 280,004 $ 280,266 --------------- CONTAINERS - 0.4% Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 .................................. $ 157,576 $ 160,071 Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 .................................. 50,424 51,223 --------------- $ 211,294 --------------- FOOD & BEVERAGES - 0.8% Dean Foods Co., Term Loan B, 6.86%, 2014 .............. $ 214,453 $ 214,051 Dole Food Co., Inc., Letter of Credit, 5.23%, 2013 .... 18,525 18,435 Dole Food Co., Inc., Term Loan, 7.54%, 2013 ........... 41,159 40,961 Dole Food Co., Inc., Term Loan C, 7.45%, 2013 ......... 137,198 136,537 --------------- $ 409,984 --------------- FOREST & PAPER PRODUCTS - 0.6% Georgia-Pacific Corp., Term Loan, 7.11%, 2012 ......... $ 290,785 $ 291,318 Georgia-Pacific Corp., Term Loan B-2, 7.11%, 2012 ..... 19,057 19,088 --------------- $ 310,406 --------------- GAMING & LODGING - 0.6% Gulfside Casino, Term Loan B, 10.34%, 2012 ............ $ 318,112 $ 319,702 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.8% Community Health Systems, Inc., Term Loan B, 2012 (o) . $ 153,942 $ 154,111 Community Health Systems, Inc., Term Loan B, 2014 (o) . 10,196 10,207 HCA, Inc., Term Loan B, 7.61%, 2012 ................... 287,805 288,781 --------------- $ 453,099 --------------- NATURAL GAS - PIPELINE - 0.2% Kinder Morgan, Inc., Term Loan, 6.82%, 2014 ........... $ 95,908 $ 95,704 --------------- POLLUTION CONTROL - 0.4% Allied Waste North America, Inc., Term Loan, 7.09%, 2012 ......................................... $ 136,143 $ 136,398 Allied Waste North America, Inc.,Term Loan A, Credit Linked Deposit, 7.07%, 2012 ............... 77,942 78,137 --------------- $ 214,535 --------------- PRINTING & PUBLISHING - 1.0% Idearc, Inc., Term Loan B, 7.36%, 2014 ................ $ 290,974 $ 291,822 Nielsen Finance LLC, Term Loan B, 7.61%, 2013 ......... 247,829 249,161 --------------- $ 540,983 --------------- SPECIALTY STORES - 0.4% Michaels Stores, Inc., Term Loan B, 7.63%, 2013 ....... $ 228,898 $ 226,323 --------------- TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $4,361,453) $ 4,363,402 --------------- PREFERRED STOCKS - 0.0% REAL ESTATE - 0.0% HRPT Properties Trust, "B", REIT, 8.75% (Identified Cost, $5,470) ........................... 200 $ 5,074 --------------- STRIKE FIRST ISSUER PRICE EXERCISE SHARES/PAR VALUE ($) WARRANTS - 0.0% NETWORK & TELECOM - 0.0% Knology, Inc. (Identified Cost, $0) (a)(z) $0.10 11/22/97 500 $ 2,023 --------------- ISSUER SHARES/PAR VALUE ($) SHORT-TERM OBLIGATIONS - 1.5% New Center Asset Trust, 5.36%, due 7/02/07, at Amortized Cost and Value (y) ..................... $ 823,000 $ 822,877 --------------- TOTAL INVESTMENTS (IDENTIFIED COST, $53,857,162) (k) .................................. $ 53,972,815 --------------- OTHER ASSETS, LESS LIABILITIES - 1.5% ............................................... 815,244 --------------- NET ASSETS - 100.0% ................................................... $ 54,788,059 --------------- SWAP AGREEMENTS AT 6/30/07 UNREALIZED NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION) --------------------------------------------------------------------------------------------------------------------------------- CREDIT DEFAULT SWAPS 6/20/09 USD 200,000 JPMorgan Chase Bank 4.1% (fixed rate) (1) $ 1,536 6/20/09 USD 100,000 JPMorgan Chase Bank 4.8% (fixed rate) (1) 2,006 6/20/12 USD 200,000 Morgan Stanley Capital Services, Inc. 3.76% (fixed rate) (2) (6,438) 6/20/12 USD 100,000 Morgan Stanley Capital Services, Inc. 4.15% (fixed rate) (2) (1,713) 6/20/12 USD 200,000 Goldman Sachs International (3) 1.49% (fixed rate) 553 3/20/17 USD 35,000 JPMorgan Chase Bank (4) 0.80% (fixed rate) (156) 3/20/17 USD 30,000 Merrill Lynch International (4) 0.81% (fixed rate) (82) 3/20/17 USD 35,000 JPMorgan Chase Bank (4) 0.78% (fixed rate) (103) ------- $(4,397) ======= (1) Variable account to pay notional amount upon a defined credit default event by Abitibi - Consolidated, 8.375%, 4/01/15. (2) Variable account to pay notional amount upon a defined credit default event by Bowater, Inc., 6.5%, 6/15/13. (3) Variable account to receive notional amount upon a defined credit default event by Constellation Brands, 8%, 2/15/08. (4) Variable account to receive notional amount upon a defined credit default event by Waste Management, Inc., 7.375%, 8/01/10. At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts. See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 MONEY MARKET VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) CERTIFICATES OF DEPOSIT - 5.9% OTHER BANKS & DIVERSIFIED FINANCIALS - 5.9% Credit Suisse, NY, 5.31%, due 09/27/07 ................. $ 1,407,000 $ 1,407,000 Fortis Bank, NY, 5.29%, due 07/02/07 ................... 1,427,000 1,427,000 ------------ TOTAL CERTIFICATES OF DEPOSIT, AT AMORTIZED COST AND VALUE ........................ $ 2,834,000 ------------ COMMERCIAL PAPER (y) - 95.1% ASSET BACKED & SECURITIZED - 3.2% Yorktown Capital LLC, 5.27%, due 7/27/07 (t) ........... $ 1,559,000 $ 1,553,066 ------------ AUTOMOTIVE - 3.0% Toyota Motor Credit Corp., 5.2%, due 7/27/07 ........... $ 1,435,000 $ 1,429,610 ------------ BUSINESS SERVICES - 3.0% Siemens Capital Corp. LLC, 5.27%, due 9/17/07 .......... $ 1,465,000 $ 1,448,272 ------------ FINANCIAL INSTITUTIONS - 48.3% American Express Credit Corp., 5.25%, due 9/25/07 ...... $ 1,355,000 $ 1,338,006 Bryant Park Funding LLC, 5.24%, due 8/15/07 (t) ........ 1,440,000 1,430,568 CAFCO LLC, 5.25%, due 7/06/07 (t) ...................... 1,431,000 1,429,957 CRC Funding LLC, 5.27%, due 8/09/07 (t) ................ 1,455,000 1,446,693 Ciesco LLC, 5.245%, due 7/12/07 (t) .................... 1,430,000 1,427,708 Citibank Credit Card Issuance Trust, 5.24%, due 7/12/07 (t) ...................................... 1,440,000 1,437,694 FCAR Owner Trust, 5.3%, due 7/20/07 .................... 1,427,000 1,423,008 Fairway Finance Corp., 5.245%, due 7/13/07 (t) ......... 291,000 290,491 Falcon Asset Securitization LLC, 5.25%, due 7/10/07 - 9/10/07 (t) ................................ 1,447,000 1,437,874 Govco LLC, 5.25%, due 7/02/07 (t) ...................... 650,000 649,905 Govco LLC, 5.24%, due 8/13/07 (t) ...................... 535,000 531,651 Jupiter Securitization Co. LLC, 5.25%, due 7/05/07 (t) ...................................... 1,430,000 1,429,166 Kitty Hawk Funding Corp., 5.25%, due 9/20/07 (t) ....... 1,450,000 1,432,872 Ranger Funding Co. LLC, 5.24%, due 7/11/07 (t) ......... 1,430,000 1,427,919 Scaldis Capital LLC, 5.255%, due 7/02/07 (t) ........... 1,342,000 1,341,804 Sheffield Receivables Corp., 5.29%, due 7/13/07 (t) .... 1,440,000 1,437,461 Thunder Bay Funding LLC, 5.26%, due 8/03/07 (t) ........ 906,000 901,632 Thunder Bay Funding LLC, 5.27%, due 8/15/07 (t) ........ 700,000 695,389 Windmill Funding Corp., 5.26%, due 7/27/07 (t) ......... 1,640,000 1,633,770 ------------ $ 23,143,568 ------------ FOOD & BEVERAGES - 3.0% Hershey Foods Corp., 5.2%, due 8/16/07 (t) ............. $ 1,432,000 $ 1,422,485 ------------ INSURANCE - 3.0% MetLife, Inc., 5.24%, due 8/15/07 (t) .................. $ 1,424,000 $ 1,414,673 ------------ MAJOR BANKS - 13.8% Abbey National North America LLC, 5.2%, due 11/27/07 ... $ 1,444,000 $ 1,412,922 Barclays U.S. Funding Corp., 5.21%, due 7/09/07 ........ 1,280,000 1,278,518 HBOS Treasury Services PLC, 5.23%, due 8/13/07 ......... 1,224,000 1,216,354 Natexis Banques Populaires, U.S. Finance Co. ........... LLC, 5.37%, due 7/02/07 .............................. 1,250,000 1,249,814 Societe Generale North America, 5.255%, due 9/27/07 .... 1,458,000 1,439,271 ------------ $ 6,596,879 ------------ OTHER BANKS & DIVERSIFIED FINANCIALS - 17.8% Bank of Montreal, 5.23%, due 8/15/07 ................... $ 1,420,000 $ 1,410,717 Citigroup Funding, Inc., 5.265%, due 9/20/07 ........... 948,000 936,770 Citigroup Funding, Inc., 5.26%, due 7/27/07 ............ 488,000 486,146 DEPFA Bank PLC, 5.23%, due 8/02/07 (t) ................. 1,424,000 1,417,380 Dexia Delaware LLC, 5.245%, due 8/06/07 ................ 1,422,000 1,414,542 ING America Insurance Holdings, Inc., 5.23%, due 8/13/07 1,440,000 1,431,004 UBS Financial Delaware LLC, 5.24%, due 7/25/07 ......... 1,437,000 1,431,980 ------------ $ 8,528,539 ------------ TOTAL COMMERCIAL PAPER, AT AMORTIZED COST AND VALUE ........................................ $ 45,537,092 ------------ TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE ........................................ $ 48,371,092 ------------ OTHER ASSETS, LESS LIABILITIES - (1.0)% ............................................ (496,976) ------------ NET ASSETS - 100.0% .................................................. $ 47,874,116 ------------ See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007 TOTAL RETURN VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($) COMMON STOCKS - 59.6% AEROSPACE - 2.0% Lockheed Martin Corp. ................................. 18,750 $ 1,764,938 Northrop Grumman Corp. ................................ 9,530 742,101 United Technologies Corp. ............................. 14,480 1,027,066 --------------- $ 3,534,105 --------------- ALCOHOLIC BEVERAGES - 0.4% Diageo PLC ............................................ 30,246 $ 628,145 --------------- APPAREL MANUFACTURERS - 0.5% Hanesbrands, Inc. (a) ................................. 1,052 $ 28,436 NIKE, Inc., "B" ....................................... 14,480 844,039 --------------- $ 872,475 --------------- AUTOMOTIVE - 0.9% Bayerische Motoren Werke AG ........................... 15,810 $ 1,025,723 Johnson Controls, Inc. ................................ 5,500 636,735 --------------- $ 1,662,458 --------------- BIOTECHNOLOGY - 1.1% Amgen, Inc. (a) ....................................... 36,330 $ 2,008,686 --------------- BROADCASTING - 0.9% Citadel Broadcasting Corp. ............................ 365 $ 2,354 E.W. Scripps Co., "A" ................................. 19,860 907,403 Viacom, Inc., "B" (a) ................................. 11,015 458,554 Walt Disney Co. ....................................... 4,760 162,506 WPP Group PLC ......................................... 10,270 153,599 --------------- $ 1,684,416 --------------- BROKERAGE & ASSET MANAGERS - 2.4% Bear Stearns Cos., Inc. ............................... 1,920 $ 268,800 Franklin Resources, Inc. .............................. 3,780 500,737 Goldman Sachs Group, Inc. ............................. 5,420 1,174,785 Julius Baer Holding Ltd. .............................. 1,729 123,594 KKR Private Equity Investments LP, IEU (z) ............ 6,600 148,500 Lehman Brothers Holdings, Inc. ........................ 3,090 230,267 Mellon Financial Corp. ................................ 17,120 753,280 Merrill Lynch & Co., Inc. ............................. 6,830 570,851 Morgan Stanley ........................................ 5,830 489,020 --------------- $ 4,259,834 --------------- BUSINESS SERVICES - 0.2% Accenture Ltd., "A" ................................... 8,510 $ 364,994 --------------- CABLE TV - 0.2% Time Warner Cable, Inc. (a) ........................... 8,150 $ 319,236 --------------- CHEMICALS - 0.8% 3M Co. ................................................ 3,200 $ 277,728 Dow Chemical Co. ...................................... 2,910 128,680 PPG Industries, Inc. .................................. 9,940 756,533 Syngenta AG ........................................... 1,540 300,183 --------------- $ 1,463,124 --------------- COMPUTER SOFTWARE - 1.5% Compuware Corp. (a) ................................... 85,960 $ 1,019,486 Oracle Corp. (a) ...................................... 80,200 1,580,742 --------------- $ 2,600,228 --------------- COMPUTER SOFTWARE - SYSTEMS - 0.5% Hewlett-Packard Co. ................................... 