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: June 30, 2006
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ITEM 1. REPORT TO STOCKHOLDERS.
[Graphic Omitted]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT o JUNE 30, 2006
Capital Appreciation Variable Account
Global Governments Variable Account
Government Securities Variable Account
High Yield Variable Account
Money Market Variable Account
Total Return Variable Account
Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life of Canada (U.S.) Holdings, Inc.
TABLE OF CONTENTS
Letter from the CEO of MFS ........................................ 1
Portfolio Composition ............................................. 2
Portfolio of Investments .......................................... 8
Financial Statements .............................................. 26
Notes to Financial Statements ..................................... 43
Investment Advisor ................................................ Back Cover
Custodian and Dividend Disbursing Agent ........................... Back Cover
Board Review of Investment Advisory Agreement ..................... Back Cover
Proxy Voting Policies and Information ............................. Back Cover
Quarterly Portfolio Disclosure .................................... Back Cover
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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:
The story is as old as the tortoise and the hare, but we believe it is still
relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets around
the globe as varying economic factors pulled markets in opposite directions.
The global economy, for example, continued to grow at its fastest pace in
three decades -- spurred by increased international trade, good job growth,
and wage increases. At the same time, central banks around the world raised
interest rates in sync in a collaborative attempt to curb inflation. While
this was a positive development in some regions, in other cases, economic and
market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market segments
and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION -- CAPITAL APPRECIATION VARIABLE ACCOUNT
PORTFOLIO STRUCTURE
Common Stocks 95.2%
Cash & Other Net Assets 4.8%
TOP TEN HOLDINGS
Cisco Systems, Inc. 3.3%
------------------------------------------------
General Electric Co. 3.1%
------------------------------------------------
Wal-Mart Stores, Inc. 3.0%
------------------------------------------------
Intel Corp. 2.5%
------------------------------------------------
Google, Inc., "A" 2.4%
------------------------------------------------
Corning, Inc. 2.4%
------------------------------------------------
Procter & Gamble Co. 2.3%
------------------------------------------------
Johnson & Johnson 2.1%
------------------------------------------------
Genzyme Corp. 2.0%
------------------------------------------------
Samsung Electronics Co. Ltd., GDR 1.9%
------------------------------------------------
EQUITY SECTORS
Technology 25.7%
------------------------------------------------
Health Care 18.4%
------------------------------------------------
Retailing 12.4%
------------------------------------------------
Industrial Goods & Services 8.1%
------------------------------------------------
Leisure 6.1%
------------------------------------------------
Special Products & Services 5.7%
------------------------------------------------
Financial Services 5.7%
------------------------------------------------
Consumer Staples 4.2%
------------------------------------------------
Energy 3.4%
------------------------------------------------
Transportation 2.2%
------------------------------------------------
Basic Materials 1.4%
------------------------------------------------
Autos & Housing 1.1%
------------------------------------------------
Utilities & Communications 0.8%
------------------------------------------------
Percentages are based on net assets as of 6/30/06.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 83.5%
Cash & Other Net Assets 16.5%
FIXED INCOME SECTORS (i)
Non-U.S. Government Bonds 59.9%
--------------------------------------------------------
Commercial Mortgage-Backed Securities 7.9%
--------------------------------------------------------
U.S. Government Agencies 7.8%
--------------------------------------------------------
U.S. Treasury Securities 5.0%
--------------------------------------------------------
Emerging Market Debt 2.7%
--------------------------------------------------------
Mortgage-Backed Securities 0.2%
--------------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 80.3%
--------------------------------------------------------
AA 14.3%
--------------------------------------------------------
A 2.2%
--------------------------------------------------------
BBB 3.2%
--------------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.4
--------------------------------------------------------
Average Life (m) 7.4 yrs.
--------------------------------------------------------
Average Maturity (m) 9.6 yrs.
--------------------------------------------------------
Average Credit Quality of Rated Securities(a) AA+
--------------------------------------------------------
Average Short Term Credit Quality A-1
--------------------------------------------------------
COUNTRY WEIGHTINGS (i)
United States 37.2%
--------------------------------------------------------
Germany 15.6%
--------------------------------------------------------
United Kingdom 14.5%
--------------------------------------------------------
Japan 10.5%
--------------------------------------------------------
France 3.7%
--------------------------------------------------------
Finland 3.4%
--------------------------------------------------------
Ireland 2.2%
--------------------------------------------------------
Canada 2.1%
--------------------------------------------------------
Belgium 2.0%
--------------------------------------------------------
Other Countries 8.8%
--------------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a fund with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on the total market value of investments as of 6/30/06.
Percentages are based on net assets as of 6/30/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 96.5%
Cash & Other Net Assets 3.5%
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 52.7%
------------------------------------------------------
U.S. Government Agencies 38.1%
------------------------------------------------------
U.S. Treasury Securities 5.7%
------------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 99.2
------------------------------------------------------
Not Rated 0.8
------------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.5
------------------------------------------------------
Average Life (m) 7.7 yrs.
------------------------------------------------------
Average Maturity (m) 15.9 yrs.
------------------------------------------------------
Average Credit Quality of Rated Securities (a) AAA
------------------------------------------------------
Average Short Term Credit Quality A-1
------------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond variable account's price is likely
to fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its
value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 6/30/06.
Percentages are based on net assets as of 6/30/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 95.8%
Common Stocks 1.6%
Cash & Other Net Assets 1.5%
Convertible Preferred Stocks 1.0%
Preferred Stocks 0.1%
TOP FIVE INDUSTRIES (i)
Automotive 9.8%
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Media Non-Cable 7.8%
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Gaming & Lodging 7.6%
--------------------------------------------------------
Medical & Health Technology & Services 6.0%
--------------------------------------------------------
Chemicals 5.7%
--------------------------------------------------------
CREDIT QUALITY OF BONDS (r)
BBB 1.2%
--------------------------------------------------------
BB 34.5%
--------------------------------------------------------
B 44.2%
--------------------------------------------------------
CCC 19.2%
--------------------------------------------------------
CC 0.2%
--------------------------------------------------------
Not Rated 0.7%
--------------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.7
--------------------------------------------------------
Average Life (m) 7.8 yrs.
--------------------------------------------------------
Average Maturity (m) 8.4 yrs.
--------------------------------------------------------
Average Credit Quality of Rated Securities (a) B
--------------------------------------------------------
Average Short Term Credit Quality A-1
--------------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond variable account's price is likely
to fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of its
value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on market value of investments as of 6/30/06.
Percentages are based on net assets as of 6/30/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- MONEY MARKET VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (u)
Commercial Paper 88.5%
Certificates of Deposit 11.5%
SHORT TERM CREDIT QUALITY (q)
Average Credit Quality of Short Term Bonds (a) A-1
------------------------------------------------------
All holdings are rated A-1
------------------------------------------------------
MATURITY BREAKDOWN (u)
0-29 Days 58.3%
------------------------------------------------------
30-59 Days 28.1%
------------------------------------------------------
60-89 Days 3.0%
------------------------------------------------------
90-366 Days 10.6%
------------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(q) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. If not rated by any of the three
agencies, the security is considered Not Rated. U.S. Treasuries and U.S.
Agency securities are included in the "A-1"-rating category. Percentages are
based on the total market value of investments as of 6/30/06.
(u) For purposes of this graphical presentation, accrued interest, where
applicable, is included.
Percentages are based on net assets as of 6/30/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PORTFOLIO COMPOSITION -- TOTAL RETURN VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Common Stocks 60.2%
Bonds 38.7%
Cash & Other Net Assets 1.1%
TOP TEN HOLDINGS (i)
Fannie Mae 5.5%, 30 year 4.2%
------------------------------------------------
Bank of America Corp. 2.7%
