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 811-5448
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TOTAL RETURN VARIABLE ACCOUNT
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
COMPASS [graphic omitted]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
ANNUAL REPORT o DECEMBER 31, 2005
Capital Appreciation Variable Account
Global Governments Variable Account
Government Securities Variable Account
High Yield Variable Account
Money Market Variable Account
Total Return Variable Account
Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life of Canada (U.S.) Holdings, Inc.
TABLE OF CONTENTS
Letter from the CEO of MFS ........................................ 1
Management Reviews ................................................ 1
Performance Summary ............................................... 5
Portfolio Composition ............................................. 6
Portfolio of Investments .......................................... 12
Financial Statements .............................................. 29
Notes to Financial Statements ..................................... 46
Report of Independent Registered Public Accounting Firm ........... 52
Managers and Officers ............................................. 53
Board Review of Investment Advisory Agreements .................... 57
Proxy Voting Policies and Information ............................. Back Cover
Quarterly Portfolio Disclosure .................................... Back Cover
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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.
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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
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LETTER FROM THE CEO OF MFS
DEAR CONTRACT OWNERS,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s had
many people hoping they could become millionaires overnight. But the market
decline that started in the spring of 2000 taught everyone how misguided those
hopes had been.
Now, less than six years after the market taught a harsh lesson in the follies
of speculative investing, we are seeing a number of trends that suggest many
investors, including professionals, are hoping for overnight miracles again. We
see a steady stream of market "gurus" on television news shows, promising to
teach amateur investors the strategies that will allow them to get rich quick.
Hedge funds - which by their nature move in and out of investments rapidly -
have soared in popularity in recent years. We are reminded every day that we
live in a "what have you done for me lately?" world, but this mindset should not
influence how we invest and manage our money. In fact, investors often fall
short of their goals because they traded in and out of investments too
frequently and at inopportune times.
Throughout our more than 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that the best
way to realize long-term financial goals - be it a college education, a
comfortable retirement, or a secure family legacy - is to follow a three-
pronged approach that focuses on longer time horizons. Allocate holdings across
the major asset classes - including stocks, bonds, and cash. Diversify within
each class to take advantage of different market segments and investing styles.
And rebalance assets regularly to maintain a desired asset allocation.* This
long-term approach requires diligence and patience, two traits that in our
experience are essential to capitalizing on the many opportunities the financial
markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
February 15, 2006
*Asset allocation, diversification, and rebalancing do not guarantee a profit or
protect against a loss. The opinions expressed in this letter are those of MFS,
and no forecasts can be guaranteed.
MANAGEMENT REVIEWS
The following management reviews, for the twelve months ended December 31, 2005,
exclude the Money Market Variable Account.
CAPITAL APPRECIATION VARIABLE ACCOUNT
SUMMARY OF RESULTS
For the twelve months ended December 31, 2005, Compass 2 provided a total return
of -0.32%; Compass 3 provided a total return of -0.42%; and Compass 3 - Level 2
provided a total return of -0.27%. These returns, which include the reinvestment
of any dividends and capital gains distributions, compare with a return of 5.26%
over the same period for the account's benchmark, the Russell 1000 Growth Index.
DETRACTORS FROM PERFORMANCE
The technology sector was the largest detractor from relative performance over
the period. Poor stock selection was the primary reason for relative under-
performance within the sector. Our holdings in printer products company Lexmark
International*, security software firm Symantec, and networking and
communications manufacturer Cisco Systems disappointed as these stocks
underperformed the index over the reporting period. Underweighting Apple
Computer*, and not fully participating in the appreciation of the firm's stock,
also weighed on relative results.
No individual stocks within the leisure sector were among the portfolio's top
detractors.
Security selection in the industrial goods and services and retailing sectors
also dampened results. In industrial goods and services, manufacturing
conglomerate Tyco International (not an index constituent) hurt performance. In
retailing, online retailer and services provider IAC/InterActiveCorp* held back
results.
Elsewhere, holdings in motorcycle manufacturer Harley-Davidson* and biotech firm
ImClone Systems* hampered results. Our virtual avoidance of drug maker Pfizer*,
which outperformed during the period, also held back performance.
The portfolio's cash position was also a detractor from relative performance.
The portfolio holds cash to buy new holdings and to provide liquidity. In a
period when equity markets rose, as measured by the portfolio's benchmark,
holding cash hurt performance versus the benchmark, which has no cash position.
CONTRIBUTORS TO PERFORMANCE
A combination of stock selection and an underweighted position in the financial
services sector added to relative results. Nevertheless, no individual stocks
within the sector were among the portfolio's top contributors.
Stock selection and, to a lesser extent, our underweighted position in the basic
materials sector helped relative results. Within the sector, Brazilian iron ore
miner Companhia Vale do Rio Doce* (not an index constituent) was among the
portfolio's top contributors.
Overweighting the energy sector and strong stock selection in the health care
sector also boosted relative performance. In energy, seamless steel pipe
manufacturer Tenaris* (not an index constituent) aided results. In health care,
our holdings in biotech firm Amgen, pharmaceutical and diagnostic company Roche
Holding (not an index constituent), and hospital operators HCA* and Community
Health Systems* proved favorable.
Other individual stocks that contributed to relative performance included drug
store chain CVS and microchip and electronics manufacturer Samsung Electronics
(not an index constituent). Additionally, not owning International Business
Machines (IBM) and underweighting industrial conglomerate General Electric
enhanced relative results as both stocks performed poorly relative to the
overall index over the period.
*Security was not held in the portfolio at period-end.
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
SUMMARY OF RESULTS
For the twelve months ended December 31, 2005, Compass 2 provided a total return
of -8.72%; Compass 3 provided a total return of -8.85%; and Compass 3 - Level 2
provided a total return of -8.72%. These returns, which include the reinvestment
of any dividends and capital gains distributions, compare with a return of
- -6.53% for the account's benchmark, the J.P. Morgan Global Government Bond
Index.
During the reporting period ended December 31, 2005, the account's benchmark
changed from the Citigroup World Government Bond Index to the J.P. Morgan Global
Government Bond Index.
DETRACTORS FROM PERFORMANCE
The portfolio's currency positions acted as a drag on performance. During the
first half of the period, the account's lower exposure to the U.S. Dollar hurt
relative results, as the dollar appreciated relative to most major currencies.
During the period, the benchmark generated a higher level of income than the
portfolio.
CONTRIBUTORS TO PERFORMANCE
The portfolio's duration(1) stance and yield curve(2) positioning aided results
throughout the period. The portfolio's positioning in longer-term U.S. and
European bonds contributed to performance, as long-term interest rates declined
in the U.S. and Europe. Holdings of asset-backed bonds, government agencies, and
bonds in the finance sector also bolstered results. Holdings in emerging market
debt added to performance, driven primarily by Russian and Mexican bonds.
GOVERNMENT SECURITIES VARIABLE ACCOUNT
SUMMARY OF RESULTS
For the twelve months ended December 31, 2005, Compass 2 provided a total return
of 0.91%; Compass 3 provided a total return of 0.82%; and Compass 3 - Level 2
provided a total return of 0.96%. These returns, which include the reinvestment
of any dividends and capital gains distributions, compare with a return of 2.63%
over the same period for the account's benchmark, the Lehman Brothers U.S.
Government/Mortgage Bond Index.
DETRACTORS FROM PERFORMANCE
Holding lower-yielding issues relative to the portfolio's benchmark held back
results for the period. Our underweighted position in 30-year mortgage-backed
securities, which outperformed comparable-maturity Treasuries, also detracted
from relative performance.
CONTRIBUTORS TO PERFORMANCE
Toward the end of the period, the portfolio's long duration(1) stance versus the
benchmark contributed to performance as long-term interest rates declined.
HIGH YIELD VARIABLE ACCOUNT
SUMMARY OF RESULTS
For the twelve months ended December 31, 2005, Compass 2 provided a total return
of 0.47%; Compass 3 provided a total return of 0.37%; and Compass 3 - Level 2
provided a total return of 0.52%. These returns, which include the reinvestment
of any dividends and capital gains distributions, compare with a return of 2.74%
for the account's benchmark, the Lehman Brothers U.S. High- Yield Corporate Bond
Index.
DETRACTORS FROM PERFORMANCE
Several of our holdings in the more speculative "CCC"-rated(3) sector of the
high yield market held back the portfolio's relative performance during the
period.
Holdings that detracted from relative performance included cable TV operator
Charter Communications, auto parts manufacturer Delphi, packaging manufacturer
Huntsman Packaging*, electrical contracting and maintenance company Integrated
Electrical Services*, and independent power producer Calpine*. Our position in
brokerage company Refco* also hurt relative returns as the value of the
company's debt declined due to its alleged involvement in fraudulent business
practices.
CONTRIBUTORS TO PERFORMANCE
Our overweighted positions in the debt of commodity
chemical companies contributed to the portfolio's relative returns as that
sector outperformed the overall index. Attractive supply-demand dynamics, which
boosted earnings and cash flows, enabled these companies to decrease leverage.
Our position in chemical company Rhodia was among the portfolio's top
contributing securities.
Several individual holdings performed well during the period, including
television broadcaster Paxson Communications, wireline operator Qwest, and oil
and gas company Kerr-McGee.
*Security was not held in the portfolio at period-end.
TOTAL RETURN VARIABLE ACCOUNT
SUMMARY OF RESULTS
For the twelve months ended December 31, 2005, Compass 2 provided a total return
of 1.60%; Compass 3 provided a total return of 1.45%; and Compass 3 - Level 2
provided a total return of 1.60%. These returns, which include the reinvestment
of any dividends and capital gains distributions, compare with a return of 4.91%
for the account's benchmark, the Standard & Poor's 500 Stock Index (the S&P 500
Stock Index). The account's other benchmark, the Lehman Brothers U.S. Aggregate
Bond Index, provided a return of 2.43%.
DETRACTORS FROM PERFORMANCE
Within the equity portion of the account, security selection in the utilities
and communications sector detracted from performance relative to the S&P 500
Stock Index. Holdings in poor-performing independent power producer Calpine* and
telecom services provider Verizon Communications held back returns as both
stocks lagged the S&P 500 Stock Index.
Security selection within the basic materials sector also weighed on results,
with newsprint maker Bowater (not an index constituent) among the portfolio's
top detractors.
A combination of stock selection and an overweighted position in the leisure
sector dampened investment results. In particular, overweighting global
entertainment conglomerate Viacom negatively impacted the portfolio's
performance.
Elsewhere, the portfolio's holdings in health care firm Tenet Healthcare hurt
relative returns as the stock underperformed the S&P 500 Stock Index. In
technology, positions in security software firm Symantec and telecom equipment
company Nortel Networks (not an index constituent), and the avoidance of
strong-performing Apple Computer, detracted from performance relative to the S&P
500 Stock Index. Overweighting weak-performing home improvement products
manufacturer Masco (in the autos and housing sector) and retailer Gap also held
back results.
During the reporting period, currency exposure within the equity portion of the
account was a detractor from performance relative to the S&P 500 Stock Index.
All of MFS' equity investment decisions are driven by the fundamentals of each
individual opportunity and, as such, it is common for our portfolios to have
different currency exposure than the benchmark.
Within the fixed income portion of the account, overweighting "BBB"-rated(3)
securities held back performance relative to the Lehman Brothers U.S. Aggregate
Bond Index. During the period, spreads on "BBB"-rated debt widened, causing
bonds within this quality sector to lose value. Specific sectors that detracted
from performance included finance and agency-related debt. In the finance
sector, bonds of Ford Motor Credit and General Motors Acceptance Corp. hurt
relative returns.
CONTRIBUTORS TO PERFORMANCE
Within the equity portion of the account, a combination of an overweighted
position and favorable security selection in the strong-performing energy sector
boosted performance relative to the S&P 500 Stock Index. Overweighting a number
of energy firms contributed to returns, including oil and gas producer Devon
Energy, energy exploration and production company EOG Resources, and offshore
drilling company Noble Corp. Positions in drilling rig operator GlobalSantaFe
and oil and gas service company Cooper Cameron, neither of which are index
constituents, also helped.
A combination of stock selection and, to a lesser extent, the portfolio's
overweighting in the financial services sector contributed to relative results
over the period. Although financial services was a top contributing sector on a
relative basis, no individual securities within the sector were among the
portfolio's top contributors. An overweighted position and positive security
selection within the special products and services sector also aided results.
Avoiding poor-performing internet auctioneer eBay benefited returns as the stock
underperformed the S&P 500 Stock Index over the period.
Elsewhere, underweighting information technology firm International Business
Machines (IBM) and computer manufacturer Dell* in the technology sector added to
relative performance. In health care, underweighting weak-performing
pharmaceutical giant Pfizer* also boosted results. In the industrial goods and
services sector, holdings in aerospace and defense firm Lockheed Martin proved
beneficial to performance as the stock outperformed the S&P 500 Stock Index.
Within the fixed income portion of the account, the portfolio's stance on
duration(1) aided performance relative to the Lehman Brothers U.S. Aggregate
Bond Index. During the period, the portfolio maintained a shorter duration than
the index. Holdings of Treasury securities bolstered performance over the period
as did the portfolio's positioning in mortgage-backed and asset-backed
securities.
*Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
The portfolios are actively managed, and current holdings may be different.
Variable annuities are designed for long-term retirement investing, please see
your investment professional for more information.
(1)Duration is a measure of a portfolio's sensitivity to changes in interest
rates.
(2)A yield curve graphically depicts the yields of different maturity bonds of
the same credit quality and type; a normal yield curve is upward sloping,
with short-term rates lower than long-term rates.
(3)Bonds rated "BBB" or higher are considered investment grade; bonds rated "BB"
or lower are considered non-investment grade.
INDEX DEFINITIONS
J.P. Morgan Global Government Bond Index - measures developed government bond
markets around the world.
Lehman Brothers U.S. Government/Mortgage Bond Index - measures debt issued by
the U.S. Government as well as mortgage-backed pass-through securities of Ginnie
Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
Lehman Brothers U.S. High-Yield Corporate Bond Index - measures
the universe of non-investment grade, fixed rate debt. Eurobonds, and debt
issues from countries designated as emerging markets (e.g., Argentina, Brazil,
Venezuela, etc.) are excluded.
Lehman Brothers U.S. Aggregate Bond Index - measures the U.S. investment grade,
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities.
Russell 1000 Growth Index - constructed to provide a comprehensive barometer for
growth securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have higher price-to-book ratios and higher
forecasted growth values.
S&P 500 Stock Index - a capitalization-weighted index of 500 widely held equity
securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
KEY RISK CONSIDERATIONS
CAPITAL APPRECIATION VARIABLE ACCOUNT
Stock markets are volatile and can decline due to adverse issuer, political,
regulatory or economic conditions. The value of the portfolio's equity
investments will fluctuate in response to many factors including company
specific factors as well as general market conditions. Foreign investments can
be more volatile than U.S. investments.
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
The portfolio's yield and shares prices change daily based on the credit quality
of its investments and changes in interest rates. In general, the value of debt
securities will decline when interest rates rise and will increase when interest
rates fall. Debt securities with longer maturity dates will be subject to
greater price fluctuations than those with shorter maturities. Mortgage
securities are subject to prepayment risk which can offer less potential for
gains in a declining interest rate environment and greater potential for loss in
a rising interest rate environment. Derivatives involve risks different from,
and greater than, those of the underlying indicator's in whose value the
derivative is based. The value of the derivative can move in unexpected ways and
result in unanticipated losses and increased volatility if the value of the
underlying indicator(s) does not move in the direction or the extent
anticipated. Because MFS may invest a relatively large percentage of the
portfolio's assets in issuers located in a single country or a small number of
countries, the portfolio's performance could be closely tied to the market,
economic, political or regulatory conditions and developments in those countries
and could be more volatile than the performance of more geographically
diversified portfolios. Foreign investments can be more volatile than U.S.
investments. Changes in currency exchange rates may affect the portfolio's net
asset value, the value of dividends and interest earned, and gains and losses
realized on the sale of securities. Investing in emerging markets can involve
risks in addition to those generally associated with investing in more developed
foreign markets. MFS may invest a significant percentage of the portfolio's
assets in a single issuer or a small number of issuers.
GOVERNMENT SECURITIES VARIABLE ACCOUNT
The portfolio's yield and share prices change daily based on the credit quality
of its investments and changes in interest rates. In general, the value of debt
securities will decline when interest rates rise and will increase when interest
rates fall. Debt securities with longer maturity dates will be subject to
greater price fluctuations than those with shorter maturities. Mortgage
securities are subject to prepayment risk which can offer less potential for
gains in a declining interest rate environment and greater potential for loss in
a rising interest rate environment. Derivatives involve risks different from,
and greater than, those of the underlying indicator's in whose value the
derivative is based. The value of the derivative can move in unexpected ways and
result in unanticipated losses and increased volatility if the value of the
underlying indicator(s) does not move in the direction or the extent
anticipated.
HIGH YIELD VARIABLE ACCOUNT
The portfolio's yield and unit prices change daily based on the credit quality
of its investments and changes in interest rates. In general, the value of debt
securities will decline when interest rates rise and will increase when interest
rates fall. Debt securities with longer maturity dates will be subject to
greater price fluctuations than those with shorter maturities. Derivatives
involve risks different from, and greater than, those of the underlying
indicator's in whose value the derivative is based. The value of the derivative
can move in unexpected ways and result in unanticipated losses and increased
volatility if the value of the underlying indicator(s) does not move in the
direction or the extent anticipated. Lower quality debt securities involve
substantially greater risk of default and their value can decline significantly
over time. Foreign investments can be more volatile than U.S. investments.
Investing in emerging markets can involve risks in addition to those generally
associated with investing in more developed foreign markets.
MONEY MARKET VARIABLE ACCOUNT
The portfolio's yield changes daily and is based on changes in interest rates
and market conditions, and in response to other economic, political, or
financial developments. The value of the portfolio's investments may fluctuate
in response to many factors including the performance and valuation of the
issuer and general market conditions. Municipal instruments can be volatile and
significantly affected by adverse tax, legislative or political changes and the
financial condition of the issuers of municipal instruments. Foreign investments
can be more volatile than U.S. investments. Investors should note that while
securities issued by certain U.S. government agencies or instrumentalities are
guaranteed by the U.S. government, securities issued by many U.S. government
agencies are not guaranteed by the U.S. government. Although the portfolio(s)
seek to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in the portfolio.
TOTAL RETURN VARIABLE ACCOUNT
Stock markets are volatile and can decline due to adverse issuer, political,
regulatory or economic conditions. The value of the portfolio's equity
investments will fluctuate in response to many factors including company
specific factors as well as general market conditions. Foreign investments can
be more volatile than U.S. investments. The portfolio's yield and share prices
change daily based on the credit quality of its investments and changes in
interest rates. In general, the value of debt securities will decline when
interest rates rise and will increase when interest rates fall. Debt securities
with longer maturity dates will be subject to greater price fluctuations than
those with shorter maturities. Derivatives involve risks different from, and
greater than, those of the underlying indicator's in whose value the derivative
is based. The value of the derivative can move in unexpected ways and result in
unanticipated losses and increased volatility if the value of the underlying
indicator(s) does not move in the direction or the extent anticipated.
When you sell your units, they may be worth more or less than the amount you
paid for them.
Please see the prospectus for further information regarding these and other
risks considerations.
PERFORMANCE SUMMARY
THESE PERFORMANCE RESULTS REFLECT THE MORTALITY AND EXPENSE CHARGES AND DO NOT
INCLUDE THE DEDUCTION OF ANY APPLICABLE CONTRACT OR SURRENDER CHARGES. IF
SURRENDER CHARGES AND CONTRACT FEES WERE INCLUDED, THE RESULTS WOULD BE LOWER.
YEAR END PERFORMANCE THROUGH
DECEMBER 31, 2005
Compass 3 -
Compass 2 Compass 3 Level 2
-------- -------- --------
Capital Appreciation (0.32)% (0.42)% (0.27)%
Variable Account
Global Governments Variable (8.72)% (8.85)% (8.72)%
Account
Government Securities 0.91% 0.82% 0.96%
Variable Account
High Yield Variable Account 0.47% 0.37% 0.52%
Money Market 1.29% 1.19% 1.34%
Variable Account
Total Return 1.60% 1.45% 1.60%
Variable Account
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR UNITS, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE
VISIT SUNLIFE-USA.COM. THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF
TAXES, IF ANY, THAT A CONTRACT HOLDER WOULD PAY ON DISTRIBUTIONS OR REDEMPTION
OF CONTRACT UNITS.
Performance results reflect any applicable expense subsidies, waivers, and
adjustments in effect during the period shown. Without these, the results would
have been less favorable. See the prospectus for details. All results are
historical and assume the reinvestment of any dividends and capital gains
distributions.
Money Market Variable Account performance results reflect any applicable expense
subsidies, waivers and adjustments in effect during the periods shown. Subsidies
and fee waivers may be imposed to enhance a portfolio's yield during periods
when the portfolio's operating expenses have a significant impact on the
portfolio's yield due to lower interest rates. Without such subsidies, waivers
and adjustments, the results would have been less favorable. See the prospectus
for details. All results are historical and assume the reinvestment of dividends
and capital gains.
From time to time the variable accounts may receive proceeds from litigation
settlements, without which performance would be lower.
See notes to financial statements.
PORTFOLIO COMPOSITION -- CAPITAL APPRECIATION VARIABLE ACCOUNT
PORTFOLIO STRUCTURE
Stocks 96.7%
Cash & Other Net Assets 3.3%
TOP TEN HOLDINGS
Cisco Systems, Inc. 3.9%
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Wyeth 3.3%
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Intel Corp. 2.9%
------------------------------------------------
Samsung Electronics Co. Ltd., GDR 2.7%
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Johnson & Johnson 2.6%
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Wal-Mart Stores, Inc. 2.6%
------------------------------------------------
QUALCOMM, Inc. 2.5%
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Oracle Corp. 2.4%
------------------------------------------------
Gilead Sciences, Inc. 2.4%
------------------------------------------------
Dell, Inc. 2.4%
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SECTOR WEIGHTINGS
Technology 39.3%
------------------------------------------------
Health Care 22.5%
------------------------------------------------
Retailing 13.0%
------------------------------------------------
Leisure 6.3%
------------------------------------------------
Financial Services 5.7%
------------------------------------------------
Consumer Staples 2.6%
------------------------------------------------
Industrial Goods & Services 2.3%
------------------------------------------------
Transportation 1.6%
------------------------------------------------
Special Products & Services 1.4%
------------------------------------------------
Autos & Housing 1.1%
------------------------------------------------
Energy 0.9%
------------------------------------------------
Percentages are based on net assets as of 12/31/05.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (b)
Bonds 88.3%
Cash & Other Net Assets 11.7%
MARKET SECTORS (b)
Non-U.S. Government Bonds 66.6%
------------------------------------------------
Cash & Other Net Assets 11.7%
------------------------------------------------
Commercial Mortgage-Backed Securities 7.3%
------------------------------------------------
U.S. Treasury Securities 4.8%
------------------------------------------------
U.S. Government Agencies 4.6%
------------------------------------------------
Emerging Market Bonds 2.8%
------------------------------------------------
Municipal Bonds 2.2%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 79.5%
------------------------------------------------
AA 12.9%
------------------------------------------------
A 2.9%
------------------------------------------------
BBB 2.6%
------------------------------------------------
Not Rated 2.1%
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PORTFOLIO FACTS
Average Duration (d) 4.9
------------------------------------------------
Average Life (m) 7.8 yrs.
------------------------------------------------
Average Maturity (m) 9.6 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (a) AA+
------------------------------------------------
Average Short Term Quality A-1
------------------------------------------------
COUNTRY WEIGHTINGS (b)
United States 31.9%
------------------------------------------------
Germany 14.8%
------------------------------------------------
United Kingdom 13.6%
------------------------------------------------
Japan 7.4%
------------------------------------------------
New Zealand 7.0%
------------------------------------------------
Spain 3.7%
------------------------------------------------
France 3.4%
------------------------------------------------
Finland 3.1%
------------------------------------------------
Belgium 2.6%
------------------------------------------------
All Others 12.5%
------------------------------------------------
(b) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 12/31/05.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded to an earlier date or which have a mandatory put date
prior to the stated maturity. The average life shown takes into account
these earlier dates.
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond fund's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a fund
with a 5-year duration is likely to lose about 5.00% of its value.
Percentages are based on net assets as of 12/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (b)
Bonds 97.4%
Cash & Other Net Assets 2.6%
FIXED INCOME MARKET SECTORS (b)
Mortgage-Backed Securities 49.5%
------------------------------------------------
U.S. Government Agencies 33.6%
------------------------------------------------
U.S. Treasury Securities 14.3%
------------------------------------------------
Cash & Other Net Assets 2.6%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 98.1
------------------------------------------------
Not Rated 1.9
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.5
------------------------------------------------
Average Life (m) 7.7 yrs.
------------------------------------------------
Average Maturity (m) 15.9 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (a) AAA
------------------------------------------------
Average Short Term Quality A-1
------------------------------------------------
(b) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 12/31/05.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded to an earlier date or which have a mandatory put date
prior to the stated maturity. The average life shown takes into account
these earlier dates.
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond variable account's price is likely
to fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its
value.
Percentages are based on net assets as of 12/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (b)
Bonds 94.5%
Cash & Other Net Assets 4.1%
Stocks 1.0%
Convertible Preferred Stocks 0.3%
Preferred Stocks 0.1%
TOP FIVE INDUSTRIES (b)
Utilities - Electric Power 7.3%
------------------------------------------------
Gaming & Lodging 7.2%
------------------------------------------------
Medical & Health Technology & Services 6.2%
------------------------------------------------
Automotive 5.8%
------------------------------------------------
Chemicals 4.9%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
A 0.5%
------------------------------------------------
BBB 7.3%
------------------------------------------------
BB 37.0%
------------------------------------------------
B 39.9%
------------------------------------------------
CCC 13.5%
------------------------------------------------
CC 0.5%
------------------------------------------------
C 0.1%
------------------------------------------------
D 0.1%
------------------------------------------------
Not Rated 1.1%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.5
------------------------------------------------
Average Life (m) 7.7 yrs.
------------------------------------------------
Average Maturity (m) 8.1 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (a) B+
------------------------------------------------
Average Short Term Quality A-1
------------------------------------------------
(b) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 12/31/05.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded to an earlier date or which have a mandatory put date
prior to the stated maturity. The average life shown takes into account
these earlier dates.
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond variable account's price is likely
to fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its
value.