16,940 $ 755,863 International Business Machines Corp. ................. 1,900 199,975 --------------- $ 955,838 --------------- CONSTRUCTION - 1.4% D.R. Horton, Inc. ..................................... 23,090 $ 460,184 Masco Corp. ........................................... 59,510 1,694,250 Sherwin-Williams Co. .................................. 2,550 169,499 Toll Brothers, Inc. (a) ............................... 6,750 168,615 --------------- $ 2,492,548 --------------- CONSUMER GOODS & SERVICES - 0.5% Procter & Gamble Co. .................................. 15,400 $ 942,326 --------------- CONTAINERS - 1.1% Owens-Illinois, Inc. (a) .............................. 53,920 $ 1,887,200 Smurfit-Stone Container Corp. (a) ..................... 5,430 72,273 --------------- $ 1,959,473 --------------- ELECTRICAL EQUIPMENT - 2.2% Cooper Industries Ltd., "A" ........................... 960 $ 54,806 General Electric Co. .................................. 33,050 1,265,154 Rockwell Automation, Inc. ............................. 6,260 434,694 Tyco International Ltd. ............................... 43,480 1,469,189 W.W. Grainger, Inc. ................................... 6,310 587,146 WESCO International, Inc. (a) ......................... 2,660 160,797 --------------- $ 3,971,786 --------------- ELECTRONICS - 0.6% Applied Materials, Inc. ............................... 3,430 $ 68,154 Intel Corp. ........................................... 33,900 805,464 SanDisk Corp. (a) ..................................... 5,800 283,852 --------------- $ 1,157,470 --------------- ENERGY - INDEPENDENT - 2.9% Anadarko Petroleum Corp. .............................. 37,480 $ 1,948,585 Apache Corp. .......................................... 8,180 667,406 Devon Energy Corp. .................................... 22,840 1,788,144 EOG Resources, Inc. ................................... 2,970 216,988 Sunoco, Inc. .......................................... 2,020 160,954 Talisman Energy, Inc. ................................. 8,270 159,859 Ultra Petroleum Corp. (a) ............................. 3,130 172,901 --------------- $ 5,114,837 --------------- ENERGY - INTEGRATED - 3.4% Chevron Corp. ......................................... 7,605 $ 640,645 ConocoPhillips ........................................ 9,100 714,350 Exxon Mobil Corp. ..................................... 25,322 2,124,009 Hess Corp. ............................................ 16,390 966,354 Royal Dutch Shell PLC, ADR ............................ 2,310 187,572 TOTAL S.A., ADR ....................................... 17,700 1,433,346 --------------- $ 6,066,276 --------------- FOOD & BEVERAGES - 1.0% Kellogg Co. ........................................... 12,240 $ 633,910 Nestle S.A ............................................ 1,600 607,511 PepsiCo, Inc. ......................................... 8,210 532,419 Tyson Foods, Inc., "A" ................................ 2,860 65,894 --------------- $ 1,839,734 --------------- FOOD & DRUG STORES - 0.6% CVS Caremark Corp. .................................... 20,734 $ 755,754 Sally Beauty Holdings, Inc. (a) ....................... 41,010 369,090 --------------- $ 1,124,844 --------------- FOREST & PAPER PRODUCTS - 0.5% Bowater, Inc. ......................................... 30,140 $ 751,993 MeadWestvaco Corp. .................................... 6,200 218,984 --------------- $ 970,977 --------------- GAMING & LODGING - 0.2% Royal Caribbean Cruises Ltd. .......................... 6,670 $ 286,677 --------------- GENERAL MERCHANDISE - 1.3% Macy's, Inc. .......................................... 52,220 $ 2,077,312 Wal-Mart Stores, Inc. ................................. 4,200 202,062 --------------- $ 2,279,374 --------------- HEALTH MAINTENANCE ORGANIZATIONS - 0.7% UnitedHealth Group, Inc. .............................. 7,090 $ 362,583 WellPoint, Inc. (a) ................................... 10,270 819,854 --------------- $ 1,182,437 --------------- INSURANCE - 5.6% Aflac, Inc. ........................................... 9,310 $ 478,534 Allstate Corp. ........................................ 39,650 2,438,872 Chubb Corp. ........................................... 3,690 199,777 Conseco, Inc. (a) ..................................... 69,000 1,441,410 Genworth Financial, Inc., "A" ......................... 67,890 2,335,416 Hartford Financial Services Group, Inc. ............... 8,780 864,918 MetLife, Inc. ......................................... 14,650 944,632 Principal Financial Group, Inc. ....................... 1,400 81,606 Prudential Financial, Inc. ............................ 400 38,892 Travelers Cos., Inc. .................................. 21,520 1,151,320 --------------- $ 9,975,377 --------------- LEISURE & TOYS - 0.1% Polaris Industries, Inc. .............................. 2,300 $ 124,568 --------------- MACHINERY & TOOLS - 0.6% Deere & Co. ........................................... 6,010 $ 725,647 Eaton Corp. ........................................... 800 74,400 Timken Co. ............................................ 5,450 196,800 --------------- $ 996,847 --------------- MAJOR BANKS - 5.2% Bank of America Corp. ................................. 67,868 $ 3,318,066 Bank of New York Co., Inc. ............................ 45,010 1,865,214 JPMorgan Chase & Co. .................................. 41,032 1,988,000 PNC Financial Services Group, Inc. .................... 11,090 793,822 State Street Corp. .................................... 5,100 348,840 SunTrust Banks, Inc. .................................. 11,500 986,010 --------------- $ 9,299,952 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.4% Omnicare, Inc. ........................................ 7,000 $ 252,420 Tenet Healthcare Corp. (a) ............................ 71,360 464,554 --------------- $ 716,974 --------------- MEDICAL EQUIPMENT - 2.0% Boston Scientific Corp. (a) ........................... 94,170 $ 1,444,568 Cooper Cos., Inc. ..................................... 19,280 1,028,010 DENTSPLY International, Inc. .......................... 4,250 162,605 Pall Corp. ............................................ 19,840 912,442 --------------- $ 3,547,625 --------------- METALS & MINING - 0.1% BHP Billiton PLC ...................................... 6,280 $ 174,127 --------------- NATURAL GAS - DISTRIBUTION - 0.1% Questar Corp. ......................................... 1,800 $ 95,130 --------------- NATURAL GAS - PIPELINE - 0.6% Williams Cos., Inc. ................................... 34,040 $ 1,076,345 --------------- NETWORK & TELECOM - 1.3% Cisco Systems, Inc. (a) ............................... 10,640 $ 296,324 Motorola, Inc. ........................................ 23,200 410,640 Nortel Networks Corp. (a) ............................. 70,127 1,686,554 --------------- $ 2,393,518 --------------- OIL SERVICES - 0.9% GlobalSantaFe Corp. ................................... 8,190 $ 591,728 Halliburton Co. ....................................... 3,300 113,850 Noble Corp. ........................................... 8,425 821,606 --------------- $ 1,527,184 --------------- OTHER BANKS & DIVERSIFIED FINANCIALS - 4.4% American Express Co. .................................. 11,480 $ 702,346 Capital One Financial Corp. ........................... 2,400 188,256 Citigroup, Inc. ....................................... 45,156 2,316,051 Countrywide Financial Corp. ........................... 18,960 689,196 Fannie Mae ............................................ 17,300 1,130,209 Freddie Mac ........................................... 14,170 860,119 New York Community Bancorp, Inc. ...................... 58,470 995,159 UBS AG ................................................ 10,661 637,122 UBS AG ................................................ 5,800 348,058 --------------- $ 7,866,516 --------------- PHARMACEUTICALS - 3.2% Abbott Laboratories ................................... 2,440 $ 130,662 Eli Lilly & Co. ....................................... 10,830 605,180 GlaxoSmithKline PLC ................................... 7,000 183,399 GlaxoSmithKline PLC, ADR .............................. 7,180 376,017 Johnson & Johnson ..................................... 21,270 1,310,657 Merck & Co., Inc. ..................................... 11,120 553,776 Warner Chilcott Ltd., "A" (a) ......................... 25,860 467,807 Wyeth ................................................. 37,970 2,177,200 --------------- $ 5,804,698 --------------- PRINTING & PUBLISHING - 0.8% New York Times Co., "A" ............................... 56,050 $ 1,423,670 --------------- RAILROAD & SHIPPING - 0.4% Burlington Northern Santa Fe Corp. .................... 5,470 $ 465,716 Norfolk Southern Corp. ................................ 4,600 241,822 --------------- $ 707,538 --------------- SPECIALTY CHEMICALS - 0.5% Air Products & Chemicals, Inc. ........................ 7,830 $ 629,297 Praxair, Inc. ......................................... 3,810 274,282 --------------- $ 903,579 --------------- SPECIALTY STORES - 0.2% Lowe's Cos., Inc. ..................................... 2,170 $ 66,597 Staples, Inc. ......................................... 12,700 301,371 --------------- $ 367,968 --------------- TELECOMMUNICATIONS - WIRELESS - 0.4% Sprint Nextel Corp. ................................... 17,500 $ 362,425 Vodafone Group PLC, ADR ............................... 10,439 351,064 --------------- $ 713,489 --------------- TELEPHONE SERVICES - 1.9% AT&T, Inc. ............................................ 18,464 $ 766,256 Embarq Corp. .......................................... 7,910 501,257 Qwest Communications International, Inc. (a) ............................................ 45,790 444,163 TELUS Corp. ........................................... 2,220 133,204 TELUS Corp. (non-voting shares) ....................... 850 50,186 Verizon Communications, Inc. .......................... 38,820 1,598,219 --------------- $ 3,493,285 --------------- TOBACCO - 1.1% Altria Group, Inc. .................................... 28,930 $ 2,029,150 --------------- TRUCKING - 0.1% United Parcel Service, Inc., "B" ...................... 2,300 $ 167,900 --------------- UTILITIES - ELECTRIC POWER - 1.9% Dominion Resources, Inc. .............................. 5,890 $ 508,366 DPL, Inc. ............................................. 8,170 231,538 Edison International .................................. 2,840 159,381 Entergy Corp. ......................................... 2,280 244,758 FPL Group, Inc. ....................................... 19,850 1,126,289 Integrys Energy Group, Inc. ........................... 2,880 146,102 NRG Energy, Inc. (a) .................................. 10,320 429,002 PPL Corp. ............................................. 2,220 103,874 Public Service Enterprise Group, Inc. ................. 5,800 509,124 --------------- $ 3,458,434 --------------- TOTAL COMMON STOCKS (IDENTIFIED COST, $88,861,003) ...................................... $ 106,606,172 --------------- BONDS - 38.7% AGENCY - OTHER - 0.0% Financing Corp., 9.65%, 2018 .......................... $ 45,000 $ 60,665 --------------- ASSET BACKED & SECURITIZED - 4.5% Banc of America Commercial Mortgage, Inc., "A4", FRN, 5.3533%, 2047 ............................ $ 100,000 $ 96,445 Banc of America Commercial Mortgage, Inc., "AM", FRN, 5.3533%, 2047 ............................ 102,153 98,105 Banc of America Commercial Mortgage, Inc., FRN, 4.857%, 2043 ................................... 200,000 188,450 Banc of America Commercial Mortgage, Inc., FRN, 5.482%, 2049 ................................... 161,384 155,966 Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 (z) ......................... 250,000 249,999 Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 ................. 