------------------------------------------------
Merck & Co., Inc. 1.6%
------------------------------------------------
U.S. Treasury Notes, 3.125%, 2009 1.6%
------------------------------------------------
Wyeth 1.5%
------------------------------------------------
U.S. Treasury Notes, 5.625%, 2008 1.5%
------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2031 1.5%
------------------------------------------------
J.P. Morgan Chase & Co. 1.4%
------------------------------------------------
Sprint Nextel Corp. 1.4%
------------------------------------------------
Exxon Mobil Corp. 1.3%
------------------------------------------------
EQUITY SECTORS
Financial Services 16.4%
------------------------------------------------
Energy 7.0%
------------------------------------------------
Utilities & Communications 6.7%
------------------------------------------------
Health Care 5.7%
------------------------------------------------
Technology 5.3%
------------------------------------------------
Industrial Goods & Services 4.8%
------------------------------------------------
Consumer Staples 3.7%
------------------------------------------------
Basic Materials 3.6%
------------------------------------------------
Retailing 2.5%
------------------------------------------------
Leisure 2.0%
------------------------------------------------
Autos & Housing 1.6%
------------------------------------------------
Transportation 0.6%
------------------------------------------------
Special Products & Services 0.3%
------------------------------------------------
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 14.1%
------------------------------------------------
High Grade Corporates 9.1%
------------------------------------------------
U.S. Treasury Securities 8.7%
------------------------------------------------
U.S. Government Agencies 3.5%
------------------------------------------------
Commercial Mortgage-Backed Securities 2.1%
------------------------------------------------
Asset-Backed Securities 0.6%
------------------------------------------------
Emerging Market Debt 0.3%
------------------------------------------------
Non U.S. Government Bonds 0.1%
------------------------------------------------
High Yield Corporates 0.1%
------------------------------------------------
Residential Mortgage-Backed Securities 0.1%
------------------------------------------------
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
Percentages are based on net assets as of 6/30/06, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
CAPITAL APPRECIATION VARIABLE ACCOUNT
COMMON STOCKS - 95.2%
Issuer Shares/Par Value ($)
ADVERTISING & BROADCASTING - 1.3%
News Corp., "A" ............................. 90,200 $ 1,730,036
Viacom, Inc., "B" (n) ....................... 36,100 1,293,824
--------------
$ 3,023,860
--------------
AEROSPACE - 1.7%
United Technologies Corp. ................... 60,800 $ 3,855,936
--------------
APPAREL MANUFACTURERS - 1.4%
NIKE, Inc., "B" ............................. 39,660 $ 3,212,460
--------------
AUTOMOTIVE - 1.1%
Harman International Industries, Inc. ....... 28,070 $ 2,396,336
--------------
BANKS & CREDIT COMPANIES - 3.3%
American Express Co. ........................ 58,860 $ 3,132,529
J.P. Morgan Chase & Co. ..................... 21,500 903,000
SLM Corp. ................................... 58,860 3,114,871
UBS AG ...................................... 3,130 343,361
--------------
$ 7,493,761
--------------
BIOTECHNOLOGY - 5.4%
Amgen, Inc. (n) ............................. 58,900 $ 3,842,047
Celgene Corp. (n) ........................... 28,600 1,356,498
Genzyme Corp. (n) ........................... 73,440 4,483,512
Gilead Sciences, Inc. (n) ................... 44,530 2,634,395
--------------
$ 12,316,452
--------------
BROKERAGE & ASSET MANAGERS - 2.4%
Chicago Mercantile Exchange Holdings, Inc. .. 7,570 $ 3,718,006
Merrill Lynch & Co., Inc. ................... 23,000 1,599,880
--------------
$ 5,317,886
--------------
BUSINESS SERVICES - 4.7%
Amdocs Ltd. (n) ............................. 96,040 $ 3,515,064
Automatic Data Processing, Inc. ............. 24,800 1,124,680
Cintas Corp. ................................ 60,300 2,397,528
First Data Corp. ............................ 78,200 3,522,128
--------------
$ 10,559,400
--------------
CHEMICALS - 1.4%
Ecolab, Inc. ................................ 36,600 $ 1,485,228
Monsanto Co. ................................ 18,700 1,574,353
--------------
$ 3,059,581
--------------
COMPUTER SOFTWARE - 4.6%
Adobe Systems, Inc. (n) ..................... 117,000 $ 3,552,120
Microsoft Corp. ............................. 183,070 4,265,531
Oracle Corp. (n) ............................ 185,680 2,690,503
--------------
$ 10,508,154
--------------
COMPUTER SOFTWARE - SYSTEMS - 2.5%
Apple Computer, Inc. (n) .................... 30,500 $ 1,742,160
Hewlett-Packard Co. ......................... 66,600 2,109,888
LG.Philips LCD Co. Ltd., ADR (n) ............ 100,900 1,828,308
--------------
$ 5,680,356
--------------
CONSUMER GOODS & SERVICES - 3.3%
eBay, Inc. (n) .............................. 53,200 $ 1,558,228
Monster Worldwide, Inc. (n) ................. 18,100 772,146
Procter & Gamble Co. ........................ 93,800 5,215,280
--------------
$ 7,545,654
--------------
ELECTRICAL EQUIPMENT - 5.5%
Cooper Industries Ltd., "A" ................. 15,000 $ 1,393,800
General Electric Co. ........................ 212,000 6,987,520
Rockwell Automation, Inc. ................... 29,100 2,095,491
W.W. Grainger, Inc. ......................... 26,800 2,016,164
--------------
$ 12,492,975
--------------
ELECTRONICS - 7.9%
Analog Devices, Inc. ........................ 33,500 $ 1,076,690
Intel Corp. ................................. 299,320 5,672,114
Marvell Technology Group Ltd. (n) ........... 46,900 2,079,077
Samsung Electronics Co. Ltd., GDR ........... 13,840 4,349,220
SanDisk Corp. (n) ........................... 47,750 2,434,295
Xilinx, Inc. ................................ 98,010 2,219,927
--------------
$ 17,831,323
--------------
FOOD & DRUG STORES - 1.2%
CVS Corp. ................................... 91,400 $ 2,805,980
--------------
FOOD & NON ALCOHOLIC BEVERAGES - 1.9%
PepsiCo, Inc. ............................... 43,000 $ 2,581,720
SYSCO Corp. ................................. 59,800 1,827,488
--------------
$ 4,409,208
--------------
GAMING & LODGING - 3.4%
Carnival Corp. .............................. 27,110 $ 1,131,571
International Game Technology ............... 73,100 2,773,414
Las Vegas Sands Corp. (n) ................... 22,900 1,782,994
Starwood Hotels & Resorts, Inc. ............. 33,500 2,021,390
--------------
$ 7,709,369
--------------
GENERAL MERCHANDISE - 5.1%
Kohl's Corp. (n) ............................ 33,000 $ 1,950,960
Target Corp. ................................ 55,680 2,721,082
Wal-Mart Stores, Inc. ....................... 140,410 6,763,550
--------------
$ 11,435,592
--------------
HEALTH MAINTENANCE ORGANIZATIONS - 0.8%
UnitedHealth Group, Inc. .................... 38,100 $ 1,706,118
--------------
INTERNET - 3.8%
Google, Inc., "A" (n) ....................... 12,840 $ 5,384,197
Yahoo!, Inc. (n) ............................ 95,140 3,139,620
--------------
$ 8,523,817
--------------
LEISURE & TOYS - 1.4%
Electronic Arts, Inc. (n) ................... 74,640 $ 3,212,506
--------------
MACHINERY & TOOLS - 0.9%
Deere & Co. ................................. 23,900 $ 1,995,411
--------------
MEDICAL EQUIPMENT - 4.8%
Advanced Medical Optics, Inc. (n) ........... 58,980 $ 2,990,286
C.R. Bard, Inc. ............................. 18,400 1,347,984
DENTSPLY International, Inc. ................ 22,800 1,381,680
Medtronic, Inc. ............................. 84,070 3,944,564
St. Jude Medical, Inc. (n) .................. 35,950 1,165,499
--------------
$ 10,830,013
--------------
NETWORK & TELECOM - 6.1%
Cisco Systems, Inc. (n) ..................... 387,080 $ 7,559,672
Corning, Inc. (n) ........................... 220,650 5,337,524
Juniper Networks, Inc. (n) .................. 48,600 777,114
--------------
$ 13,674,310
--------------
OIL SERVICES - 3.4%
Noble Corp. ................................. 32,030 $ 2,383,673
Transocean, Inc. (n) ........................ 30,500 2,449,760
Weatherford International Ltd. (n) .......... 55,900 2,773,758
--------------
$ 7,607,191
--------------
PERSONAL COMPUTERS & PERIPHERALS - 0.8%
EMC Corp. (n) ............................... 159,000 $ 1,744,230
--------------
PHARMACEUTICALS - 7.4%
Allergan, Inc. .............................. 9,800 $ 1,051,148
Eli Lilly & Co. ............................. 70,410 3,891,561
Johnson & Johnson ........................... 77,490 4,643,201
Roche Holding AG ............................ 16,840 2,780,753
Wyeth ....................................... 97,120 4,313,099
--------------
$ 16,679,762
--------------
SPECIALTY STORES - 4.7%
Chico's FAS, Inc. (n) ....................... 63,600 $ 1,715,928
Home Depot, Inc. ............................ 45,100 1,614,129
Lowe's Cos., Inc. ........................... 22,500 1,365,075
Staples, Inc. ............................... 111,500 2,711,680
Urban Outfitters, Inc. (n) .................. 45,800 801,042
Williams-Sonoma, Inc. ....................... 68,400 2,329,020
--------------
$ 10,536,874
--------------
TELEPHONE SERVICES - 0.8%
American Tower Corp., "A" (n) ............... 56,500 $ 1,758,279
--------------
TRUCKING - 2.2%
FedEx Corp. ................................. 19,770 $ 2,310,322
United Parcel Service, Inc., "B" ............ 32,600 2,683,958
--------------
$ 4,994,280
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $214,357,866) ....... $ 214,917,074
--------------
SHORT-TERM OBLIGATIONS - 3.5% (y)
Citigroup Funding, Inc.,
5.25%, due 7/03/06 ........................ $ 5,951,000 $ 5,949,265
General Electric Capital Corp.,
5.27%, due 7/03/06 ........................ 2,021,000 2,020,408
--------------
TOTAL SHORT-TERM OBLIGATIONS,
AT AMORTIZED COST AND VALUE ........... $ 7,969,673
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $222,327,539) ....... $ 222,886,747
--------------
OTHER ASSETS,
LESS LIABILITIES - 1.3% ................... 2,944,236
--------------
NET ASSETS - 100.0% ..................... $ 225,830,983
==============
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
BONDS - 82.5%
Issuer Shares/Par Value ($)
FOREIGN BONDS - 61.4%
AUSTRIA - 1.8%
Republic of Austria, 5%, 2012 .......... EUR 123,000 $ 166,202
--------------
BELGIUM - 2.0%
Kingdom of Belgium, 3.75%, 2009 ........ EUR 113,000 $ 144,782
Kingdom of Belgium, 5%, 2012 ........... EUR 34,000 45,973