Percentages are based on net assets as of 12/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- MONEY MARKET VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (b)
Commercial Paper 92.2%
Repurchase Agreements 6.2%
Certificates of Deposit 1.8%
Other Assets Less Liabilities -0.2%
SHORT TERM CREDIT QUALITY (r)
A-1 100%
------------------------------------------------
MATURITY BREAKDOWN (b)
0 to 29 Days 41.5%
------------------------------------------------
30 to 59 Days 52.2%
------------------------------------------------
60 to 89 Days 6.5%
------------------------------------------------
Other Assets Less Liabilities -0.2%
------------------------------------------------
(b) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 12/31/05.
From time to time "Other Assets Less Liabilities," may be negative due to timing
of cash receipts.
Percentages are based on net assets as of 12/31/05, unless otherwise noted.
The portfolios are actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- TOTAL RETURN VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (b)
Stocks 59.0%
Bonds 40.7%
Cash & Other Net Assets 0.3%
TOP TEN HOLDINGS (b)
Fannie Mae 5.5%, 30 year 4.3%
------------------------------------------------
Bank of America Corp. 2.5%
------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 1.9%
------------------------------------------------
Fannie Mae, 6.625%, 2010 1.8%
------------------------------------------------
U.S. Treasury Notes, 6.5%, 2010 1.8%
------------------------------------------------
Sprint Nextel Corp. 1.6%
------------------------------------------------
Wyeth 1.5%
------------------------------------------------
PNC Financial Services Group, Inc. 1.5%
------------------------------------------------
J.P. Morgan Chase & Co. 1.4%
------------------------------------------------
Masco Corp. 1.3%
------------------------------------------------
EQUITY SECTOR WEIGHTINGS
Financial Services 15.7%
------------------------------------------------
Energy 6.7%
------------------------------------------------
Utilities & Communications 5.7%
------------------------------------------------
Technology 5.5%
------------------------------------------------
Health Care 4.9%
------------------------------------------------
Industrial Goods & Services 4.3%
------------------------------------------------
Basic Materials 3.8%
------------------------------------------------
Leisure 3.8%
------------------------------------------------
Consumer Staples 3.4%
------------------------------------------------
Retailing 2.9%
------------------------------------------------
Autos & Housing 1.5%
------------------------------------------------
Transportation 0.4%
------------------------------------------------
Special Products & Services 0.4%
------------------------------------------------
FIXED INCOME SECTOR WEIGHTINGS (b)
Mortgage-Backed Securities 14.4%
------------------------------------------------
U.S. Treasury Securities 9.5%
------------------------------------------------
High Grade Corporates 9.1%
------------------------------------------------
U.S. Government Agencies 4.6%
------------------------------------------------
Commercial Mortgage-Backed Securities 1.6%
------------------------------------------------
Asset-Backed Securities 0.8%
------------------------------------------------
High Yield Corporates 0.3%
------------------------------------------------
Emerging Market Bonds 0.2%
------------------------------------------------
Non U.S. Government Bonds 0.1%
------------------------------------------------
Residential Mortgage-Backed Securities 0.1%
------------------------------------------------
(b) For purposes of this graphical presentation, the fixed income portion
includes both accrued interest on bonds and the equivalent exposure from any
derivative holdings, if applicable.
Percentages are based on net assets as of 12/31/05, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
CAPITAL APPRECIATION VARIABLE ACCOUNT
STOCKS -- 96.7%
Shares/Par
Issuer ($) Value ($)
APPAREL MANUFACTURERS -- 2.0%
Cintas Corp. .............................. 60,300 $ 2,483,154
Nike, Inc., "B" ........................... 29,560 2,565,512
------------
$ 5,048,666
------------
AUTOMOTIVE -- 1.1%
Harman International Industries, Inc. ..... 29,970 $ 2,932,565
------------
BANKS & CREDIT COMPANIES -- 2.3%
American Express Co. ...................... 38,160 $ 1,963,714
SLM Corp. ................................. 68,260 3,760,443
UBS AG .................................... 3,130 297,820
------------
$ 6,021,977
------------
BIOTECHNOLOGY -- 5.3%
Amgen, Inc.(n) ............................ 50,200 $ 3,958,772
Genzyme Corp.(n) .......................... 48,240 3,414,427
Gilead Sciences, Inc.(n) .................. 118,830 6,254,023
------------
$ 13,627,222
------------
BROADCAST & CABLE TV -- 2.2%
Grupo Televisa S.A., ADR .................. 28,170 $ 2,267,685
Univision Communications, Inc., "A"(n) .... 53,700 1,578,243
Walt Disney Co. ........................... 73,600 1,764,192
------------
$ 5,610,120
------------
BROKERAGE & ASSET MANAGERS -- 1.2%
Chicago Mercantile Exchange Holdings, Inc. 4,070 $ 1,495,684
Merrill Lynch & Co., Inc. ................. 23,000 1,557,790
------------
$ 3,053,474
------------
BUSINESS SERVICES -- 1.4%
Getty Images, Inc.(n) ..................... 17,580 $ 1,569,367
Infosys Technologies Ltd., ADR ............ 25,800 2,086,188
------------
$ 3,655,555
------------
COMPUTER SOFTWARE -- 7.6%
Adobe Systems, Inc. ....................... 137,000 $ 5,063,520
Check Point Software Technologies Ltd.(n) 48,700 978,870
Microsoft Corp. ........................... 208,770 5,459,336
Oracle Corp.(n) ........................... 514,680 6,284,243
Symantec Corp.(n) ......................... 110,190 1,928,325
------------
$ 19,714,294
------------
COMPUTER SOFTWARE -- SYSTEMS -- 4.8%
Amdocs Ltd.(n) ............................ 140,740 $ 3,870,350
Dell, Inc.(n) ............................. 205,480 6,162,345
LG Philips LCD Co. Ltd., ADR(n) ........... 107,300 2,302,658
------------
$ 12,335,353
------------
CONSUMER GOODS & SERVICES -- 1.1%
Procter & Gamble Co. ...................... 48,600 $ 2,812,968
------------
ELECTRICAL EQUIPMENT -- 1.9%
Cooper Industries Ltd., "A" ............... 17,700 $ 1,292,100
General Electric Co. ...................... 41,500 1,454,575
Tyco International Ltd. ................... 77,160 2,226,838
------------
$ 4,973,513
------------
ELECTRONICS -- 11.5%
Analog Devices, Inc. ...................... 64,200 $ 2,302,854
Applied Materials, Inc. ................... 82,900 1,487,226
Intel Corp. ............................... 304,220 7,593,331
KLA-Tencor Corp. .......................... 30,600 1,509,498
Marvell Technology Group Ltd.(n) .......... 22,200 1,245,198
Samsung Electronics Co. Ltd., GDR ......... 21,440 7,064,480
SanDisk Corp.(n) .......................... 49,350 3,100,167
Taiwan Semiconductor Manufacturing Co.
Ltd., ADR ............................... 229,240 2,271,768
Xilinx, Inc. .............................. 124,210 3,131,334
------------
$ 29,705,856
------------
FOOD & DRUG STORES -- 0.9%
CVS Corp. ................................. 91,400 $ 2,414,788
------------
FOOD & NON-ALCOHOLIC BEVERAGES -- 1.5%
PepsiCo, Inc. ............................. 66,900 $ 3,952,452
------------
GAMING & LODGING -- 2.3%
Carnival Corp. ............................ 61,910 $ 3,310,328
Royal Caribbean Cruises Ltd. .............. 23,800 1,072,428
Starwood Hotels & Resorts Worldwide, Inc. 24,600 1,570,956
------------
$ 5,953,712
------------
GENERAL MERCHANDISE -- 5.2%
Kohl's Corp.(n) ........................... 69,100 $ 3,358,260
Target Corp. .............................. 61,980 3,407,041
Wal-Mart Stores, Inc. ..................... 141,210 6,608,628
------------
$ 13,373,929
------------
HEALTH MAINTENANCE ORGANIZATIONS -- 1.0%
UnitedHealth Group, Inc. .................. 41,900 $ 2,603,666
------------
INSURANCE -- 2.2%
Ace Ltd. .................................. 29,730 $ 1,588,771
American International Group, Inc. ........ 59,170 4,037,169
------------
$ 5,625,940
------------
INTERNET -- 2.8%
Google, Inc., "A"(n) ...................... 12,740 $ 5,285,316
Yahoo!, Inc.(n) ........................... 52,040 2,038,927
------------
$ 7,324,243
------------
LEISURE & TOYS -- 1.2%
Electronic Arts, Inc.(n) .................. 60,940 $ 3,187,771
------------
MACHINERY & TOOLS -- 0.4%
Illinois Tool Works, Inc. ................. 12,540 $ 1,103,395
------------
MEDICAL EQUIPMENT -- 4.6%
Advanced Medical Optics, Inc.(n) .......... 65,880 $ 2,753,784
Alcon, Inc. ............................... 18,200 2,358,720
DENTSPLY International, Inc. .............. 15,100 810,719
Medtronic, Inc. ........................... 47,370 2,727,091
St. Jude Medical, Inc.(n) ................. 67,050 3,365,910
------------
$ 12,016,224
------------
NETWORK & TELECOM -- 9.3%
Cisco Systems, Inc.(n) .................... 588,480 $ 10,074,778
Corning, Inc.(n) .......................... 258,250 5,077,195
Juniper Networks, Inc.(n) ................. 56,000 1,248,800
Nokia Corp., ADR .......................... 66,170 1,210,911
QUALCOMM, Inc. ............................ 148,380 6,392,210
------------
$ 24,003,894
------------
OIL SERVICES -- 0.9%
Noble Corp. ............................... 32,030 $ 2,259,396
------------
PERSONAL COMPUTERS & PERIPHERALS -- 3.3%
EMC Corp.(n) .............................. 450,900 $ 6,141,258
Network Appliance, Inc.(n) ................ 85,300 2,303,100
------------
$ 8,444,358
------------
PHARMACEUTICALS -- 11.6%
Abbott Laboratories ....................... 90,840 $ 3,581,821
Eli Lilly & Co. ........................... 80,410 4,550,402
Johnson & Johnson ......................... 110,090 6,616,409
Roche Holding AG .......................... 22,540 3,380,700
Teva Pharmaceutical Industries Ltd., ADR .. 79,290 3,410,263
Wyeth ..................................... 185,020 8,523,871
------------
$ 30,063,466
------------
RESTAURANTS -- 0.6%
Cheesecake Factory, Inc.(n) ............... 11,700 $ 437,463
P.F. Chang's China Bistro, Inc.(n) ........ 21,900 1,086,897
------------
$ 1,524,360
------------
SPECIALTY STORES -- 4.9%
Home Depot, Inc. .......................... 77,800 $ 3,149,344
Lowe's Cos., Inc. ......................... 24,800 1,653,168
PETsMART, Inc. ............................ 86,710 2,224,979
Staples, Inc. ............................. 111,500 2,532,165
Williams-Sonoma, Inc.(n) .................. 74,700 3,223,305
------------
$ 12,782,961
------------
TRUCKING -- 1.6%
FedEx Corp. ............................... 21,070 $ 2,178,427
United Parcel Service, Inc., "B" .......... 26,400 1,983,960
------------
$ 4,162,387
------------
Total Stocks (Identified Cost, $242,345,155) $250,288,505
------------
SHORT-TERM OBLIGATION -- 3.2%
General Electric Capital Corp.,
4.2%, due 1/03/06,
at Amortized Cost(y) .................... $ 8,407,000 $ 8,405,038
------------
Total Investments
(Identified Cost, $250,750,193) ..... $258,693,543
------------
OTHER ASSETS,
LESS LIABILITIES -- 0.1% ................ 263,041
------------
Net Assets -- 100.0% .................. $258,956,584
============
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
BONDS -- 87.1%
Shares/Par
Issuer ($) Value ($)
FOREIGN BONDS -- 67.0%
AUSTRALIA -- 1.2%
Government of Australia, 6.25%, 2015 ...... AUD 153,000 $ 120,820
------------
AUSTRIA -- 1.7%
Republic of Austria, 5%, 2012 ............. EUR 135,000 $ 176,776
------------
BELGIUM -- 2.5%
Kingdom of Belgium, 3.75%, 2009 ........... EUR 105,000 $ 126,990
Kingdom of Belgium, 5%, 2012 .............. EUR 100,000 131,193
------------
$ 258,183
------------
CANADA -- 2.1%
Quebec Province, 1.6%, 2013 ............... JPY 25,000,000 $ 216,389
------------
FINLAND -- 3.0%
Republic of Finland, 3%, 2008 ............. EUR 197,000 $ 233,692
Republic of Finland, 5.375%, 2013 ......... EUR 57,000 77,095
------------
$ 310,787
------------
FRANCE -- 3.4%
Republic of France, 4.75%, 2007 ........... EUR 69,000 $ 83,891
Republic of France, 4.75%, 2012 ........... EUR 73,000 94,582
Republic of France, 6%, 2025 .............. EUR 106,000 168,830
------------
$ 347,303
------------
GERMANY -- 14.4%
Federal Republic of Germany,
3.5%, 2008 .............................. EUR 91,000 $ 109,228
Federal Republic of Germany,
5.25%, 2010 ............................. EUR 82,000 105,837
Federal Republic of Germany,
3.75%, 2015 ............................. EUR 125,000 153,196
Federal Republic of Germany,
6.25%, 2024 ............................. EUR 189,000 304,294
Federal Republic of Germany,
6.25%, 2030 ............................. EUR 233,000 393,356
KfW Bankengruppe, 2.328%, 2007 ............ EUR 252,000 297,557
Landesbank Baden-Wurttemberg,
2.185%, 2007 ............................ EUR 88,000 104,084
------------
$ 1,467,552
------------
IRELAND -- 2.2%
Republic of Ireland, 4.25%, 2007 .......... EUR 156,000 $ 188,985
Republic of Ireland, 4.6%, 2016 ........... EUR 29,000 38,044
------------
$ 227,029
------------
JAPAN -- 7.4%
Development Bank of Japan,
1.4%, 2012 .............................. JPY 37,000,000 $ 319,880
Development Bank of Japan,
1.6%, 2014 .............................. JPY 50,000,000 433,833
------------
$ 753,713
------------
MALAYSIA -- 1.2%
Petronas Capital Ltd., 7.875%, 2022 ....... $ 100,000 $ 125,179
------------
MEXICO -- 0.8%
Pemex Project Funding Master Trust,
8.625%, 2022 ............................ $ 23,000 $ 28,348
United Mexican States, 8.125%, 2019 ....... 42,000 51,555
------------
$ 79,903
------------
NETHERLANDS -- 1.8%
Kingdom of Netherlands, 5.75%, 2007 ....... EUR 81,000 $ 98,978
Kingdom of Netherlands, 5%, 2012 .......... EUR 68,697 89,932
------------
$ 188,910
------------
NEW ZEALAND -- 6.9%
Government of New Zealand,
6%, 2008 ................................ NZD 358,000 $ 244,454
Government of New Zealand,
6.5%, 2013 .............................. NZD 507,000 362,211
Government of New Zealand,
6%, 2015 ................................ NZD 145,000 101,113
------------
$ 707,778
------------
QATAR -- 0.5%
State of Qatar, 9.75%, 2030 ............... $ 30,000 $ 45,825
------------
RUSSIA -- 0.3%
Gaz Capital S.A., 8.625%, 2034 ............ $ 23,000 $ 29,095
------------
SPAIN -- 3.6%
Kingdom of Spain, 6%, 2008 ................ EUR 132,000 $ 165,453
Kingdom of Spain, 5.35%, 2011 ............. EUR 151,000 199,204
------------
$ 364,657
------------
SWEDEN -- 0.5%
Kingdom of Sweden, 4%, 2020 ............... SEK 316,832 $ 52,243
------------
UNITED KINGDOM -- 13.5%
United Kingdom Treasury, 5.75%, 2009 ...... GBP 423,000 $ 767,790
United Kingdom Treasury, 5%, 2012 ......... GBP 84,000 151,097
United Kingdom Treasury, 8%, 2015 ......... GBP 204,000 462,577
------------
$ 1,381,464
------------
Total Foreign Bonds ................... $ 6,853,606
------------
U.S. BONDS -- 20.1%
ASSET BACKED & SECURITIZED -- 7.3%
Commercial Mortgage Asset
Trust, FRN, 0.8861%, 2032(a)(i) ......... $ 1,428,151 $ 64,842
Commercial Mortgage Pass-Through
Certificate, FRN, 4.5594%, 2017(a) ...... 59,000 58,993
Commercial Mortgage Pass-Through
Certificates, FRN, 4.5694%, 2017(a) ..... 100,000 99,938
Deutsche Mortgage & Asset Receiving
Corp., 6.538%, 2031 ..................... 43,137 44,188
First Union National Bank Commercial
Mortgage Trust, FRN, 0.9562%, 2043(a)(i) 1,649,628 66,589
IMPAC CMB Trust, FRN, 4.7288%, 2036 ....... 99,736 99,736
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.2133%, 2041 .... 55,952 56,347
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 4.5694%, 2046 .... 52,080 52,098
Lehman Brothers Floating Rate Commercial
Mortgage Trust, FRN, 4.5294%, 2018(a) ... 100,000 99,989
Wachovia Bank Commercial Mortgage Trust,
FRN, 4.6594%, 2015 ...................... 22,101 22,110
Wachovia Bank Commercial Mortgage Trust,
FRN, 4.6094%, 2015(a) ................... 83,496 83,581
------------
$ 748,411
------------
MUNICIPALS -- 2.2%
Honolulu, HI, City & County Rev., "A",
MBIA, 5%, 2015 .......................... $ 85,000 $ 92,637
Massachusetts State Water Resources
Authority, "A", MBIA, 5.25%, 2015 ....... 80,000 88,759
New York, NY, City Municipal Water
Finance Authority, Water & Sewer
Systems Rev., "D", 5%, 2037 ............. 40,000 41,524
------------
$ 222,920
------------
SUPRANATIONAL -- 1.3%
Inter-American Development Bank,
1.9%, 2009 .............................. JPY 15,000,000 $ 133,003
------------
U.S. GOVERNMENT AGENCIES -- 4.6%
Aid-Egypt, 4.45%, 2015 .................... $ 12,000 $ 11,759
Fannie Mae, 4.25%, 2007 ................... 171,000 169,459
Freddie Mac, 4.2%, 2007 ................... 99,000 97,706
Small Business Administration,
4.76%, 2025 ............................. 74,000 72,568
Small Business Administration,
5.36%, 2025 ............................. 115,000 116,717
------------
$ 468,209
------------
U.S. TREASURY OBLIGATIONS -- 4.7%
U.S. Treasury Bonds, 6.25%, 2030 .......... $ 62,000 $ 77,001
U.S. Treasury Bonds, TIPS,
2.375%, 2025 ............................ 39,096 41,091
U.S. Treasury Notes, 3.125%, 2008 ......... 111,000 107,371
U.S. Treasury Notes, 4.25%, 2013 .......... 28,000 27,733
U.S. Treasury Notes, 4%, 2015 ............. 111,000 107,618
U.S. Treasury Notes, TIPS, 2%, 2014 ....... 121,806 121,116
------------
$ 481,930
------------
Total U.S. Bonds ...................... $ 2,054,473
------------
Total Bonds (Identified Cost, $9,131,384) $ 8,908,079
------------
CALL OPTIONS PURCHASED -- 0%
Principal
Amount
of
Issue/Expiration/Price Contracts Value ($)
JPY - January 2006 @ $117.30 (Premiums
Paid, $2,035) ........................... 23,460,000 $ 915
------------
PUT OPTIONS PURCHASED -- 0%
EUR - January 2006 @ $1.21
(Premiums Paid, $2,296) ................. 210,875 $ 316
------------
SHORT-TERM OBLIGATION -- 11.9%
Issuer Par ($) Value ($)
Federal Home Loan Bank,
3.3%, due 1/03/06, at Amortized Cost(y) $ 1,216,000 $ 1,215,777
------------
Total Investments (Identified Cost, $10,351,492) ............ $ 10,125,087
------------
OTHER ASSETS,
LESS LIABILITIES -- 1.0% ...................................... 100,668
------------
Net Assets -- 100.0% ........................................ $ 10,225,755
============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
Net Unrealized
Contracts to Contracts Appreciation
Deliver/Receive Settlement Date In Exchange For at Value (Depreciation)
SALES
AUD 414,488 2/06/06 - 2/07/06 $308,563 $303,815 $4,748
CAD 18,760 1/23/06 15,834 16,141 (307)
EUR 832,602 1/23/06 - 2/21/06 979,063 987,622 (8,559)
GBP 470,243 1/31/06 831,977 808,163 23,814
JPY 15,524,886 1/17/06 - 1/23/06 131,010 131,876 (866)
NOK 343,337 1/17/06 51,797 50,895 902
NZD 1,129,290 2/07/06 791,153 767,812 23,341
SEK 433,781 2/06/06 54,423 54,707 (284)
---------- ---------- -------
$3,163,820 $3,121,031 $42,789
========== ========== =======
PURCHASES
CAD 106,703 1/18/06 - 1/26/06 $91,664 $91,796 $132
CHF 66,001 2/16/06 51,797 50,416 (1,381)
DKK 612,750 1/17/06 96,801 97,245 444
EUR 522,643 1/18/06 - 2/21/06 621,159 619,410 (1,749)
GBP 6,000 1/31/06 10,690 10,312 (378)
JPY 275,323,395 1/18/06 2,333,052 2,338,460 5,408
NOK 1,162,846 1/17/06 174,577 172,375 (2,202)
NZD 36,821 2/07/06 26,109 25,035 (1,074)
SEK 1,835,962 1/17/06 - 2/13/06 231,220 231,487 267
---------- ---------- -------
$3,637,069 $3,636,536 $ (533)
========== ========== =======
At December 31, 2005 forward foreign currency purchases and sales under master netting agreements excluded above
amounted to a net payable of $903 with Merrill Lynch International.