82,288 78,950 BlackRock Capital Finance LP, 7.75%, 2026 (n) ..................................... 37,336 37,202 Chase Commercial Mortgage Securities Corp., 7.543%, 2032 ........................................ 49,756 50,407 Citigroup Commercial Mortgage Trust, 5.462%, 2049 ........................................ 219,581 211,994 Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.648%, 2048 ................................. 200,000 196,195 Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8816%, 2049 (z) .................. 59,453 54,888 Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8816%, 2049 (z) .................. 90,000 81,165 Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3996%, 2044 ........................... 200,000 196,259 Countrywide Asset-Backed Certificates, FRN, 4.823%, 2035 ........................................ 40,020 39,727 Countrywide Asset-Backed Certificates, FRN, 5.689%, 2046 ........................................ 90,000 89,336 Credit Suisse Commercial Mortgage Trust, 5.509%, 2039 ........................................ 128,277 124,145 Credit Suisse Mortgage Capital Certificate, 5.343%, 2039 ........................................ 220,000 210,593 CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (n) ............................................ 103,068 102,326 ASSET BACKED & SECURITIZED - CONTINUED Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 ........................................ 60,125 60,171 Falcon Franchise Loan LLC, 7.382%, 2010 (n) .................................... 16,585 16,739 GE Commercial Mortgage Corp., FRN, 5.5182%, 2044 ................................................ 130,000 125,891 GMAC Mortgage Corp. Loan Trust, FRN, 5.805%, 2036 ........................................ 115,000 114,434 Greenwich Capital Commercial Funding Corp., 4.305%, 2042 ........................................ 107,385 104,612 Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 ................................... 60,728 59,324 Greenwich Capital Commercial Funding Corp., FRN, 6.1126%, 2038 .................................. 100,000 100,637 JPMorgan Chase Commercial Mortgage Securities Corp., 4.78%, 2042 ....................... 152,000 141,354 JPMorgan Chase Commercial Mortgage Securities Corp., 5.552%, 2045 ...................... 210,000 205,220 JPMorgan Chase Commercial Mortgage Securities Corp., 5.44%, 2045 ....................... 106,496 103,021 JPMorgan Chase Commercial Mortgage Securities Corp., 5.372%, 2047 ...................... 170,000 162,660 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3802%, 2041 ................ 39,903 38,863 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.4721%, 2043 ................ 200,000 193,862 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.475%, 2043 ................. 210,000 204,522 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.855%, 2043 ................. 200,000 199,745 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 6.0657%, 2045 ................ 210,000 211,270 JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 ................. 197,476 188,215 LB-UBS Commercial Mortgage Trust, 5.413%, 2039 ........ 56,518 54,438 LB-UBS Commercial Mortgage Trust, 5.455%, 2040 ........ 279,000 268,736 Merrill Lynch Mortgage Trust, FRN, 5.843%, 2039 ....... 197,000 194,883 Merrill Lynch Mortgage Trust, FRN, 5.4405%, 2044 ...... 88,000 84,998 Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.204%, 2049 ................... 220,000 208,813 Morgan Stanley Capital I, Inc., 5.168%, 2042 ........................................ 48,533 46,692 Morgan Stanley Capital I, Inc., FRN, 0.6998%, 2030 (i)(n) ................................ 6,894,350 73,226 Multi-Family Capital Access One, Inc., 6.65%, 2024 ......................................... 39,834 40,148 Residential Asset Mortgage Products, Inc., 4.109%, 2035 ........................................ 90,392 89,605 Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 .................................. 92,000 89,943 Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 .............................. 129,000 127,254 Spirit Master Funding LLC, 5.05%, 2023 (z) ..................................... 183,074 171,402 Structured Asset Securities Corp., FRN, 4.67%, 2035 ......................................... 244,773 242,201 Wachovia Bank Commercial Mortgage Trust, 4.935%, 2042 ........................................ 240,000 226,948 Wachovia Bank Commercial Mortgage Trust, 5.339%, 2048 ........................................ 220,000 210,617 Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 ................................... 50,000 47,145 Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 ................................... 185,000 176,499 Wachovia Bank Commercial Mortgage Trust, FRN, 5.118%, 2042 ................................... 200,000 191,182 Wachovia Bank Commercial Mortgage Trust, FRN, 6.0213%, 2043 (z) .............................. 150,000 139,786 Wachovia Bank Commercial Mortgage Trust, FRN, 5.3683%, 2044 .................................. 130,000 125,028 Wachovia Bank Commercial Mortgage Trust, FRN, 5.4905%, 2044 .................................. 149,000 143,995 Wachovia Bank Commercial Mortgage Trust, FRN, 5.466%, 2045 ................................... 189,000 183,423 Wachovia Bank Commercial Mortgage Trust, FRN, 6.1637%, 2045 .................................. 140,000 141,159 Wachovia Bank Commercial Mortgage Trust, FRN, 5.795%, 2045 ................................... 150,000 148,565 Wachovia Bank Commercial Mortgage Trust, FRN, 5.603%, 2048 ................................... 200,000 195,366 --------------- $ 8,114,744 --------------- AUTOMOTIVE - 0.1% Johnson Controls, Inc., 5.5%, 2016 .................... $ 136,000 $ 131,685 --------------- BROADCASTING - 0.2% CBS Corp., 6.625%, 2011 ............................... $ 137,000 $ 140,620 News America Holdings, 8.5%, 2025 ..................... 99,000 116,270 News America, Inc., 6.2%, 2034 ........................ 42,000 39,152 --------------- $ 296,042 --------------- BROKERAGE & ASSET MANAGERS - 0.4% Goldman Sachs Group, Inc., 5.625%, 2017 ........................................ $ 176,000 $ 168,681 Merrill Lynch & Co., Inc., 6.05%, 2016 ................ 200,000 197,825 Merrill Lynch & Co., Inc., 6.11%, 2037 ................ 130,000 121,982 Morgan Stanley, 5.75%, 2016 ........................... 100,000 97,691 Morgan Stanley Group, Inc., 6.75%, 2011 ......................................... 156,000 161,745 --------------- $ 747,924 --------------- BUILDING - 0.1% CRH America, Inc., 6.95%, 2012 ........................ $ 208,000 $ 216,128 --------------- BUSINESS SERVICES - 0.1% Cisco Systems, Inc., 5.5%, 2016 ....................... $ 135,000 $ 131,734 Xerox Corp., 5.5%, 2012 ............................... 80,000 78,626 Xerox Corp., 6.4%, 2016 ............................... 40,000 40,247 --------------- $ 250,607 --------------- CABLE TV - 0.1% Cox Communications, Inc., 4.625%, 2013 ........................................ $ 159,000 $ 148,919 Time Warner Entertainment Co. LP, 8.375%, 2033 ........ 110,000 127,660 --------------- $ 276,579 --------------- CONGLOMERATES - 0.1% Kennametal, Inc., 7.2%, 2012 .......................... $ 211,000 $ 221,409 --------------- CONSUMER GOODS & SERVICES - 0.2% Fortune Brands, Inc., 5.125%, 2011 .................... $ 158,000 $ 154,178 Western Union Co., 5.4%, 2011 ......................... 210,000 207,181 --------------- $ 361,359 --------------- DEFENSE ELECTRONICS - 0.1% BAE Systems Holdings, Inc., 5.2%, 2015 (n) ...................................... $ 103,000 $ 98,398 --------------- EMERGING MARKET QUASI-SOVEREIGN - 0.0% Pemex Project Funding Master Trust, 8.625%, 2022 ...... $ 39,000 $ 47,964 --------------- EMERGING MARKET SOVEREIGN - 0.1% State of Israel, 4.625%, 2013 ......................... $ 112,000 $ 105,970 --------------- ENERGY - INDEPENDENT - 0.3% Anadarko Petroleum Corp., 5.95%, 2016 ................. $ 80,000 $ 78,114 Nexen, Inc., 5.875%, 2035 ............................. 100,000 89,743 Ocean Energy, Inc., 7.25%, 2011 ....................... 165,000 173,667 XTO Energy, Inc., 5.65%, 2016 ......................... 190,000 184,504 --------------- $ 526,028 --------------- ENTERTAINMENT - 0.1% Walt Disney Co., 5.625%, 2016 ......................... $ 137,000 $ 135,970 --------------- FINANCIAL INSTITUTIONS - 0.7% American Express Co., 5.5%, 2016 ...................... $ 200,000 $ 195,443 Capital One Financial Co., 6.15%, 2016 ................ 130,000 128,348 Capmark Financial Group, Inc., 5.875%, 2012 (z) .................................... 170,000 167,772 CIT Group, Inc., 6.1% to 2017, FRN to 2067 ......................................... 10,000 9,107 Countrywide Financial Corp., 6.25%, 2016 ......................................... 171,000 167,939 HSBC Finance Corp., 5.25%, 2011 ....................... 145,000 143,299 ORIX Corp., 5.48%, 2011 ............................... 210,000 207,020 Residential Capital LLC, 6.875%, 2015 ................. 170,000 164,886 --------------- $ 1,183,814 --------------- FOOD & BEVERAGES - 0.3% Diageo Finance B.V., 5.5%, 2013 ....................... $ 230,000 $ 226,403 Miller Brewing Co., 5.5%, 2013 (n) .................... 276,000 271,385 --------------- $ 497,788 --------------- FOOD & DRUG STORES - 0.1% CVS Caremark Corp., 6.125%, 2016 ...................... $ 110,000 $ 109,047 CVS Caremark Corp., 5.75%, 2017 ....................... 70,000 67,537 --------------- $ 176,584 --------------- FOREST & PAPER PRODUCTS - 0.0% MeadWestvaco Corp., 6.8%, 2032 ........................ $ 69,000 $ 62,967 --------------- GAMING & LODGING - 0.2% Marriott International, Inc., 6.375%, 2017 ............ $ 230,000 $ 230,587 Wyndham Worldwide Corp., 6%, 2016 ..................... 100,000 96,447 --------------- $ 327,034 --------------- INSURANCE - 0.3% American International Group, Inc., 6.25%, 2037 ......................................... $ 100,000 $ 94,551 ING Groep N.V., 5.775% to 2015, FRN to 2049 ......................................... 223,000 215,228 MetLife, Inc., 6.5%, 2032 ............................. 48,000 49,368 MetLife, Inc., 6.4%, 2036 ............................. 120,000 111,162 --------------- $ 470,309 --------------- INSURANCE - PROPERTY & CASUALTY - 0.3% Allstate Corp., 6.125%, 2032 .......................... $ 185,000 $ 181,052 Chubb Corp., 6.375% to 2017, FRN to 2037 ......................................... 200,000 195,580 Fund American Cos., Inc., 5.875%, 2013 ........................................ 117,000 115,053 --------------- $ 491,685 --------------- INTERNATIONAL MARKET QUASI-SOVEREIGN - 0.3% Hydro-Quebec, 6.3%, 2011 .............................. $ 262,000 $ 270,535 Province of Ontario, 5%, 2011 ......................... 200,000 198,012 --------------- $ 468,547 --------------- MACHINERY & TOOLS - 0.1% Atlas Copco AB, 5.6%, 2017 (z) ........................ $ 160,000 $ 155,908 --------------- MAJOR BANKS - 1.4% Bank of America Corp., 5.3%, 2017 ..................... $ 250,000 $ 238,721 Bank of America Corp., 5.49%, 2019 .................... 100,000 94,651 BNP Paribas, 7.195% to 2037, FRN to 2049(z) ...................................... 100,000 101,134 DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049(n) ...................... 170,000 181,181 HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049(n) ...................... 100,000 99,528 MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 ......................... 200,000 196,515 PNC Funding Corp., 5.625%, 2017 ....................... 90,000 88,167 Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049(n) .......................................... 361,000 362,752 UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049(n) ........................ 