--------------
$ 190,755
--------------
CANADA - 1.8%
Quebec Province, 1.6%, 2013 ............ JPY 20,000,000 $ 172,261
--------------
DENMARK - 0.5%
Kingdom of Denmark, 4%, 2015 ........... DKK 278,000 $ 47,224
--------------
FINLAND - 3.3%
Republic of Finland, 3%, 2008 .......... EUR 187,000 $ 236,589
Republic of Finland, 5.375%, 2013 ...... EUR 57,000 79,117
--------------
$ 315,706
--------------
FRANCE - 3.6%
Republic of France, 4.75%, 2012 ........ EUR 144,000 $ 192,477
Republic of France, 6%, 2025 ........... EUR 54,000 84,452
Republic of France, 4.75%, 2035 ........ EUR 49,000 66,710
--------------
$ 343,639
--------------
GERMANY - 15.3%
Bayerische Landesbank, 2.934%, 2006 .... EUR 12,000 $ 15,339
Federal Republic of Germany,
3.5%, 2008 ........................... EUR 60,000 76,482
Federal Republic of Germany,
5.25%, 2010 .......................... EUR 70,000 94,226
Federal Republic of Germany,
3.75%, 2015 .......................... EUR 38,000 47,611
Federal Republic of Germany,
6.25%, 2024 .......................... EUR 177,000 281,315
Federal Republic of Germany,
6.25%, 2030 .......................... EUR 248,000 405,370
KfW Bankengruppe, FRN, 2.844%, 2007 .... EUR 252,000 321,951
Landesbank Baden-Wurttemberg, FRN,
2.764%, 2007 ......................... EUR 88,000 112,501
Landesbank Baden-Wurttemberg, FRN,
2.961%, 2007 ......................... EUR 80,000 102,274
--------------
$ 1,457,069
--------------
IRELAND - 2.1%
Republic of Ireland, 4.25%, 2007 ....... EUR 81,000 $ 104,568
Republic of Ireland, 4.6%, 2016 ........ EUR 72,000 95,976
--------------
$ 200,544
--------------
JAPAN - 10.5%
Development Bank of Japan,
1.4%, 2012 ........................... JPY 27,000,000 $ 232,970
Development Bank of Japan,
1.6%, 2014 ........................... JPY 60,000,000 516,191
Development Bank of Japan,
1.05%, 2023 .......................... JPY 23,000,000 166,680
Japan Finance Corp., 2%, 2016 .......... JPY 10,000,000 87,776
--------------
$ 1,003,617
--------------
MALAYSIA - 1.2%
Petronas Capital Ltd., 7.875%, 2022 .... $ 100,000 $ 114,462
--------------
MEXICO - 0.7%
United Mexican States, 8.125%, 2019 .... $ 54,000 $ 61,020
--------------
NETHERLANDS - 0.9%
Kingdom of Netherlands, 5%, 2012 ....... EUR 65,697 $ 88,818
--------------
NEW ZEALAND - 0.9%
Government of New Zealand, 6%, 2017 .... NZD 142,000 $ 87,714
--------------
RUSSIA - 0.5%
Gaz Capital S.A., 8.625%, 2034 ......... $ 10,000 $ 11,423
Gazprom International S.A.,
7.201%, 2020 ......................... 39,000 39,503
--------------
$ 50,926
--------------
SPAIN - 1.8%
Kingdom of Spain, 5.35%, 2011 .......... EUR 128,000 $ 174,989
--------------
UNITED KINGDOM - 14.5%
Network Rail MTN Finance PLC, FRN, 2.913%,
2007 ................................. EUR 297,000 $ 379,664
United Kingdom Treasury, 5.75%, 2009 ... GBP 215,000 408,851
United Kingdom Treasury, 5%, 2012 ...... GBP 205,000 383,207
United Kingdom Treasury, 8%, 2015 ...... GBP 81,000 186,575
United Kingdom Treasury, 4.25%, 2036 ... GBP 10,000 18,208
--------------
$ 1,376,505
--------------
TOTAL FOREIGN BONDS ................ $ 5,851,451
--------------
U.S. BONDS - 21.1%
ASSET BACKED & SECURITIZED - 7.8%
Bayview Commercial Asset Trust,
4.8086%, 2023 (a) .................... CAD 30,000 $ 26,847
Commercial Mortgage Asset Trust, FRN,
1.1275%, 2032 (a)(i) ...................... $ 1,410,358 58,521
Commercial Mortgage Pass-Through
Certificate, FRN, 5.3888%, 2017 (a) ....... 59,000 59,007
Commercial Mortgage Pass-Through
Certificates, FRN, 5.3988%, 2017 (a) ...... 100,000 99,982
Deutsche Mortgage & Asset Receiving Corp.,
6.538%, 2031 .............................. 32,811 33,092
First Union National Bank Commercial
Mortgage Trust, FRN,
1.1932%, 2043 (a)(i) ...................... 1,628,919 58,803
IMPAC CMB Trust, FRN, 5.6725%, 2036 ......... 98,404 98,906
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3816%, 2041 ...... 55,952 53,798
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3988%, 2046 ...... 52,080 52,184
Lehman Brothers Floating Rate Commercial
Mortgage Trust, FRN, 5.3588%, 2018 (a) .... 100,000 100,023
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.4388%, 2015 (a) .................... 83,496 83,496
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.4888%, 2015 (a) .................... 22,101 22,102
--------------
$ 746,761
--------------
EMERGING MARKET QUASI-SOVEREIGN - 0.3%
Pemex Project Funding Master Trust,
8.625%, 2022 .............................. $ 23,000 $ 25,714
--------------
MORTGAGE BACKED - 0.3%
Fannie Mae, 5.423%, 2016 .................... $ 24,950 $ 24,345
--------------
U.S. GOVERNMENT AGENCIES - 7.7%
Aid-Egypt, 4.45%, 2015 ...................... $ 49,000 $ 45,526
Fannie Mae, 4.25%, 2007 ..................... 171,000 168,262
Fannie Mae, 6%, 2011 ........................ 88,000 89,897
Freddie Mac, 4.2%, 2007 ..................... 99,000 97,280
Small Business Administration,
4.57%, 2025 ............................... 47,951 44,130
Small Business Administration,
4.76%, 2025 ............................... 72,450 67,561
Small Business Administration,
5.36%, 2025 ............................... 113,114 109,783
Small Business Administration,
5.21%, 2026 ............................... 120,000 115,307
--------------
$ 737,746
--------------
U.S. TREASURY OBLIGATIONS - 5.0%
U.S. Treasury Bonds, 8%, 2021 ............... $ 73,000 $ 93,360
U.S. Treasury Notes, 3.125%, 2008 ........... 101,000 96,636
U.S. Treasury Notes, 4.25%, 2013 ............ 218,000 206,300
U.S. Treasury Notes, 4%, 2015 ............... 87,000 80,169
--------------
$ 476,465
--------------
TOTAL U.S. BONDS ..................................... $ 2,011,031
--------------
TOTAL BONDS (IDENTIFIED COST, $7,894,135)............. $ 7,862,482
--------------
SHORT-TERM OBLIGATIONS - 17.9%
Tennessee Valley Authority Discount Notes,
4.95%, due 7/03/06, at Amortized Cost
and Value (y) ............................. $ 1,708,000 $ 1,707,530
--------------
TOTAL INVESTMENTS (IDENTIFIED COST, $9,601,665)(k).... $ 9,570,012
--------------
OTHER ASSETS,
LESS LIABILITIES - (0.4)% .............................. (38,176)
--------------
NET ASSETS - 100.0% .................................. $ 9,531,836
==============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
Net Unrealized
Contracts to Contracts Appreciation
Deliver/ Receive Settlement Date In Exchange For at Value (Depreciation)
SALES
AUD 57,000 8/08/06 $42,248 $42,354 $(106)
BRL 47,475 7/05/06 21,482 21,898 (416)
CAD 3,293 8/11/06 3,000 2,951 49
CLP 11,593,036 7/24/06 21,021 21,497 (476)
DKK 282,575 8/28/06 47,612 48,626 (1,014)
EUR 231,059 7/17/06 - 8/21/06 290,734 296,039 (5,305)
GBP 242,851 8/02/06 455,548 448,995 6,553
JPY 49,915,250 7/18/06 - 8/17/06 439,213 437,381 1,832
NZD 599,558 8/08/06 377,335 363,966 13,369
SGD 37,589 7/03/06 23,507 23,745 (238)
TRY 48,401 7/06/06 - 7/10/06 28,349 30,470 (2,121)
---------- ---------- ---------
$1,750,049 $1,737,922 $12,127
========== ========== =========
PURCHASES
AUD 103,179 8/08/06 $77,099 $76,667 $(432)
BRL 94,950 7/05/06 - 8/02/06 41,652 43,626 1,974
CAD 13,624 8/10/06 12,162 12,207 45
CHF 36,064 8/07/06 30,148 29,593 (555)
CLP 11,593,036 7/24/06 21,227 21,497 270
EUR 431,816 7/17/06 - 5/17/07 554,997 552,944 (2,053)
GBP 11,625 8/02/06 - 8/08/06 21,456 21,495 39
IDR 175,785,058 7/24/06 18,562 18,888 326
JPY 305,503,540 7/18/06 - 8/17/06 2,798,457 2,676,079 (122,378)
KRW 21,138,518 8/07/06 22,316 22,308 (8)
MXN 334,877 7/17/06 29,181 29,531 350
MYR 68,471 7/24/06 18,705 18,649 (56)
NOK 80,010 7/17/06 12,839 12,863 24
NZD 376,629 8/08/06 232,143 228,635 (3,508)
SEK 733,683 8/08/06 - 8/10/06 103,680 102,275 (1,405)
SGD 75,178 7/03/06 - 8/03/06 47,298 47,525 227
TRY 48,206 7/06/06 - 7/24/06 30,460 30,344 (116)
---------- ---------- ---------
$4,072,382 $3,945,126 $(127,256)
========== ========== =========
At June 30, 2006 forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $26,933 with
Merrill Lynch International.
At June 30, 2006 the variable account had sufficient cash and/or securities to
cover any commitments under these derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
GOVERNMENT SECURITIES VARIABLE ACCOUNT
BONDS - 99.0%
Issuer Shares/Par Value ($)
AGENCY - OTHER - 6.6%
Financing Corp., 9.4%, 2018 ................. $ 780,000 $ 1,029,251
Financing Corp., 10.35%, 2018 ............... 1,150,000 1,620,854
Financing Corp., STRIPS, 0%, 2017 ........... 1,220,000 653,636
Resolution Funding Corp., 8.875%, 2020 ...... 1,700,000 2,212,662
--------------
$ 5,516,403
--------------
MORTGAGE BACKED - 52.7%
Fannie Mae, 4.79%, 2012 ..................... $ 934,169 $ 889,439
Fannie Mae, 4.73%, 2012 ..................... 95,025 90,403
Fannie Mae, 5%, 2013 - 2027 ................. 3,012,304 2,919,119
Fannie Mae, 4.8%, 2013 ...................... 89,831 85,719
Fannie Mae, 4.845%, 2013 .................... 262,462 250,280
Fannie Mae, 5.06%, 2013 ..................... 105,729 102,269
Fannie Mae, 4.65%, 2013 ..................... 249,901 239,604
Fannie Mae, 4.45%, 2014 ..................... 322,192 299,357
Fannie Mae, 4.771%, 2014 .................... 483,040 458,817
Fannie Mae, 4.6%, 2014 ...................... 126,015 118,053
Fannie Mae, 4.667%, 2014 .................... 844,258 794,196
Fannie Mae, 4.518%, 2014 .................... 161,818 150,846
Fannie Mae, 4.77%, 2014 ..................... 106,647 100,588
Fannie Mae, 4.847%, 2014 .................... 903,476 857,877
Fannie Mae, 5.1%, 2014 ...................... 138,052 132,582
Fannie Mae, 4.62%, 2015 ..................... 180,945 168,783
Fannie Mae, 4.82%, 2015 ..................... 342,740 323,207
Fannie Mae, 4.69%, 2015 ..................... 89,338 83,662
Fannie Mae, 4.85%, 2015 ..................... 89,397 84,567
Fannie Mae, 4.56%, 2015 ..................... 162,388 150,709
Fannie Mae, 4.665%, 2015 .................... 109,546 102,366
Fannie Mae, 4.7%, 2015 ...................... 125,864 117,874
Fannie Mae, 4.89%, 2015 ..................... 88,555 83,961
Fannie Mae, 4.74%, 2015 ..................... 100,000 93,750
Fannie Mae, 4.925%, 2015 .................... 349,084 331,876
Fannie Mae, 4.815%, 2015 .................... 117,000 110,105
Fannie Mae, 5.48%, 2015 ..................... 129,281 127,103
Fannie Mae, 6.5%, 2016 - 2036 ............... 1,920,972 1,937,610
Fannie Mae, 4.996%, 2017 .................... 331,397 317,188
Fannie Mae, 6%, 2017 - 2034 ................. 2,641,790 2,619,137
Fannie Mae, 5.5%, 2017 - 2135 ............... 13,199,286 12,763,891
Fannie Mae, 4.5%, 2019 - 2020 ............... 3,997,608 3,783,390
Fannie Mae, 4.88%, 2020 ..................... 94,350 91,199