At December 31, 2005 the variable account had sufficient cash and/or securities to cover any commitments under
these derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
GOVERNMENT SECURITIES VARIABLE ACCOUNT
BONDS -- 98.5%
Shares/Par
Issuer ($) Value ($)
AGENCY -- OTHER -- 5.6%
Financing Corp., 10.35%, 2018 ............. $ 1,150,000 $ 1,721,415
Financing Corp., 9.4%, 2018 ............... 780,000 1,091,578
Resolution Funding Corp., 8.875%, 2020 .... 1,700,000 2,364,821
------------
$ 5,177,814
------------
MORTGAGE BACKED -- 49.5%
Fannie Mae, 4.79%, 2012 ................... $ 934,169 $ 924,408
Fannie Mae, 4.73%, 2012 ................... 95,801 94,181
Fannie Mae, 5%, 2013 - 2019 ............... 2,613,526 2,590,822
Fannie Mae, 4.8%, 2013 .................... 90,801 89,586
Fannie Mae, 4.845%, 2013 .................. 264,585 261,235
Fannie Mae, 5.06%, 2013 ................... 106,590 106,295
Fannie Mae, 4.65%, 2013 ................... 251,623 246,987
Fannie Mae, 4.45%, 2014 ................... 324,682 313,233
Fannie Mae, 4.771%, 2014 .................. 648,859 639,730
Fannie Mae, 4.6%, 2014 .................... 126,955 123,575
Fannie Mae, 4.667%, 2014 .................. 850,622 832,589
Fannie Mae, 4.518%, 2014 .................. 163,177 158,229
Fannie Mae, 4.77%, 2014 ................... 107,466 105,439
Fannie Mae, 4.846%, 2014 .................. 911,476 901,829
Fannie Mae, 5.1%, 2014 .................... 138,919 139,316
Fannie Mae, 4.62%, 2015 ................... 182,256 177,239
Fannie Mae, 4.82%, 2015 ................... 343,366 337,771
Fannie Mae, 4.69%, 2015 ................... 89,973 87,896
Fannie Mae, 4.85%, 2015 ................... 89,995 88,857
Fannie Mae, 4.56%, 2015 ................... 163,563 158,378
Fannie Mae, 4.665%, 2015 .................. 110,323 107,585
Fannie Mae, 4.7%, 2015 .................... 126,750 123,896
Fannie Mae, 4.89%, 2015 ................... 89,156 88,263
Fannie Mae, 4.74%, 2015 ................... 100,000 97,783
Fannie Mae, 4.925%, 2015 .................. 351,654 349,502
Fannie Mae, 4.815%, 2015 .................. 117,000 114,948
Fannie Mae, 6%, 2016 - 2034 ............... 3,615,262 3,669,402
Fannie Mae, 6.5%, 2016 - 2032 ............. 1,947,304 2,002,407
Fannie Mae, 4.996%, 2017 .................. 339,216 338,813
Fannie Mae, 5.5%, 2017 - 2035 ............. 14,224,932 14,146,582
Fannie Mae, 4.5%, 2019 - 2020 ............. 4,269,959 4,161,365
Fannie Mae, 4.88%, 2020 ................... 96,655 95,919
Fannie Mae, 7.5%, 2022 - 2031 ............. 277,742 291,354
Freddie Mac, 4.5%, 2013 - 2015 ............ 599,727 595,183
Freddie Mac, 4.375%, 2015 ................. 699,121 683,661
Freddie Mac, 5%, 2024 - 2025 .............. 940,142 938,091
Freddie Mac, 5.5%, 2025 - 2035 ............ 4,384,720 4,352,143
Freddie Mac, 6.5%, 2032 ................... 899,172 923,115
Freddie Mac, 6%, 2034 - 2035 .............. 2,404,682 2,430,662
Freddie Mac, 3.108%, 2035 ................. 47,962 47,700
Ginnie Mae, 5.5%, 2033 .................... 1,926,896 1,942,041
------------
$ 45,878,010
------------
U.S. GOVERNMENT AGENCIES -- 27.5%
Aid to Israel, 6.6%, 2008 ................. $ 645,242 $ 659,509
Aid to Israel, 0%, 2021 - 2024 ............ 2,041,000 857,548
Aid to Israel, 5.5%, 2023 ................. 1,097,000 1,182,207
Aid to Peru, 9.98%, 2008 .................. 545,950 572,899
Aid-Egypt, 4.45%, 2015 .................... 473,000 463,488
Empresa Energetica Cornito Ltd.,
6.07%, 2010 ............................. 2,144,000 2,204,289
Fannie Mae, 4.25%, 2009 ................... 1,073,000 1,057,096
Freddie Mac, 4.2%, 2007 ................... 1,105,000 1,090,559
Freddie Mac, 5.625%, 2011 ................. 3,664,000 3,808,504
Freddie Mac, 5.05%, 2015 .................. 956,000 948,705
Overseas Private Investment Corp.,
0%, 2007 ................................ 167,048 168,719
Small Business Administration, 8.4%, 2007 . 4,193 4,246
Small Business Administration,
10.05%, 2009 ............................ 14,685 15,454
Small Business Administration, 8.7%, 2009 . 55,749 58,345
Small Business Administration, 6.34%, 2021 651,355 684,118
Small Business Administration, 6.44%, 2021 628,517 661,378
Small Business Administration,
6.625%, 2021 ............................ 726,862 772,175
Small Business Administration, 6.07%, 2022 502,023 523,644
Small Business Administration, 4.98%, 2023 261,285 260,806
Small Business Administration, 4.89%, 2023 670,561 665,843
Small Business Administration, 4.72%, 2024 689,430 678,236
Small Business Administration, 4.34%, 2024 377,621 362,801
Small Business Administration, 4.77%, 2024 642,861 633,741
Small Business Administration, 5.52%, 2024 352,112 360,395
Small Business Administration, 4.99%, 2024 435,270 434,204
Small Business Administration, 4.86%, 2024 331,773 328,351
Small Business Administration, 4.88%, 2024 308,101 305,184
Small Business Administration, 4.87%, 2024 398,853 394,714
Small Business Administration, 5.11%, 2025 349,706 350,679
Small Business Administration, 4.76%, 2025 566,000 555,047
Tennessee Valley Authority STRIPS,
0%, 2042(i) ............................. 2,250,000 1,747,080
U.S. Department of Housing & Urban
Development, 6.36%, 2016 ................ 500,000 530,891
U.S. Department of Housing & Urban
Development, 6.59%, 2016 ................ 2,045,000 2,112,143
------------
$ 25,452,998
------------
U.S. TREASURY OBLIGATIONS -- 15.9%
U.S. Treasury Bonds, 12%, 2013 ............ $ 19,000 $ 22,542
U.S. Treasury Bonds, 5.25%, 2028 .......... 346,000 377,383
U.S. Treasury Bonds, 5.375%, 2031 ......... 1,793,000 2,014,043
U.S. Treasury Bonds, 9.25%, 2016 .......... 409,000 566,800
U.S. Treasury Bonds, 6%, 2026 ............. 123,000 145,044
U.S. Treasury Notes, 5.5%, 2008 ........... 930,000 950,816
U.S. Treasury Notes, 6.5%, 2010(f) ........ 7,119,000 7,679,344
U.S. Treasury Notes, TIPS, 3.625%, 2008 ... 908,618 933,001
U.S. Treasury Notes, TIPS, 3.875%, 2009 ... 666,750 700,764
U.S. Treasury Notes, TIPS, 4.25%, 2010 .... 1,290,375 1,398,846
------------
$ 14,788,583
------------
Total Bonds (Identified Cost, $91,003,703) .................. $ 91,297,405
------------
REPURCHASE AGREEMENT -- 0.6%
Morgan Stanley, 4.23%, dated 12/30/05, due
1/03/06, total to be received $561,264
(secured by various U.S. Treasury and
Federal Agency obligations in a jointly
traded account), at Cost ................ $ 561,000 $ 561,000
------------
Total Investments (Identified Cost, $91,564,703) ............ $ 91,858,405
------------
OTHER ASSETS,
LESS LIABILITIES - 0.9% ....................................... 813,356
------------
Net Assets - 100.0% ................................... $ 92,671,761
============
FUTURES CONTRACTS OUTSTANDING AT DECEMBER 31, 2005:
Unrealized
Expiration Appreciation
Contracts Value Date (Depreciation)
U.S. Treasury Note 5 yr (Long) ............. 26 $2,764,938 Mar-06 $ 7,019
U.S. Treasury Note 10 yr (Short) ........... 42 4,595,063 Mar-06 4,337
------
$11,356
=======
At December 31, 2005, the variable account had sufficient cash and/or securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
HIGH YIELD VARIABLE ACCOUNT
BONDS -- 92.9%
Shares/Par
Issuer ($) Value ($)
ADVERTISING & BROADCASTING -- 4.3%
Allbritton Communications Co.,
7.75%, 2012 ............................. $ 275,000 $ 276,375
Block Communications, Inc.,
8.25%, 2015 (a) ......................... 95,000 94,050
DIRECTV Holdings LLC, 8.375%, 2013 ........ 120,000 129,000
DIRECTV Holdings LLC, 6.375%, 2015 ........ 145,000 141,737
EchoStar DBS Corp., 6.375%, 2011 .......... 465,000 447,562
Granite Broadcasting Corp., 9.75%, 2010 ... 170,000 156,400
Innova S. de R.L., 9.375%, 2013 ........... 110,000 122,100
Intelsat Ltd., 8.625%, 2015 (a) ........... 205,000 207,050
Intelsat Ltd., 0% to 2010,
9.25% to 2015, (a) ...................... 280,000 184,100
Lamar Media Corp., 7.25%, 2013 ............ 135,000 140,063
Lamar Media Corp., 6.625%, 2015 ........... 45,000 45,169
Panamsat Holding Corp., 0% to 2009,
10.375% to 2014 ......................... 480,000 336,000
Paxson Communications Corp., FRN,
10.7769%, 2013 (a) ...................... 350,000 336,438
Sirius Satellite Radio, Inc.,
9.625%, 2013 (a) ........................ 155,000 152,675
------------
$ 2,768,719
------------
AEROSPACE -- 0.6%
Argo-Tech Corp., 9.25%, 2011 .............. $ 180,000 $ 184,500
Transdigm Holding Co., 8.375%, 2011 ....... 180,000 189,450
------------
$ 373,950
------------
AIRLINES -- 0.7%
Continental Airlines, Inc., 6.9%, 2017 .... $ 73,411 $ 63,693
Continental Airlines, Inc., 6.748%, 2017 .. 74,147 64,973
Continental Airlines, Inc., 6.795%, 2018 .. 120,499 104,711
Continental Airlines, Inc., 7.566%, 2020 .. 243,884 217,437
------------
$ 450,814
------------
APPAREL MANUFACTURERS -- 0.4%
Levi Strauss & Co., 12.25%, 2012 .......... $ 150,000 $ 167,250
Levi Strauss & Co., 9.75%, 2015 ........... 115,000 119,600
------------
$ 286,850
------------
ASSET BACKED & SECURITIZED -- 2.4%
Airplane Pass-Through Trust, "D",
10.875%, 2019 (r)(d) .................... $ 740,775 $ 0
ARCap, Inc., "H", 6.1%, 2045 (a) .......... 165,567 153,047
Asset Securitization Corp., FRN,
8.0075%, 2029 ........................... 150,000 159,121
Asset Securitization Corp., FRN,
8.4975%, 2029 (a) ....................... 200,000 182,094
Crest Ltd., 7%, 2040 (a) .................. 154,000 146,962
First Union National Bank Commercial
Mortgage Corp., 6.75%, 2032 ............. 165,000 165,380
GMAC Commercial Mortgage Securities, Inc.,
FRN, 7.661%, 2034 (a) ................... 192,000 208,910
Mortgage Capital Funding, Inc.,
7.214%, 2007 ............................ 500,000 511,036
------------
$ 1,526,550
------------
AUTOMOTIVE -- 5.1%
Delphi Corp., 6.5%, 2013 (d) .............. $ 85,000 $ 42,712
Ford Motor Credit Co., 7%, 2013 ........... 210,000 179,436
Ford Motor Credit Co., 5.625%, 2008 ....... 180,000 157,941
Ford Motor Credit Co., 6.625%, 2008 ....... 271,000 245,812
Ford Motor Credit Co., 5.8%, 2009 ......... 140,000 122,127
Ford Motor Credit Co., 4.95%, 2008 ........ 175,000 156,799
Ford Motor Credit Co., 8.625%, 2010 ....... 190,000 173,278
General Motors Acceptance Corp.,
6.125%, 2008 ............................ 215,000 196,882
General Motors Acceptance Corp.,
5.85%, 2009 ............................. 200,000 178,925
General Motors Acceptance Corp.,
6.75%, 2014 ............................. 854,000 768,276
General Motors Corp., 8.375%, 2033 ........ 167,000 110,220
Lear Corp., 8.11%, 2009 ................... 195,000 181,488
Lear Corp., 5.75%, 2014 ................... 145,000 117,726
Metaldyne Corp., 10%, 2013 ................ 85,000 76,925
Navistar International Corp., 7.5%, 2011 .. 325,000 309,563
TRW Automotive, Inc., 11%, 2013 ........... 83,000 93,168
TRW Automotive, Inc., 9.375%, 2013 ........ 140,000 151,550
------------
$ 3,262,828
------------
BROADCAST & CABLE TV -- 3.1%
Cablevision Systems Corp., 8%, 2012 ....... $ 155,000 $ 144,925
CCH I Holdings LLC, 9.92%, 2014 (a) ....... 205,000 116,850
CCH I LLC, 11%, 2015 (a) .................. 460,000 386,400
CCO Holdings LLC, 8.75%, 2013 ............. 150,000 142,875
Charter Communications, Inc.,
8.625%, 2009 ............................ 153,000 113,220
Charter Communications, Inc.,
8.375%, 2014 (a) ........................ 120,000 119,400
CSC Holdings, Inc., 8.125%, 2009 .......... 125,000 126,250
CSC Holdings, Inc., 6.75%, 2012 (a) ....... 215,000 203,175
FrontierVision Holdings LP,
11.875%, 2007 (d) ....................... 50,000 52,562
FrontierVision Holdings LP, "B",
11.875%, 2007 (d) ....................... 80,000 84,100
FrontierVision Operating Partners LP,
11%, 2006 (d) ........................... 195,000 259,350
Mediacom Broadband LLC, 9.5%, 2013 ........ 190,000 185,488
Rogers Cable, Inc., 8.75%, 2032 ........... 35,000 40,250
Videotron Telecom, 6.375%, 2015 (a) ....... 35,000 34,781
------------
$ 2,009,626
------------
BUILDING -- 1.2%
Goodman Global Holdings, Inc.,
7.875%, 2012 (a) ........................ $ 200,000 $ 186,000
Interface, Inc., 10.375%, 2010 ............ 167,000 180,778
Nortek Holdings, Inc., 8.5%, 2014 ......... 140,000 135,100
Nortek Holdings, Inc., 0% to 2009,
10.75% to 2014 .......................... 238,000 148,750
Texas Industries, Inc., 7.25%, 2013 (a) ... 105,000 108,938
------------
$ 759,566
------------
BUSINESS SERVICES -- 2.0%
Iron Mountain, Inc., 8.625%, 2013 ......... $ 240,000 $ 250,200
Iron Mountain, Inc., 7.75%, 2015 .......... 5,000 5,038
Lucent Technologies, Inc., 5.5%, 2008 ..... 135,000 134,325
Lucent Technologies, Inc., 6.45%, 2029 .... 80,000 68,600
Northern Telecom Corp., 7.875%, 2026 ...... 70,000 67,725
Northern Telecom Corp., 6.875%, 2023 ...... 115,000 102,925
SunGard Data Systems, Inc.,
10.25%, 2015 (a) ........................ 180,000 180,000
Xerox Corp., 7.625%, 2013 ................. 485,000 511,675
------------
$ 1,320,488
------------
CHEMICALS -- 4.8%
ARCO Chemical Co., 9.8%, 2020 ............. $ 155,000 $ 173,988
BCP Crystal Holdings Corp.,
9.625%, 2014 ............................ 121,000 134,612
Crystal U.S. Holdings LLC, "A",
0% to 2009, 10% to 2014 ................. 62,000 45,570
Crystal U.S. Holdings LLC, "B",
0% to 2009, 10.5% to 2014 ............... 337,000 245,167
Equistar Chemicals LP, 10.625%, 2011 ...... 115,000 126,500
Hercules, Inc., 6.75%, 2029 ............... 205,000 197,312
Huntsman International LLC,
10.125%, 2009 ........................... 197,000 203,402
Huntsman International LLC,
7.375%, 2015 (a) ........................ 310,000 299,150
IMC Global, Inc., 10.875%, 2013 ........... 110,000 126,363
KI Holdings, Inc., 0% to 2009,
9.875% to 2014 .......................... 288,000 188,640
Kronos International, Inc., 8.875%, 2009 .. EUR 15,000 18,564
Lyondell Chemical Co., 11.125%, 2012 ...... $ 130,000 145,438
Lyondell Chemical Co., 9.5%, 2008 ......... 77,000 80,658
Nalco Co., 7.75%, 2011 .................... 110,000 113,025
Nalco Co., 8.875%, 2013 ................... 135,000 141,413
Nell AF S.a.r.L., 8.375%, 2015 (a) ........ 180,000 178,200
NOVA Chemicals Corp., 6.5%, 2012 .......... 135,000 130,781
Resolution Performance Products LLC,
13.5%, 2010 ............................. 130,000 137,475
Rhodia S.A., 8.875%, 2011 ................. 225,000 230,625
Rockwood Specialties Group, Inc.,
10.625%, 2011 ........................... 131,000 143,609
Rockwood Specialties, Inc., 7.5%, 2014 .... 50,000 49,813
------------
$ 3,110,305
------------
CONSTRUCTION -- 1.6%
Beazer Homes USA, Inc., 6.875%, 2015 ...... $ 225,000 $ 215,719
D.R. Horton, Inc., 8%, 2009 ............... 250,000 266,436
Technical Olympic USA, Inc., 9%, 2010 ..... 75,000 75,844
Technical Olympic USA, Inc., 7.5%, 2011 ... 50,000 44,563
Technical Olympic USA, Inc., 7.5%, 2015 ... 150,000 126,000
WCI Communities, Inc., 7.875%, 2013 ....... 210,000 197,925
WCI Communities, Inc., 6.625%, 2015 ....... 105,000 91,350
------------
$ 1,017,837
------------
CONSUMER GOODS & SERVICES -- 2.7%
ACCO Brands Corp., 7.625%, 2015 ........... $ 50,000 $ 47,125
Bombardier Recreational Products, Inc.,
8.375%, 2013 ............................ 150,000 150,187
Church & Dwight Co., Inc., 6%, 2012 ....... 205,000 201,925
GEO Group, Inc., 8.25%, 2013 .............. 75,000 73,312
Playtex Products, Inc., 9.375%, 2011 ...... 180,000 188,550
Revlon Consumer Products Corp.,
9.5%, 2011 .............................. 220,000 200,750
Safilo Capital International S.A.,
9.625%, 2013 (a) ........................ EUR 320,000 423,951
Samsonite Corp., 8.875%, 2011 ............. $ 210,000 217,350
Service Corp. International, 7%, 2017 (a) .. 215,000 213,388
------------
$ 1,716,538
------------
CONTAINERS -- 1.6%
Crown Americas, 7.75%, 2015 (a) ........... $ 320,000 $ 331,200
Greif, Inc., 8.875%, 2012 ................. 145,000 154,425
Owens-Brockway Glass Container, Inc.,
8.25%, 2013 ............................. 350,000 361,375
Owens-Illinois, Inc., 7.8%, 2018 .......... 75,000 74,625
Plastipak Holdings, Inc., 8.5%, 2015 (a) .. 70,000 70,700
Pliant Corp., 11.125%, 2009 ............... 70,000 62,300
------------
$ 1,054,625
------------
DEFENSE ELECTRONICS -- 0.6%
L-3 Communications Holdings, Inc.,
6.125%, 2014 ............................ $ 230,000 $ 227,700
L-3 Communications Holdings, Inc.,
5.875%, 2015 ............................ 130,000 126,100
------------
$ 353,800
------------
ELECTRONICS -- 0.5%
Flextronics International Ltd., 6.5%, 2013 . $ 305,000 $ 309,956
Magnachip Semiconductor S.A., 8%, 2014 ..... 30,000 28,650
------------
$ 338,606
------------
EMERGING MARKET QUASI-SOVEREIGN -- 0.7%
Gazprom OAO, 9.625%, 2013 (a) ............. $ 120,000 $ 144,600
Gazprom OAO, 8.625%, 2034 (a) ............. 220,000 278,300
------------
$ 422,900
------------
EMERGING MARKET SOVEREIGN -- 0.5%
Federal Republic of Brazil, 8.875%, 2019 .. $ 102,000 $ 114,291
Republic of Panama, 9.375%, 2029 .......... 36,000 45,270
Russian Ministry of Finance, 12.75%, 2028 . 84,000 154,073
------------
$ 313,634
------------
ENERGY -- INDEPENDENT -- 3.0%
Belden & Blake Corp., 8.75%, 2012 ......... $ 145,000 $ 147,900
Chesapeake Energy Corp.,
6.875%, 2016 ............................ 375,000 384,375
Chesapeake Energy Corp., 7%, 2014 ......... 254,000 262,890
Chesapeake Energy Corp.,
6.375%, 2015 ............................ 240,000 240,000
Clayton Williams Energy, Inc.,
7.75%, 2013 ............................. 205,000 196,800
Kerr-McGee Corp., 6.95%, 2024 ............. 210,000 222,743
Newfield Exploration Co., 6.625%, 2014 .... 250,000 254,375
Plains Exploration & Production Co.,
7.125%, 2014 ............................ 200,000 207,000
------------
$ 1,916,083
------------
ENERGY -- INTEGRATED -- 0.3%
Amerada Hess Corp., 7.3%, 2031 ............ $ 170,000 $ 196,738
------------
ENTERTAINMENT -- 1.2%
AMC Entertainment, Inc., 9.5%, 2011 ....... $ 140,000 $ 137,725
AMC Entertainment, Inc., 8.625%, 2012 ..... 210,000 219,450
Loews Cineplex Entertainment Corp.,
9%, 2014 ................................ 215,000 217,150
Six Flags, Inc., 9.75%, 2013 .............. 225,000 220,781
------------
$ 795,106
------------
FOOD & NON-ALCOHOLIC BEVERAGES -- 1.4%
B&G Foods Holding Corp., 8%, 2011 ......... $ 130,000 $ 132,600
Dean Foods Co., 6.625%, 2009 .............. 185,000 188,469
Michael Foods, Inc., 8%, 2013 ............. 250,000 256,250
Smithfield Foods, Inc., 7%, 2011 .......... 220,000 224,400
United Biscuits Finance PLC,
10.625%, 2011 ........................... EUR 80,000 101,256
------------
$ 902,975
------------
FOREST & PAPER PRODUCTS -- 3.0%
Abitibi-Consolidated, Inc., 8.55%, 2010 ... $ 265,000 $ 268,312
Abitibi-Consolidated, Inc., 7.75%, 2011 ... 95,000 90,488
Buckeye Technologies, Inc., 8.5%, 2013 .... 180,000 180,000
Graphic Packaging International Corp.,
9.5%, 2013 .............................. 295,000 281,725
Jefferson Smurfit Corp., 8.25%, 2012 ...... 145,000 139,200
JSG Funding LLC, 11.5%, 2015 (a)(d)(p) .... EUR 310,589 339,841
MDP Acquisitions PLC, 9.625%, 2012 ........ $ 205,000 205,000
Norske Skog Canada Ltd., 8.625%, 2011 ..... 195,000 186,225
Norske Skog Canada Ltd., 7.375%, 2014 ..... 125,000 109,375
Stone Container Corp., 7.375%, 2014 ....... 140,000 127,400
------------
$ 1,927,566
------------
GAMING & LODGING -- 7.1%
Aztar Corp., 7.875%, 2014 ................. $ 295,000 $ 309,012
Boyd Gaming Corp., 6.75%, 2014 ............ 290,000 287,825
Caesars Entertainment, Inc.,
8.875%, 2008 ............................ 80,000 86,500
Caesars Entertainment, Inc.,
8.125%, 2011 ............................ 310,000 342,163
Greektown Holdings, 10.75%, 2013 (a) ...... 120,000 119,100
GTECH Holdings Corp., 5.25%, 2014 ......... 225,000 195,165
Host Marriott LP, 7.125%, 2013 ............ 250,000 260,000
Host Marriott LP, 6.375%, 2015 ............ 125,000 124,687
Majestic Star Casino, LLC, 9.5%, 2010 ..... 70,000 73,675
Majestic Star Casino, LLC,
9.75%, 2011 (a) ......................... 60,000 60,600
Mandalay Resort Group, 9.375%, 2010 ....... 175,000 191,625
MGM Mirage, Inc., 8.5%, 2010 .............. 140,000 151,725
MGM Mirage, Inc., 8.375%, 2011 ............ 410,000 438,700
MGM Mirage, Inc., 5.875%, 2014 ............ 195,000 186,225
Penn National Gaming, Inc., 6.75%, 2015 ... 45,000 44,213
Pinnacle Entertainment, Inc.,
8.75%, 2013 ............................. 120,000 127,800
Pinnacle Entertainment, Inc.,
8.25%, 2012 ............................. 185,000 191,244
Royal Caribbean Cruises Ltd.,
6.875%, 2013 ............................ 420,000 444,839
Starwood Hotels & Resorts Worldwide, Inc.,
7.875%, 2012 ............................ 450,000 496,125
Station Casinos, Inc., 6.875%, 2016 ....... 15,000 15,338
Station Casinos, Inc., 6.5%, 2014 ......... 190,000 191,900
Wynn Las Vegas LLC, 6.625%, 2014 .......... 260,000 252,850
------------
$ 4,591,311
------------
INDUSTRIAL -- 2.7%
Amsted Industries, Inc., 10.25%, 2011 (a) . $ 225,000 $ 240,750
Da-Lite Screen Co., Inc., 9.5%, 2011 ...... 140,000 147,000
JohnsonDiversey Holdings, Inc., "B",
9.625%, 2012 ............................ 255,000 256,275
JohnsonDiversey Holdings, Inc.,
0% to 2007, 10.67% to 2013 .............. 485,000 385,575
Knowledge Learning Corp.,
7.75%, 2015 (a) ......................... 125,000 118,750
Milacron Escrow Corp., 11.5%, 2011 ........ 280,000 239,400
Valmont Industries, Inc., 6.875%, 2014 .... 215,000 216,613
Wesco Distribution, Inc., 7.5%, 2017 (a) .. 170,000 171,063
------------
$ 1,775,426
------------
INSURANCE -- 0.6%
UnumProvident Corp., 7.625%, 2011 ......... $ 180,000 $ 194,131
UnumProvident Finance Co.,
6.85%, 2015 (a) ......................... 184,000 191,660
------------
$ 385,791
------------
INSURANCE -- PROPERTY & CASUALTY -- 0.4%
AXIS Capital Holdings Ltd., 5.75%, 2014 ... $ 140,000 $ 140,030
Marsh & Mclennan Cos., Inc.,
5.75%, 2015 ............................. 111,000 111,892
------------
$ 251,922
------------
MACHINERY & TOOLS -- 1.9%
Case Corp., 7.25%, 2016 ................... $ 150,000 $ 139,875
Case New Holland, Inc., 9.25%, 2011 ....... 250,000 267,500
JLG Industries, Inc., 8.25%, 2008 ......... 125,000 130,938
Terex Corp., 10.375%, 2011 ................ 295,000 312,700
Terex Corp., 7.375%, 2014 ................. 175,000 173,250
United Rentals, Inc., 6.5%, 2012 .......... 140,000 136,325
United Rentals, Inc., 7.75%, 2013 ......... 60,000 58,500
------------
$ 1,219,088
------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 6.0%
AmerisourceBergen Corp.,
5.875%, 2015 (a) ........................ $ 205,000 $ 206,794
CDRV Investors, Inc., 0% to 2010,
9.625% to 2015 .......................... 400,000 245,000
DaVita, Inc., 6.625%, 2013 ................ 125,000 127,187
DaVita, Inc., 7.25%, 2015 ................. 215,000 217,687
Extendicare Health Services, Inc.,
6.875%, 2014 ............................ 215,000 210,162
Fisher Scientific International, Inc.,
6.75%, 2014 ............................. 45,000 46,912
Fisher Scientific International, Inc.,
6.125%, 2015 (a) ........................ 250,000 250,000
HCA, Inc., 7.875%, 2011 ................... 410,000 440,814
HCA, Inc., 6.375%, 2015 ................... 560,000 566,067
Healthsouth Corp., 7.625%, 2012 ........... 180,000 182,700
Lifecare Holdings, Inc., 9.25%, 2013 (a) .. 185,000 146,150
Omnicare, Inc., 6.875%, 2015 .............. 65,000 65,975
Psychiatric Solutions, Inc., 7.75%, 2015 .. 85,000 87,763
Select Medical Corp., 7.625%, 2015 ........ 210,000 202,125
Tenet Healthcare Corp., 9.875%, 2014 ...... 275,000 278,438
Tenet Healthcare Corp., 9.25%, 2015 (a) ... 110,000 109,175
Triad Hospitals, Inc., 7%, 2013 ........... 315,000 315,788
U.S. Oncology, Inc., 10.75%, 2014 ......... 180,000 199,800
------------
$ 3,898,537
------------