208,000 229,678 Wachovia Corp., 5.25%, 2014 ........................... 343,000 333,185 Wells Fargo National Bank, 4.75%, 2015 ................ 315,000 295,383 Wells Fargo National Bank, 5.75%, 2016 ................ 250,000 249,567 --------------- $ 2,470,462 --------------- MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.3% Baxter International, Inc., 5.9%, 2016 ................ $ 136,000 $ 135,987 Cardinal Health, Inc., 5.85%, 2017 .................... 106,999 103,908 HCA, Inc., 8.75%, 2010 ................................ 40,000 41,750 Hospira, Inc., 5.55%, 2012 ............................ 50,000 49,565 Hospira, Inc., 6.05%, 2017 ............................ 174,000 171,343 McKesson Corp., 5.7%, 2017 ............................ 100,000 96,610 --------------- $ 599,163 --------------- METALS & MINING - 0.1% Vale Overseas Ltd., 6.25%, 2017 ....................... $ 150,000 $ 148,773 --------------- MORTGAGE BACKED - 14.3% Fannie Mae, 4.01%, 2013 ............................... $ 18,856 $ 17,518 Fannie Mae, 4.545%, 2014 .............................. 141,937 134,424 Fannie Mae, 4.63%, 2014 ............................... 46,682 44,263 Fannie Mae, 4.839%, 2014 .............................. 69,082 66,363 Fannie Mae, 4.56%, 2015 ............................... 38,767 36,675 Fannie Mae, 4.78%, 2015 ............................... 38,957 37,247 Fannie Mae, 4.925%, 2015 .............................. 263,037 253,003 Fannie Mae, 5.09%, 2016 ............................... 40,000 38,862 Fannie Mae, 5.5%, 2016 - 2036 ......................... 8,482,578 8,233,566 Fannie Mae, 4.996%, 2017 .............................. 88,586 85,744 Fannie Mae, 5.05%, 2017 ............................... 39,000 37,775 Fannie Mae, 6%, 2017 - 2037 ........................... 3,793,883 3,774,078 Fannie Mae, 4.5%, 2018 - 2035 ......................... 976,918 918,430 Fannie Mae, 5%, 2018 - 2036 ........................... 2,951,726 2,811,480 Fannie Mae, 6.5%, 2031 - 2037 ......................... 1,046,525 1,062,442 Fannie Mae, 7.5%, 2031 ................................ 24,677 25,756 Freddie Mac, 6%, 2016 - 2037 .......................... 2,015,562 2,008,435 Freddie Mac, 5%, 2017 - 2035 .......................... 2,160,597 2,043,686 Freddie Mac, 4.5%, 2018 - 2035 ........................ 795,553 751,765 Freddie Mac, 5.5%, 2020 - 2035 ........................ 1,614,693 1,569,522 Freddie Mac, 6.5%, 2034 ............................... 198,172 201,206 Ginnie Mae, 4.5%, 2033 - 2034 ......................... 147,459 135,175 Ginnie Mae, 5%, 2033 - 2034 ........................... 158,266 149,839 Ginnie Mae, 5.5%, 2033 - 2035 ......................... 664,063 645,720 Ginnie Mae, 6%, 2033 - 2035 ........................... 464,500 462,939 Ginnie Mae, 6.5%, 2035 - 2036 ......................... 81,592 82,992 --------------- $ 25,628,905 --------------- NATURAL GAS - PIPELINE - 0.3% CenterPoint Energy Resources Corp., 7.875%, 2013 ...... $ 112,000 $ 122,252 Kinder Morgan Energy Partners LP, 6.75%, 2011 ......... 165,000 170,754 Kinder Morgan Energy Partners LP, 5.125%, 2014 ........ 46,000 43,387 Kinder Morgan Energy Partners LP, 7.75%, 2032 ......... 71,000 77,649 Spectra Energy Capital LLC, 8%, 2019 .................. 53,000 58,822 --------------- $ 472,864 --------------- NETWORK & TELECOM - 0.6% AT&T, Inc., 6.15%, 2034 ............................... $ 139,000 $ 133,274 BellSouth Corp., 6.55%, 2034 .......................... 146,000 145,754 Deutsche Telekom B.V., 5.75%, 2016 .................... 176,000 171,690 Telecom Italia Capital, 5.25%, 2013 ................... 60,000 57,172 Telefonica Emisiones S.A.U., 7.045%, 2036 ........................................ 110,000 113,913 Telefonica Europe B.V., 7.75%, 2010 ................... 50,000 53,004 TELUS Corp., 8%, 2011 ................................. 180,000 192,483 Verizon New York, Inc., 6.875%, 2012 .................. 286,000 298,186 --------------- $ 1,165,476 --------------- OIL SERVICES - 0.0% Halliburton Co., 5.5%, 2010 ........................... $ 38,000 $ 37,963 Weatherford International, Inc., 6.35%, 2017 (z) ..................................... 40,000 40,528 --------------- $ 78,491 --------------- OILS - 0.1% Valero Energy Corp., 6.875%, 2012 ..................... $ 111,000 $ 116,243 --------------- OTHER BANKS & DIVERSIFIED FINANCIALS - 0.8% Citigroup, Inc., 5%, 2014 ............................. $ 250,000 $ 237,815 Credit Suisse (USA), Inc., 4.125%, 2010 ............... 171,000 165,906 Credit Suisse (USA), Inc., 4.875%, 2010 ............... 121,000 119,170 Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) ..................... 190,000 187,869 Nordea Bank AB, 5.424% to 2015, FRN to 2049 (n) ..................................... 100,000 94,353 UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 ......................... 190,000 190,750 UFJ Finance Aruba AEC, 6.75%, 2013 .................... 145,000 153,105 Woori Bank, 6.125% to 2011, FRN to 2016 (n) ..................................... 220,000 221,055 --------------- $ 1,370,023 --------------- PHARMACEUTICALS - 0.1% Allergan, Inc., 5.75%, 2016 ........................... $ 160,000 $ 159,117 --------------- POLLUTION CONTROL - 0.1% Waste Management, Inc., 7.375%, 2010 .................. $ 134,000 $ 140,393 --------------- RAILROAD & SHIPPING - 0.2% Burlington Northern Santa Fe Corp., 5.65%, 2017 ....... $ 200,000 $ 194,831 CSX Corp., 6.75%, 2011 ................................ 35,000 36,173 CSX Corp., 7.9%, 2017 ................................. 120,000 133,608 Union Pacific Corp., 6.125%, 2012 ..................... 50,000 50,651 --------------- $ 415,263 --------------- REAL ESTATE - 0.5% Boston Properties, Inc., REIT, 5%, 2015 ............... $ 42,000 $ 39,736 Erp Operating LP, 5.75%, 2017 ......................... 180,000 176,464 HRPT Properties Trust, REIT, 6.25%, 2016 ......................................... 180,000 181,080 Kimco Realty Corp., REIT, 5.783%, 2016 ................ 100,000 98,748 ProLogis, REIT, 5.75%, 2016 ........................... 179,000 176,557 Simon Property Group LP, REIT, 5.1%, 2015 .......................................... 193,000 183,456 --------------- $ 856,041 --------------- RETAILERS - 0.3% Federated Retail Holdings, Inc., 5.35%, 2012 ......................................... $ 40,000 $ 39,298 Home Depot, Inc., 5.4%, 2016 .......................... 122,000 114,362 Limited Brands, Inc., 5.25%, 2014 ..................... 165,000 153,476 Wal-Mart Stores, Inc., 5.25%, 2035 .................... 194,000 169,585 --------------- $ 476,721 --------------- TELECOMMUNICATIONS - WIRELESS - 0.2% Cingular Wireless LLC, 6.5%, 2011 ..................... $ 35,000 $ 36,195 Nextel Communications, Inc., 5.95%, 2014 ......................................... 180,000 171,442 Vodafone Group PLC, 5.625%, 2017 ...................... 182,000 174,027 --------------- $ 381,664 --------------- U.S. GOVERNMENT AGENCIES - 1.5% Aid-Egypt, 4.45%, 2015 ................................ $ 152,000 $ 142,526 Fannie Mae, 6.625%, 2009 - 2010 ....................... 1,428,000 1,486,118 Fannie Mae, 6%, 2011 .................................. 165,000 169,342 Federal Home Loan Bank, 3.9%, 2008 .................... 40,000 39,628 Small Business Administration, 4.35%, 2023 ......................................... 38,767 36,174 Small Business Administration, 4.77%, 2024 ......................................... 94,778 90,257 Small Business Administration, 4.99%, 2024 ......................................... 132,794 128,005 Small Business Administration, 5.18%, 2024 ......................................... 156,603 152,901 Small Business Administration, 5.52%, 2024 ......................................... 225,763 224,804 Small Business Administration, 4.95%, 2025 ......................................... 102,605 97,421 Small Business Administration, 5.09%, 2025 ......................................... 125,411 120,885 Small Business Administration, 5.39%, 2025 ......................................... 95,746 94,107 --------------- $ 2,782,168 --------------- U.S. TREASURY OBLIGATIONS - 8.1% U.S. Treasury Bonds, 8%, 2021 ......................... $ 37,000 $ 47,340 U.S. Treasury Bonds, 6.25%, 2023 ...................... 211,000 234,293 U.S. Treasury Bonds, 6%, 2026 ......................... 15,000 16,373 U.S. Treasury Bonds, 6.75%, 2026 ...................... 933,000 1,103,856 U.S. Treasury Bonds, 5.375%, 2031 ..................... 1,707,000 1,752,876 U.S. Treasury Bonds, 4.5%, 2036 ....................... 175,000 158,457 U.S. Treasury Notes, 5.625%, 2008 ..................... 1,855,000 1,864,275 U.S. Treasury Notes, 3.125%, 2008 ..................... 2,315,000 2,262,371 U.S. Treasury Notes, 4.75%, 2008 ...................... 46,000 45,853 U.S. Treasury Notes, 4.5%, 2009 ....................... 2,916,000 2,894,812 U.S. Treasury Notes, 4%, 2009 ......................... 23,000 22,624 U.S. Treasury Notes, 4.875%, 2009 ..................... 1,553,000 1,551,908 U.S. Treasury Notes, 6.5%, 2010 ....................... 128,000 132,950 U.S. Treasury Notes, 5.125%, 2011 ..................... 180,000 181,364 U.S. Treasury Notes, 10.375%, 2012 .................... 140,000 142,669 U.S. Treasury Notes, 3.875%, 2013 ..................... 199,000 189,003 U.S. Treasury Notes, 4.25%, 2013 ...................... 250,000 240,684 U.S. Treasury Notes, 4.75%, 2014 ...................... 150,000 148,125 U.S. Treasury Notes, TIPS, 4.25%, 2010 ................ 821,679 852,813 U.S. Treasury Notes, TIPS, 2%, 2014 ................... 730,283 701,813 --------------- $ 14,544,459 --------------- UTILITIES - ELECTRIC POWER - 1.1% Dominion Resources, Inc., 5.15%, 2015 ................. $ 141,000 $ 133,923 Exelon Generation Co. LLC, 6.95%, 2011 ................ 232,000 240,863 FirstEnergy Corp., 6.45%, 2011 ........................ 209,000 214,311 MidAmerican Energy Holdings Co., 3.5%, 2008 ........... 118,000 115,997 MidAmerican Energy Holdings Co., 5.875%, 2012 ......... 61,000 61,526 MidAmerican Funding LLC, 6.927%, 2029 ................. 154,000 166,264 Oncor Electric Delivery Co., 7%, 2022 ................. 152,000 158,746 Pacific Gas & Electric Co., 4.8%, 2014 ................ 45,000 42,529 Pacific Gas & Electric Co., 5.8%, 2037 ................ 50,000 46,639 PSEG Power LLC, 6.95%, 2012 ........................... 71,000 74,314 PSEG Power LLC, 5.5%, 2015 ............................ 90,000 86,570 System Energy Resources, Inc., 5.129%, 2014 (n) .................................... 85,401 82,619 TXU Energy Co., 7%, 2013 .............................. 132,000 136,157 Waterford 3 Funding Corp., 8.09%, 2017 ......................................... 326,415 333,318 --------------- $ 1,893,776 --------------- TOTAL BONDS (IDENTIFIED COST, $70,717,980) ...................................... $ 69,126,110 --------------- SHORT-TERM OBLIGATIONS - 1.4% New Center Asset Trust, 5.36%, due 7/02/07, at Amortized Cost and Value (y) ........ $ 2,484,000 $ 2,483,630 --------------- TOTAL INVESTMENTS (IDENTIFIED COST, $162,062,613) (k) ................................. $ 178,215,912 --------------- OTHER ASSETS, LESS LIABILITIES - 0.3% ............................................... 582,822 --------------- NET ASSETS - 100.0% ................................................... $ 178,798,734 --------------- See portfolio footnotes and notes to financial statements.
Portfolio Footnotes: (a) Non-income producing security. (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 variable account receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. (k) As of June 30, 2007, the variable accounts held securities fair valued in accordance with the policies adopted by the Board of Managers. An independent pricing service provided an evaluated bid for a percent of the market value.