Fannie Mae, 7.5%, 2022 - 2031 ............... 241,013 249,924
Freddie Mac, 4.5%, 2013 - 2015 .............. 599,727 590,356
Freddie Mac, 4.375%, 2015 ................... 643,560 620,546
Freddie Mac, 5%, 2016 - 2025 ................ 2,657,821 2,620,962
Freddie Mac, 6%, 2021 - 2035 ................ 2,777,191 2,749,764
Freddie Mac, 5.5%, 2025 - 2035 .............. 4,296,069 4,140,785
Freddie Mac, 6.5%, 2032 ..................... 799,169 806,682
Ginnie Mae, 5.5%, 2033 ...................... 1,758,754 1,706,868
--------------
$ 44,265,414
--------------
U.S. GOVERNMENT AGENCIES - 30.9%
Aid-Egypt, 4.45%, 2015 ...................... $ 473,000 $ 439,466
Aid-Israel, 6.6%, 2008 ...................... 524,434 528,243
Aid-Israel, 0%, 2021 - 2024 ................. 2,041,000 782,311
Aid-Israel, 5.5%, 2023 ...................... 1,097,000 1,088,571
Aid-Peru, 9.98%, 2008 ....................... 454,983 473,433
Empresa Energetica Cornito Ltd.,
6.07%, 2010 ............................... 1,957,000 1,968,722
Fannie Mae, 4.25%, 2009 ..................... 1,073,000 1,039,743
Federal Home Loan Bank, 4.625%, 2008 ........ 2,315,000 2,284,843
Freddie Mac, 4.2%, 2007 ..................... 705,000 692,750
Freddie Mac, 4.875%, 2009 ................... 760,000 750,002
Freddie Mac, 5.625%, 2011 ................... 3,214,000 3,230,536
Freddie Mac, 5.05%, 2015 .................... 956,000 924,596
Overseas Private Investment Corp.,
0%, 2007 .................................. 170,158 174,199
Small Business Administration,
8.4%, 2007 ................................ 2,164 2,181
Small Business Administration,
10.05%, 2009 .............................. 4,489 4,649
Small Business Administration,
8.7%, 2009 ................................ 32,841 33,929
Small Business Administration,
6.34%, 2021 ............................... 605,677 619,781
Small Business Administration,
6.44%, 2021 ............................... 577,724 593,087
Small Business Administration,
6.625%, 2021 .............................. 670,965 693,523
Small Business Administration,
6.07%, 2022 ............................... 482,561 489,299
Small Business Administration,
4.98%, 2023 ............................... 252,825 241,459
Small Business Administration,
4.89%, 2023 ............................... 634,739 602,346
Small Business Administration,
4.72%, 2024 ............................... 668,353 627,444
Small Business Administration,
4.34%, 2024 ............................... 360,854 329,653
Small Business Administration,
4.77%, 2024 ............................... 609,250 572,961
Small Business Administration,
5.52%, 2024 ............................... 338,821 333,662
Small Business Administration,
4.99%, 2024 ............................... 419,842 399,893
Small Business Administration,
4.86%, 2024 ............................... 320,701 302,625
Small Business Administration,
4.88%, 2024 ............................... 294,758 278,326
Small Business Administration,
4.87%, 2024 ............................... 385,488 363,504
Small Business Administration,
5.11%, 2025 ............................... 333,128 318,868
Small Business Administration,
4.76%, 2025 ............................... 554,144 516,747
Tennessee Valley Authority STRIPS,
0% to 2012, 8.25% to 2042 ................. 2,256,000 1,721,779
U.S. Department of Housing & Urban
Development, 6.36%, 2016 .................. 500,000 511,091
U.S. Department of Housing & Urban
Development, 6.59%, 2016 .................. 2,045,000 2,061,832
--------------
$ 25,996,054
--------------
U.S. TREASURY OBLIGATIONS - 8.8%
U.S. Treasury Bonds, 12%, 2013 .............. $ 19,000 $ 21,591
U.S. Treasury Bonds, 9.25%, 2016 ............ 409,000 533,857
U.S. Treasury Bonds, 6%, 2026 ............... 717,000 776,657
U.S. Treasury Bonds, 5.25%, 2028 ............ 346,000 344,378
U.S. Treasury Bonds, 5.375%, 2031 ........... 273,000 277,714
U.S. Treasury Bonds, 4.5%, 2036 ............. 735,000 659,031
U.S. Treasury Notes, 6.5%, 2010 (f) ......... 3,933,000 4,109,218
U.S. Treasury Notes, TIPS, 3.875%, 2009 ..... 674,342 698,471
--------------
$ 7,420,917
--------------
TOTAL BONDS (IDENTIFIED COST, $85,502,173)........... $ 83,198,788
--------------
REPURCHASE AGREEMENTS - 0.4%
Issuer Shares/Par Value ($)
Goldman Sachs, 5.21%, dated 6/30/06,
due 7/03/06, total to be received $334,145
(secured by various U.S. Treasury and
Federal Agency obligations in a jointly
traded account), at Cost .................. $ 334,000 $ 334,000
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $85,836,173) (k) .................. $ 83,532,788
--------------
OTHER ASSETS,
LESS LIABILITIES - 0.6% ................................. 529,291
--------------
NET ASSETS - 100.0% ................................... $ 84,062,079
==============
FUTURES CONTRACTS OUTSTANDING AT JUNE 30, 2006:
Unrealized
Expiration Appreciation
Description Contracts Value Date (Depreciation)
U.S. Treasury Bond
(Short) ................. 14 $1,493,188 Sep-06 $ 2,884
U.S. Treasury Note 5 yr
(Long) .................. 26 2,688,563 Sep-06 (15,119)
U.S. Treasury Note 10 yr
(Short) ................. 38 3,984,656 Sep-06 22,642
--------
$ 10,407
========
At June 30, 2006, the variable account had sufficient cash
and/or securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
HIGH YIELD VARIABLE ACCOUNT
BONDS - 92.6%
Issuer Shares/Par Value ($)
ADVERTISING & BROADCASTING - 3.7%
Allbritton Communications Co.,
7.75%, 2012 ............................... $ 320,000 $ 316,800
EchoStar DBS Corp., 6.375%, 2011 ............ 210,000 201,075
Granite Broadcasting Corp., 9.75%, 2010 ..... 220,000 201,300
Hughes Network Systems LLC,
9.5%, 2014 (a) ............................ 165,000 161,700
Intelsat Ltd., 9.25%, 2016 (a) .............. 175,000 180,687
Intelsat Ltd., 11.25%, 2016 (a) ............. 60,000 61,500
Intelsat Ltd., 0% to 2010,
9.25% to 2015 (a) ......................... 280,000 193,200
Intelsat Subsidiary Holding Co. Ltd.,
8.625%, 2015 .............................. 125,000 125,312
ION Media Networks, Inc., FRN,
11.3183%, 2013 (a) ........................ 305,000 305,763
XM Satellite Radio, Inc., 9.75%, 2014 (a) ... 275,000 251,625
Young Broadcasting, Inc., 10%, 2011 ......... 140,000 124,600
--------------
$ 2,123,562
--------------
AEROSPACE - 1.1%
Argo-Tech Corp., 9.25%, 2011 ................ $ 225,000 $ 231,750
DRS Technologies, Inc., 7.625%, 2018 ........ 380,000 378,100
--------------
$ 609,850
--------------
AIRLINES - 0.8%
Continental Airlines, Inc., 6.9%, 2017 ...... $ 69,833 $ 65,307
Continental Airlines, Inc., 6.748%, 2017 .... 67,243 63,545
Continental Airlines, Inc., 6.795%, 2018 .... 113,988 107,561
Continental Airlines, Inc., 7.566%, 2020 .... 236,997 230,693
--------------
$ 467,106
--------------
APPAREL MANUFACTURERS - 0.5%
Levi Strauss & Co., 12.25%, 2012 ............ $ 150,000 $ 165,750
Levi Strauss & Co., 9.75%, 2015 ............. 115,000 115,000
--------------
$ 280,750
--------------
ASSET BACKED & SECURITIZED - 2.2%
ARCap, REIT, Inc., "H", 6.1%, 2045 (a) ...... $ 165,567 $ 144,617
Asset Securitization Corp., FRN,
8.2937%, 2029 ............................. 150,000 154,426
Asset Securitization Corp., FRN,
8.7837%, 2029 (a) ......................... 200,000 188,572
Crest Ltd., 7%, 2040 (a) .................... 154,000 137,859
First Union National Bank Commercial
Mortgage Corp., 6.75%, 2032 ............... 165,000 163,130
GMAC Commercial Mortgage Securities, Inc.,
FRN, 7.9165%, 2034 (a) .................... 192,000 205,172
Wachovia Bank Commericial Real Estate, CDO,
6.52%, 2026 (p)(a) ........................ 250,000 250,000
--------------
$ 1,243,776
--------------
AUTOMOTIVE - 8.2%
American Axle & Manufacturing, Inc., 5.25%,
2014 ...................................... $ 180,000 $ 149,400
Cooper Standard Automotive, Inc.,
8.375%, 2014 .............................. 345,000 272,119
Ford Motor Credit Co., 4.95%, 2008 .......... 129,000 121,435
Ford Motor Credit Co., 6.625%, 2008 ......... 439,000 417,838
Ford Motor Credit Co., 5.625%, 2008 ......... 255,000 235,891
Ford Motor Credit Co., 5.8%, 2009 ........... 460,000 420,241
Ford Motor Credit Co., 8.625%, 2010 ......... 190,000 177,729
Ford Motor Credit Co., 7%, 2013 ............. 353,000 303,805
General Motors Acceptance Corp.,
6.75%, 2014 ............................... 1,321,000 1,226,971
General Motors Acceptance Corp.,
8%, 2031 .................................. 805,000 773,726
General Motors Corp., 8.375%, 2033 .......... 153,000 123,165
Goodyear Tire & Rubber Co., 9%, 2015 ........ 430,000 410,650
Lear Corp., 5.75%, 2014 ..................... 85,000 69,275
--------------
$ 4,702,245
--------------
BROADCAST & CABLE TV - 3.4%
Cablevision Systems Corp., 8%, 2012 ......... $ 155,000 $ 152,869
CCH I Holdings LLC, 9.92%, 2014 ............. 205,000 123,000
CCH I Holdings LLC, 11%, 2015 ............... 895,000 783,125
CCH II Holdings LLC, 10.25%, 2010 ........... 185,000 185,462
CCO Holdings LLC, 8.75%, 2013 ............... 150,000 146,250
CSC Holdings, Inc., 8.125%, 2009 ............ 125,000 127,187
CSC Holdings, Inc., 6.75%, 2012 (a) ......... 215,000 207,475
Mediacom LLC, 9.5%, 2013 .................... 235,000 233,825
--------------
$ 1,959,193
--------------
BUILDING - 2.2%
Goodman Global Holdings, Inc.,
7.875%, 2012 .............................. $ 455,000 $ 434,525
Interface, Inc., 10.375%, 2010 .............. 167,000 182,656
Interface, Inc., 9.5%, 2014 ................. 30,000 30,975
Nortek Holdings, Inc., 8.5%, 2014 ........... 185,000 178,988
Nortek Holdings, Inc., 0% to 2009,
10.75% to 2014 ............................ 623,000 450,896
--------------
$ 1,278,040
--------------
BUSINESS SERVICES - 2.3%
Iron Mountain, Inc., 8.625%, 2013 ........... $ 240,000 $ 240,000
Iron Mountain, Inc., 7.75%, 2015 ............ 5,000 4,775
Nortel Networks Ltd., 10.75%, 2016 (a) ...... 125,000 127,188
Northern Telecom Corp., 6.875%, 2023 ........ 115,000 92,000
SunGard Data Systems, Inc.,
10.25%, 2015 (a) .......................... 365,000 377,319
Xerox Corp., 7.625%, 2013 ................... 485,000 488,638
--------------
$ 1,329,920
--------------
CHEMICALS - 5.3%
Basell AF SCA, 8.375%, 2015 (a) ............. $ 494,000 $ 474,857
BCP Crystal Holdings Corp., 9.625%, 2014 .... 121,000 131,285
Crystal U.S. Holdings LLC, "A",
0% to 2009, 10% to 2014 ................... 62,000 49,135
Crystal U.S. Holdings LLC, "B",
0% to 2009, 10.5% to 2014 ................. 522,000 408,465
Equistar Chemicals, 10.625%, 2011 ........... 60,000 64,425
Equistar Chemicals, LP, 10.125%, 2008 ....... 120,000 126,300
Hexion U.S. Financial Corp., 9%, 2014 ....... 220,000 222,750
Huntsman International LLC,