MEDICAL EQUIPMENT -- 0.4%
Warner Chilcott Corp., 8.75%, 2015 (a) .... $ 250,000 $ 230,000
------------
METALS & MINING -- 1.5%
Century Aluminum Co., 7.5%, 2014 .......... $ 280,000 $ 275,800
Massey Energy Co., 6.875%, 2013 (a) ....... 195,000 196,706
Peabody Energy Corp., 5.875%, 2016 ........ 275,000 267,781
Russel Metals, Inc., 6.375%, 2014 ......... 220,000 213,400
------------
$ 953,687
------------
NATURAL GAS -- DISTRIBUTION -- 0.2%
AmeriGas Partners LP, 7.25%, 2015 ......... $ 150,000 $ 153,000
------------
NATURAL GAS -- PIPELINE -- 3.9%
ANR Pipeline Co., 9.625%, 2021 ............ $ 155,000 $ 189,357
Atlas Pipeline Partners LP,
8.125%, 2015 (a) ........................ 65,000 65,569
Colorado Interstate Gas Co.,
5.95%, 2015 ............................. 140,000 135,223
El Paso Energy Corp., 7%, 2011 ............ 405,000 401,962
El Paso Energy Corp., 7.625%, 2010 ........ 190,000 199,800
El Paso Energy Corp., 7.75%, 2013 ......... 390,000 404,625
Enterprise Products Operating LP,
6.375%, 2013 ............................ 115,000 120,394
Enterprise Products Operating LP,
5.6%, 2014 .............................. 225,000 224,824
Markwest Energy Partners LP,
6.875%, 2014 (a) ........................ 145,000 133,400
Pacific Energy Partners, LP,
6.25%, 2015 (a) ......................... 80,000 78,800
Transcontinental Gas Pipe Line Corp.,
7%, 2011 ................................ 135,000 140,906
Williams Cos., Inc., 7.125%, 2011 ......... 307,000 318,896
Williams Cos., Inc., 7.75%, 2031 .......... 70,000 73,850
------------
$ 2,487,606
------------
NETWORK & TELECOM -- 4.4%
AT&T Corp., 7.3%, 2011 .................... $ 166,000 $ 183,733
AT&T Corp., 9.75%, 2031 ................... 115,000 144,454
Cincinnati Bell, Inc., 8.375%, 2014 ....... 145,000 142,644
Citizens Communications Co., 9%, 2031 ..... 65,000 65,812
Citizens Communications Co.,
9.25%, 2011 ............................. 275,000 303,187
Citizens Communications Co.,
6.25%, 2013 ............................. 170,000 164,475
Eircom Funding PLC, 8.25%, 2013 ........... 90,000 96,300
GCI, Inc., 7.25%, 2014 .................... 135,000 133,650
Hawaiian Telecom Communications, Inc.,
9.75%, 2013 (a) ......................... 125,000 122,187
Hawaiian Telecom Communications, Inc.,
12.5%, 2015 (a) ......................... 30,000 28,050
MCI, Inc., 6.908%, 2007 ................... 123,000 123,923
MCI, Inc., 7.688%, 2009 ................... 143,000 147,648
Qwest Capital Funding, Inc.,
7.25%, 2011 ............................. 240,000 243,000
Qwest Corp., 8.875%, 2012 ................. 405,000 456,638
Qwest Corp., 7.875%, 2011 ................. 230,000 247,825
Time Warner Telecom Holdings, Inc.,
9.25%, 2014 ............................. 240,000 253,200
------------
$ 2,856,726
------------
OIL SERVICES -- 0.6%
GulfMark Offshore, Inc., 7.75%, 2014 ...... $ 180,000 $ 187,200
Hanover Compressor Co., 9%, 2014 .......... 190,000 207,100
------------
$ 394,300
------------
OILS -- 0.1%
Premcor Refining Group, Inc.,
7.5%, 2015 .............................. $ 85,000 $ 90,612
------------
POLLUTION CONTROL -- 0.5%
Allied Waste North America, Inc.,
7.875%, 2013 ............................ $ 145,000 $ 149,712
Allied Waste North America, Inc.,
6.5%, 2010 .............................. 170,000 168,300
------------
$ 318,012
------------
PRECIOUS METALS & MINERALS -- 0.4%
Freeport-McMoRan Copper & Gold, Inc.,
6.875%, 2014 ............................ $ 251,000 $ 253,510
------------
PRINTING & PUBLISHING -- 2.5%
American Media Operations, Inc.,
8.875%, 2011 ............................ $ 235,000 $ 199,750
Dex Media East LLC, 12.125%, 2012 ......... 146,000 170,820
Dex Media, Inc., 0% to 2008,
9% to 2013 .............................. 635,000 504,825
Lighthouse International Co. S.A.,
8%, 2014 (a) ............................ EUR 170,000 213,159
MediaNews Group, Inc., 6.875%, 2013 ....... $ 205,000 196,031
PRIMEDIA, Inc., 8.875%, 2011 .............. 205,000 189,113
WDAC Subsidiary Corp.,
8.375%, 2014 (a) ........................ 150,000 145,313
------------
$ 1,619,011
------------
RAILROAD & SHIPPING -- 0.7%
Kansas City Southern Railway Co.,
7.5%, 2009 .............................. $ 300,000 $ 309,750
TFM S.A. de C.V., 12.5%, 2012 ............. 51,000 58,140
TFM S.A. de C.V., 9.375%, 2012 (a) ........ 102,000 111,690
------------
$ 479,580
------------
RESTAURANTS -- 0.3%
Carrols Corp., 9%, 2013 ................... $ 200,000 $ 194,500
------------
RETAILERS -- 2.6%
Buhrmann U.S., Inc., 7.875%, 2015 ......... $ 205,000 $ 200,131
Couche-Tard, Inc., 7.5%, 2013 ............. 320,000 329,600
Dollar General Corp., 8.625%, 2010 ........ 230,000 252,425
Finlay Fine Jewelry Corp., 8.375%, 2012 ... 180,000 162,000
GSC Holdings Corp., 8%, 2012 (a) .......... 190,000 178,600
J.C. Penney Corp., Inc., 8%, 2010 ......... 180,000 197,144
Neiman Marcus Group, Inc.,
9%, 2015 (a) ............................ 185,000 189,163
Rite Aid Corp., 8.125%, 2010 .............. 195,000 198,413
------------
$ 1,707,476
------------
SPECIALTY STORES -- 0.3%
Payless ShoeSource, Inc., 8.25%, 2013 ..... $ 195,000 $ 203,775
------------
STEEL -- 0.5%
AK Steel Holding Corp., 7.75%, 2012 ....... $ 220,000 $ 198,550
Chaparral Steel Co., 10%, 2013 ............ 135,000 145,462
------------
$ 344,012
------------
TELECOMMUNICATIONS -- WIRELESS -- 3.9%
Alamosa Holdings, Inc., 12%, 2009 ......... $ 170,000 $ 185,937
American Tower Corp., 7.125%, 2012 ........ 150,000 154,500
American Towers, Inc., 7.25%, 2011 ........ 130,000 135,200
Centennial Communications Corp.,
10%, 2013 (a) ........................... 50,000 50,500
Centennial Communications Corp.,
10.125%, 2013 ........................... 120,000 130,500
Dolphin Telecom PLC, 11.5%, 2008 (d) ...... 1,500,000 0
Dolphin Telecom PLC, "B",
14%, 2009 (d) ........................... 530,000 0
IWO Holdings, Inc., 7.9%, 2012 ............ 30,000 31,125
Nextel Communications, Inc.,
5.95%, 2014 ............................. 950,000 954,976
Rogers Wireless, Inc., 6.375%, 2014 ....... 250,000 250,625
Rogers Wireless, Inc., 7.5%, 2015 ......... 175,000 189,000
Rural Cellular Corp., 9.875%, 2010 ........ 210,000 221,550
U.S. Unwired, Inc., 10%, 2012 ............. 160,000 180,000
Wind Acquisition Finance S.A.,
10.75%, 2015 (a) ........................ 60,000 61,950
------------
$ 2,545,863
------------
TIRE & RUBBER -- 0.8%
Cooper Standard Automotive, Inc.,
8.375%, 2014 ............................ $ 230,000 $ 174,800
Goodyear Tire & Rubber Co.,
9%, 2015 (a) ............................ 335,000 329,975
------------
$ 504,775
------------
TOBACCO -- 0.5%
R.J. Reynolds Tobacco Holdings, Inc.,
7.25%, 2012 ............................. $ 185,000 $ 188,700
R.J. Reynolds Tobacco Holdings, Inc.,
7.3%, 2015 (a) .......................... 155,000 158,100
------------
$ 346,800
------------
TRANSPORTATION -- SERVICES -- 1.2%
CHC Helicopter Corp., 7.375%, 2014 ........ $ 155,000 $ 156,744
Hertz Corp., 8.875%, 2014 (a) ............. 135,000 137,531
Stena AB, 9.625%, 2012 .................... 80,000 86,900
Stena AB, 7%, 2016 ........................ 221,000 202,215
Westinghouse Air Brake Technologies Corp.,
6.875%, 2013 ............................ 175,000 176,750
------------
$ 760,140
------------
UTILITIES -- ELECTRIC POWER -- 7.2%
AES Corp., 8.75%, 2013 (a) ................ $ 345,000 $ 375,619
AES Corp., 9%, 2015 (a) ................... 60,000 65,700
Allegheny Energy Supply Co., LLC,
8.25%, 2012 (a) ......................... 285,000 321,337
CMS Energy Corp., 8.5%, 2011 .............. 290,000 315,737
Dynegy Holdings, Inc., 9.875%, 2010 (a) ... 80,000 87,700
Dynegy Holdings, Inc.,
10.125%, 2013 (a) ....................... 105,000 118,650
Empresa Nacional de Electricidad S.A.,
8.35%, 2013 ............................. 61,000 69,474
Enersis S.A., 7.375%, 2014 ................ 201,000 216,201
FirstEnergy Corp., 6.45%, 2011 ............ 116,000 122,960
Midwest Generation LLC, 8.75%, 2034 ....... 345,000 379,931
Mirant North America LLC,
7.375%, 2013 (a) ........................ 165,000 166,856
Mission Energy Holding Co.,
13.5%, 2008 ............................. 180,000 208,800
Nevada Power Co., 6.5%, 2012 .............. 50,000 51,250
Nevada Power Co., 5.875%, 2015 ............ 120,000 119,079
NorthWestern Corp., 5.875%, 2014 .......... 220,000 220,414
NRG Energy, Inc., 8%, 2013 ................ 199,000 221,885
PSEG Energy Holdings LLC,
8.625%, 2008 ............................ 175,000 182,000
Reliant Energy, Inc., 6.75%, 2014 ......... 40,000 34,900
Reliant Resources, Inc., 9.25%, 2010 ...... 80,000 80,000
Reliant Resources, Inc., 9.5%, 2013 ....... 95,000 95,238
Sierra Pacific Power Co., 6.25%, 2012 ..... 105,000 106,575
Sierra Pacific Resources, 8.625%, 2014 .... 65,000 70,329
TECO Energy, Inc., 7%, 2012 ............... 190,000 199,500
Tenaska Alabama Partners LP,
7%, 2021 (a) ............................ 99,329 99,928
Texas Genco LLC, 6.875%, 2014 (a) ......... 125,000 135,313
TXU Corp., 5.55%, 2014 .................... 600,000 569,902
------------
$ 4,635,278
------------
Total Bonds (Identified Cost, $60,892,636) .................. $ 60,026,842
------------
STOCKS -- 1.0%
AUTOMOTIVE -- 0.4%
Magna International, Inc., "A" ............ 3,000 $ 215,940
------------
BROADCAST & CABLE TV -- 0.1%
Telewest Global, Inc.(n) .................. 2,466 $ 58,740
------------
FOREST & PAPER PRODUCTS -- 0%
Corporacion Durango S.A. de C.V.(n) ....... 7,837 $ 3,388
------------
METALS & MINING -- 0%
Oxford Automotive, Inc.(n) ................ 53 $ 0
------------
PHARMACEUTICALS -- 0.2%
Merck & Co., Inc. ......................... 4,500 $ 143,145
------------
PRINTING & PUBLISHING -- 0%
Golden Books Family Entertainment,
Inc. (n) ................................ 21,250 $ 0
------------
TELECOMMUNICATIONS -- WIRELESS -- 0.1%
Vodafone Group PLC, ADR ................... 2,574 $ 55,264
------------
TELEPHONE SERVICES -- 0.2%
NTL, Inc.(n) .............................. 2,203 $ 149,980
------------
Total Stocks (Identified Cost, $896,150) $ 626,457
------------
CONVERTIBLE PREFERRED STOCK -- 0.3%
AUTOMOTIVE -- 0.3%
General Motors Corp., 5.25%
(Identified Cost, $236,236) ............. 13,178 $ 196,352
------------
PREFERRED STOCKS -- 0.1%
BROADCAST & CABLE TV -- 0.1%
Paxson Communications Corp., 14.25% ....... 8 $ 69,600
------------
CONSUMER GOODS & SERVICES -- 0%
Renaissance Cosmetics, Inc., 14% (n) ...... 975 $ 0
------------
REAL ESTATE -- 0%
HRPT Properties Trust, "B", 8.75% ......... 200 $ 5,180
------------
TELEPHONE SERVICES -- 0%
PTV, Inc., "A", 10% ....................... 10 $ 21
------------
Total Preferred Stocks (Identified Cost, $69,456) ........... $ 74,801
------------
WARRANTS -- 0%
Strike First Shares/Par
Issuer Price Exercise ($) Value ($)
GT Group Telecom,
Inc. (Telephone Services) (n) ...... $ 0.00 8/01/00 1,050 $ 0
Knology, Inc. (Network &
Telecom) (a)(n) .................... 0.10 11/22/97 500 0
Loral Space & Communications LTD.
(Business Services) (n) 0.14 1/28/97 1,000 0
Loral Space & Communications LTD.
(Business Services) (n) 0.14 1/28/97 1,100 0
Ono Finance (Broadcast &
Cable TV) (n) ...................... 0.00 5/31/09 1,225 0
Thermadyne Holdings Corp. ............
(Machinery & Tools) (n) ............ 20.78 5/29/03 2,705 135
XM Satellite Radio, Inc. .............
(Broadcast & Cable
TV) (n) ............................ 45.24 9/16/00 425 19,125
XO Communications, Inc.,
"A" (Telephone
Services) (n) ...................... 6.25 5/27/03 397 60
XO Communications, Inc.,
"B" (Telephone Services)
(n) ................................ 7.50 5/27/03 298 30
XO Communications, Inc.,
"C" (Telephone Services)
(n) ................................ 10.00 5/27/03 298 27
--------
Total Warrants (Identified Cost, $203,646) .......................... $ 19,377
--------
SHORT-TERM OBLIGATION -- 3.4%
General Electric Capital Corp.,
4.2%, due 1/03/06,
at Amortized Cost (y) .......................... $ 2,200,000 $ 2,199,487
------------
Total Investments
(Identified Cost, $64,497,611) (k) ........................ $ 63,143,316
------------
OTHER ASSETS,
LESS LIABILITIES -- 2.3% ...................................... 1,512,987
------------
Net Assets -- 100.0% ........................................ $ 64,656,303
============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
Net
Unrealized
Contracts to Contracts Appreciation
Deliver/Receive Settlement Date In Exchange For at Value (Depreciation)
SALES
EUR 895,563 2/21/06 $1,052,372 $1,062,472 $(10,100)
========== ========== ========
PURCHASES
SEK 76,260 2/13/06 $ 9,601 $9,623 $ 22
========== ========== ========
At December 31, 2005 forward foreign currency purchases and sales under master netting agreements excluded
above amounted to a net receivable of $1 with Merrill Lynch International.
At December 31, 2005 the variable account had sufficient cash and/or securities to cover any commitments under
these derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
MONEY MARKET VARIABLE ACCOUNT
CERTIFICATES OF DEPOSIT -- 1.8%
Shares/Par
Issuer ($) Value ($)
Citibank N.A., 4.33%, due 2/23/06,
at Amortized Cost and Value ............. $ 1,000,000 $ 1,000,000
------------
COMMERCIAL PAPER -- 92.2%(y)
American Express Credit Corp.,
4.14%, due 1/13/06 ...................... $ 1,868,000 $ 1,865,422
American General Finance Corp.,
4.34%, due 2/17/06 ...................... 1,733,000 1,723,181
Bank of America Corp.,
4.34%, due 2/17/06 ...................... 1,516,000 1,507,410
Barton Capital LLC, 4.25%, due 1/03/06(t) . 1,709,000 1,708,596
CAFCO LLC, 4.36%, due 2/21/06(t) .......... 1,738,000 1,727,265
Ciesco LLC, 4.34%, due 2/10/06(t) ......... 1,181,000 1,175,305
Citibank Credit Card Issuance Trust,
4.05%, due 1/11/06(t) ................... 1,970,000 1,967,784
Citigroup Funding, Inc.,
4.36%, due 2/16/06 ...................... 720,000 715,989
Depfa Bank PLC, 4.17%, due 1/10/06(t) ..... 1,868,000 1,866,053
Dexia Delaware LLC, 4.29%, due 2/01/06 .... 1,734,000 1,727,594
Edison Asset Securitization LLC,
4.18%, due 2/01/06(t) ................... 1,546,000 1,540,435
Falcon Asset Securitization Corp.,
4.36%, due 2/16/06(t) ................... 1,727,000 1,717,379
General Electric Capital Corp.,
4.36%, due 2/27/06 ...................... 1,726,000 1,714,085
Govco, Inc., 4.26%, due 1/18/06(t) ........ 1,781,000 1,777,417
HBOS Treasury Services PLC,
4.2%, due 2/15/06 ....................... 1,899,000 1,889,030
Hershey Foods Corp.,
4.24%, due 2/13/06(t) ................... 1,173,000 1,167,059
ING America Insurance Holdings, Inc.,
4.37%, due 3/01/06 ...................... 1,733,000 1,720,588
Jupiter Securitization Corp.,
4.34%, due 2/07/06(t) ................... 1,725,000 1,717,306
Kitty Hawk Funding Corp.,
4.21%, due 1/25/06(t) ................... 1,887,000 1,881,704
MetLife, Inc., 4.38%, due 3/20/06(t) ...... 1,422,000 1,408,505
New Center Asset Trust,
4.23%, due 1/03/06 ...................... 1,709,000 1,708,598
Old Line Funding LLC,
4.34%, due 2/06/06 ...................... 1,920,000 1,911,667
Park Avenue Receivable Co. LLC,
4.28%, due 1/05/06(t) ................... 1,976,000 1,975,060
Preferred Receivables Funding Corp.,
4.34%, due 2/03/06(t) ................... 1,721,000 1,714,153
Ranger Funding Co. LLC,
4.25%, due 1/11/06(t) ................... 513,000 512,394
Scaldis Capital LLC,
4.32%, due 2/28/06(t) ................... 1,666,000 1,654,405
Societe Generale North America,
4.35%, due 2/22/06 ...................... 1,738,000 1,727,080
Svenska Handelsbanken, Inc.,
4.03%, due 1/11/06 ...................... 1,988,000 1,985,775
Thunder Bay Funding LLC,
4.05%, due 1/10/06(t) ................... 1,135,000 1,133,851
Thunder Bay Funding LLC,
4.405%, due 3/21/06(t) .................. 590,000 584,297
Toyota Motor Credit Corp.,
4.35%, due 2/22/06 ...................... 1,720,000 1,709,193
UBS Finance Delaware LLC,
4.325%, due 2/13/06 ..................... 1,721,000 1,712,109
Windmill Funding Corp.,
4.3%, due 1/11/06(t) .................... 1,751,000 1,748,909
------------
Total Commercial Paper,
at Amortized Cost and Value ............................... $ 52,595,598
------------
REPURCHASE AGREEMENT -- 6.2%
Morgan Stanley, 4.23% dated 12/30/05, due
1/03/06, total to be received $3,564,675
(secured by various U.S. Treasury and
Federal Agency obligations in a jointly
traded account), at Cost ................ $ 3,563,000 $ 3,563,000
------------
Total Investments, at Amortized Cost and Value .............. $ 57,158,598
------------
OTHER ASSETS,
LESS LIABILITIES - (0.2)% ............................... (135,688)
------------
Net Assets - 100.0% ................................... $ 57,022,910
============
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS -- December 31, 2005
TOTAL RETURN VARIABLE ACCOUNT
STOCKS -- 59.0%
Shares/Par
Issuer ($) Value ($)
AEROSPACE -- 1.6%
Lockheed Martin Corp. ....................... 22,820 $ 1,452,037
Northrop Grumman Corp. ...................... 13,470 809,682
United Technologies Corp. ................... 13,450 751,990
------------
$ 3,013,709
------------
ALCOHOLIC BEVERAGES -- 0.4%
Diageo PLC .................................. 40,206 $ 582,236
Molson Coors Brewing Co. .................... 3,530 236,475
------------
$ 818,711
------------
AUTOMOTIVE -- 0.1%
Johnson Controls, Inc. ...................... 3,700 $ 269,767
------------
BANKS & CREDIT COMPANIES -- 9.0%
American Express Co. ........................ 12,490 $ 642,735
Bank of America Corp. ....................... 105,202 4,855,072
Capital One Financial Corp. ................. 4,530 391,392
Citigroup, Inc. ............................. 48,876 2,371,952
Countrywide Financial Corp. ................. 8,240 281,726
Fannie Mae .................................. 11,300 551,553
Freddie Mac ................................. 2,890 188,861
J.P. Morgan Chase & Co. ..................... 70,132 2,783,539
MBNA Corp. .................................. 6,880 186,792
PNC Financial Services Group, Inc. .......... 48,020 2,969,077
SunTrust Banks, Inc. ........................ 16,880 1,228,189
UBS AG ...................................... 3,539 336,561
Wells Fargo & Co. ........................... 11,040 693,643
------------
$ 17,481,092
------------
BIOTECHNOLOGY -- 0.1%
MedImmune, Inc.(n) .......................... 4,060 $ 142,181
------------
BROADCAST & CABLE TV -- 2.2%
Viacom, Inc., "B" ........................... 75,148 $ 2,449,825
Walt Disney Co. ............................. 71,970 1,725,121
------------
$ 4,174,946
------------
BROKERAGE & ASSET MANAGERS -- 3.5%
Ameriprise Financial, Inc. .................. 2,886 $ 118,326
Franklin Resources, Inc. .................... 5,670 533,037
Goldman Sachs Group, Inc. ................... 8,480 1,082,981
Lehman Brothers Holdings, Inc. .............. 6,180 792,091
Mellon Financial Corp. ...................... 70,730 2,422,503
Merrill Lynch & Co., Inc. ................... 20,510 1,389,142
Morgan Stanley .............................. 8,810 499,879
------------
$ 6,837,959
------------
BUSINESS SERVICES -- 0.4%
Accenture Ltd., "A" ......................... 29,880 $ 862,636
------------
CHEMICALS -- 1.6%
3M Co. ...................................... 5,890 $ 456,475
Dow Chemical Co. ............................ 7,330 321,201
E.I. du Pont de Nemours & Co. ............... 22,600 960,500
Nalco Holding Co.(n) ........................ 24,090 426,634
PPG Industries, Inc. ........................ 11,350 657,165
Syngenta AG ................................. 2,790 346,775
------------
$ 3,168,750
------------
COMPUTER SOFTWARE -- 2.5%
Compuware Corp.(n) .......................... 113,300 $ 1,016,301
Microsoft Corp. ............................. 6,680 174,682
Oracle Corp.(n) ............................. 116,750 1,425,518
Symantec Corp.(n) ........................... 130,400 2,282,000
------------
$ 4,898,501
------------
COMPUTER SOFTWARE -- SYSTEMS -- 0.7%
International Business Machines Corp. ....... 4,430 $ 364,146
Sun Microsystems, Inc.(n) ................... 236,730 991,899
------------
$ 1,356,045
------------
CONSTRUCTION -- 1.4%
Masco Corp. ................................. 82,590 $ 2,493,392
Sherwin-Williams Co. ........................ 2,700 122,634
------------
$ 2,616,026
------------
CONSUMER GOODS & SERVICES -- 0.6%
Colgate-Palmolive Co. ....................... 6,700 $ 367,495
Estee Lauder Cos., Inc., "A" ................ 13,360 447,293
Kimberly-Clark Corp. ........................ 4,280 255,302
------------
$ 1,070,090
------------
CONTAINERS -- 1.0%
Owens-Illinois, Inc.(n) ..................... 86,050 $ 1,810,492
Smurfit-Stone Container Corp.(n) ............ 7,490 106,133
------------
$ 1,916,625
------------
ELECTRICAL EQUIPMENT -- 2.0%
Cooper Industries Ltd., "A" ................. 3,980 $ 290,540
Emerson Electric Co. ........................ 490 36,603
General Electric Co. ........................ 30,150 1,056,758
Hubbell, Inc., "B" .......................... 3,600 162,432
Tyco International Ltd. ..................... 73,340 2,116,592
W.W. Grainger, Inc. ......................... 2,870 204,057
------------
$ 3,866,982
------------
ELECTRONICS -- 0.6%
Analog Devices, Inc. ........................ 12,550 $ 450,168
Intel Corp. ................................. 13,600 339,456
Samsung Electronics Co. Ltd., GDR ........... 630 207,585
Xilinx, Inc. ................................ 7,530 189,831
------------
$ 1,187,040
------------
ENERGY -- INDEPENDENT -- 1.4%
Apache Corp. ................................ 2,500 $ 171,300
Devon Energy Corp. .......................... 29,800 1,863,692
EnCana Corp. ................................ 4,520 204,123
EOG Resources, Inc. ......................... 6,490 476,171
------------
$ 2,715,286
------------
ENERGY -- INTEGRATED -- 3.3%
Amerada Hess Corp. .......................... 5,730 $ 726,679
BP PLC, ADR ................................. 7,040 452,109
Chevron Corp. ............................... 11,445 649,733
ConocoPhillips .............................. 22,660 1,318,359
Exxon Mobil Corp. ........................... 29,372 1,649,825
TOTAL S.A., ADR ............................. 12,090 1,528,176
------------
$ 6,324,881
------------
FOOD & NON-ALCOHOLIC BEVERAGES -- 1.3%
Archer Daniels Midland Co. .................. 9,700 $ 239,202
Coca-Cola Co. ............................... 10,750 433,332
H.J. Heinz Co. .............................. 7,240 244,133
Kellogg Co. ................................. 11,600 501,352
Nestle S.A .................................. 1,310 391,372
PepsiCo, Inc. ............................... 7,750 457,870
Sara Lee Corp. .............................. 12,220 230,958
------------
$ 2,498,219
------------
FOREST & PAPER PRODUCTS -- 0.7%
Bowater, Inc. ............................... 27,320 $ 839,270
International Paper Co. ..................... 10,900 366,349
MeadWestvaco Corp. .......................... 7,810 218,914
------------
$ 1,424,533
------------
GAMING & LODGING -- 0.4%
Cendant Corp. ............................... 25,610 $ 441,772
International Game Technology ............... 8,000 246,240
------------
$ 688,012
------------
GENERAL MERCHANDISE -- 1.1%
Family Dollar Stores, Inc. .................. 34,210 $ 848,066
Wal-Mart Stores, Inc. ....................... 25,380 1,187,784
------------
$ 2,035,850
------------
HEALTH MAINTENANCE ORGANIZATIONS -- 0.1%
CIGNA Corp. ................................. 1,300 $ 145,210
------------
INSURANCE -- 3.2%
Ace Ltd. .................................... 5,760 $ 307,814
AFLAC, Inc. ................................. 800 37,136
Allstate Corp. .............................. 32,460 1,755,112
Chubb Corp. ................................. 2,190 213,853