% OF EVALUATED VARIABLE ACCOUNT MARKET VALUE MARKET VALUE BID % --------------------------------------------------------------------------------------------------------------------------------- Global Governments Variable Account ......................................... $ 7,192,031 87.44% 87.44%(1) Government Securities Variable Account ...................................... 67,288,938 96.75 96.35 High Yield Variable Account ................................................. 46,481,071 86.12 85.89 Total Return Variable Account ............................................... 72,400,887 40.63 38.49 (1) Non evaluated bid percentage less than 0.01%. (n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was: % OF VARIABLE ACCOUNT MARKET VALUE NET ASSETS ---------------------------------------------------------------------------------------------------------------------------------- Global Governments Variable Account ............................................................. $ 306,721 3.6% Government Securities Variable Account .......................................................... 693,912 1.0 High Yield Variable Account ..................................................................... 9,820,842 17.9 Total Return Variable Account ................................................................... 2,058,311 1.2 (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. (z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The variable a ccounts hold the following restricted securities: CURRENT TOTAL % VARIABLE ACQUISITION ACQUISITION MARKET OF NET ACCOUNT RESTRICTED SECURITIES DATE COST VALUE ASSETS --------------------------------------------------------------------------------------------------------------------------------- GLOBAL GOVERNMENTS VARIABLE ACCOUNT Republic of Austria, 5%, 2012 ....................... 11/07/02 - 6/13/07 $305,779 $ 308,821 3.6% ========== ==== HIGH YIELD Asset Securitization Corp., FRN, 8.6363%, 2029 ...... 1/25/05 $172,565 $ 211,071 VARIABLE Bristow Group, Inc., 7.5%, 2017 ..................... 6/07/07 115,000 115,288 ACCOUNT CanWest MediaWorks LP, 9.25%, 2015 .................. 6/28/07 120,000 120,300 Claire's Stores, Inc., 10.5%, 2017 .................. 6/26/07 74,200 73,000 Community Health Systems, Inc., 8.875%, 2015 ........ 6/27/07 347,529 354,813 Knology, Inc. ....................................... 10/16/97 -- 2,023 Spansion LLC, 11.25%, 2016 .......................... 6/07/07 - 6/12/07 195,519 190,550 VWR Funding, Inc., 10.25%, 2015 ..................... 6/26/07 135,000 134,663 Wachovia Credit, CDO, FRN, 6.71%, 2026 .............. 6/08/06 250,000 243,025 --------------------------------------------------------------------------------------------------------------------------------- Total Restricted Securities ......................... $1,444,733 2.6% ========== ==== TOTAL RETURN Atlas Copco AB, 5.6%, 2017 .......................... 5/15/07 $159,928 $ 155,908 VARIABLE Bayview Financial Revolving Mortgage Loan Trust, FRN, ACCOUNT 6.12%, 2040 ....................................... 3/01/06 250,000 249,999 BNP Paribas, 7.195% to 2037, FRN to 2049 ............ 6/18/07 100,000 101,134 Capmark Financial Group, Inc., 5.875%, 2012 ......... 5/03/07 169,927 167,772 Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8816%, 2049 ........................... 3/14/07 58,983 54,888 Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8816%, 2049 ........................... 3/14/07 88,632 81,165 KKR Private Equity Investments LP, IEU .............. 5/03/06 165,000 148,500 Spirit Master Funding LLC, 5.05%, 2023 .............. 10/04/05 180,714 171,402 Wachovia Bank Commercial Mortgage Trust, FRN, 6.0213%, 2043 ..................................... 3/14/07 150,240 139,786 Weatherford International, Inc., 6.35%, 2017 ........ 6/14/07 39,968 40,528 --------------------------------------------------------------------------------------------------------------------------------- Total Restricted Securities ......................... $1,311,082 0.7% ========== ==== The following abbreviations are used in this report and are defined: ADR American Depository Receipt CDO Collateralized Debt Obligation CLN Credit-Linked Note FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at 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 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 BRL Brazilian Real CAD Canadian Dollar CHF Swiss Franc DKK Danish Krone EUR Euro GBP British Pound JPY Japanese Yen MXN Mexican Peso MYR Malaysian Ringgit NOK Norwegian Krone PLN Polish Zloty SEK Swedish Krona SGD Singapore Dollar See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2007 (000 Omitted)
Capital Apprecia- Global Government High Money Total tion Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account -------- -------- -------- -------- -------- -------- Assets: Investments -- Investments, cost .............................. $182,372 $ 8,344 $ 71,375 $ 53,857 $ 48,371 $162,063 Unrealized appreciation (depreciation) ......... 22,771 (119) (1,828) 116 -- 16,153 -------- -------- -------- -------- -------- -------- Total investments, at value .................. $205,143 $ 8,225 $ 69,547 $ 53,973 $ 48,371 $178,216 Cash ............................................. 1 0* 0* 94 -- 72 Receivable for forward foreign currency exchange contracts ............................. -- 22 -- -- -- -- Receivable for daily variation margin on open futures contracts ......................... -- 1 -- -- -- -- Receivable for investments sold .................. 15,943 130 1,567 917 -- 1,162 Receivable for units sold ........................ 5 117 319 2 3 46 Interest and dividends receivable ................ 203 124 736 987 19 796 Receivable from investment adviser ............... -- 5 -- -- -- -- Receivable from sponsor .......................... -- -- -- 3 -- 0* Unrealized appreciation on credit default swaps ................................... -- -- -- 4 -- -- Other assets ..................................... 3 0* 1 1 1 3 -------- -------- -------- -------- -------- -------- Total assets ................................. $221,298 $ 8,624 $ 72,170 $ 55,981 $ 48,394 $180,295 ======== ======== ======== ======== ======== ======== Liabilities: Payable for forward foreign currency exchange contracts ...................................... $ -- $ 17 $ -- $ -- $ -- $ -- Payable for forward currency exchange contracts subject to master netting agreements ........... -- 26 -- -- -- -- Payable for daily variation on open futures contracts ...................................... -- -- 2 -- -- -- Payable for investments purchased ................ 14,019 -- -- 1,080 -- 1,258 Payable for units surrendered .................... 97 1 31 57 496 166 Unnrealized depreciation on credit default swaps . -- -- -- 9 -- -- Payable to affiliates -- Investment Adviser ............................. 13 1 3 3 2 11 Administrative services fee .................... 1 0* 0* 0* 0* 0* Sponsor ........................................ 6 0* 21 -- 8 -- Accrued expenses and other liabilities ........... 50 38 33 44 14 61 -------- -------- -------- -------- -------- -------- Total liabilities ............................ $ 14,186 $ 83 $ 90 $ 1,193 $ 520 $ 1,496 -------- -------- -------- -------- -------- -------- Net assets ................................. $207,112 $ 8,541 $ 72,080 $ 54,788 $ 47,874 $178,799 ======== ======== ======== ======== ======== ======== * Amount was less than $500. See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2007 -- continued (000 Omitted except for unit values)
Capital Apprecia- Global Government High Money Total tion 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 ................... 2,138 $61.871 $132,296 Compass 3 ................... 98 40.697 3,977 Compass 3 - Level 2 ......... 3,994 17.003 67,913 Global Governments Variable Account -- Compass 2 ................... 93 $25.298 $ 2,362 Compass 3 ................... 19 24.576 458 Compass 3 - Level 2 ......... 391 14.469 5,664 Government Securities Variable Account -- Compass 2 ................... 1,407 $38.684 $ 54,420 Compass 3 ................... 36 26.956 979 Compass 3 - Level 2 ......... 958 15.844 15,182 High Yield Variable Account -- Compass 2 ................... 1,032 $41.086 $ 42,391 Compass 3 ................... 30 30.115 899 Compass 3 - Level 2 ......... 647 16.178 10,468 Money Market Variable Account -- Compass 2 ................... 940 $21.336 $ 20,053 Compass 3 ................... 88 17.434 1,542 Compass 3 - Level 2 ......... 1,971 13.117 25,858 Total Return Variable Account -- Compass 2 ................... 1,045 $54.074 $ 56,497 Compass 3 ................... 127 52.534 6,672 Compass 3 - Level 2 ......... 4,459 25.493 113,680 -------- -------- -------- -------- -------- -------- Net assets applicable to owners of deferred contracts 204,186 8,484 70,581 53,758 47,453 176,849 Reserve for variable annuities -- Compass 2 Contracts ............................ 2,629 17 1,455 983 323 1,398 Compass 3 Contracts ............................ 1 1 -- 1 1 2 Compass 3 - Level 2 Contracts .................. 296 39 44 46 97 550 -------- -------- -------- -------- -------- -------- Net assets ................................... $207,112 $ 8,541 $ 72,080 $ 54,788 $ 47,874 $178,799 ======== ======== ======== ======== ======== ======== See notes to financial statements.
STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2007 (000 Omitted)
Capital Apprecia- Global Government High Money Total tion Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account -------- -------- -------- -------- -------- -------- Net investment income (loss): Income -- Interest ....................................... $ 118 $ 182 $ 2,002 $ 2,330 $ 1,259 $ 1,951 Dividends ...................................... 1,257 -- -- 11 -- 1,086 -------- -------- -------- -------- -------- -------- Total investment income ...................... $ 1,375 $ 182 $ 2,002 $ 2,341 $ 1,259 $ 3,037 -------- -------- -------- -------- -------- -------- Expenses -- Mortality and expense risk charges ............. $ 1,331 $ 55 $ 473 $ 366 $ 296 $ 1,109 Management fee ................................. 790 33 206 217 117 672 Boards of Managers fees ........................ 10 0* 3 3 2 8 Distribution fee ............................... 3 0* 1 1 1 5 Administrative fee ............................. 30 5 11 8 7 26 Custodian fee .................................. 22 21 12 7 6 19 Printing ....................................... 8 1 4 4 5 5 Auditing fees .................................. 17 22 20 22 11 23 Legal fees ..................................... 3 3 3 3 3 3 Miscellaneous .................................. 10 4 5 4 5 11 -------- -------- -------- -------- -------- -------- Total expenses ............................... $ 2,224 $ 144 $ 738 $ 635 $ 453 $ 1,881 Fees paid indirectly ........................... (0)* -- (0)* (0)* (0)* (1) Reduction of expenses by Investment Adviser .... -- (34) -- (15) -- -- -------- -------- -------- -------- -------- -------- Net expenses ................................. $ 2,224 $ 110 $ 738 $ 620 $ 453 $ 1,880 -------- -------- -------- -------- -------- -------- Net investment income (loss) ................. $ (849) $ 72 $ 1,264 $ 1,721 $ 806 $ 1,157 -------- -------- -------- -------- -------- -------- Realized and unrealized gain (loss) on investments: Realized gain (loss) (identified cost basis) -- Investment transactions ........................ $ 8,828 $ 55 $ 583 $ 877 $ -- $ 8,992 Futures contracts .............................. -- (1) 64 -- -- -- Swap transactions .............................. -- -- -- 13 -- -- Foreign currency transactions .................. (1) (45) -- -- -- (2) -------- -------- -------- -------- -------- -------- Net realized gain (loss) on investments and foreign currency transactions .............. $ 8,827 $ 9 $ 647 $ 890 $ -- $ 8,990 -------- -------- -------- -------- -------- -------- Change in unrealized appreciation (depreciation) -- Investments .................................... $ 5,418 $ (218) $ (1,699) $ (1,250) $ -- $ (898) Futures contracts .............................. -- 0* (35) -- -- -- Swap transactions .............................. -- -- -- (4) -- -- Translation of assets and liabilities in foreign currencies ........................... (0)* (13) -- -- -- -- -------- -------- -------- -------- -------- -------- Net unrealized gain (loss) on investments and foreign currency translation ........... $ 5,418 $ (231) $ (1,734) $ (1,254) $ -- $ (898) -------- -------- -------- -------- -------- -------- Net realized and unrealized gain (loss) on investments and foreign currency ........... $ 14,245 $ (222) $ (1,087) $ (364) $ -- $ 8,092 -------- -------- -------- -------- -------- -------- Change in net assets from operations ............. $ 13,396 $ (150) $ 177 $ 1,357 $ 806 $ 9,249 ======== ======== ======== ======== ======== ======== * 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 6/30/07 Year Ended 6/30/07 Year Ended 6/30/07 Year Ended (Unaudited) 12/31/06 (Unaudited) 12/31/06 (Unaudited) 12/31/06 -------- -------- -------- -------- -------- -------- Change in net assets: From operations: Net investment income (loss) ................... $ (849) $ (2,616) $ 72 $ 140 $ 1,264 $ 2,792 Net realized gain (loss) on investments and foreign currency transactions ............ 8,827 3,539 9 (100) 647 (433) Net unrealized gain (loss) on investments and foreign currency translation ............. 5,418 9,410 (231) 282 (1,734) (392) -------- -------- -------- -------- -------- -------- Change in net assets from operations ......... $ 13,396 $ 10,333 $ (150) $ 322 $ 177 $ 1,967 -------- -------- -------- -------- -------- -------- Participant transactions: Accumulation activity: Purchase payments received ..................... $ 1,473 $ 4,393 $ 96 $ 279 $ 478 $ 1,459 Net transfers between variable and fixed accumulation accounts ........................ (5,373) (6,547) 100 (22) (917) (1,158) Withdrawals, surrenders, annuitizations, and contract charges ............................. (20,462) (48,533) (628) (1,676) (6,282) (16,396) -------- -------- -------- -------- -------- -------- Net accumulation activity .................... $(24,362) $(50,687) $ (432) $ (1,419) $ (6,721) $(16,095) -------- -------- -------- -------- -------- -------- Annuitization activity: Annuitizations ................................... $ 18 $ 293 $ 4 $ -- $ 182 $ 309 Annuity payments and contract charges ............ (206) (449) (3) (7) (149) (234) Net transfers among accounts for annuity reserves ................................ (168) -- -- -- -- -- Adjustments to annuity reserves .................. 26 (39) (5) 5 (4) (24) -------- -------- -------- -------- -------- -------- Net annuitization activity ..................... $ (330) $ (195) $ (4) $ (2) $ 29 $ 51 -------- -------- -------- -------- -------- -------- Change in net assets from participations transactions ................................... $(24,692) $(50,882) $ (436) $ (1,421) $ (6,692) $(16,044) -------- -------- -------- -------- -------- -------- Total change in net assets ..................... $(11,296) $(40,549) $ (586) $ (1,099) $ (6,515) $(14,077) Net assets: At beginning of period ........................... 218,408 258,957 9,127 10,226 78,595 92,672 -------- -------- -------- -------- -------- -------- At end of period ................................. $207,112 $218,408 $ 8,541 $ 9,127 $ 72,080 $ 78,595 ======== ======== ======== ======== ======== ======== 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 6/30/07 Year Ended 6/30/07 Year Ended 6/30/07 Year Ended (Unaudited) 12/31/06 (Unaudited) 12/31/06 (Unaudited) 12/31/06 -------- -------- -------- -------- -------- -------- Change in net assets: From operations: Net investment income .......................... $ 1,721 $ 3,577 $ 806 $ 1,655 $ 1,157 $ 2,660 Net realized gain (loss) on investments and foreign currency transactions ............ 890 (1,046) -- -- 8,990 10,962 Net unrealized gain (loss) on investments and foreign currency translation ............. (1,254) 2,730 -- -- (898) 4,841 -------- -------- -------- -------- -------- -------- Change in net assets from operations ......... $ 1,357 $ 5,261 $ 806 $ 1,655 $ 9,249 $ 18,463 -------- -------- -------- -------- -------- -------- Participant transactions: Accumulation activity: Purchase payments received ..................... $ 360 $ 761 $ 562 $ 1,321 $ 1,961 $ 4,300 Net transfers between variable and fixed accumulation accounts ........................ (1,520) (749) 5,190 (342) 1,809 2,227 Withdrawals, surrenders, annuitizations, and contract charges ............................. (4,579) (10,582) (6,218) (11,845) (16,263) (36,753) -------- -------- -------- -------- -------- -------- Net accumulation activity .................... $ (5,739) $(10,570) $ (466) $(10,866) $(12,493) $(30,226) -------- -------- -------- -------- -------- -------- Annuitization activity: Annuitizations ................................... $ 9 $ 69 $ (60) $ 15 $ 32 $ 35 Annuity payments and contract charges ............ (82) (172) (67) (161) (178) (341) Net transfers among accounts for annuity reserves ....................................... -- -- -- -- 168 -- Adjustments to annuity reserves .................. (31) 30 70 (75) (12) 6 -------- -------- -------- -------- -------- -------- Net annuitization activity ..................... $ (104) $ (73) $ (57) $ (221) $ 10 $ (300) -------- -------- -------- -------- -------- -------- Change in net assets from participations transactions ................................... $ (5,843) $(10,643) $ (523) $(11,087) $(12,483) $(30,526) -------- -------- -------- -------- -------- -------- Total change in net assets ..................... $ (4,486) $ (5,382) $ 283 $ (9,432) $ (3,234) $(12,063) Net assets: At beginning of period ........................... 59,274 64,656 47,591 57,023 182,033 194,096 -------- -------- -------- -------- -------- -------- At end of period ................................. $ 54,788 $ 59,274 $ 47,874 $ 47,591 $178,799 $182,033 ======== ======== ======== ======== ======== ======== 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 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account held for the entire period.
Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 58.101 $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.466 $ 0.560 $ 0.580 $ 0.744 $ 0.402 $ 0.369 Expenses ......................................... (0.756) (1.198) (1.179) (1.109) (0.951) (1.002) -------- -------- -------- -------- -------- -------- Net investment loss .......................... $ (0.290) $ (0.638) $ (0.599) $ (0.365) $ (0.549) $ (0.633) Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... 4.060 3.293 0.420 5.176 11.504 (18.954) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 3.770 $ 2.655 $ (0.179) $ 4.811 $ 10.955 $(19.587) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 61.871 $ 58.101 $ 55.446 $ 55.625 $ 50.814 $ 39.859 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 6.49(n) 4.79 (0.32) 9.47(b) 27.48(j) (32.95) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.15(a) 2.15 2.16 2.14 2.12 2.12 Net investment loss .............................. (0.81)(a) (1.11) (1.108) (0.70) (1.20) (1.36) Portfolio turnover (%) ............................. 27 61 130 65 104 80 Number of units outstanding at end of period (000 Omitted) .................................... 2,138 2,419 3,018 3,544 4,040 4,521 Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 38.235 $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.309 $ 0.355 $ 0.370 $ 0.458 $ 0.260 $ 0.240 Expenses ......................................... (0.532) (0.807) (0.795) (0.753) (0.648) (0.688) -------- -------- -------- -------- -------- -------- Net investment loss .......................... $ (0.223) $ (0.452) $ (0.425) $ (0.295) $ (0.388) $ (0.448) Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... 2.685 2.163 0.271 3.434 7.593 (12.532) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 2.462 $ 1.711 $ (0.154) $ 3.139 $ 7.205 $(12.980) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 40.697 $ 38.235 $ 36.524 $ 36.678 $ 33.539 $ 26.334 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 6.44(n) 4.69 (0.42) 9.36(b) 27.36(j) (33.02) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.25(a) 2.25 2.26 2.24 2.22 2.22 Net investment loss .............................. (0.97)(a) (1.30) (1.20) (0.87) (1.31) (1.42) Portfolio turnover (%) ............................. 27 61 130 65 104 80 Number of units outstanding at end of period (000 Omitted) ................................... 98 128 237 413 621 812 Capital Appreciation Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 15.963 $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.126 $ 0.152 $ 0.158 $ 0.205 $ 0.109 $ 0.100 Expenses ......................................... (0.201) (0.320) (0.316) (0.297) (0.254) (0.260) -------- -------- -------- -------- -------- -------- Net investment loss .......................... $ (0.075) $ (0.168) $ (0.158) $ (0.092) $ (0.145) $ (0.160) Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... 1.115 0.905 0.117 1.419 3.156 (5.203) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 1.040 $ 0.737 $ (0.041) $ 1.327 $ 3.011 $ (5.363) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 17.003 $ 15.963 $ 15.226 $ 15.267 $ 13.940 $ 10.929 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 6.52(n) 4.84 (0.27) 9.52(b) 27.55(j) (32.92) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.10(a) 2.10 2.11 2.09 2.07 2.07 Net investment loss .............................. (0.78)(a) (1.13) (1.05) (0.65) (1.17) (1.32) Portfolio turnover (%) ............................. 27 61 130 65 104 80 Number of units outstanding at end of period (000 Omitted) .................................... 3,994 4,378 5,248 5,798 6,086 6,148 (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 resulted in an increase in the 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 the average number of units outstanding during each year. (f) Ratios do not reflect reductions from fees paid indirectly. (j) The account's 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 proceeds resulted in an increase in the net asset value of $0.900, $0.594, and $0.247 per unit for Compass 2, Compass 3, and Compass 3 - Level 2, res pectively, based on units outstanding on the day the proceeds were received. Excluding the effect of this payment from the ending net as set 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. (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 account unit class (assuming reinvestment of all distributions) held for the entire period.
Global Governments Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 25.732 $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.620 $ 1.003 $ 0.925 $ 0.872 $ 0.877 $ 0.861 Expenses ......................................... (0.375) (0.629) (0.651) (0.633) (0.584) (0.486) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.245 $ 0.374 $ 0.274 $ 0.239 $ 0.293 $ 0.375 Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... (0.679) 0.493 (2.649) 1.832 2.751 3.097 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ (0.434) $ 0.867 $ (2.375) $ 2.071 $ 3.044 $ 3.472 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 25.298 $ 25.732 $ 24.865 $ 27.240 $ 25.169 $ 22.125 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r) .......................... (1.69)(n) 3.49 (8.72) 8.23 13.76 18.61 Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 3.27(a) 3.39 2.95 2.67 2.47 2.44 Expenses after expense reductions (f) ............ 2.50(a) 2.50 2.50 2.50 N/A 2.50(e) Net investment income ............................ 1.63(a) 1.48 1.04 0.94 1.23 1.73 Portfolio turnover (%) ............................. 49 118 144 128 130 126 Number of units outstanding at end of period (000 Omitted) ................................... 93 104 116 128 161 160 Global Governments Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 25.017 $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.615 $ 1.025 $ 0.949 $ 0.883 $ 0.869 $ 0.846 Expenses ......................................... (0.384) (0.659) (0.688) (0.662) (0.600) (0.511) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.231 $ 0.366 $ 0.261 $ 0.221 $ 0.269 $ 0.335 Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... (0.672) 0.442 (2.613) 1.762 2.671 3.034 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ (0.441) $ 0.808 $ (2.352) $ 1.983 $ 2.940 $ 3.369 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 24.576 $ 25.017 $ 24.209 $ 26.561 $ 24.578 $ 21.638 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r) .......................... (1.76)(n) 3.34 (8.85) 8.07 13.59 18.44 Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 3.42(a) 3.54 3.10 2.82 2.62 2.56 Expenses after expense reductions (f) ............ 2.65(a) 2.65 2.65 2.65 N/A 2.65(e) Net investment income ............................ 1.62(a) 1.41 0.97 0.85 1.15 1.77 Portfolio turnover (%) ............................. 49 118 144 128 130 126 Number of units outstanding at end of perio (000 Omitted) ................................... 19 18 26 28 41 58 Global Governments Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 14.718 $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.354 $ 0.574 $ 0.526 $ 0.497 $ 0.494 $ 0.499 Expenses ......................................... (0.213) (0.361) (0.371) (0.361) (0.331) (0.281) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.141 $ 0.213 $ 0.155 $ 0.136 $ 0.163 $ 0.218 Net realized and unrealized gain (loss) on investments and foreign currency transactions ................................... (0.390) 0.284 (1.514) 1.048 1.578 1.768 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ (0.249) $ 0.497 $ (1.359) $ 1.184 $ 1.741 $ 1.986 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 14.469 $ 14.718 $ 14.221 $ 15.580 $ 14.396 $ 12.655 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r) .......................... (1.69)(n) 3.49 (8.72) 8.23 13.76 18.61 Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 3.27(a) 3.39 2.95 2.67 2.47 2.42 Expenses after expense reductions (f) ............ 2.50(a) 2.50 2.50 2.50 N/A 2.50(e) Net investment income ............................ 1.64(a) 1.47 1.04 0.94 1.21 1.70 Portfolio turnover (%) ............................. 49 118 144 128 130 126 Number of units outstanding at end of period (000 Omitted) .................................... 391 403 468 500 559 568 (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. (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 variable account share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account share class (assuming reinvestment of all distributions) held for the entire period.
Government Securities Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 38.619 $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 1.243 $ 2.024 $ 1.936 $ 1.834 $ 1.482 $ 1.862 Expenses ......................................... (0.459) (0.757) (0.752) (0.726) (0.711) (0.677) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.784 $ 1.267 $ 1.184 $ 1.108 $ 0.771 $ 1.185 Net realized and unrealized gain (loss) on investments and foreign currency transactions .................................... (0.719) (0.327) (0.843) (0.240) (0.425) 1.491 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.065 $ 0.940 $ 0.341 $ 0.868 $ 0.346 $ 2.676 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 38.684 $ 38.619 $ 37.679 $ 37.338 $ 36.470 $ 36.124 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 0.17(n) 2.50 0.91 2.38 0.96 8.00 Ratios (%) (to average net assets): Expenses (f) ..................................... 2.01(a) 2.01 2.01 1.97 1.95 1.94 Net investment income ............................ 3.37(a) 3.28 3.09 2.96 2.08 3.19 Portfolio turnover (%) ............................. 18 17 69 89 138 139 Number of units outstanding at end of period (000 Omitted) .................................... 1,407 1,538 1,852 2,125 2,447 2,759 Government Securities Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 26.924 $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.881 $ 1.352 $ 1.316 $ 1.244 $ 1.045 $ 1.300 Expenses ......................................... (0.336) (0.538) (0.543) (0.525) (0.514) (0.495) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.545 $ 0.814 $ 0.773 $ 0.719 $ 0.531 $ 0.805 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.513) (0.185) (0.560) (0.138) (0.314) 1.045 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.032 $ 0.629 $ 0.213 $ 0.581 $ 0.217 $ 1.850 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 26.956 $ 26.924 $ 26.295 $ 26.082 $ 25.501 $ 25.284 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 0.12(n) 2.40 0.82 2.28 0.86 7.89 Ratios (%) (to average net assets): Expenses (f) ..................................... 2.11(a) 2.11 2.11 2.07 2.05 2.04 Net investment income ............................ 3.46(a) 3.15 2.96 2.82 2.08 3.36 Portfolio turnover (%) ............................. 18 17 69 89 138 139 Number of units outstanding at end of period (000 Omitted) .................................... 36 40 69 100 147 205 Government Securities Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 15.814 $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.499 $ 0.813 $ 0.781 $ 0.742 $ 0.597 $ 0.732 Expenses ......................................... (0.182) (0.300) (0.299) (0.289) (0.282) (0.267) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.317 $ 0.513 $ 0.482 $ 0.453 $ 0.315 $ 0.465 Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.287) (0.120) (0.335) (0.091) (0.166) 0.635 -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.030 $ 0.393 $ 0.147 $ 0.362 $ 0.149 $ 1.100 -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 15.844 $ 15.814 $ 15.421 $ 15.274 $ 14.912 $ 14.763 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 0.19(n) 2.55 0.96 2.43 1.01 8.05 Ratios (%) (to average net assets): Expenses (f) ..................................... 1.96(a) 1.96 1.96 1.92 1.90 1.89 Net investment income ............................ 3.41(a) 3.30 3.12 2.99 2.10 3.17 Portfolio turnover (%) ............................. 18 17 69 89 138 139 Number of units outstanding at end of period (000 Omitted) ................................... 958 1,054 1,280 1,377 1,562 1,692 (a) Anualized. (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. (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 variable account share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account share class (assuming reinvestment of all distributions) held for the entire period.