10.125%, 2009 ............................. 197,000 199,955
Huntsman International LLC,
7.875%, 2015 (a) .......................... 260,000 243,750
KI Holdings, Inc., 0% to 2009,
9.875% to 2014 ............................ 348,000 248,820
Lyondell Chemical Co., 9.5%, 2008 ........... 72,000 73,980
Lyondell Chemical Co., 11.125%, 2012 ........ 130,000 141,050
Nalco Co., 7.75%, 2011 ...................... 200,000 199,500
Nalco Co., 8.875%, 2013 ..................... 445,000 448,337
Rockwood Specialties Group, Inc.,
10.625%, 2011 ............................. 1,000 1,069
--------------
$ 3,033,678
--------------
CONSTRUCTION - 1.1%
Beazer Homes USA, Inc., 6.875%, 2015 ........ $ 225,000 $ 204,750
Technical Olympic USA, Inc., 7.5%, 2015 ..... 205,000 170,663
WCI Communities, Inc., 7.875%, 2013 ......... 210,000 184,275
WCI Communities, Inc., 6.625%, 2015 ......... 105,000 87,150
--------------
$ 646,838
--------------
CONSUMER GOODS & SERVICES - 2.5%
GEO Group, Inc., 8.25%, 2013 ................ $ 280,000 $ 280,000
Jarden Corp., 9.75%, 2012 ................... 145,000 147,900
Playtex Products, Inc., 9.375%, 2011 ........ 180,000 187,425
Revlon Consumer Products Corp.,
9.5%, 2011 ................................ 335,000 293,125
Samsonite Corp., 8.875%, 2011 ............... 210,000 217,875
Service Corp. International, 8%, 2017 (a) ... 215,000 201,025
Simmons Co., 7.875%, 2014 ................... 50,000 46,750
Visant Holding Corp., 8.75%, 2013 (a) ....... 40,000 38,600
--------------
$ 1,412,700
--------------
CONTAINERS - 2.1%
Crown Americas, 7.75%, 2015 (a) ............. $ 190,000 $ 187,150
Graham Packaging Co. LP,
9.875%, 2014 .............................. 405,000 400,950
Owens-Brockway Glass Container, Inc., 8.25%,
2013 ...................................... 605,000 606,513
--------------
$ 1,194,613
--------------
DEFENSE ELECTRONICS - 0.8%
L-3 Communications Corp.,
5.875%, 2015 .............................. $ 255,000 $ 237,787
L-3 Communications Holdings, Inc., 6.125%,
2014 ...................................... 230,000 218,500
--------------
$ 456,287
--------------
ELECTRONICS - 0.8%
Flextronics International Ltd., 6.5%, 2013 .. $ 130,000 $ 123,500
Magnachip Semiconductor S.A.,
8%, 2014 .................................. 30,000 24,900
Sensata Technologies B.V., 8%, 2014 (a) ..... 290,000 279,850
--------------
$ 428,250
--------------
EMERGING MARKET QUASI-SOVEREIGN - 0.2%
Gazprom OAO, 9.625%, 2013 (a) ............... $ 120,000 $ 137,550
--------------
EMERGING MARKET SOVEREIGN - 0.2%
Federative Republic of Brazil,
8.875%, 2019 .............................. $ 51,000 $ 56,814
Russian Ministry of Finance,
12.75%, 2028 .............................. 42,000 70,925
--------------
$ 127,739
--------------
ENERGY - INDEPENDENT - 3.5%
Chesapeake Energy Corp., 7%, 2014 ........... $ 344,000 $ 332,820
Chesapeake Energy Corp.,
6.375%, 2015 .............................. 430,000 398,825
Chesapeake Energy Corp.,
6.875%, 2016 .............................. 375,000 354,375
Hilcorp Energy I, 9%, 2016 (a) .............. 105,000 105,787
Newfield Exploration Co., 6.625%, 2014 ...... 360,000 342,900
Quicksilver Resources, Inc.,
7.125%, 2016 .............................. 285,000 267,188
Whiting Petroleum Corp., 7%, 2014 ........... 195,000 184,275
--------------
$ 1,986,170
--------------
ENTERTAINMENT - 1.5%
AMC Entertainment, Inc., 9.5%, 2011 ......... $ 160,000 $ 157,200
AMC Entertainment, Inc., 11%, 2016 .......... 165,000 176,550
Six Flags, Inc., 8.875%, 2010 ............... 175,000 166,250
Six Flags, Inc., 9.75%, 2013 ................ 355,000 326,156
--------------
$ 826,156
--------------
FOOD & NON ALCOHOLIC BEVERAGES - 0.7%
B&G Foods Holding Corp., 8%, 2011 ........... $ 175,000 $ 175,000
Michael Foods, Inc., 8%, 2013 ............... 250,000 245,625
--------------
$ 420,625
--------------
FOREST & PAPER PRODUCTS - 4.1%
Buckeye Technologies, Inc., 8%, 2010 ........ $ 65,000 $ 59,475
Buckeye Technologies, Inc., 8.5%, 2013 ...... 375,000 356,250
Graphic Packaging International Corp.,
9.5%, 2013 ................................ 470,000 465,300
Jefferson Smurfit Corp., 8.25%, 2012 ........ 740,000 693,750
JSG Funding LLC, 11.5%, 2015 (a)(p) ......... EUR 239,217 311,968
JSG Funding PLC, 7.75%, 2015 ................ $ 25,000 22,625
MDP Acquisitions PLC, 9.625%, 2012 .......... 205,000 211,150
Millar Western Forest Products Ltd.,
7.75%, 2013 ............................... 135,000 102,600
Stone Container Corp., 7.375%, 2014 ......... 140,000 123,900
--------------
$ 2,347,018
--------------
GAMING & LODGING - 6.8%
Boyd Gaming Corp., 6.75%, 2014 .............. $ 185,000 $ 175,519
Caesars Entertainment, Inc.,
8.125%, 2011 .............................. 185,000 194,944
Greektown Holdings, 10.75%, 2013 (a) ........ 220,000 232,100
Host Marriott LP, 7.125%, 2013 .............. 160,000 159,400
Host Marriott LP, 6.375%, 2015 .............. 125,000 117,500
Majestic Star Casino LLC,
9.75%, 2011 (a) ........................... 175,000 175,437
Mandalay Resort Group, 9.375%, 2010 ......... 175,000 184,187
MGM Mirage, Inc., 8.5%, 2010 ................ 140,000 145,425
MGM Mirage, Inc., 8.375%, 2011 .............. 325,000 333,125
MGM Mirage, Inc., 6.75%, 2013 (a) ........... 200,000 190,750
MGM Mirage, Inc., 5.875%, 2014 .............. 195,000 174,769
MGM Mirage, Inc., 6.875%, 2016 (a) .......... 175,000 163,406
Pinnacle Entertainment, Inc.,
8.25%, 2012 ............................... 185,000 185,463
Pokagon Gaming Authority,
10.375%, 2014 (a) ......................... 180,000 186,075
Starwood Hotels & Resorts Worldwide, Inc.,
7.875%, 2012 .............................. 450,000 469,688
Station Casinos, Inc., 6.5%, 2014 ........... 125,000 116,250
Station Casinos, Inc., 6.875%, 2016 ......... 15,000 13,988
Trump Entertainment Resorts Holdings, Inc.,
8.5%, 2015 ................................ 390,000 374,888
Wynn Las Vegas LLC, 6.625%, 2014 ............ 310,000 292,175
--------------
$ 3,885,089
--------------
INDUSTRIAL - 3.2%
Amsted Industries, Inc., 10.25%, 2011 (a) ... $ 300,000 $ 321,000
Blount, Inc., 8.875%, 2012 .................. 55,000 54,725
Da-Lite Screen Co., Inc., 9.5%, 2011 ........ 140,000 148,400
Education Management LLC,
8.75%, 2014 (a) ........................... 125,000 123,750
Education Management LLC,
10.25%, 2016 (a) .......................... 80,000 79,600
Interline Brands, Inc., 8.125%, 2014 (a) .... 85,000 84,787
JohnsonDiversey Holdings, Inc., "B", 9.625%,
2012 ...................................... 370,000 368,150
JohnsonDiversey Holdings, Inc.,
0% to 2007, 10.67% to 2013 ................ 307,000 260,950
Knowledge Learning Corp.,
7.75%, 2015 (a) ........................... 125,000 114,375
Milacron Escrow Corp., 11.5%, 2011 .......... 280,000 259,700
--------------
$ 1,815,437
--------------
INSURANCE - 0.6%
UnumProvident Corp., 7.625%, 2011 ........... $ 92,000 $ 95,863
UnumProvident Corp., 6.85%, 2015 (a) ........ 274,000 269,359
--------------
$ 365,222
--------------
MACHINERY & TOOLS - 1.9%
Case Corp., 7.25%, 2016 ..................... $ 255,000 $ 240,975
Case New Holland, Inc., 9.25%, 2011 ......... 100,000 105,250
Case New Holland, Inc.,
7.125%, 2014 (a) .......................... 460,000 439,300
Terex Corp., 10.375%, 2011 .................. 123,000 130,073
Terex Corp., 7.375%, 2014 ................... 175,000 174,125
--------------
$ 1,089,723
--------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 5.9%
CDRV Investors, Inc., 0% to 2010,
9.625% to 2015 ............................ $ 425,000 $ 286,875
DaVita, Inc., 6.625%, 2013 .................. 125,000 118,750
DaVita, Inc., 7.25%, 2015 ................... 275,000 264,000
Extendicare Health Services, Inc.,
6.875%, 2014 .............................. 215,000 224,675
HCA, Inc., 7.875%, 2011 ..................... 375,000 383,074
HCA, Inc., 6.375%, 2015 ..................... 445,000 412,314
HealthSouth Corp., 10.75%, 2016 (a) ......... 395,000 387,100
Omnicare, Inc., 6.875%, 2015 ................ 375,000 356,250
Select Medical Corp., 7.625%, 2015 .......... 205,000 178,350
Tenet Healthcare Corp., 9.875%, 2014 ........ 210,000 210,000
Triad Hospitals, Inc., 7%, 2013 ............. 245,000 238,263
US Oncology, Inc., 10.75%, 2014 ............. 265,000 287,525
--------------
$ 3,347,176
--------------
METALS & MINING - 1.4%
Arch Western Finance LLC, 6.75%, 2013 ....... $ 160,000 $ 153,200
Massey Energy Co., 6.875%, 2013 ............. 450,000 418,500
Peabody Energy Corp., 5.875%, 2016 .......... 275,000 251,625
--------------
$ 823,325
--------------
NATURAL GAS - DISTRIBUTION - 0.5%
AmeriGas Partners LP, 7.25%, 2015 ........... $ 150,000 $ 141,750
AmeriGas Partners LP, 7.125%, 2016 .......... 175,000 164,063
--------------
$ 305,813
--------------
NATURAL GAS - PIPELINE - 2.2%
ANR Pipeline Co., 9.625%, 2021 .............. $ 155,000 $ 180,784
Atlas Pipeline Partners LP,
8.125%, 2015 (a) .......................... 185,000 184,306
Colorado Interstate Gas Co.,
5.95%, 2015 ............................... 140,000 127,229
El Paso Energy Corp., 7%, 2011 .............. 335,000 330,394
El Paso Energy Corp., 7.75%, 2013 ........... 170,000 171,275
Transcontinental Gas Pipe Line Corp.,
7%, 2011 .................................. 135,000 136,350
Williams Cos., Inc., 7.125%, 2011 ........... 132,000 132,000
--------------
$ 1,262,338
--------------
NETWORK & TELECOM - 3.9%
Cincinnati Bell, Inc., 8.375%, 2014 ......... $ 260,000 $ 256,100
Citizens Communications Co.,
9.25%, 2011 ............................... 275,000 295,625
Citizens Communications Co., 9%, 2031 ....... 340,000 344,250
Hawaiian Telecom Communications, Inc.,
9.75%, 2013 ............................... 165,000 167,887
Hawaiian Telecom Communications, Inc.,
12.5%, 2015 ............................... 50,000 52,375
Nordic Telephone Co. Holdings,
8.875%, 2016 (a) .......................... 145,000 148,988
Qwest Corp., 7.875%, 2011 ................... 195,000 197,438
Qwest Corp., 8.875%, 2012 ................... 405,000 427,275
Time Warner Telecom Holdings, Inc., 9.25%,
2014 ...................................... 90,000 92,250
Verizon New York, Inc., 7.375%, 2032 ........ 141,000 138,995
Windstream Corp., 8.625%, 2016 (a) .......... 130,000 132,113
--------------
$ 2,253,296
--------------
OIL SERVICES - 1.0%
Basic Energy Services, Inc., 7.125%,
2016 (a) .................................. $ 230,000 $ 213,900
GulfMark Offshore, Inc., 7.75%, 2014 ........ 180,000 175,500
Hanover Compressor Co., 9%, 2014 ............ 190,000 198,550
--------------
$ 587,950
--------------
PHARMACEUTICALS - 0.5%
Warner Chilcott Corp., 8.75%, 2015 .......... $ 250,000 $ 257,500
--------------