Conseco, Inc.(n) ............................ 43,530 1,008,590
Genworth Financial, Inc., "A" ............... 17,330 599,271
Hartford Financial Services Group, Inc. ..... 9,990 858,041
Lincoln National Corp. ...................... 7,030 372,801
MetLife, Inc. ............................... 19,190 940,310
XL Capital Ltd., "A" ........................ 2,780 187,316
------------
$ 6,280,244
------------
LEISURE & TOYS -- 0.4%
Hasbro, Inc. ................................ 6,710 $ 135,408
Mattel, Inc. ................................ 34,310 542,784
------------
$ 678,192
------------
MACHINERY & TOOLS -- 0.7%
Deere & Co. ................................. 10,360 $ 705,620
Finning International, Inc.(a) .............. 460 14,689
Illinois Tool Works, Inc. ................... 7,580 666,964
------------
$ 1,387,273
------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 0.5%
Tenet Healthcare Corp.(n) ................... 117,970 $ 903,650
------------
MEDICAL EQUIPMENT -- 0%
Baxter International, Inc. .................. 1,800 $ 67,770
------------
METALS & MINING -- 0.1%
BHP Billiton PLC ............................ 16,630 $ 271,410
------------
NATURAL GAS -- DISTRIBUTION -- 0.2%
AGL Resources, Inc. ......................... 7,320 $ 254,809
Sempra Energy ............................... 3,350 150,214
------------
$ 405,023
------------
NETWORK & TELECOM -- 1.7%
Cisco Systems, Inc.(n) ...................... 36,270 $ 620,942
Nokia Corp., ADR ............................ 49,170 899,811
Nortel Networks Corp.(n) .................... 586,720 1,795,363
------------
$ 3,316,116
------------
OIL SERVICES -- 2.0%
BJ Services Co. ............................. 14,310 $ 524,748
Cooper Cameron Corp.(n) ..................... 12,420 514,188
GlobalSantaFe Corp. ......................... 29,250 1,408,388
Noble Corp. ................................. 19,515 1,376,588
------------
$ 3,823,912
------------
PHARMACEUTICALS -- 4.2%
Abbott Laboratories ......................... 17,640 $ 695,545
Eli Lilly & Co. ............................. 4,970 281,252
Johnson & Johnson ........................... 31,450 1,890,145
Merck & Co., Inc. ........................... 72,710 2,312,905
Wyeth ....................................... 64,830 2,986,718
------------
$ 8,166,565
------------
PRINTING & PUBLISHING -- 0.6%
Knight-Ridder, Inc. ......................... 9,070 $ 574,131
New York Times Co., "A" ..................... 8,750 231,438
Reed Elsevier PLC ........................... 28,020 262,966
Tribune Co. ................................. 5,510 166,733
------------
$ 1,235,268
------------
RAILROAD & SHIPPING -- 0.4%
Burlington Northern Santa Fe Corp. .......... 6,570 $ 465,287
Norfolk Southern Corp. ...................... 8,960 401,677
------------
$ 866,964
------------
RESTAURANTS -- 0.2%
McDonald's Corp. ............................ 10,300 $ 347,316
------------
SPECIALTY CHEMICALS -- 0.4%
Air Products & Chemicals, Inc. .............. 10,350 $ 612,616
L'Air Liquide S.A., Bearer Shares ........... 210 40,366
Praxair, Inc. ............................... 2,300 121,808
------------
$ 774,790
------------
SPECIALTY STORES -- 1.8%
Circuit City Stores, Inc. ................... 21,970 $ 496,302
Gap, Inc. ................................... 102,030 1,799,809
Lowe's Cos., Inc. ........................... 2,940 195,980
OfficeMax, Inc. ............................. 26,680 676,605
TJX Cos., Inc. .............................. 14,050 326,382
------------
$ 3,495,078
------------
TELECOMMUNICATIONS -- WIRELESS -- 0.4%
Vodafone Group PLC, ADR ..................... 37,412 $ 803,236
------------
TELEPHONE SERVICES -- 3.1%
AT&T, Inc. .................................. 21,444 $ 525,164
Sprint Nextel Corp. ......................... 130,180 3,041,005
Verizon Communications, Inc. ................ 81,480 2,454,178
------------
$ 6,020,347
------------
TOBACCO -- 1.1%
Altria Group, Inc. .......................... 29,520 $ 2,205,734
------------
TRUCKING -- 0%
CNF, Inc. ................................... 1,540 $ 86,071
UTILITIES -- ELECTRIC POWER -- 2.0%
Allegheny Energy, Inc.(n) ................... 1,600 $ 50,640
Dominion Resources, Inc. .................... 16,020 1,236,744
Entergy Corp. ............................... 5,680 389,932
Exelon Corp. ................................ 10,320 548,405
FirstEnergy Corp. ........................... 5,200 254,748
FPL Group, Inc. ............................. 11,520 478,771
NRG Energy, Inc.(n) ......................... 2,170 102,250
PPL Corp. ................................... 17,160 504,504
Public Service Enterprise Group, Inc. ....... 2,590 168,272
TXU Corp. ................................... 3,800 190,722
------------
$ 3,924,988
------------
Total Stocks (Identified Cost, $102,473,367)............... $114,572,998
------------
BONDS -- 40.3%
ADVERTISING & BROADCASTING -- 0.1%
News America Holdings, 8.5%, 2025 ........... $ 99,000 $ 119,112
News America, Inc., 6.2%, 2034 .............. 92,000 91,384
------------
$ 210,496
------------
AEROSPACE -- 0.3%
Boeing Capital Corp., 6.5%, 2012 ............ $ 263,000 $ 283,888
Northrop Grumman Corp., 7.75%, 2031 ......... 226,000 288,930
------------
$ 572,818
------------
AGENCY -- OTHER -- 0%
Financing Corp., 9.65%, 2018 ................ $ 45,000 $ 64,741
------------
AIRLINES -- 0.1%
Continental Airlines, Inc., 6.648%, 2017 .... $ 178,209 $ 174,145
------------
ALCOHOLIC BEVERAGES -- 0.2%
Foster's Financial Corp., 5.875%, 2035 (a) .. $ 150,000 $ 146,083
Miller Brewing Co., 5.5%, 2013 (a) .......... 276,000 281,328
------------
$ 427,411
------------
ASSET BACKED & SECURITIZED -- 2.4%
AmeriCredit Automobile Receivables Trust,
2.18%, 2008 ............................... $ 150,179 $ 149,276
Banc of America Commercial Mortgage, Inc.,
FRN, 5.182%, 2047 ......................... 102,153 102,333
Bear Stearns Commercial Mortgage Securities,
Inc., FRN, 5.116%, 2041 ................... 82,288 81,981
Blackrock Capital Finance LP,
7.75%, 2026 (a) ........................... 52,828 51,772
Chase Commercial Mortgage Securities Corp.,
6.39%, 2030 ............................... 354,043 366,060
Chase Commercial Mortgage Securities Corp.,
7.543%, 2009 .............................. 68,558 71,801
Citibank Credit Card Issuance Trust,
6.65%, 2008 ............................... 623,000 627,048
Countrywide Asset-Backed Certificates, FRN,
4.823%, 2035 .............................. 75,000 74,244
CRIIMI MAE CMBS Corp., 6.7%, 2008 (a) ....... 190,000 191,865
CRIIMI MAE Commercial Mortgage Trust,
7%, 2033 (a) .............................. 296,207 300,280
Deutsche Mortgage & Asset Receiving Corp.,
6.538%, 2031 .............................. 164,507 168,515
Falcon Franchise Loan LLC,
7.382%, 2010 (a) .......................... 48,716 50,613
Greenwich Capital Commercial Funding Corp.,
FRN, 5.317%, 2036 ......................... 60,728 61,298
Greenwich Capital Commercial Funding Corp.,
FRN, 4.305%, 2042 ......................... 107,385 104,571
J.P. Morgan Chase Commercial Mortgage
Securities Corp., 4.78%, 2042 ............. 130,000 125,866
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.2133%, 2041 ...... 39,903 40,184
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.038%, 2046 ....... 197,476 195,259
J.P. Morgan Commercial Mortgage Finance
Corp., 6.613%, 2030 ....................... 137,562 140,772
Morgan Stanley Capital I, Inc.,
5.168%, 2042 .............................. 48,533 48,524
Morgan Stanley Capital I, Inc., FRN,
0.567%, 2030 (a)(i) ....................... 7,843,281 139,556
Mortgage Capital Funding, Inc.,
6.337%, 2031 .............................. 260,764 266,878
Multi-Family Capital Access One, Inc.,
6.65%, 2024 ............................... 50,115 51,729
Residential Asset Mortgage Products, Inc.,
3.8%, 2030 ................................ 61,985 61,740
Residential Asset Mortgage Products, Inc.,
4.109%, 2035 .............................. 112,691 110,415
Residential Asset Mortgage Products, Inc.,
FRN, 4.9708%, 2034 ........................ 92,000 90,011
Residential Funding Mortgage Securities,
Inc., FRN, 5.32%, 2035 .................... 129,000 128,868
Spirit Master Funding LLC,
5.05%, 2023 (a) ........................... 196,479 192,177
Structured Asset Securities Corp., FRN,
4.67%, 2035 ............................... 298,098 295,175
Wachovia Bank Commercial Mortgage Trust,
5.155%, 2044 .............................. 83,000 84,410
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.083%, 2042 ......................... 185,000 183,570
Wachovia Bank Commercial Mortgage Trust,
FRN, 4.847%, 2041 ......................... 50,000 48,816
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.195%, 2044 ......................... 130,000 130,394
------------
$ 4,736,001
------------
AUTOMOTIVE -- 0.2%
Ford Motor Co., 7.45%, 2031 ................. $ 74,000 $ 50,320
Ford Motor Credit Co., 5.7%, 2010 ........... 193,000 164,062
Ford Motor Credit Co., 4.95%, 2008 .......... 80,000 71,680
General Motors Acceptance Corp.,
7.25%, 2011 ............................... 82,000 75,369
General Motors Acceptance Corp.,
5.85%, 2009 ............................... 93,000 83,200
------------
$ 444,631
------------
BANKS & CREDIT COMPANIES -- 1.9%
Abbey National Capital Trust I,
8.963% to 2030, FRN to 2049 ............... $ 179,000 $ 243,546
Bank of America Corp., 7.4%, 2011 ........... 299,000 329,356
Bank of America Corp., 5.375%, 2014 ......... 110,000 111,816
Citigroup, Inc., 5%, 2014 ................... 250,000 246,089
Credit Suisse First Boston (USA), Inc.,
4.125%, 2010 .............................. 171,000 165,371
Credit Suisse First Boston (USA), Inc.,
4.875%, 2010 .............................. 121,000 120,072
DBS Capital Funding Corp.,
7.657% to 2011, FRN to 2049 (a) ........... 170,000 188,097
HBOS Capital Funding LP, 6.071% to 2014,
FRN to 2049 (a) ........................... 100,000 103,323
J.P. Morgan Chase & Co., 5.125%, 2014 ....... 215,000 212,831
Mizuho Financial Group, Inc.,
5.79%, 2014 (a) ........................... 103,000 106,407
Nordea Bank AB, 5.424% to 2015,
FRN to 2049 (a) ........................... 100,000 99,128
Popular North America, Inc., 4.25%, 2008 .... 211,000 206,951
RBS Capital Trust II, 6.425% to 2034,
FRN to 2049 ............................... 161,000 168,961
Socgen Real Estate LLC, 7.64% to 2007,
FRN to 2049 (a) ........................... 361,000 375,600
UFJ Finance Aruba AEC, 6.75%, 2013 .......... 45,000 49,134
UniCredito Italiano Capital Trust II,
9.2% to 2010, FRN to 2049 (a) ............. 208,000 240,915
Wachovia Corp., 5.25%, 2014 ................. 343,000 343,455
Wells Fargo National Bank, 4.75%, 2015 ...... 315,000 306,421
------------
$ 3,617,473
------------
BROADCAST & CABLE TV -- 0.4%
Cox Communications, Inc., 4.625%, 2013 ...... $ 159,000 $ 148,122
TCI Communications Financing III,
9.65%, 2027 ............................... 425,000 459,895
Time Warner Entertainment Co. LP,
10.15%, 2012 .............................. 1,000 1,218
Time Warner Entertainment Co., LP, 8.375%,
2033 ...................................... 75,000 88,594
------------
$ 697,829
------------
BROKERAGE & ASSET MANAGERS -- 0.6%
Ameriprise Financial, Inc., 5.35%, 2010 ..... $ 113,000 $ 113,774
Goldman Sachs Group, Inc., 5.7%, 2012 ....... 247,000 254,083
Lehman Brothers Holdings, Inc.,
8.25%, 2007 ............................... 334,000 349,178
Merrill Lynch & Co., Inc., 5.45%, 2014 ...... 127,000 129,075
Morgan Stanley Group, Inc., 6.75%, 2011 ..... 156,000 167,938
Morgan Stanley Group, Inc., 4.75%, 2014 ..... 78,000 74,807
------------
$ 1,088,855
------------
BUILDING -- 0.1%
CRH America, Inc., 6.95%, 2012 .............. $ 208,000 $ 226,310
------------
CHEMICALS -- 0.1%
Dow Chemical Co., 5.75%, 2008 ............... $ 162,000 $ 166,186
Dow Chemical Co., 6%, 2012 .................. 15,000 15,765
------------
$ 181,951
------------
CONGLOMERATES -- 0.1%
Kennametal, Inc., 7.2%, 2012 ................ $ 211,000 $ 229,054
Tyco International Group S.A.,
6.75%, 2011 ............................... 40,000 42,056
------------
$ 271,110
------------
CONSUMER GOODS & SERVICES -- 0.1%
Cendant Corp., 6.875%, 2006 ................. $ 147,000 $ 148,509
------------
DEFENSE ELECTRONICS -- 0.1%
BAE Systems Holdings, Inc., 5.2%, 2015 (a) .. $ 133,000 $ 130,333
Raytheon Co., 6.15%, 2008 ................... 114,000 118,312
------------
$ 248,645
------------
EMERGING MARKET QUASI-SOVEREIGN -- 0%
Pemex Project Funding Master Trust,
8.625%, 2022 .............................. $ 39,000 $ 48,068
------------
EMERGING MARKET SOVEREIGN -- 0.2%
State of Israel, 4.625%, 2013 ............... $ 112,000 $ 108,291
United Mexican States, 6.625%, 2015 ......... 138,000 151,110
United Mexican States, 6.375%, 2013 ......... 76,000 80,750
------------
$ 340,151
------------
ENERGY -- INDEPENDENT -- 0.1%
Devon Financing Corp. U.L.C.,
6.875%, 2011 .............................. $ 142,000 $ 155,325
------------
ENERGY -- INTEGRATED -- 0%
Amerada Hess Corp., 7.3%, 2031 .............. $ 62,000 $ 71,752
------------
ENTERTAINMENT -- 0.1%
Walt Disney Co., 6.75%, 2006 ................ $ 69,000 $ 69,329
Walt Disney Co., 6.375%, 2012 ............... 156,000 165,004
------------
$ 234,333
------------
FINANCIAL INSTITUTIONS -- 0.1%
General Electric Capital Corp.,
8.75%, 2007 ............................... $ 130,000 $ 136,797
HSBC Finance Corp., 5.25%, 2011 ............. 145,000 145,074
------------
$ 281,871
------------
FOOD & NON-ALCOHOLIC BEVERAGES -- 0.2%
Cadbury Schweppes PLC,
5.125%, 2013 (a) .......................... $ 270,000 $ 268,487
Kraft Foods, Inc., 6.25%, 2012 .............. 142,000 149,802
------------
$ 418,289
------------
FOREST & PAPER PRODUCTS -- 0.2%
MeadWestvaco Corp., 6.8%, 2032 .............. $ 69,000 $ 68,918
Weyerhaeuser Co., 6.75%, 2012 ............... 254,000 269,593
------------
$ 338,511
------------
INSURANCE -- 0.5%
AIG SunAmerica Institutional Funding II,
5.75%, 2009 ............................... $ 441,000 $ 451,390
Genworth Financial, Inc., 5.75%, 2014 ....... 40,000 41,749
ING Group N.V., 5.775% to 2015,
FRN to 2049 ............................... 323,000 327,361
MetLife, Inc., 6.5%, 2032 ................... 48,000 53,049
------------
$ 873,549
------------
INSURANCE -- PROPERTY & CASUALTY -- 0.4%
ACE INA Holdings, Inc., 5.875%, 2014 ........ $ 151,000 $ 156,200
Allstate Corp., 6.125%, 2032 ................ 185,000 194,198
Fund American Cos., Inc., 5.875%, 2013 ...... 117,000 118,060
St. Paul Travelers Cos., Inc., 5.5%, 2015 ... 112,000 112,806
Travelers Property Casualty Corp.,
6.375%, 2033 .............................. 84,000 89,449
------------
$ 670,713
------------
INTERNATIONAL MARKET QUASI-SOVEREIGN -- 0.1%
Hydro-Quebec, 6.3%, 2011 .................... $ 262,000 $ 279,478
------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES -- 0.1%
HCA, Inc., 8.75%, 2010 ...................... $ 40,000 $ 44,240
HCA, Inc., 6.95%, 2012 ...................... 139,000 144,177
------------
$ 188,417
------------
METALS & MINING -- 0%
Alcan, Inc., 5%, 2015 ....................... $ 83,000 $ 80,513
------------
MORTGAGE BACKED -- 14.4%
Fannie Mae, 5.722%, 2009 .................... $ 415,000 $ 420,851
Fannie Mae, 4.01%, 2013 ..................... 19,354 18,227
Fannie Mae, 4.63%, 2014 ..................... 47,828 46,546
Fannie Mae, 4.518%, 2014 .................... 176,548 171,194
Fannie Mae, 4.846%, 2014 .................... 72,958 72,186
Fannie Mae, 4.925%, 2015 .................... 269,057 267,410
Fannie Mae, 5.5%, 2016 - 2035 ............... 9,845,660 9,788,012
Fannie Mae, 6%, 2016 - 2035 ................. 3,081,304 3,123,789
Fannie Mae, 4.5%, 2018 - 2035 ............... 1,188,446 1,148,762
Fannie Mae, 5%, 2018 - 2035 ................. 2,302,463 2,265,364
Fannie Mae, 6.5%, 2028 - 2034 ............... 1,309,816 1,346,857
Fannie Mae, 7.5%, 2031 ...................... 41,402 43,373
Freddie Mac, 6%, 2016 - 2034 ................ 1,641,423 1,663,641
Freddie Mac, 5%, 2017 - 2035 ................ 2,201,226 2,143,554
Freddie Mac, 4.5%, 2018 - 2035 .............. 1,157,307 1,122,741
Freddie Mac, 5.5%, 2019 - 2035 .............. 1,853,907 1,844,644
Freddie Mac, 6.5%, 2034 ..................... 288,140 295,312
Ginnie Mae, 6.5%, 2028 ...................... 198,805 208,036
Ginnie Mae, 4.5%, 2033 - 2034 ............... 179,900 172,043
Ginnie Mae, 6%, 2033 - 2034 ................. 615,205 630,436
Ginnie Mae, 5.5%, 2033 - 2035 ............... 991,770 999,446
Ginnie Mae, 5%, 2034 ........................ 151,221 149,415
------------
$ 27,941,839
------------
NATURAL GAS -- PIPELINE -- 0.2%
CenterPoint Energy Resources Corp.,
7.875%, 2013 .............................. $ 82,000 $ 93,774
Kinder Morgan Energy Partners LP,
6.75%, 2011 ............................... 165,000 175,739
Kinder Morgan Energy Partners LP,
7.75%, 2032 ............................... 117,000 139,634
------------
$ 409,147
------------
NETWORK & TELECOM -- 0.8%
BellSouth Corp., 6.55%, 2034 ................ $ 146,000 $ 155,514
Deutsche Telekom International Finance B.V.,
8.25%, 2030 ............................... 191,000 242,927
France Telecom S.A., 7.75%, 2011 ............ 53,000 59,198
PCCW-HKTC Capital II Ltd., 6%, 2013 (a) ..... 150,000 153,217
SBC Communications, Inc., 5.1%, 2014 ........ 226,000 220,775
SBC Communications, Inc., 6.15%, 2034 ....... 35,000 35,156
Telecom Italia Capital, 5.25%, 2013 ......... 60,000 58,876
Telecom Italia Capital, 6%, 2034 ............ 97,000 93,445
Telecomunicaciones de Puerto Rico, Inc.,
6.65%, 2006 ............................... 270,000 271,508
Verizon New York, Inc., 6.875%, 2012 ........ 286,000 298,135
------------
$ 1,588,751
------------
OIL SERVICES -- 0%
Halliburton Co., 5.5%, 2010 ................. $ 50,000 $ 51,068
------------
OILS -- 0.1%
Valero Energy Corp., 6.875%, 2012 ........... $ 111,000 $ 120,949
------------
PHARMACEUTICALS -- 0.1%
Wyeth, 5.25%, 2013 .......................... $ 123,000 $ 124,693
------------
POLLUTION CONTROL -- 0.1%
Waste Management, Inc., 7.375%, 2010 ........ $ 134,000 $ 145,831
------------
RAILROAD & SHIPPING -- 0.1%
CSX Corp., 6.75%, 2011 ...................... $ 35,000 $ 37,507
Union Pacific Corp., 6.125%, 2012 ........... 50,000 52,597
Union Pacific Corp., 5.375%, 2014 ........... 110,000 111,254
------------
$ 201,358
------------
REAL ESTATE -- 0.4%
Boston Properties, Inc., 5%, 2015 ........... $ 42,000 $ 40,449
EOP Operating LP, 6.8%, 2009 ................ 29,000 30,322
HRPT Properties Trust, 6.25%, 2016 .......... 115,000 117,189
Simon Property Group LP, 5.1%, 2015 ......... 193,000 186,661
Vornado Realty Trust, 5.625%, 2007 .......... 383,000 385,679
------------
$ 760,300
------------
RETAILERS -- 0.1%
Wal-Mart Stores, Inc., 5.25%, 2035 .......... $ 144,000 $ 139,777
------------
TELECOMMUNICATIONS -- WIRELESS -- 0.1%
AT&T Wireless Services, Inc., 7.35%, 2006 ... $ 107,000 $ 107,451
Cingular Wireless LLC, 6.5%, 2011 ........... 35,000 37,453
Sprint Capital Corp., 6.875%, 2028 .......... 106,000 115,825
------------
$ 260,729
------------
U.S. GOVERNMENT AGENCIES -- 4.6%
Aid-Egypt, 4.45%, 2015 ...................... $ 152,000 $ 148,943
Fannie Mae, 3.25%, 2006 ..................... 100,000 99,196
Fannie Mae, 3%, 2007 ........................ 244,000 239,135
Fannie Mae, 5.25%, 2007 ..................... 397,000 399,323
Fannie Mae, 6.625%, 2009 - 2010 ............. 3,428,000 3,699,650
Fannie Mae, 6%, 2011 ........................ 165,000 174,510
Fannie Mae, 4.625%, 2014 .................... 250,000 247,054
Federal Home Loan Bank, 3.25%, 2006 ......... 315,000 312,672
Federal Home Loan Bank, 3.75%, 2006 ......... 940,000 933,641
Federal Home Loan Bank, 3.9%, 2008 .......... 40,000 39,334
Freddie Mac, 3.75%, 2006 .................... 1,405,000 1,393,317
Freddie Mac, 4.125%, 2009 ................... 50,000 48,947
Small Business Administration,
4.35%, 2023 ............................... 45,857 44,223
Small Business Administration,
4.77%, 2024 ............................... 113,446 111,837
Small Business Administration,
4.99%, 2024 ............................... 149,235 148,870
Small Business Administration,
5.18%, 2024 ............................... 184,735 186,125
Small Business Administration,
5.52%, 2024 ............................... 260,177 266,297
Small Business Administration,
4.95%, 2025 ............................... 113,351 112,887
Small Business Administration,
5.09%, 2025 ............................... 136,000 136,081
Small Business Administration,
5.39%, 2025 ............................... 106,000 107,590
------------
$ 8,849,632
------------
U.S. TREASURY OBLIGATIONS -- 9.3%
U.S. Treasury Bonds, 10.375%, 2012 .......... $ 140,000 $ 154,722
U.S. Treasury Bonds, 9.875%, 2015 ........... 175,000 250,018
U.S. Treasury Bonds, 8%, 2021 ............... 37,000 50,975
U.S. Treasury Bonds, 6.25%, 2023 ............ 3,050,000 3,642,130
U.S. Treasury Bonds, 5.375%, 2031 ........... 1,067,000 1,198,541
U.S. Treasury Notes, 7%, 2006 ............... 695,000 704,203
U.S. Treasury Notes, 4.375%, 2007 ........... 146,000 145,880
U.S. Treasury Notes, 4.75%, 2008 ............ 942,000 951,052
U.S. Treasury Notes, 5.5%, 2008 ............. 1,426,000 1,457,918
U.S. Treasury Notes, 5.625%, 2008 ........... 2,004,000 2,058,641
U.S. Treasury Notes, 4%, 2009 ............... 23,000 22,721
U.S. Treasury Notes, 6.5%, 2010 ............. 3,105,000 3,349,398
U.S. Treasury Notes, 3.875%, 2013 ........... 199,000 192,882
U.S. Treasury Notes, 4.75%, 2014 ............ 150,000 153,650
U.S. Treasury Notes, 4.125%, 2015 ........... 192,000 187,793
U.S. Treasury Notes, 4.25%, 2015 ............ 1,376,000 1,358,208
U.S. Treasury Notes, TIPS, 4.25%, 2010 ...... 791,982 858,558
U.S. Treasury Notes, TIPS, 3%, 2012 ......... 1,236,249 1,307,140
------------
$ 18,044,430
------------
UTILITIES -- ELECTRIC POWER -- 1.3%
Dominion Resources, Inc., 5.15%, 2015 ....... $ 141,000 $ 136,604
DTE Energy Co., 7.05%, 2011 ................. 122,000 131,456
Duke Capital Corp., 8%, 2019 ................ 113,000 134,871
Exelon Generation Co. LLC, 6.95%, 2011 ...... 77,000 83,024
FirstEnergy Corp., 6.45%, 2011 .............. 209,000 221,539
MidAmerican Energy Holdings Co.,
5.875%, 2012 .............................. 61,000 62,974
MidAmerican Energy Holdings Co.,
3.5%, 2008 ................................ 118,000 113,852
MidAmerican Funding LLC, 6.927%, 2029 ....... 454,000 507,985
Niagara Mohawk Power Corp.,
7.75%, 2006 ............................... 1,000 1,011
Northeast Utilities, 8.58%, 2006 ............ 54,240 54,955
Oncor Electric Delivery Co., 7%, 2022 ....... 202,000 224,518
Pacific Gas & Electric Co., 4.8%, 2014 ...... 125,000 121,816
PSEG Power LLC, 8.625%, 2031 ................ 91,000 119,744
PSEG Power LLC, 6.95%, 2012 ................. 71,000 76,944
System Energy Resources, Inc.,
5.129%, 2014 (a) .......................... 104,272 100,594
TXU Energy Co., 7%, 2013 .................... 37,000 39,430
Waterford 3 Funding Corp., 8.09%, 2017 ...... 337,724 358,903
------------
$ 2,490,220
------------
Total Bonds (Identified Cost, $78,117,682)................. $ 78,220,619
------------
SHORT-TERM OBLIGATION -- 0.8%
General Electric Capital Corp.,
4.2%, due 1/03/06,
at Amortized Cost(y) ...................... $1,534,000 $ 1,533,642
------------
Total Investments
(Identified Cost, $182,124,691) (k) ..................... $194,327,259
------------
OTHER ASSETS,
LESS LIABILITIES -- (0.1)% .................................. (230,872)
------------
Net Assets -- 100.0% ...................................... $194,096,387
============
PORTFOLIO FOOTNOTES:
(a) SEC Rule 144A restriction.