High Yield Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 40.172 $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 1.985 $ 3.121 $ 2.959 $ 2.857 $ 2.769 $ 3.015 Expenses ......................................... (0.527) (0.847) (0.820) (0.770) (0.689) (0.617) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 1.458 $ 2.274 $ 2.139 $ 2.087 $ 2.080 $ 2.398 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. (0.544) 1.058 (1.968) 0.526 3.471 (2.862) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.914 $ 3.332 $ 0.171 $ 2.613 $ 5.551 $ (0.464) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 41.086 $ 40.172 $ 36.840 $ 36.669 $ 34.056 $ 28.505 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r)(s) ....................... 2.28(n) 9.04 0.47 7.67 19.47 (1.60) Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 2.23(a) 2.32 2.28 2.21 2.20 2.18 Expenses after expense reductions (f) ............ 2.18(a) 2.22 2.25 N/A N/A N/A Net investment income ............................ 5.94(a) 5.84 5.76 5.91 6.53 7.84 Portfolio turnover (%) ............................. 39 88 53 81 164 172 Number of units outstanding at end of period (000 Omitted) .................................... 1,032 1,119 1,323 1,601 1,827 2,069 High Yield Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 29.459 $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 1.449 $ 2.212 $ 2.118 $ 2.021 $ 1.964 $ 2.141 Expenses ......................................... (0.401) (0.635) (0.620) (0.576) (0.514) (0.469) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 1.048 $ 1.577 $ 1.498 $ 1.445 $ 1.450 $ 1.672 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. (0.392) 0.839 (1.398) 0.450 2.612 (2.035) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.656 $ 2.416 $ 0.100 $ 1.895 $ 4.062 $ (0.363) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 30.115 $ 29.459 $ 27.043 $ 26.943 $ 25.048 $ 20.986 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r)(s) ....................... 2.23(n) 8.94 0.37 7.57 19.35 (1.70) Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 2.33(a) 2.42 2.38 2.31 2.30 2.28 Expenses after expense reductions (f) ............ 2.28(a) 2.32 2.35 N/A N/A N/A Net investment income ............................ 5.99(a) 5.71 5.64 5.75 6.41 8.45 Portfolio turnover (%) ............................. 39 88 53 81 164 172 Number of units outstanding at end of period (000 Omitted) ................................... 30 34 47 67 115 178 High Yield Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 15.814 $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.770 $ 1.202 $ 1.142 $ 1.019 $ 1.161 $ 1.220 Expenses ......................................... (0.202) (0.323) (0.312) (0.275) (0.286) (0.257) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.568 $ 0.879 $ 0.830 $ 0.744 $ 0.875 $ 0.963 Net realized and unrealized gain (loss) on investments and foreign currency transactions . (0.204) 0.440 (0.756) 0.291 1.312 (1.140) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.364 $ 1.319 $ 0.074 $ 1.035 $ 2.187 $ (0.177) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 16.178 $ 15.814 $ 14.495 $ 14.421 $ 13.386 $ 11.199 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(r)(s) ....................... 2.30(n) 9.10 0.52 7.73 19.53 (1.55) Ratios (%) (to average net assets): Expenses before expense reductions (f) ........... 2.18(a) 2.27 2.23 2.16 2.15 2.13 Expenses after expense reductions (f) ............ 2.13(a) 2.17 2.20 N/A N/A N/A Net investment income ............................ 5.95(a) 5.86 5.81 5.77 6.57 6.08 Portfolio turnover (%) ............................. 39 88 53 81 164 172 Number of units outstanding at end of period (000 Omitted) ................................... 647 774 937 971 2,631 2,684 (a) Annualized. (d) Per share data are based on 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. (n) Not annualized. (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 account unit class (assuming reinvestment of all distributions) held for the entire period.
Money Market Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 20.979 $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.599 $ 1.051 $ 0.661 $ 0.281 $ 0.247 $ 0.382 Expenses ......................................... (0.242) (0.403) (0.403) (0.396) (0.381) (0.401) -------- -------- -------- -------- -------- -------- Net investment income (loss) ................. $ 0.357 $ 0.648 $ 0.258 $ (0.115) $ (0.134) $ (0.019) Net realized and unrealized gain (loss) on investments ..................................... -- -- (0.000)(w) -- -- -- -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.357 $ 0.648 $ 0.258 $ (0.115) $ (0.134) $ (0.019) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 21.336 $ 20.979 $ 20.331 $ 20.073 $ 20.188 $ 20.322 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 1.70(n) 3.19 1.29 (0.57) (0.66) (0.09) Ratios (%) (to average net assets): Expenses (f) ..................................... 1.96(a) 1.95 1.99 1.96 1.87 1.96 Net investment income (loss) ..................... 3.42(a) 3.15 1.38 (0.56) (0.63) (0.12) Number of units outstanding at end of period (000 Omitted) ................................... 940 928 1,128 1,009 1,172 1,626 Money Market Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 17.152 $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.490 $ 0.852 $ 0.539 $ 0.229 $ 0.198 $ 0.318 Expenses ......................................... (0.208) (0.338) (0.344) (0.339) (0.325) (0.350) -------- -------- -------- -------- -------- -------- Net investment income (loss) ................. $ 0.282 $ 0.514 $ 0.195 $ (0.110) $ (0.127) $ (0.032) Net realized and unrealized gain (loss) on investments .................................... -- -- (0.000)(w) -- -- -- -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.282 $ 0.514 $ 0.195 $ (0.110) $ (0.127) $ (0.032) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 17.434 $ 17.152 $ 16.638 $ 16.443 $ 16.553 $ 16.680 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 1.65(n) 3.09 1.19 (0.67) (0.76) (0.19) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.06(a) 2.05 2.09 2.06 1.97 2.06 Net investment income (loss) ..................... 3.30(a) 3.00 1.42 (0.71) (0.74) (0.14) Number of units outstanding at end of period (000 Omitted) ................................... 88 131 218 97 155 186 Money Market Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 12.895 $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.366 $ 0.644 $ 0.405 $ 0.181 $ 0.131 $ 0.223 Expenses ......................................... (0.144) (0.240) (0.240) (0.245) (0.207) (0.229) -------- -------- -------- -------- -------- -------- Net investment income (loss) ................. $ 0.222 $ 0.404 $ 0.165 $ (0.064) $ (0.076) $ (0.006) Net realized and unrealized gain (loss) on investments ................................... -- -- (0.000)(w) -- -- -- -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 0.222 $ 0.404 $ 0.165 $ (0.064) $ (0.076) $ (0.006) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 13.117 $ 12.895 $ 12.491 $ 12.326 $ 12.390 $ 12.466 ======== ======== ======== ======== ======== ======== Total Return (%) (k) ............................. 1.72(n) 3.24 1.34 (0.52) (0.61) (0.04) Ratios (%) (to average net assets): Expenses (f) ..................................... 1.91(a) 1.90 1.94 1.91 1.82 1.91 Net investment income (loss) ..................... 3.45(a) 3.18 1.39 (0.48) (0.61) (0.01) Number of units outstanding at end of period (000 Omitted) ................................... 1,971 1,969 2,384 2,259 896 1,113 (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. (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 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account held for the entire period.
Total Return Variable Account ------------------------------------------------------------------------ Compass 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 51.373 $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 1.066 $ 1.749 $ 1.521 $ 1.450 $ 1.237 $ 1.407 Expenses ......................................... (0.655) (1.033) (0.970) (0.905) (0.800) (0.777) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.411 $ 0.716 $ 0.551 $ 0.545 $ 0.437 $ 0.630 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 2.290 4.198 0.179 3.613 5.184 (3.242) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 2.701 $ 4.914 $ 0.730 $ 4.158 $ 5.621 $ (2.612) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 54.074 $ 51.373 $ 46.459 $ 45.729 $ 41.571 $ 35.950 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 5.26(n) 10.58 1.60 10.00(b) 15.64 (6.77) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.11(a) 2.14 2.12 2.11 2.10 2.08 Net investment income ............................ 1.31(a) 1.46 1.18 1.25 1.13 1.43 Portfolio turnover (%) ............................. 24 45 49 64 62 76 Number of units outstanding at end of period (000 Omitted) .................................... 1,045 1,156 1,349 1,511 1,688 1,871 Total Return Variable Account ------------------------------------------------------------------------ Compass 3 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 49.947 $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 1.052 $ 1.645 $ 1.450 $ 1.375 $ 1.200 $ 1.360 Expenses ......................................... (0.683) (1.051) (1.019) (0.929) (0.823) (0.804) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.369 $ 0.594 $ 0.431 $ 0.446 $ 0.377 $ 0.556 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 2.218 4.117 0.213 3.549 5.060 (3.167) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 2.587 $ 4.711 $ 0.644 $ 3.995 $ 5.437 $ (2.611) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 52.534 $ 49.947 $ 45.236 $ 44.592 $ 40.597 $ 35.160 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 5.18(n) 10.42 1.45 9.84(b) 15.46 (6.91) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.26(a) 2.29 2.27 2.26 2.25 2.23 Net investment income ............................ 1.24(a) 1.28 0.97 1.07 1.01 1.61 Portfolio turnover (%) ............................. 24 45 49 64 62 76 Number of units outstanding at end of period (000 Omitted) .................................... 127 142 217 315 453 634 Total Return Variable Account ------------------------------------------------------------------------ Compass 3 - Level 2 ------------------------------------------------------------------------ Six Months Ended Years Ended 12/31, 6/30/07 ------------------------------------------------------------ (Unaudited) 2006 2005 2004 2003 2002 -------- -------- -------- -------- -------- -------- Per unit data: (d) Net asset value -- beginning of period ........... $ 24.220 $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180 -------- -------- -------- -------- -------- -------- Investment income ................................ $ 0.493 $ 0.812 $ 0.710 $ 0.676 $ 0.575 $ 0.658 Expenses ......................................... (0.306) (0.484) (0.457) (0.425) (0.376) (0.367) -------- -------- -------- -------- -------- -------- Net investment income ........................ $ 0.187 $ 0.328 $ 0.253 $ 0.251 $ 0.199 $ 0.291 Net realized and unrealized gain (loss) on investments and foreign currency transactions .. 1.086 1.989 0.091 1.709 2.451 (1.522) -------- -------- -------- -------- -------- -------- Change in unit value ............................. $ 1.273 $ 2.317 $ 0.344 $ 1.960 $ 2.650 $ (1.231) -------- -------- -------- -------- -------- -------- Unit value: Net asset value -- end of period ................. $ 25.493 $ 24.220 $ 21.903 $ 21.559 $ 19.599 $ 16.949 ======== ======== ======== ======== ======== ======== Total Return (%) (k)(s) .......................... 5.26(n) 10.58 1.60 10.00(b) 15.64 (6.77) Ratios (%) (to average net assets): Expenses (f) ..................................... 2.11(a) 2.14 2.12 2.11 2.10 2.08 Net investment income ............................ 1.29(a) 1.44 1.17 1.24 1.11 1.55 Portfolio turnover (%) ............................. 24 45 49 64 62 76 Number of units outstanding at end of period (000 Omitted) ................................... 4,459 4,695 5,462 5,646 5,946 6,236 (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 units 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. (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. For securities held short for which there were no sales reported for the day, the position is generally valued at the last quoted daily ask quotation as reported by an independent pricing service on the market or exchange on which such securities 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. Short-term instruments with a maturity at issuance of 60 days or less may be 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 such options 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 such options are primarily traded. Options not traded on an exchange are generally valued at a 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 such futures contracts 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. Swaps are generally valued at an evaluated bid as reported by an independent pricing service. Securities and other assets generally valued on the basis of information from an independent pricing service may also be valued at a broker-dealer bid quotation. Values 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. 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 and certain types of derivatives. These investments are generally valued at fair value based on information from independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the "Statement") was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the variable accounts, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the variable accounts' financial statements. 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 and other funds managed by 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 purchased options, futures contracts and forward foreign currency exchange contracts for the Global Governments Variable Account, futures contracts for the Government Securities Variable Account and swap agreements 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 bears 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. Swap Agreements - Certain variable accounts may enter into swap agreements. A swap is an exchange of cash payments between the variable accounts and another party. Net cash payments are exchanged at specified intervals and are recorded as a realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily and the change in value, including accruals of periodic amounts of interest to be paid or received, is recorded as unrealized appreciation or depreciation in the Statement of Operations. A liquidation payment received or made upon early termination is recorded as a realized gain or loss in the Statement of Operations. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the variable accounts custodian in connection with these agreements. Risk of loss may exceed amounts recognized on the Statement of Assets and Liabilities. These risks include the possible lack of a liquid market, failure of the counterparty to perform under the terms of the agreements, and unfavorable market movement of the underlying instrument. All swap agreements entered into by the variable accounts with the same counterparty are generally governed by a single master agreement, which provides for the netting of all amounts owed by the parties under the agreement upon the occurrence of an event of default, thereby reducing the credit risk to which such party is exposed. The High Yield Variable Account holds credit default swaps in which one party makes a stream of payments based on a fixed percentage applied to the notional amount to another party in exchange for the right to receive a specified return in the event of a default by a third party, such as a corporate issuer or foreign issuer, on its obligation. The variable accounts may enter into credit default swaps to limit or to reduce its risk exposure to defaults of corporate and sovereign issuers or to create direct or synthetic short or long exposure to corporate debt securities or certain sovereign debt securities to which it is not otherwise exposed. 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. Indemnifications - Under the variable account's organizational documents, its officers and trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the variable account. Additionally, in the normal course of business, each variable account enters into agreements with service providers that may contain indemnification clauses. The variable account's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the variable account that have not yet occurred. 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 accounting 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, facility 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. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the variable accounts or in unrealized gain/loss if the security is still held by the variable accounts. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations. 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, 2007 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 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 management and related administrative services and facilities to the variable accounts. The management fee is computed daily and paid monthly at the following annual rates 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% 0.70% Money Market Variable Account .............................. 0.50%(b) 0.500%(b) 0.50% Total Return Variable Account .............................. 0.75% 0.675% 0.75%