PRINTING & PUBLISHING - 3.8%
American Media Operations, Inc.,
8.875%, 2011 .............................. $ 235,000 $ 207,975
Dex Media, Inc., 0% to 2008, 9% to 2013 ..... 635,000 534,987
Dex Media, Inc., 0% to 2008, 9% to 2013 ..... 300,000 252,750
MediaNews Group, Inc., 6.875%, 2013 ......... 330,000 300,300
PRIMEDIA, Inc., 8.875%, 2011 ................ 205,000 196,800
PRIMEDIA, Inc., 8%, 2013 .................... 80,000 71,600
R.H. Donnelley Corp., 8.875%, 2016 (a) ...... 295,000 297,581
WDAC Subsidiary Corp.,
8.375%, 2014 (a) .......................... 320,000 314,400
--------------
$ 2,176,393
--------------
RAILROAD & SHIPPING - 0.4%
TFM S.A. de C.V., 9.375%, 2012 .............. $ 202,000 $ 215,130
TFM S.A. de C.V., 12.5%, 2012 ............... 26,000 28,665
--------------
$ 243,795
--------------
RESTAURANTS - 0.3%
Denny's Corp. Holdings, Inc., 10%, 2012 ..... $ 150,000 $ 149,250
--------------
RETAILERS - 2.6%
Buhrmann U.S., Inc., 7.875%, 2015 ........... $ 275,000 $ 271,563
Couche-Tard, Inc., 7.5%, 2013 ............... 180,000 179,100
Dollar General Corp., 8.625%, 2010 .......... 140,000 147,350
Jean Coutu Group (PJC), Inc.,
7.625%, 2012 .............................. 160,000 155,200
Jean Coutu Group (PJC), Inc.,
8.5%, 2014 ................................ 180,000 165,600
Neiman Marcus Group, Inc.,
9%, 2015 (a) .............................. 185,000 193,325
Neiman Marcus Group, Inc.,
10.375%, 2015 (a) ......................... 115,000 122,187
Steinway Musical Instruments, Inc.,
7%, 2014 (a) .............................. 265,000 256,388
--------------
$ 1,490,713
--------------
SPECIALTY STORES - 1.0%
GSC Holdings Corp., 8%, 2012 ................ $ 340,000 $ 340,000
Payless ShoeSource, Inc., 8.25%, 2013 ....... 195,000 201,581
--------------
$ 541,581
--------------
STEEL - 0.4%
Chaparral Steel Co., 10%, 2013 .............. $ 225,000 $ 245,250
--------------
SUPERMARKETS - 0.2%
Pathmark Stores, Inc., 8.75%, 2012 .......... $ 90,000 $ 85,500
--------------
TELECOMMUNICATIONS - WIRELESS - 2.0%
Alamosa Holdings, Inc., 12%, 2009 ........... $ 170,000 $ 180,625
Centennial Communications Corp.,
10%, 2013 ................................. 50,000 49,500
Centennial Communications Corp.,
10.125%, 2013 ............................. 120,000 126,300
Rogers Wireless, Inc., 6.375%, 2014 ......... 250,000 238,125
Rogers Wireless, Inc., 7.5%, 2015 ........... 175,000 176,750
Rural Cellular Corp., 9.875%, 2010 .......... 210,000 216,038
Wind Acquisition Finance S.A.,
10.75%, 2015 (a) .......................... 165,000 175,313
--------------
$ 1,162,651
--------------
TOBACCO - 0.6%
Reynolds American, Inc., 7.25%, 2012 (a) .... $ 185,000 $ 181,300
Reynolds American, Inc., 7.3%, 2015 (a) ..... 155,000 150,156
--------------
$ 331,456
--------------
TRANSPORTATION - SERVICES - 1.4%
Hertz Corp., 8.875%, 2014 (a) ............... $ 360,000 $ 369,000
Stena AB, 9.625%, 2012 ...................... 80,000 85,000
Stena AB, 7%, 2016 .......................... 221,000 203,320
Westinghouse Air Brake Technologies Corp.,
6.875%, 2013 .............................. 125,000 121,875
--------------
$ 779,195
--------------
UTILITIES - ELECTRIC POWER - 4.8%
Edison Mission Energy, 7.75%, 2016 (a) ...... $ 125,000 $ 122,812
Empresa Nacional de Electricidad S.A.,
8.35%, 2013 ............................... 175,000 188,398
Enersis S.A., 7.375%, 2014 .................. 101,000 102,249
Midwest Generation LLC, 8.75%, 2034 ......... 345,000 365,700
Mirant North America LLC,
7.375%, 2013 (a) .......................... 500,000 482,500
Mission Energy Holding Co.,
13.5%, 2008 ............................... 180,000 200,700
NRG Energy, Inc., 7.375%, 2016 .............. 770,000 750,750
Reliant Energy, Inc., 6.75%, 2014 ........... 40,000 36,800
Reliant Resources, Inc., 9.25%, 2010 ........ 80,000 80,000
Reliant Resources, Inc., 9.5%, 2013 ......... 95,000 95,475
TXU Corp., 5.55%, 2014 ...................... 335,000 303,850
--------------
$ 2,729,234
--------------
TOTAL BONDS (IDENTIFIED COST, $53,989,464)............ $ 52,939,953
--------------
COMMON STOCKS - 1.6%
AUTOMOTIVE - 0.5%
Magna International, Inc., "A" .............. 3,800 $ 273,486
--------------
CHEMICALS - 0.3%
Huntsman Corp. (n) .......................... 9,100 $ 157,612
--------------
CONTAINERS - 0.3%
Crown Holdings, Inc. (n) .................... 11,500 $ 179,055
--------------
ENERGY - INDEPENDENT - 0.2%
Foundation Coal Holdings, Inc. .............. 2,970 $ 139,382
--------------
METALS & MINING - 0.0%
Oxford Automotive, Inc. (n) ................. 53 $ 0
--------------
PRINTING & PUBLISHING - 0.0%
Golden Books Family Entertainment, Inc. (n) . 21,250 $ 0
--------------
SPECIALTY CHEMICALS - 0.0%
Sterling Chemicals, Inc. (n) ................ 5 $ 69
--------------
TELECOMMUNICATIONS - WIRELESS - 0.1%
Vodafone Group PLC, ADR ..................... 2,574 $ 54,826
--------------
TELEPHONE SERVICES - 0.2%
NTL, Inc. ................................... 3,715 $ 92,503
XO Holdings, Inc. (n) ....................... 67 295
--------------
$ 92,798
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $967,820) ........... $ 897,228
--------------
FLOATING RATE LOANS (r)(g) - 1.5%
AUTOMOTIVE - 0.4%
Lear Corp., Term Loan, 7.93%, 2014 .......... $ 219,993 $ 217,999
--------------
CONTAINERS - 0.4%
Bluegrass Container Co. LLC, Second Lien
Term Loan, 2013 (o) ....................... 208,000 $ 208,000
--------------
GAMING & LODGING - 0.7%
Gulfside Casino, Inc., Term Loan B, 2012 (o) 398,024 $ 398,024
--------------
TOTAL FLOATING RATE LOANS
(IDENTIFIED COST, $826,157) ........................ $ 824,023
--------------
CONVERTIBLE PREFERRED STOCKS - 1.0%
AUTOMOTIVE - 0.6%
General Motors Corp., "B", 5.25% ............ 18,528 $ 342,768
--------------
REAL ESTATE - 0.4%
Mills Corp., 6.75% (a) ...................... 200 $ 167,000
Mills Corp., "F", 6.75% ..................... 100 83,500
--------------
$ 250,500
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST, $547,281) ........... ............ $ 593,268
--------------
PREFERRED STOCKS - 0.1%
ADVERTISING & BROADCASTING - 0.1%
Ion Media Networks, Inc. .................... 8 $ 68,800
--------------
CONSUMER GOODS & SERVICES - 0.0%
Renaissance Cosmetics, Inc., 14% (n) ........ 975 $ 0
--------------
REAL ESTATE - 0.0%
HRPT Properties Trust, REIT, "B" ............ 200 $ 5,200
--------------
TELEPHONE SERVICES - 0.0%
PTV, Inc., "A" (n) .......................... 10 $ 30
--------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST, $69,456) ......................... $ 74,030
--------------
WARRANTS - 0.0%
Strike First
Issuer Price Exercise Shares/Par Value ($)
BROADCAST & CABLE TV - 0.0%
XM Satellite Radio,
Inc.(n) .............. $45.24 9/16/00 364 $ 2,730
------------
BUSINESS SERVICES - 0.0%
Loral Space &
Communications Ltd. (n) $0.14 1/28/97 1,000 $ 0
Loral Space &
Communications Ltd. (n) 0.14 1/28/97 1,100 0
------------
$ 0
------------
NETWORK & TELECOM - 0.0%
Knology, Inc. (a)(n) .... $0.10 11/22/97 500 $ 1,083
------------
SPECIALTY CHEMICALS - 0.0%
Sterling Chemicals, Inc.
Inc.(n) ............... $52.00 12/31/02 8 $ 1
------------
TELEPHONE SERVICES - 0.0%
GT Group Telecom,
Inc.(n) ............... $0.00 8/01/00 1,050 $ 0
XO Holdings, Inc.,
"A"(n) ................ 6.25 5/27/03 532 458
XO Holdings, Inc.,
"B"(n) ................ 7.50 5/27/03 399 180
XO Holdings, Inc.,
"C"(n) ................ 10.00 5/27/03 399 120
------------
$ 758
------------
TOTAL WARRANTS (IDENTIFIED COST, $161,375) ............ $ 4,572
------------
SHORT-TERM OBLIGATIONS - 1.8%
New Center Asset Trust, 5.28%,
due 7/03/06, at Amortized Cost and Value (y) $1,033,000 $ 1,032,697
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $57,594,250) (k) .................. $ 56,365,771
-------------
OTHER ASSETS,
LESS LIABILITIES - 1.4% ................................. 816,935
-------------
NET ASSETS - 100.0% ................................... $ 57,182,706
=============
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
Net Unrealized
Contracts to Settlement In Exchange Contracts Appreciation
Deliver/Receive Date For at Value (Depreciation)
SALES
EUR 285,735 8/21/06 $362,768 $366,622 $(3,854)
======== ======== =======
PURCHASES
EUR 141,954 7/17/06 $183,559 $181,717 $(1,842)
======== ======== =======
At June 30, 2006, the variable account had sufficient cash
and/or securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
MONEY MARKET VARIABLE ACCOUNT
CERTIFICATES OF DEPOSIT - 11.4%
Issuer Shares/Par Value ($)
BANKS & CREDIT COMPANIES - 11.4%
Citibank N.A., 5.17%, 8/23/06 ............... $ 1,000,000 $ 1,000,000
Credit Suisse First Boston, NY,
4.985%, 9/13/06 ........................... 1,635,000 1,635,000
Dexia Credit Local, 5.315%, 8/8/06 .......... 1,631,000 1,631,000
Fortis Bank, NY, 5.51%, 11/28/06 ............ 1,152,000 1,152,000
Natexis Banques Populaires, NY,
5.075%, 7/27/06 ........................... 799,000 799,000
--------------
TOTAL CERTIFICATES OF DEPOSIT,
AT AMORTIZED COST AND VALUE ........................ $ 6,217,000
--------------
COMMERCIAL PAPER (y) - 88.5%
ASSET BACKED & SECURITIZED - 0.9%
Yorktown Capital LLC,
5.09%, due 7/07/06 (t) .................... $ 465,000 $ 464,606
--------------
BANKS & CREDIT COMPANIES - 24.4%
Abbey National North America LLC,
5.1%, due 7/21/06 ......................... $ 1,580,000 $ 1,575,524
Bank of America Corp.,
4.89%, due 7/03/06 ........................ 115,000 114,969
Bank of America Corp.,
5.03%, due 10/23/06 ....................... 1,364,000 1,342,274
Calyon North America, Inc.,
5.05%, due 8/02/06 ........................ 1,622,000 1,614,719
Citigroup Funding, Inc.,
5.25%, due 8/08/06 ........................ 606,000 602,642
Depfa Bank PLC, 4.96%, due 7/13/06 (t) ...... 1,620,000 1,617,322
HBOS Treasury Services PLC,
5.39%, due 9/29/06 ........................ 1,654,000 1,631,712
ING America Insurance Holdings, Inc., 4.94%,
due 7/14/06 ............................... 1,620,000 1,617,110
Svenska Handelsbanken, Inc.,
5.16%, due 8/07/06 ........................ 1,589,000 1,580,573
UBS Financial Delaware LLC,
5.055%, due 7/05/06 ....................... 1,598,000 1,597,102
--------------
$ 13,293,947
--------------
BROKERAGE & ASSET MANAGERS - 5.9%
Goldman Sachs Group, Inc.,
4.89%, due 7/07/06 ........................ $ 1,617,000 $ 1,615,682
Merrill Lynch & Co., Inc.,
4.9%, due 7/10/06 ......................... 1,618,000 1,616,018
--------------
$ 3,231,700
--------------
FINANCIAL INSTITUTIONS - 51.8%
Alpine Securitization Corp.,
5.01%, due 7/05/06 (t) .................... $ 1,607,000 $ 1,606,105
American Express Credit Corp.,
5.05%, due 7/21/06 ........................ 1,606,000 1,601,494