(n) Non-income producing security.
(d) Non-income producing security - in default.
(y) The rate shown represents an annualized yield at time of purchase.
(k) As of December 31, 2005, the High Yield Variable Account had eight securites
representing $0 of net assets that were fair valued in accordance with the policies
adopted by the Board of Managers.
(k) As of December 31, 2005, the Total Return Variable Account had one security
representing $14,689 and less than 0.1% of net assets that was fair valued in
accordance with the policies adopted by the Board of Managers.
(i) Interest only security for which the variable account receives interest on notional
principal (Par amount). Par amount shown is the notional principal and does not
reflect the cost of the security.
(f) All or a portion of the security has been segregated as collateral for an open
futures contract.
(p) Payment-in-kind security.
(t) Security exempt from registration with the U.S. Securities and Exchange Commission
under Section 4(2) of the Securities Act of 1933.
(r) Restricted securities (excluding 144A issues) are not registered under the
Securities Act of 1933 and are subject to legal or contractual restrictions on
resale. These securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and prompt sale at an acceptable
price may be difficult. The High-Yield Variable Account holds the following
restricted security:
Current Total
Acquisition Acquisition Market % of
Security Date Cost Value Net Assets
Airplane Pass-Through Trust, "D", 10.875%, 2019 3/13/96 $740,775 $0 0.0%
The following abbreviations are used in the Portfolio of Investments and are defined:
ADR American Depository Receipt
FRN Floating rate note. The interest rate is the rate in effect as of period end.
GDR Global Depository Receipt
STRIPS Separate trading of Registered Interest and Principal of Securities.
TIPS Treasury Inflation Protected Security
INSURERS
MBIA MBIA Insurance Corp.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. All amounts are stated in U.S.
dollars unless otherwise indicated. A list of abbreviations is shown below.
AUD Australian Dollar GBP British Pound
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc NOK Norwegian Krone
DKK Danish Krone NZD New Zealand Dollar
EUR Euro SEK Swedish Krona
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES -- December 31, 2005
(000 Omitted)
Capital Global
Apprecia- Govern- Government High Money Total
tion ments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Assets:
Investments --
Investments, cost ........................... $250,750 $ 10,351 $ 91,565 $ 64,497 $ 57,159 $182,125
Unrealized appreciation (depreciation) ...... 7,943 (226) 293 (1,354) -- 12,202
-------- -------- -------- -------- -------- --------
Total investments, at value ............... $258,693 $ 10,125 $ 91,858 $ 63,143 $ 57,159 $194,327
Cash .......................................... 3,554 2 1 507 0* 8
Receivable for forward foreign currency
exchange contracts .......................... -- 64 -- 0* -- --
Receivable for forward currency exchange
contracts subject to master netting agreements -- -- -- 0* -- --
Receivable for daily variation margin on open
futures contracts ........................... -- -- 3 -- -- --
Receivable for investments sold ............... 845 -- -- 65 -- 3
Receivable for units sold ..................... 46 -- 59 11 3 128
Interest and dividends receivable ............. 149 122 1,001 1,1156 1,061
Receivable from Investment Adviser ............ -- 27 -- -- -- --
Receivable from Sponsor ....................... 6 -- 7 4 -- 7
Other assets .................................. 4 -- 2 1 0* 2
-------- -------- -------- -------- -------- --------
Total assets .............................. $263,297 $ 10,340 $ 92,931 $ 64,846 $ 57,168 $195,536
======== ======== ======== ======== ======== ========
Liabilities:
Payable for forward foreign currency exchange
contracts ................................... $ -- $ 22 $ -- $ 10 $ -- $ --
Payable for forward currency exchange contracts
subject to master netting agreements ......... -- 1 -- -- -- --
Payable for investments purchased ............. 3,813 -- -- 76 -- 925
Payable for units surrendered ................. 461 35 206 45 108 445
Payable to affiliates --
Investment Adviser .......................... 11 0* 3 22 8
Administrative services fee ................. 0* 0* 0* 0* 0* 0*
Sponsor ..................................... -- 0* -- -- 3 --
Accrued expenses and other liabilities ........ 55 56 50 57 32 62
-------- -------- -------- -------- -------- --------
Total liabilities ......................... $ 4,340 $ 114 $ 259 $ 190 $ 145 $ 1,440
-------- -------- -------- -------- -------- --------
Net assets .............................. $258,957 $ 10,226 $ 92,672 $ 64,656 $ 57,023 $194,096
======== ======== ======== ======== ======== ========
* Amount was less than $500.
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES -- December 31, 2005 -- continued (000
Omitted except for unit values)
Capital Global Govern-
Apprecia- Govern- ment High Money Total
tion ments Securities Yield Market Return
Unit Variable Variable Variable Variable Variable Variable
Unit Value Account Account Account Account Account Account
------ -------- --------- -------- -------- -------- ------- ---------
Net assets applicable to contract owners:
Capital Appreciation Variable Account --
Compass 2 ......................................... 3,018 $55.446 $167,341
Compass 3 ......................................... 237 36.524 8,641
Compass 3 - Level 2 ............................... 5,248 15.226 79,909
Global Governments Variable Account --
Compass 2 ......................................... 116 $24.865 $2,881
Compass 3 ......................................... 26 24.209 636
Compass 3 - Level 2 ............................... 468 14.221 6,648
Government Securities Variable Account --
Compass 2 ......................................... 1,852 $37.679 $69,764
Compass 3 ......................................... 69 26.295 1,821
Compass 3 - Level 2 ............................... 1,280 15.421 19,736
High Yield Variable Account --
Compass 2 ......................................... 1,323 $36.840 $48,739
Compass 3 ......................................... 47 27.043 1,263
Compass 3 - Level 2 ............................... 937 14.495 13,583
Money Market Variable Account --
Compass 2 ......................................... 1,128 $20.331 $22,944
Compass 3 ......................................... 218 16.638 3,631
Compass 3 - Level 2 ............................... 2,384 12.491 29,785
Total Return Variable Account --
Compass 2 ......................................... 1,349 $46.459 $ 62,709
Compass 3 ......................................... 217 45.236 9,820
Compass 3 - Level 2 ............................... 5,462 21.903 119,637
-------- ------- ------- ------- ------- --------
Net assets applicable to owners of deferred contracts ................. 255,891 10,165 91,321 63,585 56,360 192,166
Reserve for variable annuities --
Compass 2 Contracts ............................................... 2,753 17 1,307 1,026 508 1,268
Compass 3 Contracts ............................................... 1 37 -- 1 16 45
Compass 3 - Level 2 Contracts ..................................... 312 7 44 44 139 617
-------- ------- ------- ------- ------- --------
Net assets ...................................................... $258,957 $10,226 $92,672 $64,656 $57,023 $194,096
======== ======= ======= ======= ======= ========
See notes to financial statements.
STATEMENTS OF OPERATIONS -- Year Ended December 31, 2005
(000 Omitted)
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Net investment income (loss):
Income --
Interest .................................... $ 386 $ 399 $ 5,011 $ 5,357 $ 1,912 $ 3,993
Dividends ................................... 2,508 -- -- 37 -- 2,525
-------- -------- -------- -------- -------- --------
Total investment income ................... $ 2,894 $ 399 $ 5,011 $ 5,394 $ 1,912 $ 6,518
-------- -------- -------- -------- -------- --------
Expenses --
Mortality and expense risk charges .......... $ 3,478 $ 139 $ 1,246 $ 851 $ 714 $ 2,447
Management fee .............................. 2,076 85 545 491 287 1,496
Boards of Managers fees ..................... 29 1 13 7 8 23
Distribution fee ............................ 17 1 3 2 4 17
Administrative services fee ................. 49 2 17 12 10 35
Custodian fee ............................... 108 34 43 44 23 80
Printing .................................... 43 9 24 24 21 28
Auditing fees ............................... 35 44 40 45 21 47
Legal fees .................................. 16 7 8 8 10 8
Miscellaneous ............................... 31 11 12 12 18 24
-------- -------- -------- -------- -------- --------
Total expenses ............................ $ 5,882 $ 333 $ 1,951 $ 1,496 $ 1,116 $ 4,205
Fees paid indirectly ........................ (12) (0)* (7) (3) (1) (7)
Reduction of expenses by Investment Adviser . -- (51) -- -- -- --
-------- -------- -------- -------- -------- --------
Net expenses .............................. $ 5,870 $ 282 $ 1,944 $ 1,493 $ 1,115 $ 4,198
-------- -------- -------- -------- -------- --------
Net investment income (loss) .............. $ (2,976) $ 117 $ 3,067 $ 3,901 $ 797 $ 2,320
-------- -------- -------- -------- -------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions ..................... $ 34,408 $ 375 $ (341) $ 18 $ 0* $ 10,297
Futures contracts ........................... -- (1) 58 -- -- --
Foreign currency transactions ............... (9) (302) -- 121 -- 5
-------- -------- -------- -------- -------- --------
Net realized gain (loss) on investments and
foreign currency transactions ............. $ 34,399 $ 72 $ (283) $ 139 $ 0* $ 10,302
-------- -------- -------- -------- -------- --------
Change in unrealized appreciation (depreciation) --
Investments ................................... $(33,082) $ (1,266) $ (1,919) $ (3,725) $-- $ (9,601)
Futures contracts ............................. -- -- 66 -- -- --
Translation of assets and liabilities in
foreign currencies .......................... (5) 38 -- 60 -- (12)
-------- -------- -------- -------- -------- --------
Net unrealized gain (loss) on
investments and foreign currency
translation ............................... $(33,087) $ (1,228) $ (1,853) $ (3,665) $-- $ (9,613)
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain
(loss) on investments and foreign
currency .................................. $ 1,312 $ (1,156) $ (2,136) $ (3,526) $ 0* $ 689
-------- -------- -------- -------- -------- --------
Change in net assets from operations ............ $ (1,664) $ (1,039) $ 931 $ 375 $ 797 $ 3,009
======== ======== ======== ======== ======== ========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(000 Omitted)
Capital Appreciation Global Governments Government Securities
Variable Account Variable Account Variable Account
---------------------- -------------------- ----------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
---------------------- -------------------- ----------------------
2005 2004 2005 2004 2005 2004
-------- -------- -------- -------- -------- --------
Change in net assets:
From operations:
Net investment income (loss) ................ $ (2,976) $ (2,078) $ 117 $ 113 $ 3,067 $ 3,252
Net realized gain (loss) on investments
and foreign currency transactions ......... 34,399 16,588 72 1,023 (283) 1,187
Net unrealized gain (loss) on investments
and foreign currency translation .......... (33,087) 12,496 (1,228) (227) (1,853) (1,846)
-------- -------- -------- -------- -------- --------
Change in net assets from operations ...... $ (1,664) $ 27,006 $ (1,039) $ 909 $ 931 $ 2,593
-------- -------- -------- -------- -------- --------
Participant transactions:
Accumulation activity:
Purchase payments received .................. $ 5,857 $ 7,120 $ 366 $ 375 $ 2,303 $ 1,762
Net transfers between variable and fixed
accumulation accounts ..................... (294) (2,841) 977 (604) 821 (4,683)
Withdrawals, surrenders, annuitizations,
and contract charges ...................... (48,945) (41,093) (2,169) (1,777) (15,664) (12,905)
-------- -------- -------- -------- -------- --------
Net accumulation activity ................. $(43,382) $(36,814) $ (826) $ (2,006) $(12,540) $(15,826)
-------- -------- -------- -------- -------- --------
Annuitization activity:
Annuitizations ................................ $ 167 $ 261 $ 3 $ 0* $ 151 $ (5)
Annuity payments and contract charges ......... (425) (513) (6) (6) (249) (308)
Net transfers among accounts for annuity
reserves .................................... (14) -- -- -- 5 (87)
Adjustments to annuity reserves ............... 53 (44) 0* 0* 15 (13)
-------- -------- -------- -------- -------- --------
Net annuitization activity .................. $ (219) $ (296) $ (3) $ (6) $ (78) $ (413)
-------- -------- -------- -------- -------- --------
Change in net assets from participant
transactions ................................ $(43,601) $(37,110) $ (829) $ (2,012) $(12,618) $(16,239)
-------- -------- -------- -------- -------- --------
Total change in net assets .................. $(45,265) $(10,104) $ (1,868) $ (1,103) $(11,687) $(13,646)
Net assets:
At beginning of period ........................ 304,222 314,326 12,094 13,197 104,359 118,005
-------- -------- -------- -------- -------- --------
At end of period .............................. $258,957 $304,222 $ 10,226 $ 12,094 $ 92,672 $104,359
======== ======== ======== ======== ======== ========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS -- continued
(000 Omitted)
High Yield Money Market Total Return
Variable Account Variable Account Variable Account
---------------------- -------------------- ----------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
---------------------- -------------------- ----------------------
2005 2004 2005 2004 2005 2004
-------- -------- -------- -------- -------- --------
Change in net assets:
From operations:
Net investment income (loss) ................ $ 3,901 $ 4,654 $ 797 $ (269) $ 2,320 $ 2,485
Net realized gain (loss) on investments
and foreign currency transactions ......... 139 (1,716) 0* -- 10,302 13,823
Net unrealized gain (loss) on investments
and foreign currency translation .......... (3,665) 2,313 -- -- (9,613) 2,965
-------- -------- -------- -------- -------- --------
Change in net assets from operations ...... $ 375 $ 5,251 $ 797 $ (269) $ 3,009 $ 19,273
-------- -------- -------- -------- -------- --------
Participant transactions:
Accumulation activity:
Purchase payments received .................. $ 1,227 $ 999 $ 1,798 $ 1,576 $ 5,339 $ 5,581
Net transfers between variable and fixed
accumulation accounts ..................... (42) (22,124) 35,078 22,089 14,789 4,317
Withdrawals, surrenders, annuitizations,
and contract charges ...................... (12,450) (9,829) (30,896) (11,007) (35,779) (29,151)
-------- -------- -------- -------- -------- --------
Net accumulation activity ................. $(11,265) $(30,954) $ 5,980 $ 12,658 $(15,651) $(19,253)
-------- -------- -------- -------- -------- --------
Annuitization activity:
Annuitizations ................................ $ 21 $ 100 $ 57 $ 96 $ 125 $ 102
Annuity payments and contract charges ......... (169) (207) (156) (179) (426) (432)
Net transfers among accounts for annuity
reserves .................................... -- -- 156 82 5 4
Adjustments to annuity reserves ............... (74) 77 12 (19) (44) 49
-------- -------- -------- -------- -------- --------
Net annuitization activity .................. $ (222) $ (30) $ 69 $ (20) $ (340) $ (277)
-------- -------- -------- -------- -------- --------
Change in net assets from participant
transactions ................................ $(11,487) $(30,984) $ 6,049 $ 12,638 $(15,991) $(19,530)
-------- -------- -------- -------- -------- --------
Total change in net assets .................. $(11,112) $(25,733) $ 6,846 $ 12,369 $(12,982) $ (257)
Net assets:
At beginning of period ........................ 75,768 101,501 50,177 37,808 207,078 207,335
-------- -------- -------- -------- -------- --------
At end of period .............................. $ 64,656 $ 75,768 $ 57,023 $ 50,177 $194,096 $207,078
======== ======== ======== ======== ======== ========
See notes to financial statements.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the
rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 55.625 $ 50.814 $ 39.859 $ 59.446 $ 80.578
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.580 $ 0.744 $ 0.402 $ 0.369 $ 0.598
Expenses .............................. (1.179) (1.109) (0.951) (1.002) (1.401)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ (0.599) $ (0.365) $ (0.549) $ (0.633) $ (0.803)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ 0.420 5.176 11.504 (18.954) (20.329)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (0.179) $ 4.811 $ 10.955 $ (19.587) $ 21.132)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... (0.32) 9.47(b) 27.48(j) (32.95) (26.22)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.16 2.14 2.12 2.12 0.79(m)
Net investment income ................. (1.08) (0.70) (1.20) (1.36) (1.19)(m)
Portfolio turnover (%) .................. 130 65 104 80 123
Number of units outstanding at end of
period (000 Omitted) .................. 3,018 3,544 4,040 4,521 5,340
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 36.678 $ 33.539 $ 26.334 $ 39.314 $ 53.342
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.370 $ 0.458 $ 0.260 $ 0.240 $ 0.417
Expenses .............................. (0.795) (0.753) (0.648) (0.688) (1.025)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ (0.425) $ (0.295) $ (0.388) $ (0.448) $ (0.608)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ 0.271 3.434 7.593 (12.532) (13.420)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (0.154) $ 3.139 $ 7.205 $ (12.980) $ (14.028)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... (0.42) 9.36(b) 27.36(j) (33.02) (26.30)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.26 2.24 2.22 2.22 0.79(m)
Net investment income ................. (1.20) (0.87) (1.31) (1.42) (1.19)(m)
Portfolio turnover (%) .................. 130 65 104 80 123
Number of units outstanding at end of period
(000 Omitted) ......................... 237 413 621 812 999
FINANCIAL HIGHLIGHTS -- continued
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 15.267 $ 13.940 $ 10.929 $ 16.292 $ 22.072
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.158 $ 0.205 $ 0.109 $ 0.100 $ 0.154
Expenses .............................. (0.316) (0.297) (0.254) (0.260) (0.357)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ (0.158) $ (0.092) $ (0.145) $ (0.160) $ (0.203)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ 0.117 1.419 3.156 (5.203) (5.577)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (0.041) $ 1.327 $ 3.011 $ (5.363) $ (5.780)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... (0.27) 9.52(b) 27.55(j) (32.92) (26.19)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.11 2.09 2.07 2.07 0.79(m)
Net investment income ................. (1.05) (0.65) (1.17) (1.32) (1.19)(m)
Portfolio turnover (%) .................. 130 65 104 80 123
Number of units outstanding at end of period
(000 Omitted) ......................... 5,248 5,798 6,086 6,148 6,705
(d) Per unit data are based on average number of units outstanding during each year.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(j) The accounts' net asset value and total return calculation include proceeds received on March 26, 2003 for the partial
payment of a non- recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment
transactions. The proceeds resulted in an increase in the net asset value of $0.900, $0.594, and $0.247 per unit for
Compass 2, Compass 3, and Compass 3 - Level 2, respectively, based on units outstanding on the day the proceeds were
received. Excluding the effect of this payment from the ending net ass et value per unit, the Compass 2, Compass 3, and
Compass 3 - Level 2 total return per unit value for the year ended December 31, 2003 would have been lower by
approximately 2.24%, 2.24%, and 2.25%, respectively.
(b) The accounts' net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administ rative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual resulted in an increase in the net asset value of $0.039, $0.026, and $0.010 per unit for Compass
2, Compass 3, and Compass 3 - Level 2, resp ectively, based on units outstanding on the day the proceeds were recorded.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would
be lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the
rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
Global Governments Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 27.240 $ 25.169 $ 22.125 $ 18.653 $ 19.378
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.925 $ 0.872 $ 0.877 $ 0.861 $ 0.946
Expenses .............................. (0.651) (0.633) (0.584) (0.486) (0.500)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.274 $ 0.239 $ 0.293 $ 0.375 $ 0.446
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (2.649) 1.832 2.751 3.097 (1.171)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (2.375) $ 2.071 $ 3.044 $ 3.472 $ (0.725)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653
========== ========== ========== ========== ==========
Total Return (%) (r)(k) ............... (8.72) 8.23 13.76 18.61 (3.74)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) 2.95 2.67 2.47 2.44 1.39(m)
Expenses after expense reductions (f) . 2.50 2.50 2.47 2.50(e) 1.28(m)
Net investment income ................. 1.04 0.94 1.23 1.73 2.23(m)
Portfolio turnover (%) .................. 144 128 130 126 72
Number of units outstanding at end of
period (000 Omitted) .................. 116 128 161 160 134
Global Governments Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 26.561 $ 24.578 $ 21.638 $ 18.269 $ 19.007
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.949 $ 0.883 $ 0.869 $ 0.846 $ 1.063
Expenses .............................. (0.688) (0.662) (0.600) (0.511) (0.579)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.261 $ 0.221 $ 0.269 $ 0.335 $ 0.484
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (2.613) 1.762 2.671 3.034 (1.222)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (2.352) $ 1.983 $ 2.940 $ 3.369 $ (0.738)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269
========== ========== ========== ========== ==========
Total Return (%) (r)(k) ............... (8.85) 8.07 13.59 18.44 (3.88)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) 3.10 2.82 2.62 2.56 1.39(m)
Expenses after expense reductions (f) . 2.65 2.65 2.62 2.65(e) 1.28(m)
Net investment income ................. 0.97 0.85 1.15 1.77 2.23(m)
Portfolio turnover (%) .................. 144 128 130 126 72
Number of units outstanding at end of
period (000 Omitted) .................. 26 28 41 58 68
FINANCIAL HIGHLIGHTS -- continued
Global Governments Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 15.580 $ 14.396 $ 12.655 $ 10.669 $ 11.083
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.526 $ 0.497 $ 0.494 $ 0.499 $ 0.520
Expenses .............................. (0.371) (0.361) (0.331) (0.281) (0.274)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.155 $ 0.136 $ 0.163 $ 0.218 $ 0.246
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (1.514) 1.048 1.578 1.768 (0.660)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ (1.359) $ 1.184 $ 1.741 $ 1.986 $ (0.414)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669
========== ========== ========== ========== ==========
Total Return (%) (r)(k) ............... (8.72) 8.23 13.76 18.61 (3.74)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) 2.95 2.67 2.47 2.42 1.40(m)
Expenses after expense reductions (f) . 2.50 2.50 2.47 2.50(e) 1.28(m)
Net investment income ................. 1.04 0.94 1.21 1.70 2.23(m)
Portfolio turnover (%) .................. 144 128 130 126 72
Number of units outstanding at end of
period (000 Omitted) .................. 468 500 559 568 574
(d) Per unit data are based on average number of units outstanding during each year.
(r) Certain expenses have been reduced without which performance would have been lower.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense reimbursement
agre ement.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent
the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
Government Securities Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 37.338 $ 36.470 $ 36.124 $ 33.448 $ 31.520
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 1.936 $ 1.834 $ 1.482 $ 1.862 $ 2.183
Expenses .............................. (0.752) (0.726) (0.711) (0.677) (0.661)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 1.184 $ 1.108 $ 0.771 $ 1.185 $ 1.522
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions ... (0.843) (0.240) (0.425) 1.491 0.406
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.341 $ 0.868 $ 0.346 $ 2.676 $ 1.928
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448
========== ========== ========== ========== ==========
Total Return (%) (k) .................. 0.91 2.38 0.96 8.00 6.12
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.01 1.97 1.95 1.94 0.66(m)
Net investment income ................. 3.09 2.96 2.08 3.19 4.42(m)
Portfolio turnover (%) .................. 69 89 138 139 89
Number of units outstanding at end of
period (000 Omitted) .................. 1,852 2,125 2,447 2,759 3,043
Government Securities Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 26.082 $ 25.501 $ 25.284 $ 23.434 $ 22.105
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 1.316 $ 1.244 $ 1.045 $ 1.300 $ 1.590
Expenses .............................. (0.543) (0.525) (0.514) (0.495) (0.510)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.773 $ 0.719 $ 0.531 $ 0.805 $ 1.080
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (0.560) (0.138) (0.314) 1.045 0.249
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.213 $ 0.581 $ 0.217 $ 1.850 $ 1.329
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434
========== ========== ========== ========== ==========
Total Return (%) (k) .................. 0.82 2.28 0.86 7.89 6.01
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.11 2.07 2.05 2.04 0.66(m)
Net investment income ................. 2.96 2.82 2.08 3.36 4.42(m)
Portfolio turnover (%) .................. 69 89 138 139 89
Number of units outstanding at end of
period (000 Omitted) .................. 69 100 147 205 254
FINANCIAL HIGHLIGHTS -- continued
Government Securities Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 15.274 $ 14.912 $ 14.763 $ 13.663 $ 12.868
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.781 $ 0.742 $ 0.597 $ 0.732 $ 0.826
Expenses .............................. (0.299) (0.289) (0.282) (0.267) (0.248)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.482 $ 0.453 $ 0.315 $ 0.465 $ 0.578
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (0.335) (0.091) (0.166) 0.635 0.217
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.147 $ 0.362 $ 0.149 $ 1.100 $ 0.795
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663
========== ========== ========== ========== ==========
Total Return (%) (k) .................. 0.96 2.43 1.01 8.05 6.17
Ratios (%) (to average net assets):
Expenses (f) .......................... 1.96 1.92 1.90 1.89 0.66(m)
Net investment income ................. 3.12 2.99 2.10 3.17 4.42(m)
Portfolio turnover (%) .................. 69 89 138 139 89
Number of units outstanding at end of
period (000 Omitted) .................. 1,280 1,377 1,562 1,692 1,617
(d) Per unit data are based on average number of units outstanding during each year.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(f) Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the
rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
High Yield Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 36.669 $ 34.056 $ 28.505 $ 28.969 $ 29.882
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 2.959 $ 2.857 $ 2.769 $ 3.015 $ 3.684
Expenses .............................. (0.820) (0.770) (0.689) (0.617) (0.699)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 2.139 $ 2.087 $ 2.080 $ 2.398 $ 2.985
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (1.968) 0.526 3.471 (2.862) (3.898)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.171 $ 2.613 $ 5.551 $ (0.464) $ (0.913)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 0.47 7.67 19.47 (1.60) (3.05)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.25 2.21 2.20 2.18 0.90(m)
Net investment income ................. 5.76 5.91 6.53 7.84 9.16(m)
Portfolio turnover (%) .................. 53 81 164 172 103
Number of units outstanding at end of
period (000 Omitted) .................. 1,323 1,601 1,827 2,069 2,328
High Yield Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 26.943 $ 25.048 $ 20.986 $ 21.349 $ 22.043
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 2.118 $ 2.021 $ 1.964 $ 2.141 $ 3.188
Expenses .............................. (0.620) (0.576) (0.514) (0.469) (0.643)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 1.498 $ 1.445 $ 1.450 $ 1.672 $ 2.545
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (1.398) 0.450 2.612 (2.035) (3.239)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.100 $ 1.895 $ 4.062 $ (0.363) $ (0.694)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 0.37 7.57 19.35 (1.70) (3.15)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.35 2.31 2.30 2.28 0.90(m)
Net investment income ................. 5.64 5.75 6.41 8.45 9.16(m)
Portfolio turnover (%) .................. 53 81 164 172 103
Number of units outstanding at end of
period (000 Omitted) .................. 47 67 115 178 231
FINANCIAL HIGHLIGHTS -- continued
High Yield Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 14.421 $ 13.386 $ 11.199 $ 11.376 $ 11.728
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 1.142 $ 1.019 $ 1.161 $ 1.220 $ 0.784
Expenses .............................. (0.312) (0.275) (0.286) (0.257) (0.151)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.830 $ 0.744 $ 0.875 $ 0.963 $ 0.633
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (0.756) 0.291 1.312 (1.140) (0.985)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.074 $ 1.035 $ 2.187 $ (0.177) $ (0.352)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 0.52 7.73 19.53 (1.55) (3.01)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.20 2.16 2.15 2.13 0.90(m)
Net investment income ................. 5.81 5.77 6.57 6.08 9.16(m)
Portfolio turnover (%) .................. 53 81 164 172 103
Number of units outstanding at end of
period (000 Omitted) .................. 937 971 2,631 2,684 1,131
(d) Per unit data are based on average number of units outstanding during each year.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would
be lo wer.