(a) The investment adviser has agreed in writing to reduce its management fee to 0.70% for the first $300 million of average daily net assets. This written agreement will continue through August 31, 2007, unless changed or rescinded by the variable accounts' Board of Managers. This management fee reduction amounted to $14,465, which is shown as a reduction of total expenses in the Statement of Operations. (b) 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. This written agreement may be rescinded only upon consent of the variable accounts' Board of Managers. For the six months ended June 30, 2007, the Money Market 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 and 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. This agreement is contained in the investment advisory agreement between MFS and the variable accounts and may not be rescinded without shareholder approval. In addition, the investment adviser has agreed in writing to pay the High Yield Variable Account's 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 0.90% annually of the average daily net assets of the High Yield Variable Account. This written agreement will continue through August 31, 2007 unless changed or rescinded by the variable account's Board of Managers. For the six months ended June 30, 2007, this reduction amounted to $33,704 for the Global Governments Variable Account and is reflected as a reduction of total expenses in the Statement of Operations. For the six months ended June 30, 2007, the Capital Appreciation Variable Account, Government Securities Variable Account, High Yield Variable Account, Money Market Variable Account, and Total Return Variable Account did not exceed the limit and therefore, the investment adviser did not pay any portion of the variable accounts' expenses. Administrator - MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to each variable account. Under an administrative services agreement, each variable account partially reimburses MFS the costs incurred to provide these services. Each variable account 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, 2007 was equivalent to the following annual effective rate of the variable accounts' average daily net assets:
Capital Apprecia- Global Government High Money Total tion Governments Securities Yield Market Return Variable Variable Variable Variable Variable Variable Account Account Account Account Account Account ------------------------------------------------------------------------------------------------------------------- Percent of average daily net assets ......... 0.0285% 0.1129% 0.0285% 0.0285% 0.0286% 0.0285% ====== ====== ====== ====== ====== ======
Managers' and Officers' Compensation - Each variable account pays compensation to 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 who are affiliated with the Investment Adviser or the Sponsor. Certain officers 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, 2007, the fees paid to Tarantino LLC were as follows: Expense -------------------------------------------------------------- Capital Appreciation Variable Account ....... $549 Global Governments Variable Account ......... $ 23 Government Securities Variable Account ...... $197 High Yield Variable Account ................. $149 Money Market Variable Account ............... $119 Total Return Variable Account ............... $459 (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 .... $56,228,703 $87,432,035 Global Governments Variable Account ...... $ 2,844,069 $ 3,057,247 Government Securities Variable Account ... $ -- $ 6,634,155 High Yield Variable Account .............. $22,057,025 $26,324,525 Total Return Variable Account ............ $33,286,271 $45,685,971 Purchases and sales of investments for the Money Market Variable Account, exclusive of securities subject to repurchase agreements, aggregated $373,740,544 and $374,185,000 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 ...... $ 1,021,346 $ 1,370,818 Government Securities Variable Account ... $13,026,945 $14,956,434 Total Return Variable Account ............ $10,037,421 $10,430,948 (7) PARTICIPANT TRANSACTIONS The changes in net assets from changes in numbers of outstanding units were as follows:
Six Months Ended 6/30/07 (000 Omitted) --------------------------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuitiza- Net Payments Accumulation and Contract Accumulation tion Increase Received Account Charges Activity Activity (Decrease) -------------- ----------------- -------------------- -------------------- ------- -------- Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars ----- ------- ----- -------- -------- -------- -------- -------- -------- -------- Capital Appreciation Variable Account Compass 2 Contracts ... 5 $ 272 (58) $ (3,461) (228) $(13,652) (281) $(16,841) $ (312) $(17,153) Compass 3 Contracts ... 7 272 (31) (1,210) (6) (269) (30) (1,207) 0* (1,207) Compass 3 - Level 2 Contracts 57 929 (43) (702) (398) (6,541) (384) (6,314) (18) (6,332) -------- -------- -------- -------- -------- $ 1,473 $ (5,373) $(20,462) $(24,362) $ (330) $(24,692) ======== ======== ======== ======== ====== ======== Global Governments Variable Account Compass 2 Contracts ... 1 $ 18 (3) $ (74) (8) $ (210) (10) $ (266) $ (2) $ (268) Compass 3 Contracts ... 1 30 (1) (12) 0* (9) 0* 9 0* 9 Compass 3 - Level 2 Contracts 3 48 13 186 (28) (409) (12) (175) (2) (177) -------- -------- -------- -------- -------- $ 96 $ 100 $ (628) $ (432) $ (4) $ (436) ======== ======== ======== ======== ====== ======== Government Securities Variable Account Compass 2 Contracts ... 4 $ 170 (18) $ (720) (117) $ (4,535) (131) $ (5,085) $ 31 $ (5,054) Compass 3 Contracts ... 3 87 (4) (114) (3) (81) (4) (108) -- (108) Compass 3 - Level 2 Contracts 14 221 (5) (83) (105) (1,666) (96) (1,528) (2) (1,530) -------- -------- -------- -------- -------- $ 478 $ (917) $ (6,282) $ (6,721) $ 29 $ (6,692) ======== ======== ======== ======== ====== ======== High Yield Variable Account Compass 2 Contracts ... 3 $ 122 (5) $ (184) (85) $ (3,515) (87) $ (3,577) $ (101) $ (3,678) Compass 3 Contracts ... 2 64 (4) (107) (2) (67) (4) (110) -- (110) Compass 3 - Level 2 Contracts 10 174 (76) (1,229) (61) (997) (127) (2,052) (3) (2,055) -------- -------- -------- -------- -------- $ 360 $ (1,520) $ (4,579) $ (5,739) $ (104) $ (5,843) ======== ======== ======== ======== ====== ======== Money Market Variable Account Compass 2 Contracts ... 4 $ 85 151 $ 3,196 (144) $ (3,044) 11 $ 237 $ (35) $ 202 Compass 3 Contracts ... 6 106 (38) (665) (11) (181) (43) (740) (6) (746) Compass 3 - Level 2 Contracts 29 371 204 2,659 (230) (2,993) 3 37 (16) 21 -------- -------- -------- -------- -------- $ 562 $ 5,190 $ (6,218) $ (466) $ (57) $ (523) ======== ======== ======== ======== ====== ======== Total Return Variable Account Compass 2 Contracts ... 7 $ 342 12 $ 605 (129) $ (6,799) (110) $ (5,852) $ 94 $ (5,758) Compass 3 Contracts ... 7 371 (17) (875) (6) (284) (16) (788) 0* (788) Compass 3 - Level 2 Contracts 50 1,248 83 2,079 (369) (9,180) (236) (5,853) (84) (5,937) -------- -------- -------- -------- -------- $ 1,961 $ 1,809 $(16,263) $(12,493) $ 10 $(12,483) ======== ======== ======== ======== ====== ======== * Amount less than 500. Year ended 12/31/06 (000 Omitted) --------------------------------------------------------------------------------------------------------- Transfers Between Variable Withdrawals, Accounts Surrenders, Net Purchase and Fixed Annuitizations, Net Annuitiza- Net Payments Accumulation and Contract Accumulation tion Increase Received Account Charges Activity Activity (Decrease) -------------- ----------------- -------------------- -------------------- ------- -------- Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars ----- ------- ----- -------- -------- -------- -------- -------- -------- -------- Capital Appreciation Variable Account Compass 2 Contracts . 28 $ 1,602 (78) $ (4,354) (549) $(30,610) (599) $(33,362) $ (159) $(33,521) Compass 3 Contracts . 20 756 (99) (3,657) (30) (1,105) (109) (4,006) 0* (4,006) Compass 3 - Level 2 Contracts ......... 133 2,035 93 1,464 (1,096) (16,818) (870) (13,319) (36) (13,355) ------- -------- -------- -------- ------ -------- $ 4,393 $ (6,547) $(48,533) $(50,687) $ (195) $(50,882) ======= ======== ======== ======== ====== ======== Global Governments Variable Account Compass 2 Contracts . 2 $ 41 9 $ 229 (23) $ (568) (12) $ (298) $ 1 $ (297) Compass 3 Contracts . 4 109 (7) (177) (5) (127) (8) (195) (38) (233) Compass 3 - Level 2 Contracts ......... 8 129 (5) (74) (68) (981) (65) (926) 35 (891) ------- -------- -------- -------- ------ -------- $ 279 $ (22) $ (1,676) $ (1,419) $ (2) $ (1,421) ======= ======== ======== ======== ====== ======== Government Securities Variable Account Compass 2 Contracts . 22 $ 834 (21) $ (771) (315) $(11,902) (314) $(11,839) $ 51 $(11,788) Compass 3 Contracts . 8 204 (29) (763) (8) (205) (29) (764) -- (764) Compass 3 - Level 2 Contracts ......... 27 421 25 376 (278) (4,289) (226) (3,492) 0* (3,492) ------- -------- -------- -------- ------ -------- $ 1,459 $ (1,158) $(16,396) $(16,095) $ 51 $(16,044) ======= ======== ======== ======== ====== ======== High Yield Variable Account Compass 2 Contracts . 9 $ 332 (13) $ (465) (200) $ (7,644) (204) $ (7,777) $ (72) $ (7,849) Compass 3 Contracts . 6 163 (13) (374) (6) (158) (13) (369) 0* (369) Compass 3 - Level 2 Contracts ......... 18 266 3 90 (184) (2,780) (163) (2,424) (1) (2,425) ------- -------- -------- -------- ------ -------- $ 761 $ (749) $(10,582) $(10,570) $ (73) $(10,643) ======= ======== ======== ======== ====== ======== Money Market Variable Account Compass 2 Contracts . 9 $ 188 2 $ 41 (211) $ (4,359) (200) $ (4,130) $ (178) $ (4,308) Compass 3 Contracts . 21 356 (80) (1,346) (28) (473) (87) (1,463) (9) (1,472) Compass 3 - Level 2 Contracts ......... 62 777 77 963 (554) (7,013) (415) (5,273) (34) (5,307) ------- -------- -------- -------- ------ -------- $ 1,321 $ (342) $(11,845) $(10,866) $ (221) $(11,087) ======= ======== ======== ======== ====== ======== Total Return Variable Account Compass 2 Contracts . 11 $ 492 27 $ 1,266 (231) $(11,129) (193) $ (9,371) $ (174) $ (9,545) Compass 3 Contracts . 24 1,119 (74) (3,480) (25) (1,142) (75) (3,503) (48) (3,551) Compass 3 - Level 2 Contracts ......... 119 2,689 193 4,441 (1,079) (24,482) (767) (17,352) (78) (17,430) ------- -------- -------- -------- ------ -------- $ 4,300 $ 2,227 $(36,753) $(30,226) $(300) $(30,526) ======= ======== ======== ======== ====== ======== * Amount less than 500.
(8) LINE OF CREDIT The variable accounts and other funds managed by MFS 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 funds managed by MFS 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, generally at a rate equal to the Federal Reserve funds rate plus 0.30%. 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. For the six months ended June 30, 2007, the variable accounts' commitment fee and interest expense are included in miscellaneous expense on the Statement of Operations and were as follows: Commitment fee Interest expense ------------------------------------------------------------------------------- Capital Appreciation Variable Account .... $528 $-- Global Governments Variable Account ...... $ 22 $-- Government Securities Variable Account ... $187 $-- High Yield Variable Account .............. $149 $84 Money Market Variable Account ............ $130 $-- Total Return Variable Account ............ $452 $-- 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, 2007 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 website at http:/ /www.sec.gov. Information regarding how the accounts voted proxies relating to portfolio securities during the most recent twelve month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC's website at http://www.sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The accounts will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The accounts' Form N-Q may be reviewed and copied at the: Public Reference Room Securities and Exchange Commission Washington, D.C. 20549 0102 Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-5850. The accounts' Form N-Q is available on the EDGAR database on the Commission's Internet website at http:// www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfor@sec.gov or by writing the Public Reference Section at the above address. Sun Life Financial Distributors Inc. COUS-SEM-8/07 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 407(c)(2)(iv) of Regulation S-K (as required by Item 22(b)(15) 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 report on 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. 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 21, 2007 --------------- 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 21, 2007 --------------- By (Signature and Title)* TRACY ATKINSON ----------------------------------------------------- Tracy Atkinson, Treasurer (Principal Financial Officer and Accounting Officer) Date: August 21, 2007 --------------- * Print name and title of each signing officer under his or her signature.