American General Finance Corp.,
5.05%, due 8/07/06 ........................ 1,623,000 1,614,576
CRC Funding LLC,
5.24%, due 8/14/06 (t) .................... 1,622,000 1,611,612
Ciesco LLC, 5.02%, due 7/06/06 (t) .......... 1,155,000 1,154,195
Ciesco LLC, 5.15%, due 8/04/06 (t) .......... 429,000 426,913
Edison Asset Securitization LLC,
5.04%, due 8/09/06 (t) .................... 1,611,000 1,602,204
FCAR Owner Trust, 5.08%, due 7/06/06 ........ 1,577,000 1,575,887
Falcon Asset Securitization Corp.,
5.28%, due 7/03/06 (t) .................... 773,000 772,773
General Electric Capital Corp.,
5.38%, due 10/26/06 ....................... 1,660,000 1,630,975
General Re Corp., 4.94%, due 7/17/06 ........ 695,000 693,474
Kitty Hawk Funding Corp.,
5.25%, due 7/20/06 (t) .................... 1,612,000 1,607,533
New Center Asset Trust,
5.24%, due 7/20/06 ........................ 1,612,000 1,607,542
Old Line Funding LLC,
5.05%, due 7/10/06 (t) .................... 713,000 712,100
Old Line Funding LLC,
5.2%, due 8/03/06 (t) ..................... 1,071,000 1,065,895
Preferred Receivables Funding Corp., 5.05%,
due 7/18/06 (t) ........................... 1,618,000 1,614,142
Ranger Funding Co. LLC,
5.08%, due 7/21/06 (t) .................... 1,612,000 1,607,451
Scaldis Capital LLC, 5%, due 7/03/06 (t) .... 1,607,000 1,606,554
Sheffield Receivables Corp.,
5.09%, due 8/03/06 (t) .................... 1,795,000 1,786,625
Thunder Bay Funding LLC,
5.04%, due 7/07/06 (t) .................... 1,603,000 1,601,653
Windmill Funding Corp.,
5.13%, due 8/01/06 (t) .................... 782,000 778,546
--------------
$ 28,278,249
--------------
INSURANCE - 2.9%
Metlife Funding, Inc., 5.03%, due 7/20/06 ... $ 244,000 $ 243,352
Metlife, Inc., 4.91%, due 7/10/06 (t) ....... 1,362,000 1,360,328
--------------
$ 1,603,680
--------------
NETWORK & TELECOM - 2.6%
BellSouth Corp., 5.05%, due 7/17/06 (t) ..... $ 1,430,000 $ 1,426,790
--------------
TOTAL COMMERCIAL PAPER, AT AMORTIZED COST
AND VALUE .......................................... $ 48,298,972
--------------
TOTAL INVESTMENTS, AT AMORTIZED COST
AND VALUE .......................................... $ 54,515,972
--------------
OTHER ASSETS,
LESS LIABILITIES - 0.1% ................................ 82,953
--------------
NET ASSETS - 100.0% .................................. $ 54,598,925
==============
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (Unaudited) -- June 30, 2006
TOTAL RETURN VARIABLE ACCOUNT
COMMON STOCKS - 60.2%
Issuer Shares/Par Value ($)
ADVERTISING & BROADCASTING - 1.1%
CBS Corp., "B" .............................. 46,919 $ 1,269,159
Grupo Televisa S.A., ADR .................... 5,700 110,067
Viacom, Inc., "B" (n) ....................... 11,185 400,870
Walt Disney Co. ............................. 4,580 137,400
--------------
$ 1,917,496
--------------
AEROSPACE - 1.9%
Lockheed Martin Corp. ....................... 21,100 $ 1,513,714
Northrop Grumman Corp. ...................... 12,620 808,437
United Technologies Corp. ................... 17,620 1,117,460
--------------
$ 3,439,611
--------------
ALCOHOLIC BEVERAGES - 0.6%
Diageo PLC .................................. 45,856 $ 770,519
Molson Coors Brewing Co. .................... 3,500 237,580
--------------
$ 1,008,099
--------------
APPAREL MANUFACTURERS - 0.3%
NIKE, Inc., "B" ............................. 7,290 $ 590,490
--------------
AUTOMOTIVE - 0.2%
Johnson Controls, Inc. ...................... 4,750 $ 390,545
--------------
BANKS & CREDIT COMPANIES - 9.2%
American Express Co. ........................ 11,270 $ 599,789
Bank of America Corp. ....................... 99,568 4,789,221
Bank of New York Co., Inc. .................. 25,700 827,540
Capital One Financial Corp. ................. 6,020 514,409
Citigroup, Inc. ............................. 41,006 1,978,129
Countrywide Financial Corp. ................. 11,530 439,062
Fannie Mae .................................. 15,420 741,702
Freddie Mac ................................. 2,710 154,497
J.P. Morgan Chase & Co. ..................... 61,752 2,593,584
PNC Financial Services Group, Inc. .......... 30,740 2,157,026
SunTrust Banks, Inc. ........................ 15,810 1,205,671
UBS AG ...................................... 3,825 418,784
Wells Fargo & Co. ........................... 3,510 235,451
--------------
$ 16,654,865
--------------
BIOTECHNOLOGY - 0.1%
Amgen, Inc. (n) ............................. 1,470 $ 95,888
--------------
BROKERAGE & ASSET MANAGERS - 3.2%
Franklin Resources, Inc. .................... 5,370 $ 466,170
Goldman Sachs Group, Inc. ................... 7,180 1,080,087
KKR Private Equity Investments LP, IEU (n) .. 6,600 144,540
Lehman Brothers Holdings, Inc. .............. 10,570 688,636
Mellon Financial Corp. ...................... 61,010 2,100,574
Merrill Lynch & Co., Inc. ................... 12,530 871,587
Morgan Stanley .............................. 6,790 429,196
--------------
$ 5,780,790
--------------
BUSINESS SERVICES - 0.3%
Accenture Ltd., "A" ......................... 19,020 $ 538,646
--------------
CHEMICALS - 1.5%
3M Co. ...................................... 5,490 $ 443,427
Dow Chemical Co. ............................ 6,870 268,136
E.I. du Pont de Nemours & Co. ............... 12,730 529,568
Nalco Holding Co. (n) ....................... 22,450 395,794
PPG Industries, Inc. ........................ 12,030 793,980
Syngenta AG ................................. 2,660 353,174
--------------
$ 2,784,079
--------------
COMPUTER SOFTWARE - 2.4%
Compuware Corp. (n) ......................... 132,000 $ 884,400
Oracle Corp. (n) ............................ 80,090 1,160,504
Symantec Corp. (n) .......................... 145,320 2,258,273
--------------
$ 4,303,177
--------------
COMPUTER SOFTWARE - SYSTEMS - 1.1%
Dell, Inc. (n) .............................. 52,070 $ 1,271,029
Hewlett-Packard Co. ......................... 5,200 164,736
Sun Microsystems, Inc. (n) .................. 123,910 514,227
--------------
$ 1,949,992
--------------
CONSTRUCTION - 1.4%
D.R. Horton, Inc. ........................... 7,100 $ 169,122
Masco Corp. ................................. 73,930 2,191,285
Sherwin-Williams Co. ........................ 2,520 119,650
--------------
$ 2,480,057
--------------
CONSUMER GOODS & SERVICES - 0.5%
Alberto-Culver Co. .......................... 4,800 $ 233,856
Estee Lauder Cos., Inc., "A" ................ 17,540 678,272
--------------
$ 912,128
--------------
CONTAINERS - 1.0%
Owens-Illinois, Inc. (n) .................... 105,090 $ 1,761,308
Smurfit-Stone Container Corp. (n) ........... 6,550 71,657
--------------
$ 1,832,965
--------------
ELECTRICAL EQUIPMENT - 2.1%
Cooper Industries Ltd., "A" ................. 3,230 $ 300,132
General Electric Co. ........................ 33,040 1,088,998
Tyco International Ltd. ..................... 79,890 2,196,975
W.W. Grainger, Inc. ......................... 3,300 248,259
--------------
$ 3,834,364
--------------
ELECTRONICS - 0.5%
Analog Devices, Inc. ........................ 7,700 $ 247,478
Intel Corp. ................................. 30,190 572,101
Xilinx, Inc. ................................ 7,100 160,815
--------------
$ 980,394
--------------
ENERGY - INDEPENDENT - 1.9%
Apache Corp. ................................ 23,160 $ 1,580,670
Devon Energy Corp. .......................... 26,310 1,589,387
EOG Resources, Inc. ......................... 3,600 249,624
--------------
$ 3,419,681
--------------
ENERGY - INTEGRATED - 3.7%
BP PLC, ADR ................................. 5,540 $ 385,639
Chevron Corp. ............................... 10,045 623,393
ConocoPhillips .............................. 20,350 1,333,536
Exxon Mobil Corp. ........................... 38,882 2,385,411
Hess Corp. .................................. 14,220 751,527
TOTAL S.A., ADR ............................. 17,940 1,175,429
--------------
$ 6,654,935
--------------
FOOD & NON ALCOHOLIC BEVERAGES - 1.3%
Archer Daniels Midland Co. .................. 3,060 $ 126,317
Coca-Cola Co. ............................... 7,980 343,300
Kellogg Co. ................................. 17,940 868,834
Nestle S.A .................................. 1,523 477,843
PepsiCo, Inc. ............................... 7,290 437,692
Sara Lee Corp. .............................. 10,080 161,482
--------------
$ 2,415,468
--------------
FOREST & PAPER PRODUCTS - 0.6%
Bowater, Inc. ............................... 33,480 $ 761,670
International Paper Co. ..................... 5,910 190,893
MeadWestvaco Corp. .......................... 7,270 203,051
--------------
$ 1,155,614
--------------
GENERAL MERCHANDISE - 1.2%
Federated Department Stores, Inc. ........... 5,060 $ 185,196
Saks, Inc. .................................. 53,600 866,712
Wal-Mart Stores, Inc. ....................... 24,430 1,176,793
--------------
$ 2,228,701
--------------
HEALTH MAINTENANCE ORGANIZATIONS - 0.3%
CIGNA Corp. ................................. 1,620 $ 159,586
WellPoint, Inc. (n) ......................... 5,300 385,681
--------------
$ 545,267
--------------
INSURANCE - 4.0%
Ace Ltd. .................................... 5,360 $ 271,162
AFLAC, Inc. ................................. 5,110 236,849
Allstate Corp. .............................. 38,970 2,132,828
Chubb Corp. ................................. 4,470 223,053
Conseco, Inc. (n) ........................... 50,920 1,176,252
Genworth Financial, Inc., "A" ............... 29,520 1,028,477
Hartford Financial Services Group, Inc. ..... 10,080 852,768
MetLife, Inc. ............................... 18,880 966,845
Safeco Corp. ................................ 4,610 259,774
--------------
$ 7,148,008
--------------
LEISURE & TOYS - 0.4%
Hasbro, Inc. ................................ 6,290 $ 113,912
Mattel, Inc. ................................ 39,150 646,367
--------------
$ 760,279
--------------
MACHINERY & TOOLS - 0.8%
Deere & Co. ................................. 9,700 $ 809,853
Finning International, Inc. (a) ............. 460 15,313
Illinois Tool Works, Inc. ................... 7,900 375,250
Ingersoll-Rand Co. Ltd., "A" ................ 6,210 265,664
--------------
$ 1,466,080
--------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.3%
Tenet Healthcare Corp. (n) .................. 80,390 $ 561,122
--------------
MEDICAL EQUIPMENT - 0.3%
Baxter International, Inc. .................. 1,680 $ 61,757
Pall Corp. .................................. 18,000 504,000
--------------
$ 565,757
--------------
METALS & MINING - 0.1%
BHP Billiton PLC ............................ 12,010 $ 232,757
--------------
NATURAL GAS - PIPELINE - 0.0%
Williams Cos., Inc. ......................... 2,400 $ 56,064