(f) Ratios do not reflect reductions from fees paid indirectly.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the
rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
Money Market Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 20.073 $ 20.188 $ 20.322 $ 20.341 $ 19.862
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.661 $ 0.281 $ 0.247 $ 0.382 $ 0.950
Expenses .............................. (0.403) (0.396) (0.381) (0.401) (0.471)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479
Net realized and unrealized gain (loss)
on investments .................... (0.000)(w) -- -- -- --
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341
========== ========== ========== ========== ==========
Total Return (%) (k) .................. 1.29 (0.57) (0.66) (0.09) 2.41
Ratios (%) (to average net assets):
Expenses (f) .......................... 1.99 1.96 1.87 1.96 0.65(m)
Net investment income (loss) .......... 1.38 (0.56) (0.63) (0.12) 2.51(m)
Number of units outstanding at end of
period (000 Omitted) .................. 1,128 1,009 1,172 1,626 1,986
Money Market Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 16.443 $ 16.553 $ 16.680 $ 16.712 $ 16.334
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.539 $ 0.229 $ 0.198 $ 0.318 $ 0.784
Expenses .............................. (0.344) (0.339) (0.325) (0.350) (0.406)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378
Net realized and unrealized gain (loss)
on investments .................... (0.000)(w) -- -- -- --
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712
========== ========== ========== ========== ==========
Total Return (%) (k) ................. 1.19 (0.67) (0.76) (0.19) 2.31
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.09 2.06 1.97 2.06 0.65(m)
Net investment income (loss) .......... 1.42 (0.71) (0.74) (0.14) 2.51(m)
Number of units outstanding at end of
period (000 Omitted) .................. 218 97 155 186 222
FINANCIAL HIGHLIGHTS -- continued
Money Market Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 12.326 $ 12.390 $ 12.466 $ 12.472 $ 12.172
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.405 $ 0.181 $ 0.131 $ 0.223 $ 0.710
Expenses .............................. (0.240) (0.245) (0.207) (0.229) (0.410)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300
Net realized and unrealized gain (loss)
on investments .................... (0.000)(w) -- -- -- --
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472
========== ========== ========== ========== ==========
Total Return (%) (k) .................. 1.34 (0.52) (0.61) (0.04) 2.46
Ratios (%) (to average net assets):
Expenses (f) .......................... 1.94 1.91 1.82 1.91 0.65(m)
Net investment income (loss) .......... 1.39 (0.48) (0.61) (0.01) 2.51(m)
Number of units outstanding at end of
period (000 Omitted) .................. 2,384 2,259 896 1,113 2,835
(d) Per unit data are based on average number of units outstanding during each year per share.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(w) Per unit amount was less than $0.001.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights tables are intended to help you understand the variable accounts' financial performance for the past
5 years. Certain information reflects financial results for a single unit value. The total returns in the table represent the
rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit class held for the
entire period. This information has been audited by the variable accounts' independent registered public accounting firm,
whose report, together with the variable accounts' financial statements, are included in this report.
Total Return Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 45.729 $ 41.571 $ 35.950 $ 38.562 $ 39.126
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 1.521 $ 1.450 $ 1.237 $ 1.407 $ 1.513
Expenses .............................. (0.970) (0.905) (0.800) (0.777) (0.830)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.551 $ 0.545 $ 0.437 $ 0.630 $ 0.683
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ 0.179 3.613 5.184 (3.242) (1.247)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.730 $ 4.158 $ 5.621 $ (2.612) $ (0.564)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 1.60 10.00(b) 15.64 (6.77) (1.44)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.12 2.11 2.10 2.08 0.85(m)
Net investment income ................. 1.18 1.25 1.13 1.43 1.67(m)
Portfolio turnover (%) .................. 49 64 62 76 104
Number of units outstanding at end of
period (000 Omitted) .................. 1,349 1,511 1,688 1,871 2,080
Total Return Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 44.592 $ 40.597 $ 35.160 $ 37.771 $ 38.380
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 1.450 $ 1.375 $ 1.200 $ 1.360 $ 1.599
Expenses .............................. (1.019) (0.929) (0.823) (0.804) (0.939)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.431 $ 0.446 $ 0.377 $ 0.556 $ 0.660
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ 0.213 3.549 5.060 (3.167) (1.269)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.644 $ 3.995 $ 5.437 $ (2.611) $ (0.609)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 1.45 9.84(b) 15.46 (6.91) (1.59)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.27 2.26 2.25 2.23 0.85(m)
Net investment income ................. 0.97 1.07 1.01 1.61 1.67(m)
Portfolio turnover (%) .................. 49 64 62 76 104
Number of units outstanding at end of
period (000 Omitted) .................. 217 315 453 634 838
FINANCIAL HIGHLIGHTS -- continued
Total Return Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Per unit data: (d)
Net asset value -- beginning of period $ 21.559 $ 19.599 $ 16.949 $ 18.180 $ 18.446
---------- ---------- ---------- ---------- ----------
Investment income ..................... $ 0.710 $ 0.676 $ 0.575 $ 0.658 $ 0.687
Expenses .............................. (0.457) (0.425) (0.376) (0.367) (0.382)
---------- ---------- ---------- ---------- ----------
Net investment income ............. $ 0.253 $ 0.251 $ 0.199 $ 0.291 $ 0.305
Net realized and unrealized gain (loss
on investments and foreign currency
transactions ........................ 0.091 1.709 2.451 (1.522) (0.571)
---------- ---------- ---------- ---------- ----------
Change in unit value .................. $ 0.344 $ 1.960 $ 2.650 $ (1.231) $ (0.266)
---------- ---------- ---------- ---------- ----------
Unit value:
Net asset value -- end of period ...... $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180
========== ========== ========== ========== ==========
Total Return (%) (k)(s) ............... 1.60 10.00(b) 15.64 (6.77) (1.44)
Ratios (%) (to average net assets):
Expenses (f) .......................... 2.12 2.11 2.10 2.08 0.85(m)
Net investment income ................. 1.17 1.24 1.11 1.55 1.67(m)
Portfolio turnover (%) .................. 49 64 62 76 104
Number of units outstanding at end of
period (000 Omitted) .................. 5,462 5,646 5,946 6,236 6,537
(d) Per unit data are based on average number of units outstanding during each year.
(m) Excluding mortality and expense risk charges and distribution expense charges.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the
total return figures for all periods shown.
(b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual did not have a material impact on the net asset value per unit based on the units outstanding on the
day the proceeds were recorded.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would
be lower.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
Capital Appreciation Variable Account, Global Governments Variable Account,
Government Securities Variable Account, High Yield Variable Account, Money
Market Variable Account, and Total Return Variable Account (the variable
account(s)) are separate accounts established by Sun Life Assurance Company of
Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and
Compass 3 combination fixed/variable annuity contracts. The variable accounts
operate as open-end management investment companies as those terms are defined
in the Investment Company Act of 1940, as amended.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The High
Yield Variable Account can invest up to 100% of its portfolio in high- yield
securities rated below investment grade. Investments in high-yield securities
involve greater degrees of credit and market risk than investments in
higher-rated securities and tend to be more sensitive to economic conditions.
The Capital Appreciation Variable Account, Global Governments Variable Account,
High Yield Variable Account and Total Return Variable Account can invest in
foreign securities, including securities of emerging market issuers. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing in
foreign securities previously described are heightened when investing in
emerging markets countries.
Investment Valuations - Money market instruments are valued at amortized cost,
which approximates market value. Amortized cost involves valuing an instrument
at its cost as adjusted for amortization of premium or accretion of discount
rather than its current market value. The variable accounts' use of amortized
cost is subject to the variable accounts' compliance with Rule 2a-7 of the
Investment Company Act of 1940. The amortized cost value of an instrument can be
different from the market value of an instrument. Equity securities, including
restricted equity securities, are generally valued at the last sale or official
closing price as reported by an independent pricing service on the market or
exchange on which they are primarily traded. For securities for which there were
no sales during the day, equity securities are generally valued at the last
quoted bid price as reported by an independent pricing service on the market or
exchange on which they are primarily traded. Debt instruments (other than
short-term instruments), including restricted debt instruments, are generally
valued at an evaluated bid price as reported by an independent pricing service.
Values of debt instruments obtained from pricing services can utilize both
dealer-supplied valuations and electronic data processing techniques which take
into account factors such as institutional- size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Short- term instruments with a maturity
at issuance of 365 days or less are generally valued at amortized cost, which
approximates market value. Exchange-traded options are generally valued at the
last sale or closing price as reported by an independent pricing service on the
exchange on which they are primarily traded. For exchange-traded options in
which there were no sales during the day, exchange-traded options are generally
valued at the last quoted bid price as reported by an independent pricing
service on the exchange on which they are primarily traded. Options not traded
on an exchange are generally valued as reported by an independent pricing
service or on the basis of quotations obtained from brokers and dealers. Foreign
currency options are generally valued using an external pricing model that uses
market data from an independent source. Futures contracts are generally valued
at settlement price as reported by an independent pricing service on the
exchange on which they are primarily traded. For futures contracts in which
there were no sales during the day, futures contracts are generally valued at
the last quoted bid price as reported by an independent pricing service on the
exchange on which they are primarily traded. Forward foreign currency contracts
are generally valued at the mean of bid and asked prices based on rates reported
by an independent pricing service. Securities and other assets generally valued
on the basis of information from an independent pricing service may also be
valued on the basis of information from brokers and dealers. The values of
foreign securities and other assets and liabilities expressed in foreign
currencies are converted to U.S. dollars based upon exchange rates provided by
an independent source. When pricing-service information or market quotations are
not readily available, securities are priced at fair value as determined under
the direction of the Board of Managers. For example, in valuing securities that
trade principally on foreign markets, events reasonably determined to be
significant (such as certain movements in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign markets
close (where the security is principally traded) and the variable account's
valuation time that may impact the value of securities traded in these foreign
markets. In these cases, the variable account may utilize information from an
external vendor or other sources to adjust closing market prices of foreign
equity securities to reflect what it believes to be the fair value of the
securities as of the variable account's valuation time. Fair valuation of
foreign equity securities may occur frequently based on an assessment that
events which occur on a fairly regular basis (such as U.S. market movements) are
significant.
Repurchase Agreements - Each variable account may enter into repurchase
agreements with institutions that the variable accounts' investment adviser has
determined are creditworthy. Each repurchase agreement is recorded at cost. The
variable accounts require that the securities collateral in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
variable accounts to obtain those securities in the event of a default under the
repurchase agreement. The variable accounts monitor, on a daily basis, the value
of the collateral to ensure that its value, including accrued interest, is
greater than amounts owed to the variable accounts under each such repurchase
agreement. The variable accounts, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Inflation-Adjusted Debt Securities - Certain variable accounts invest in
inflation-adjusted debt securities issued by the U.S. Treasury. The variable
account may also invest in inflation-adjusted debt securities issued by U.S.
Government agencies and instrumentalities other than the U.S. Treasury and by
other entities such as U.S. and foreign corporations and foreign governments.
The principal value of these debt securities is adjusted by references to
changes in the Consumer Price Index or another general price or wage index.
These debt securities typically pay a fixed rate of interest, but this fixed
rate is applied to the inflation-adjusted principal amount. The principal paid
at maturity of the debt security is typically equal to the inflation-adjusted
principal amount, or the security's original par value, whichever is greater.
Other types of inflation-adjusted securities may use other methods to adjust for
other measures of inflation.
Foreign Currency Translation - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
Derivative Risk - Certain variable accounts may invest in derivatives for
hedging or non-hedging purposes. While hedging can reduce or eliminate losses,
it can also reduce or eliminate gains. When the variable accounts use
derivatives as an investment to gain market exposure, or for hedging purposes,
gains and losses from derivative instruments may be substantially greater than
the derivative's original cost. Derivative instruments include purchased options
and forward foreign currency exchange contracts for the Global Governments
Variable Account, futures contracts for the Government Securities Variable
Account, and forward foreign currency exchange contracts for the High Yield
Variable Account.
Purchased Options - Certain variable accounts may purchase call or put options
for a premium. Purchasing call options may be a hedge against an anticipated
increase in the dollar cost of securities to be acquired or to increase the
variable account's exposure to the underlying instrument. Purchasing put options
may hedge against a decline in the value of portfolio securities. The premium
paid is included as an investment in the Statement of Assets and Liabilities and
is subsequently adjusted to the current value of the option. Premiums paid for
purchased options which have expired are treated as realized losses on
investments in the Statement of Operations. Premiums paid for purchased options
which are exercised or closed are added to the amount paid or offset against the
proceeds on the underlying security or financial instrument to determine the
realized gain or loss. The risk of loss associated with purchased options is
limited to the premium paid.
Futures Contracts - Certain variable accounts may enter into futures contracts
for the delayed delivery of securities or currency, or contracts based on
financial indices at a fixed price on a future date. In entering such contracts,
the variable accounts are required to deposit with the broker either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the variable accounts each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
variable accounts. Upon entering into such contracts, the variable accounts bear
the risk of interest or exchange rates or securities prices moving unexpectedly,
in which case, the variable accounts may not achieve the anticipated benefits of
the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - Certain variable accounts may
enter into forward foreign currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the contract. The variable accounts may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the variable accounts may enter into
contracts to deliver or receive foreign currency it will receive from or require
for its normal investment activities. The variable accounts may also use
contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the variable accounts may enter into contracts with
the intent of changing the relative exposure of the variable accounts' portfolio
of securities to different currencies to take advantage of anticipated changes.
The forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded as
unrealized until the contract settlement date. On contract settlement date, the
gains or losses are recorded as realized gains or losses on foreign currency
transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with U.S. generally accepted accounting principles. For the Money Market
Variable Account, all premium and discount is amortized and accreted for
financial statement purposes and tax reporting purposes in accordance with
generally accepted accounting principles and federal tax regulations,
respectively. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The variable accounts may receive proceeds from litigation settlements involving
its portfolio holdings. Any proceeds received are reflected in realized
gain/loss in the Statement of Operations, or in unrealized gain/loss if the
security is still held by the variable accounts. The Capital Appreciation
Variable Account was a participant in a class-action lawsuit against Cendant
Corporation. On March 19, 2004 the Capital Appreciation Variable Account
received the remaining cash settlement in the amount of $622,626, recorded as a
realized gain on investment transactions.
Fees Paid Indirectly - The variable accounts' custody fee is reduced according
to an arrangement that measures the value of cash deposited with the custodian
by the variable account. During the year ended December 31, 2005 each variable
accounts' custodian fees were reduced under this arrangement. Certain variable
accounts have entered into a commission recapture agreement, under which certain
brokers will credit the variable accounts a portion of the commissions
generated, to offset certain expenses of the variable accounts. For the year
ended December 31, 2005, the variable accounts' custodian expenses were reduced
under this agreement. These amounts are shown as a reduction of total expenses
on the Statement of Operations.
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
- ------------------------------------------------------------------------------------------------------------------------------
Balance credits ................... $6,934 $320 $6,512 $2,582 $917 $3,684
Commission recapture credits ...... 5,149 -- -- 48 -- 2,831
Federal Income Taxes - The variable accounts are funding vehicles for individual
variable annuities. The operations of the variable accounts are part of the
operations of Sun Life Assurance Company of Canada (U.S.), the Sponsor, and are
not taxed separately; the variable accounts are not taxed as regulated
investment companies. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Accordingly, no provision for federal income or excise tax is necessary.
Foreign taxes have been provided for on interest and dividend income earned on
foreign investments in accordance with the applicable country's tax rates and to
the extent unrecoverable are recorded as a reduction of investment income.
(3) CONTRACT CHARGES
The Sponsor makes a deduction from the variable accounts at the end of each
valuation period, during both the accumulation period and after annuity payments
begin, for assuming the mortality and expense risks under the contracts. The
rate of the deduction may be changed annually but in no event may it exceed
1.25% of the average net assets of each variable account attributable to Compass
3 contracts, or, with respect to Compass 2 contracts, 1.30% of the assets of
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, and Money Market Variable Account, or 1.25% of the
assets of Global Governments Variable Account, and Total Return Variable Account
attributable to such contracts.
For assuming the distribution expense risk under Compass 3 contracts, the
Sponsor makes a deduction from the variable accounts at the end of each
valuation period for the first seven contract years at an effective annual rate
of 0.15% of the net assets of the variable accounts attributable to such
contracts. Contracts are transferred from Compass 3 to Compass 3 -- Level 2 in
the month following the seventh contract anniversary. No deduction is made after
the seventh contract anniversary. No deduction is made with respect to assets
attributable to Compass 2 contracts.
Each year, on the contract anniversary, a contract maintenance charge of $25
with respect to Compass 2 contracts and $30 with respect to Compass 3 contracts
is deducted from each contract's accumulation account and paid to the Sponsor to
cover administrative expenses relating to the contract. After the annuity
commencement date, the annual contract maintenance charge is deducted pro rata
from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges (including the distribution expense charge
described above applicable to Compass 3 contracts) exceed 5% of the purchase
payments made under a Compass 2 contract or 9% of the purchase payments made
under a Compass 3 contract.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to February
1, 1987 have been calculated using the 1971 Individual Annuitant Mortality
Table. Annuity reserves for contracts with annuity commencement dates between
February 1, 1987 and December 31, 1998 have been calculated using the 1983
Individual Annuitant Mortality Table. Annuity reserves for contracts with
annuity commencement dates on or after January 1, 1999 have been calculated
using the Annuity Mortality 2000 table. Annuity reserves for contracts in the
current payment period are calculated using an assumed interest rate of 4%.
Required adjustments are accomplished by transfers to or from the Sponsor.
(5) TRANSACTIONS WITH AFFILIATES
Investment Adviser - Each variable account has an investment advisory agreement
with MFS to provide overall investment advisory and administrative services, and
general office facilities. The management fee is computed daily and paid monthly
at the following annual rate based on a percentage of each account's average
daily net assets:
Annual Rate of Management Fee Annual Rate of Management Fee
Based on Average Based on Average Effective
Daily Net Assets Daily Net Assets Management
Not Exceeding $300 Million In Excess of $300 Million Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Variable Account ..... 0.75% 0.675% 0.75%
Global Governments Variable Account ....... 0.75% 0.675% 0.75%
Government Securities Variable Account .... 0.55% 0.495% 0.55%
High Yield Variable Account ............... 0.675%(a) 0.675%(a) 0.73%
Money Market Variable Account ............. 0.50%(b) 0.50%(b) 0.50%
Total Return Variable Account ............. 0.75% 0.675% 0.75%
(a) High Yield Variable Account: The management fee is 0.675% for one year
starting September 1, 2005. Prior to September 1, 2005 the management fee
was 0.75% of the first $300 million of average daily net assets and 0.675%
in excess of $300 million of average daily net assets.
(b) The management fee for the Money Market Variable Account is reduced to 0.45%
of the average daily net assets in excess of $500 million.
The Investment Adviser has contractually agreed to pay certain variable
accounts' operating expenses, exclusive of taxes, extraordinary expenses,
brokerage and transaction costs, mortality and expense risk charges,
distribution expense risk charges, and contract maintenance charges, such that
operating expenses do not exceed 1.25% annually of the average daily net assets
of each variable account. For the year ended December 31, 2005 the reduction for
the Global Governments Variable Account amounted to $50,605 and is reflected as
a reduction of total expenses in the Statement of Operations.
Administrator - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain
variable accounts for which MFS acts as investment adviser. Under an
administrative services agreement, the variable accounts may partially reimburse
MFS the costs incurred to provide these services, subject to review and approval
by the Board of Managers. Each variable account is allocated a portion of these
administrative costs based on its size and relative average net assets.
The administrative services fee incurred for the year ended December 31, 2005
was equivalent to the following annual effective rate of the variable accounts'
average daily net assets:
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of average daily net assets .... 0.0176% 0.0176% 0.0176% 0.0176% 0.0179% 0.0177%
====== ====== ====== ====== ====== ======
Managers' and Officers' Compensation - Each variable account pays compensation
to Independent Managers in the form of a retainer, attendance fees, and
additional compensation to the Board chairperson. Each variable account does not
pay compensation directly to officers or members of the Board of Managers who
are affiliated with the Investment Adviser or the Sponsor. Certain officers and
Managers of the variable accounts are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Other - These variable accounts and certain other MFS funds (the funds) have
entered into a services agreement (the Agreement) which provides for payment of
fees by the funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
bear all expenses associated with office space, other administrative support,
and supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement. For the year ended
December 31, 2005, the fees paid to Tarantino LLC were as follows:
Capital Appreciation Variable Account .... $1,329
Global Governments Variable Account ...... 54
Government Securities Variable Account ... 475
High Yield Variable Account .............. 297
Money Market Variable Account ............ 274
Total Return Variable Account ............ 957
The variable accounts' Investment Adviser, MFS, was the subject of an
administrative proceeding regarding disclosure of brokerage allocation practices
in connection with fund sales. As a result, proceeds in the amount of $227,161
for the Capital Appreciation Variable Account were accrued on July 28, 2004 and
paid to the account on February 16, 2005.
(6) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
Purchases Sales
- --------------------------------------------------------------------------------------------------
Capital Appreciation Variable Account ........ $344,209,358 $385,121,297
Global Governments Variable Account .......... 10,400,599 12,026,787
Government Securities Variable Account ....... 1,726,742 1,740,455
High Yield Variable Account .................. 33,947,961 42,342,324
Total Return Variable Account ................ 64,603,774 79,162,051
Purchases and sales of U.S. government securities, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
- --------------------------------------------------------------------------------------------------
Global Governments Variable Account .......... $ 4,486,862 $ 4,280,566
Government Securities Variable Account ....... 64,725,545 73,411,865
Total Return Variable Account ................ 31,601,279 27,704,707
Purchase and sales of investments for Money Market Variable Account, which
consist solely of short-term obligations, amounted to $781,113,628 and
$777,947,943, respectively, excluding repurchase agreements.
(7) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as
follows:
Year Ended December 31, 2005 (000 Omitted)
----------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuitiza- Net
Payments Accumulation and Contract Accumulation tion Increase
Received Account Charges Activity Activity (Decrease)
----------- ---------------- ---------------- ---------------- ----- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- ------- ----- ------- ----- ------- ------- -------
Capital Appreciation
Variable Account
Compass 2 Contracts ..................... 35 $1,936 (21) $(1,091) (540) $(29,700) (526) $(28,855) $(212) $(29,067)
Compass 3 Contracts ..................... 38 1,358 (152) (5,445) (62) (2,250) (176) (6,337) 0* (6,337)
Compass 3 - Level 2 Contracts ........... 171 2,563 412 6,242 (1,133) (16,995) (550) (8,190) (7) (8,197)
------ ------- -------- -------- ----- --------
$5,857 $(294) $(48,945) $(43,382) $(219) $(43,601)
====== ======= ======== ======== ===== ========
Global Governments
Variable Account
Compass 2 Contracts ..................... 1 $29 12 $324 (25) $(653) (12) $(300) $1 $(299)
Compass 3 Contracts ..................... 4 103 0* 7 (6) (157) (2) (47) (3) (50)
Compass 3 - Level 2 Contracts ........... 16 234 43 646 (91) (1,359) (32) (479) (1) (480)
------ ------- -------- -------- ----- --------
$366 $977 $(2,169) $(826) $(3) $(829)
====== ======= ======== ======== ===== ========
Government Securities Variable Account
Compass 2 Contracts ..................... 31 $1,174 7 $275 (311) $(11,710) (273) $(10,261) $(68) $(10,329)
Compass 3 Contracts ..................... 13 341 (29) (746) (15) (383) (31) (788) -- (788)
Compass 3 - Level 2 Contracts ........... 51 788 84 1,292 (232) (3,571) (97) (1,491) (10) (1,501)
------ ------- -------- -------- ----- --------
$2,303 $821 $(15,664) $(12,540) $(78) $(12,618)
====== ======= ======== ======== ===== ========
High Yield Variable Account
Compass 2 Contracts ..................... 18 $671 (27) $(1,007) (269) $(9,848) (278) $(10,184) $(200) $(10,384)
Compass 3 Contracts ..................... 9 250 (15) (416) (14) (371) (20) (537) (8) (545)
Compass 3 - Level 2 Contracts ........... 21 306 100 1,381 (155) (2,231) (34) (544) (14) (558)
------ ------- -------- -------- ----- --------
$1,227 $(42) $(12,450) $(11,265) $(222) $(11,487)
====== ======= ======== ======== ===== ========
Money Market Variable Account
Compass 2 Contracts ..................... 12 $326 349 $7,007 (242) $(4,879) 119 $2,454 $9 $2,463
Compass 3 Contracts ..................... 33 568 142 2,330 (54) (884) 121 2,014 4 2,018
Compass 3 - Level 2 Contracts ........... 71 904 2,082 25,741 (2,028) (25,133) 125 1,512 56 1,568
------ ------- -------- -------- ----- --------
$1,798 $35,078 $(30,896) $5,980 $69 $6,049
====== ======= ======== ======== ===== ========
Total Return Variable Account
Compass 2 Contracts ..................... 11 $557 104 $4,770 (277) $(12,683) (162) $(7,356) $(135) $(7,491)
Compass 3 Contracts ..................... 31 1,416 (84) (3,724) (45) (2,024) (98) (4,332) (86) (4,418)
Compass 3 - Level 2 Contracts ........... 156 3,366 635 13,743 (975) (21,072) (184) (3,963) (119) (4,082)
------ ------- -------- -------- ----- --------
$5,339 $14,789 $(35,779) $(15,651) $(340) $(15,991)
====== ======= ======== ======== ===== ========
* Less than 500.
On July 18, 2005, $41,059,121 was transferred to the Money Market Variable Account from the Managed Sectors Variable Account as a
result of its termination.
Year Ended December 31, 2004 (000 Omitted)
--------------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuitiza- Net
Payments Accumulation and Contract Accumulation tion Increase
Received Account Charges Activity Activity (Decrease)
----------- ---------------- ---------------- ---------------- ----- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- ------- ----- ------- ----- ------- ------- -------
Capital Appreciation Variable Account
Compass 2 Contracts ..................... 38 $1,960 (30) $(1,561) (504) $(26,042) (496) $(25,643) $(264) $(25,907)
Compass 3 Contracts ..................... 72 2,460 (201) (6,881) (79) (2,675) (208) (7,096) 1 (7,095)
Compass 3 - Level 2 Contracts ........... 190 2,700 393 5,601 (871) (12,376) (288) (4,075) (33) (4,108)
------ ------- -------- -------- ----- --------
$7,120 $(2,841) $(41,093) $(36,814) $(296) $(37,110)
====== ======= ======== ======== ===== ========
Global Governments Variable Account
Compass 2 Contracts ..................... 2 $45 (16) $(379) (19) $(487) (33) $(821) $(2) $(823)
Compass 3 Contracts ..................... 5 130 (15) (380) (3) (78) (13) (328) (3) (331)
Compass 3 - Level 2 Contracts ........... 14 200 11 155 (84) (1,212) (59) (857) (1) (858)
------ ------- -------- -------- ----- --------
$375 $(604) $(1,777) $(2,006) $(6) $(2,012)
====== ======= ======== ======== ===== ========
Government Securities Variable Account
Compass 2 Contracts ..................... 21 $777 (100) $(3,640) (243) $(8,929) (322) $(11,792) $(382) $(12,174)
Compass 3 Contracts ..................... 18 461 (44) (1,132) (21) (559) (47) (1,230) -- (1,230)
Compass 3 - Level 2 Contracts ........... 35 524 6 89 (226) (3,417) (185) (2,804) (31) (2,835)
------ ------- -------- -------- ----- --------
$1,762 $(4,683) $(12,905) $(15,826) $(413) $(16,239)
====== ======= ======== ======== ===== ========
High Yield Variable Account
Compass 2 Contracts ..................... 11 $378 (31) $(1,003) (206) $(7,129) (226) $(7,754) $(49) $(7,803)
Compass 3 Contracts ..................... 12 301 (48) (1,217) (12) (289) (48) (1,205) (0)* (1,205)
Compass 3 - Level 2 Contracts ........... 24 320 (1,507) (19,904) (177) (2,411) (1,660) (21,995) 19 (21,976)
------ ------- -------- -------- ----- --------
$999 $(22,124) $(9,829) $(30,954) $(30) $(30,984)
====== ======= ======== ======== ===== ========
Money Market Variable Account
Compass 2 Contracts ..................... 13 $262 125 $2,531 (301) $(6,058) (163) $(3,265) $13 $(3,252)
Compass 3 Contracts ..................... 54 896 (78) (1,291) (34) (556) (58) (951) (10) (961)
Compass 3 - Level 2 Contracts ........... 34 418 1,685 20,849 (356) (4,393) 1,363 16,874 (23) 16,851
------ ------- -------- -------- ----- --------
$1,576 $22,089 $(11,007) $12,658 $(20) $12,638
====== ======= ======== ======== ===== ========
Total Return Variable Account
Compass 2 Contracts ..................... 14 $590 54 $2,308 (245) $(10,438) (177) $(7,540) $(149) $(7,689)
Compass 3 Contracts ..................... 52 2,180 (136) (5,641) (54) (2,231) (138) (5,692) (88) (5,780)
Compass 3 - Level 2 Contracts ........... 139 2,811 379 7,650 (818) (16,482) (300) (6,021) (40) (6,061)
------ ------- -------- -------- ----- --------
$5,581 $4,317 $(29,151) $(19,253) $(277) $(19,530)
====== ======= ======== ======== ===== ========
* Less than $500.
(8) LINE OF CREDIT
The variable accounts and other affiliated funds participate in a $1 billion
unsecured line of credit provided by a syndication of banks under a credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each variable account, based on its borrowings, at a rate equal to
the Federal Reserve funds rate plus 0.35%. In addition, a commitment fee, based
on the average daily, unused portion of the line of credit, is allocated among
the participating variable accounts at the end of each calendar quarter. The
commitment fee allocated to each variable account for the year ended December
31, 2005 is included in miscellaneous expense on the Statement of Operations and
was as follows:
Commitment fee
- --------------------------------------------------------------------
Capital Appreciation Variable Account ........ $1,767
Global Governments Variable Account .......... 67
Government Securities Variable Account ....... 626
High Yield Variable Account .................. 418
Money Market Variable Account ................ 393
Total Return Variable Account ................ 1,313
The variable accounts had no significant borrowings during the year ended
December 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants in
and the Board of Managers of Capital Appreciation Variable Account, Global
Governments Variable Account, Government Securities Variable Account, High Yield
Variable Account, Money Market Variable Account and Total Return Variable
Account and the Board of Directors of Sun Life Insurance Company of Canada:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Capital Appreciation Variable Account, Global
Governments Variable Account, Government Securities Variable Account, High Yield
Variable Account, Money Market Variable Account and Total Return Variable
Account (the "Variable Accounts") as of December 31, 2005, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Variable
Accounts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The
Variable Accounts are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Variable
Accounts' internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2005, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial positions of Capital
Appreciation Variable Account, Global Governments Variable Account, Government
Securities Variable Account, High Yield Variable Account, Money Market Variable
Account and Total Return Variable Account as of December 31, 2005, the results
of their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and their financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 23, 2006
COMPASS VARIABLE ACCOUNTS
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Members of the Boards of Managers ("Members") and the officers of each Account, as of February 1, 2006, are listed below,
together with their principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Member and officer is 500 Boylston Street, Boston, Massachusetts 02116.
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POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST
NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2)
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INTERESTED MEMBERS
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C. James Prieur(3) Member July 1999 Sun Life Assurance Company of Canada,
(born 04/21/51) President and Chief Operating Officer
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David D. Horn(3) Member April 1986 Private investor; Retired; Sun Life Assurance
(born 06/07/41) Company of Canada, Former Senior Vice
President and General Manager for the United States
(until 1997)
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INDEPENDENT MEMBERS
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J. Kermit Birchfield Chairman May 1997 Consultant; Century Partners, Inc.
(born 01/08/40) (investments), Managing Director; Displaytech,
Inc. (manufacturer of liquid crystal display
technology), Director
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Robert C. Bishop Member May 2001 AutoImmune Inc. (pharmaceutical product
(born 01/13/43) development), Chairman, President and Chief
Executive Officer; Caliper Life Sciences Corp.
(laboratory analytical instruments), Director;
Millipore Corporation (purification/filtration
products), Director; Quintiles Transnational
Corp. (contract services to the medical
industry), Director
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Frederick H. Dulles Member May 2001 Ten State Street LLP (law firm), Partner;
(born 03/12/42) McFadden, Pilkington & Ward LLP (solicitors
and registered foreign lawyers), Partner
(until June 2003); Jackson & Nash, LLP (law
firm), Of Counsel (January 2000 to November
2000)
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Marcia A. Kean Member April 2005 Feinstein Kean Healthcare (consulting), Chief
(born 06/30/48) Executive Officer (since December 2002),
Managing Director (January 1991 until May
2001); Ardais Corporation (biotech products),
Senior Vice President - Commercialization
(February 2002 until 2002)
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(1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously
since appointment.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "Interested person" of the Sun Life of Canada (U.S.), within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the Series. The address of
Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.
(4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued
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POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST
NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2)
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Ronald G. Steinhart Member May 2001 Private investor; Bank One, Texas N.A., Vice
(born 06/15/40) Chairman and Director (January 2000 to January
2001); Bank One Corporation, Officer (until
January 2000); Carreker Corporation
(consultant and technology provider to
financial institutions), Director; Prentiss
Properties Trust (real estate investment
trust), Director (until January 2006); United
Auto Group, Inc. (automotive retailer),
Director
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Haviland Wright Member May 2001 Hawaii Small Business Development Center,
(born 07/21/48) Kaua'l Center, Center Director (since March 2002);
Displaytech, Inc. (manufacturer of liquid
crystal display technology), Chairman and
Chief Executive Officer (until March 2002)
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MEMBERS EMERITUS
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Samuel Adams Member Emeritus Retired
(aborn 10/19/25)
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OFFICERS
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Maria F. Dwyer(4) President November 2005 Massachusetts Financial Services Company,
(born 12/01/58) Executive Vice President and Chief Regulatory
Officer (since March 2004); Fidelity
Management & Research Company, Vice President
(prior to March 2004); Fidelity Group of
Funds, President and Treasurer (prior to March
2004)
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Tracy Atkinson(4) Treasurer September 2005 Massachusetts Financial Services Company,
(born 12/30/64) Senior Vice President (since September 2004);
PricewaterhouseCoopers LLP, Partner (prior to
September 2004)
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Christopher R. Bohane(4) Assistant Secretary July 2005 Massachusetts Financial Services Company, Vice
(born 01/18/74) and Assistant Clerk President and Senior Counsel (since April
2003); Kirkpatrick & Lockhart LLP (law firm),
Associate (prior to April 2003); Nvest
Services Company, Assistant Vice President and
Associate Counsel (prior to January 2001)
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(1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously
since appointment.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "Interested person" of the Sun Life of Canada (U.S.), within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the Series. The address of
Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.
(4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued
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POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST
NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2)
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Ethan D. Corey(4) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 11/21/63) and Assistant Clerk Special Counsel (since December 2004);
Dechert LLP (law firm), Counsel (prior to
December 2004)
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David L. DiLorenzo(4) Assistant Treasurer July 2005 Massachusetts Financial Services Company,
(born 08/10/68) Vice President (since June 2005); JP Morgan
Investor Services, Vice President (January
2001 to June 2005); State Street Bank, Vice
President and Corporate Audit Manager (prior
to January 2001)
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Timothy M. Fagan(4) Assistant Secretary September 2005 Massachusetts Financial Services Company,
(born 07/10/68) and Assistant Clerk Vice President and Senior Counsel (since
September 2005); John Hancock Advisers, LLC,
Vice President and Chief Compliance Officer
(September 2004 to August 2005) Senior
Attorney (prior to September 2004); John
Hancock Group of Funds, Vice President and
Chief Compliance Officer (September 2004 to
December 2004)
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Mark D. Fischer(4) Assistant Treasurer July 2005 Massachusetts Financial Services Company,
(born 10/27/70) Vice President (since May 2005); JP Morgan
Investment Management Company, Vice President
(prior to May 2005)
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Brian T. Hourihan(4) Assistant Secretary September 2004 Massachusetts Financial Services Company,
(born 11/11/64) and Assistant Clerk Vice President, Senior Counsel and Assistant
Secretary (since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance Program
(January to April 2004); Fidelity Research &
Management Company, Assistant General Counsel
(prior to January 2004)
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Ellen Moynihan(4) Assistant Treasurer May 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
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(1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously
since appointment.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "Interested person" of the Sun Life of Canada (U.S.), within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the Series. The address of
Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.
(4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
MEMBERS OF BOARDS OF MANAGERS AND OFFICERS -- IDENTIFICATION AND BACKGROUND -- continued
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POSITION(s) HELD MANAGER/OFFICER OTHER PRINCIPAL OCCUPATIONS DURING THE PAST
NAME, DATE OF BIRTH WITH FUND SINCE(1) FIVE YEARS AND DIRECTORSHIPS(2)
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Susan S. Newton(4) Assistant Secretary May 2005 Massachusetts Financial Services Company,
(born 03/07/50) and Assistant Clerk Senior Vice President and Assistant General
Counsel (since April 2005); John Hancock
Advisers, LLC, Senior Vice President,
Secretary and Chief Legal Officer (prior to
April 2005); John Hancock Group of Funds,
Senior Vice President, Secretary and Chief
Legal Officer (prior to April 2005)
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Susan A. Pereira(4) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 11/05/70) and Assistant Clerk Vice President and Senior Counsel (since June
2004); Bingham McCutchen LLP (law firm),
Associate (January 2001 to June 2004); Preti,
Flaherty, Beliveau, Pachios & Haley, LLC,
Associate (prior to January 2001)
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Frank L. Tarantino Independent Chief September 2004 Tarantino LLC (provider of compliance
(born 03/07/44) Compliance Officer services), Principal (since June 2004); CRA
Business Strategies Group (consulting
services), Executive Vice President (April
2003 to June 2004); David L. Babson & Co.
(investment adviser), Managing Director,
Chief Administrative Officer and Director
(February 1997 to March 2003)
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James O. Yost (4) Assistant Treasurer April 1992 Massachusetts Financial Services Company, Senior
(born 06/12/60) Vice President
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(1) Date first appointed to serve as Member/Trustee/Officer of an MFS/Sun Life Product. Each Member has served continuously
since appointment.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "Interested person" of the Sun Life of Canada (U.S.), within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the Series. The address of
Sun Life of Canada (U.S.) is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.
(4) "Interested person" of MFS within the meaning of the 1940 Act. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
The Accounts do not hold annual meetings for the purpose of electing Members, and Members are not elected for fixed terms.
Each Member and officer holds office until his or her successor is chosen and qualified, or until his or her earlier death,
resignation, retirement or removal.
All Members currently serve as Members of each Account and have served in that capacity since originally elected or
appointed. All of the Members are also Trustees of the MFS Sun/Life Series Trust. The executive officers of the Compass
Variable Accounts hold similar offices for the MFS Sun/Life Series Trust and other funds in the MFS fund complex. Each Member
serves as a Trustee or Manager of 34 Accounts/Series.
The Statement of Additional Information contains further information about the Members and is available without charge upon
request by calling 1-800-752-7215.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENTS
The Investment Company Act of 1940 requires that both the full Board of Managers
and a majority of the non-interested ("independent") Managers, voting
separately, annually approve the continuation of each Variable Account's
investment advisory agreement with Massachusetts Financial Services Company
(MFS) on behalf of the Variable Accounts. The Managers consider matters bearing
on the Variable Accounts and their advisory arrangements at their meetings
throughout the year, including a review of performance data at each regular
meeting. In addition, the independent Managers met several times over the course
of three months beginning in May and ending in July 2005 ("contract review
meetings") for the specific purpose of considering whether to approve the
continuation of the investment advisory agreements for the Variable Accounts.
The independent Managers were assisted in their evaluation of the investment
advisory agreements by independent legal counsel, from whom they received
separate legal advice and with whom they met separately from MFS management
during various contract review meetings. The independent Managers were also
assisted in this process by the Variable Accounts' Independent Chief Compliance
Officer, a full-time senior officer appointed by and reporting to the
independent Managers.
In connection with their deliberations, the Managers, including the independent
Managers, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. Each investment advisory agreement was considered separately for each
Variable Account, although the Managers also took into account the common
interests of all Variable Accounts in their review. As described below, the
Managers considered the nature, quality, and extent of the various investment
advisory, administrative, and shareholder services performed by MFS under the
existing investment advisory agreements and other arrangements with the Variable
Accounts.
In connection with their contract review meetings, the Managers received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of each Variable Account
for various time periods ended December 31, 2004, compared to the investment
performance of a group of funds with substantially similar investment
classifications/objectives (the "Lipper performance universe"), as well as the
investment performance of a group of funds identified by objective criteria
suggested by MFS ("peer funds"), (ii) information provided by Lipper Inc. on
each Variable Account's advisory fees and other expenses compared to the
advisory fees and other expenses of comparable funds identified by Lipper (the
"Lipper expense group"), as well as the advisory fees and other expenses of peer
funds identified by objective criteria suggested by MFS, (iii) information
provided by MFS on the advisory fees of comparable portfolios of its other
clients, including institutional separate account and other clients, (iv)
information as to whether, and to what extent applicable, expense waivers,
reimbursements or fee "breakpoints" are observed for a Variable Account, (v)
information regarding MFS' financial results and financial condition, including
MFS' and certain of its affiliates' estimated profitability from services
performed for the Variable Accounts, (vi) MFS' views regarding the outlook for
the mutual fund industry and its strategic business plans, (vii) descriptions of
various functions performed by MFS for the Variable Accounts, such as compliance
monitoring and portfolio trading practices, and (viii) information regarding the
overall organization of MFS, including information about MFS' senior management
and other personnel providing investment advisory, administrative and other
services to the Variable Accounts. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently verified,
and the independent Managers did not independently verify any information
provided to them by MFS.
The Managers' conclusion as to the continuation of the investment advisory
agreements was based on comprehensive consideration of all information provided
to the Managers and not the result of any single factor. Some of the factors
that figured particularly in the Managers' deliberations are described below for
each Variable Account, while individual Managers may have given different weight
to various factors and evaluated the information presented as a whole
differently than another Manager. The Managers recognized that the fee
arrangements for the Variable Accounts reflect years of review and discussion
between the independent Managers and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Managers' conclusions may be based, in part, on their consideration of these
same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Managers compared each
Variable Account's total return investment performance to the performance of
peer groups of funds and its Lipper performance universe over the one-, three-
and five-year periods. The Managers did not rely on performance results for more
recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Managers took into account information
provided by MFS during contract review meetings, as well as during investment
review meetings conducted with portfolio management personnel during the course
of the year. For Variable Accounts whose performance lagged their peer groups,
they discussed MFS' efforts to improve such Variable Account's performance.
After reviewing this information, the Managers concluded, within the context of
their overall conclusions regarding the investment advisory agreements, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of each Variable Account's advisory fee, the
Managers considered, among other information, each Variable Account's advisory
fee and the total expense ratio as a percentage of average net assets, compared
to the advisory fees and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Managers also considered the
advisory fees charged by MFS to institutional accounts. In comparing these fees,
the Managers considered the generally broader scope of services provided by MFS
to the Variable Accounts than those provided to institutional accounts. The
Managers also considered the higher demands placed on MFS' investment personnel
and trading infrastructure as a result of the daily cash in-flows and out-flows
of the Variable Accounts, and the impact on MFS and related expenses due to the
more extensive regulatory regime to which the Variable Accounts are subject,
compared to institutional accounts.
The Managers also considered whether a Variable Account is likely to benefit
from any economies of scale due to future asset growth. In this regard, the
Managers reviewed the adequacy of breakpoints, and considered if breakpoints
should be implemented for any Variable Accounts that did not have them.
The Managers also considered information prepared by MFS relating to its costs
and profits with respect to each Variable Account and other investment companies
and accounts advised by MFS, as well as MFS' methodologies used to determine and
allocate its costs to the Variable Accounts and other accounts and products for
purposes of estimating profitability.
After reviewing these and other factors described below, the Managers concluded
that the advisory fees charged to the Variable Accounts represent reasonable
compensation in light of the nature and quality of the services being provided
by MFS.
In addition, the Managers considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Variable
Accounts. The Managers also considered the financial resources of MFS and its
affiliation with Sun Life Financial, Inc. The Managers further considered any
advantages and possible disadvantages of having an adviser which also serves
other investment companies as well as institutional accounts.
The Managers also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Variable Accounts by MFS and its affiliates under agreements and plans other
than the investment advisory agreements. The Managers also considered the
nature, extent and quality of certain other services MFS performs or arranges on
the Variable Accounts' behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Managers concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Variable Accounts were satisfactory. The
Managers also considered the benefits to MFS from the use of the Variable
Accounts' portfolio brokerage commissions to pay for research and other similar
services (including MFS' current policy not to use "soft dollars" generated by
Variable Account portfolio transactions to pay for third-party research), and
various other factors. Additionally, the Managers considered so-called "fall-out
benefits" to MFS such as reputational value derived from serving as investment
manager to the Variable Accounts, and determined that any such benefits derived
by MFS were reasonable and fair.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, and the individual Variable Account factors noted
below, the Board of Managers, including a majority of the independent Managers,
concluded that the investment advisory agreements should be continued for an
additional one-year period, commencing September 1, 2005.
CAPITAL APPRECIATION VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
24th percentile relative to the other funds in the peer universe for the one-
year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 55th percentile for the three-year period and the
60th percentile for the five-year period ended December 31, 2004, relative to
the Lipper performance universe. Based on the nature and quality of services
provided by MFS, the Board of Managers concluded that the Variable Account's
performance was satisfactory.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate and total expense ratio were each
approximately at the median of such fees and expenses of funds in the Lipper
expense group. The Managers also concluded that the existing breakpoints were
sufficient to allow the Variable Account to benefit from economies of scale as
its assets grow. The Managers concluded that the fees were reasonable in light
of the nature and quality of services provided.
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
53rd percentile relative to the other funds in the peer universe for the
one-year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 48th percentile for the three-year period and
the 54th percentile for the five-year period ended December 31, 2004,
relative to the Lipper performance universe. In considering performance, the
Managers noted the management team's conservative investment strategy relative
to its category peers and the limited number of entrants in the Lipper category.
Taking these factors into consideration, the Managers concluded that the
Variable Account's performance was adequate.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate was lower than, and the total
expense ratio was higher than, the median of such fees and expenses of funds in
the Lipper expense group. The Managers further concluded that the existing
breakpoints were sufficient to allow the Variable Account to benefit from
economies of scale as its assets grow. The Managers concluded that the fees were
reasonable in light of the nature and quality of services provided.
GOVERNMENT SECURITIES VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
41st percentile relative to the other funds in the peer universe for the
one-year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 53rd percentile for the three-year period and
the 38th percentile for the five-year period ended December 31, 2004,
relative to the Lipper performance universe. Based on the nature and quality of
services provided by MFS, the Board of Managers concluded that the Variable
Account's performance was satisfactory.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate and total expense ratio were each
approximately at the median of such fees and expenses of funds in the Lipper
expense group. The Managers also concluded that the existing breakpoints were
sufficient to allow the Variable Account to benefit from economies of scale as
its assets grow. The Managers concluded that the fees were reasonable in light
of the nature and quality of services provided.
HIGH YIELD VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
65th percentile relative to the other funds in the peer universe for the
one-year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 63rd percentile for the three-year period and
the 83rd percentile for the five-year period ended December 31, 2004,
relative to the Lipper performance universe. In considering performance, the
Managers noted that MFS had changed portfolio management responsibilities for
the Variable Account in 2004 and added enhancements to the investment process.
Taking these factors into consideration, the Managers concluded that the
Variable Account's performance was adequate.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate and total expense ratio were each
higher than the median of such fees and expenses of funds in the Lipper expense
group. Based on the recommendation of the Contract Review Committee, the
Managers noted that MFS agreed to voluntarily reduce its advisory fee to an
annual rate of 0.675% of all net assets effective September 1, 2005, through
August 31, 2006. The Managers concluded that the reduced fees were reasonable in
light of the nature and quality of services provided.
MONEY MARKET VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
71st percentile relative to the other funds in the peer universe for the
one-year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 70th percentile for the three-year period and
the 73rd percentile for the five-year period ended December 31, 2004,
relative to the Lipper performance universe. In considering performance, the
Managers noted the management team's conservative investment strategy and the
very narrow dispersion of returns in the Lipper category. Taking these factors
into consideration, the Managers concluded that the Variable Account's
performance was adequate.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate and total expense ratio were each
higher than the median of such fees and expenses of funds in the Lipper expense
group. The Managers also concluded that the existing breakpoints were sufficient
to allow the Variable Account to benefit from economies of scale as its assets
grow. The Managers concluded that the fees were reasonable in light of the
nature and quality of services provided.
TOTAL RETURN VARIABLE ACCOUNT
The Managers noted the Variable Account's total return performance was in the
7th percentile relative to the other funds in the peer universe for the
one-year period (the 1st percentile being the best performers and the 100th
percentile being the worst performers). The total return performance of the
Variable Account was in the 20th percentile for the three-year period and
the 8th percentile for the five-year period ended December 31, 2004,
relative to the Lipper performance universe. Based on the nature and quality of
services provided by MFS, the Board of Managers concluded that the Variable
Account's performance was satisfactory.
In considering the fees, the Managers noted that MFS currently observes a
voluntary expense limitation for the Variable Account, which may not be changed
without the Managers' approval. The Managers noted from the Lipper data that the
Variable Account's effective advisory fee rate and total expense ratio were each
higher than the median of such fees and expenses of funds in the Lipper expense
group. The Managers also concluded that the existing breakpoints were sufficient
to allow the Variable Account to benefit from economies of scale as its assets
grow. The Managers concluded that the fees were reasonable in light of the
nature and quality of services provided.
A discussion regarding the Board's most recent review and renewal of the
accounts' Investment Advisory Agreement with MFS is available by clicking on
"Sun Life Annuities" in the "Products and Performance" section of the MFS Web
site (mfs.com).
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
PROXY VOTING POLICIES AND INFORMATION
A general description of the accounts' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's website at
http://www.sec.gov.
Information regarding how the accounts voted proxies relating to portfolio
securities during the most recent twelve month period ended June 30 is available
without charge by visiting the Proxy Voting section of mfs.com or by visiting
the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The accounts will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The accounts' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549 0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The accounts' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http:// www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfor@sec.gov
or by writing the Public Reference Section at the above address.
Sun Life Financial Distributors Inc.
COUS-ANN-12/05 26M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has amended its Code of Ethics to reflect that the
Registrant's Principal Financial Officer and Principal Executive Officer have
changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. J. Kermit Birchfield, Robert C. Bishop, Ronald G. Steinhart and
Haviland Wright, members of the Audit Committee, have been determined by the
Board of Trustees in their reasonable business judgment to meet the definition
of "audit committee financial expert" as such term is defined in Form N-CSR. In
addition, Messrs. J. Kermit Birchfield, Robert C. Bishop, Ronald G. Steinhart
and Haviland Wright are "independent" members of the Audit Committee as defined
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to the Registrant (the "Account"). The tables below
set forth the audit fees billed to the Account as well as fees for non-audit
services provided to the Account and/or to the Account's investment adviser,
Massachusetts Financial Services Company ("MFS") and to various entities either
controlling, controlled by, or under common control with MFS that provide
ongoing services to the Account ("MFS Related Entities").
For the fiscal years ended December 31, 2005 and 2004, audit fees billed to the
Account by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2005 2004
---- ----
Total Return Variable $45,103 $41,075
Account
For the fiscal years ended December 30, 2005 and 2004, fees billed by Deloitte
for audit-related, tax and other services provided to the Account and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
Total Return $0 $0 $0 $0 $0 $0
Variable Account
To MFS and MFS Related $841,371 $1,046,170 $0 $67,000 $403,825 $572,500
Entities of Total Return
Variable Account*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
To Total Return Variable $1,680,652 $2,079,720
Account, MFS and MFS
Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Account (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte for non-audit services rendered to the Funds and for
non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably
related to the performance of the audit or review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal
control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to sales tax
refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an administrative
proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and analysis of
certain portfolio holdings verses investment styles.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940 (the "Act")) as conducted within 90 days of the filing date of this
Form N-CSR, the registrant's principal financial officer and principal
executive officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter covered by the report that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) TOTAL RETURN VARIABLE ACCOUNT
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By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: February 24, 2006
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: February 24, 2006
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: February 24, 2006
-----------------
* Print name and title of each signing officer under his or her signature.