--------------
NETWORK & TELECOM - 1.3%
Cisco Systems, Inc. (n) ..................... 32,820 $ 640,975
Nortel Networks Corp. (n) ................... 782,450 1,752,688
--------------
$ 2,393,663
--------------
OIL SERVICES - 1.4%
GlobalSantaFe Corp. ......................... 21,650 $ 1,250,288
Noble Corp. ................................. 16,195 1,205,232
--------------
$ 2,455,520
--------------
PHARMACEUTICALS - 4.7%
Abbott Laboratories ......................... 5,400 $ 235,494
Eli Lilly & Co. ............................. 12,830 709,114
Johnson & Johnson ........................... 30,710 1,840,143
Merck & Co., Inc. ........................... 78,910 2,874,691
Wyeth ....................................... 62,380 2,770,296
--------------
$ 8,429,738
--------------
PRINTING & PUBLISHING - 0.5%
New York Times Co., "A" ..................... 35,080 $ 860,863
--------------
RAILROAD & SHIPPING - 0.6%
Burlington Northern Santa Fe Corp. .......... 8,220 $ 651,435
Norfolk Southern Corp. ...................... 8,370 445,451
--------------
$ 1,096,886
--------------
SPECIALTY CHEMICALS - 0.4%
Air Products & Chemicals, Inc. .............. 6,720 $ 429,542
Praxair, Inc. ............................... 3,940 212,760
--------------
$ 642,302
--------------
SPECIALTY STORES - 1.0%
Gap, Inc. ................................... 19,250 $ 334,950
Home Depot, Inc. ............................ 8,800 314,952
OfficeMax, Inc. ............................. 26,180 1,066,835
--------------
$ 1,716,737
--------------
TELECOMMUNICATIONS - WIRELESS - 0.2%
Vodafone Group PLC, ADR ..................... 19,736 $ 420,377
--------------
TELEPHONE SERVICES - 3.4%
AT&T, Inc. .................................. 19,974 $ 557,075
Embarq Corp. (n) ............................ 9,373 384,199
Sprint Nextel Corp. ......................... 123,370 2,466,166
TELUS Corp. ................................. 8,450 348,072
Verizon Communications, Inc. ................ 69,630 2,331,909
--------------
$ 6,087,421
--------------
TOBACCO - 1.3%
Altria Group, Inc. .......................... 30,670 $ 2,252,098
--------------
TRUCKING - 0.0%
Con-way, Inc. ............................... 650 $ 37,655
--------------
UTILITIES - ELECTRIC POWER - 3.1%
Dominion Resources, Inc. .................... 15,750 $ 1,177,943
Edison International ........................ 6,300 245,700
Entergy Corp. ............................... 1,850 130,888
Exelon Corp. ................................ 9,640 547,841
FirstEnergy Corp. ........................... 4,810 260,750
FPL Group, Inc. ............................. 54,270 2,245,693
NRG Energy, Inc. (n) ........................ 3,900 187,902
PPL Corp. ................................... 10,800 348,840
Public Service Enterprise Group, Inc. ....... 2,920 193,070
TXU Corp. ................................... 3,560 212,852
--------------
$ 5,551,479
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $97,741,040) ..................... $ 108,648,058
--------------
BONDS - 38.4%
ADVERTISING & BROADCASTING - 0.1%
News America Holdings, 8.5%, 2025 ........... $ 99,000 $ 111,883
News America, Inc., 6.2%, 2034 .............. 42,000 38,115
--------------
$ 149,998
--------------
AEROSPACE - 0.2%
Boeing Capital Corp., 6.5%, 2012 ............ $ 263,000 $ 272,035
--------------
AGENCY - OTHER - 0.0%
Financing Corp., 9.65%, 2018 ................ $ 45,000 $ 60,937
--------------
AIRLINES - 0.1%
Continental Airlines, Inc., 6.648%, 2017 .... $ 170,274 $ 169,312
--------------
ASSET BACKED & SECURITIZED - 2.7%
AmeriCredit Automobile Receivables Trust,
2.18%, 2008 ............................... $ 50,072 $ 49,908
Banc of America Commercial Mortgage, Inc.,
FRN, 4.857%, 2043 ......................... 200,000 186,019
Banc of America Commercial Mortgage, Inc.,
FRN, 5.354%, 2047 ......................... 102,153 97,180
Banc of America Commercial Mortgage, Inc.,
FRN, 5.354%, 2047 ......................... 100,000 95,553
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.1406%, 2040 (a) ............. 250,000 250,232
Bear Stearns Commercial Mortgage
Securities, Inc., FRN, 5.116%, 2041 ....... 82,288 77,996
Blackrock Capital Finance LP,
7.75%, 2026 (a) ........................... 46,206 45,744
Chase Commercial Mortgage Securities Corp.,
7.543%, 2032 .............................. 63,787 64,836
Citigroup/Deutsche Bank Commercial Mortgage
Trust, FRN, 5.3997%, 2044 ................. 200,000 194,137
Countrywide Asset-Backed Certificates, FRN,
4.823%, 2035 .............................. 75,000 74,162
CRIIMI MAE CMBS Corp.,
6.7%, 2008 (a) ............................ 190,000 190,283
CRIIMI MAE Commercial Mortgage Trust, 7%,
2033 (a) .................................. 179,009 179,484
Deutsche Mortgage & Asset Receiving Corp.,
6.538%, 2031 .............................. 125,125 126,198
Falcon Franchise Loan LLC,
7.382%, 2010 (a) .......................... 44,241 45,112
GE Commercial Mortgage Corp., FRN, 5.5185%,
2044 ...................................... 130,000 124,930
Greenwich Capital Commercial Funding Corp.,
4.305%, 2042 .............................. 107,385 102,669
Greenwich Capital Commercial Funding Corp.,
FRN, 6.1101%, 2016 ........................ 100,000 100,547
Greenwich Capital Commercial Funding Corp.,
FRN, 5.317%, 2036 ......................... 60,728 58,644
J.P. Morgan Chase Commercial Mortgage
Securities Corp., 4.78%, 2042 ............. 152,000 139,863
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3816%, 2041 ...... 39,903 38,367
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.4723%, 2043 ...... 200,000 192,336
J.P. Morgan Chase Commercial Mortgage
Securities Corp., FRN, 5.038%, 2046 ....... 197,476 186,193
Merrill Lynch Mortgage Trust, FRN, 5.8444%,
2039 ...................................... 197,000 194,107
Morgan Stanley Capital I, Inc.,
5.168%, 2042 .............................. 48,533 46,220
Morgan Stanley Capital I, Inc., FRN,
0.7263%, 2030 (a)(i) ...................... 7,710,875 118,768
Multi-Family Capital Access One, Inc.,
6.65%, 2024 ............................... 46,821 47,466
Residential Asset Mortgage Products, Inc.,
4.109%, 2035 .............................. 112,691 110,239
Residential Asset Mortgage Products, Inc.,
3.8%, 2030 ................................ 18,544 18,465
Residential Asset Mortgage Products, Inc.,
FRN, 4.9708%, 2034 ........................ 92,000 88,626
Residential Funding Mortgage Securities,
Inc., FRN, 5.32%, 2035 .................... 129,000 126,720
Spirit Master Funding LLC,
5.05%, 2023 (a) ........................... 192,144 178,609
Structured Asset Securities Corp., FRN,
4.67%, 2035 ............................... 298,098 293,270
Wachovia Bank Commercial Mortgage Trust,
4.935%, 2042 .............................. 200,000 186,983
Wachovia Bank Commercial Mortgage Trust,
FRN, 4.847%, 2041 ......................... 50,000 46,537
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.083%, 2042 ......................... 185,000 174,706
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.118%, 2042 ......................... 200,000 189,239
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.3699%, 2044 ........................ 130,000 123,777
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.4908%, 2044 ........................ 149,000 142,727
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.962%, 2045 (a) ..................... 140,000 140,755
--------------
$ 4,847,607
--------------
AUTOMOTIVE - 0.1%
Johnson Controls, Inc., 5.5%, 2016 .......... $ 136,000 $ 129,039
--------------
BANKS & CREDIT COMPANIES - 2.1%
Abbey National Capital Trust I,
8.963% to 2030, FRN to 2049 ............... $ 179,000 $ 217,175
Bank of America Corp., 7.4%, 2011 ........... 189,000 201,099
Bank of America Corp., 5.375%, 2014 ......... 110,000 106,477
Barclays Bank PLC, 6.86% to 2032,
FRN to 2049 (a) ........................... 150,000 150,000
Citigroup, Inc., 5%, 2014 ................... 250,000 233,992
Credit Suisse First Boston (USA), Inc.,
4.125%, 2010 .............................. 171,000 162,463
Credit Suisse First Boston (USA), Inc.,
4.875%, 2010 .............................. 121,000 117,279
DBS Capital Funding Corp.,
7.657% to 2011, FRN to 2049 (a) ........... 170,000 181,090
HBOS Capital Funding LP,
6.071% to 2014, FRN to 2049 (a) ........... 100,000 97,426
Mizuho Capital Investment 1 Ltd.,
6.686% to 2016, FRN to 2049 (a) ........... 190,000 180,295
MUFG Capital Finance 1 Ltd.,
6.346% to 2016, FRN to 2049 ............... 200,000 192,918
Nordea Bank AB, 5.424% to 2015,
FRN to 2049 (a) ........................... 100,000 91,762
RBS Capital Trust II, 6.425% to 2034,
FRN to 2049 ............................... 161,000 150,341
Socgen Real Estate LLC, 7.64% to 2007, FRN
to 2049 (a) ............................... 361,000 368,651
UBS Preferred Funding Trust V,
6.243% to 2016, FRN to 2049 ............... 190,000 187,183
UFJ Finance Aruba AEC, 6.75%, 2013 .......... 145,000 151,058
UniCredito Italiano Capital Trust II,
9.2% to 2010, FRN to 2049 (a) ............. 208,000 231,363
Wachovia Corp., 5.25%, 2014 ................. 343,000 327,139
Wells Fargo National Bank, 4.75%, 2015 ...... 315,000 290,828
Woori Bank, FRN, 6.125%, 2016 (a) ........... 220,000 216,872
--------------
$ 3,855,411
--------------
BROADCAST & CABLE TV - 0.3%
Cox Communications, Inc.,
4.625%, 2013 .............................. $ 159,000 $ 142,714
TCI Communications Financing III,
9.65%, 2027 ............................... 425,000 453,158
--------------
$ 595,872
--------------
BROKERAGE & ASSET MANAGERS - 0.6%
Goldman Sachs Group, Inc., 5.7%, 2012 ....... $ 137,000 $ 135,670
Lehman Brothers Holdings, Inc.,
8.25%, 2007 ............................... 334,000 341,898
Merrill Lynch & Co., Inc., 5.45%, 2014 ...... 127,000 122,600
Merrill Lynch & Co., Inc., 6.05%, 2016 ...... 200,000 198,683
Morgan Stanley Group, Inc.,
6.75%, 2011 ............................... 156,000 161,963
Morgan Stanley Group, Inc.,
4.75%, 2014 ............................... 78,000 71,512
--------------
$ 1,032,326
--------------
BUILDING - 0.1%
CRH America, Inc., 6.95%, 2012 .............. $ 208,000 $ 215,734
--------------
BUSINESS SERVICES - 0.1%
Cisco Systems, Inc., 5.5%, 2016 ............. $ 135,000 $ 129,631
--------------
CONGLOMERATES - 0.1%
Kennametal, Inc., 7.2%, 2012 ................ $ 211,000 $ 220,064
--------------
CONSUMER GOODS & SERVICES - 0.2%
Cendant Corp., 6.875%, 2006 ................. $ 147,000 $ 147,145
Fortune Brands, Inc., 5.125%, 2011 .......... 158,000 151,324
--------------
$ 298,469
--------------
DEFENSE ELECTRONICS - 0.1%
BAE Systems Holdings, Inc.,
5.2%, 2015 (a) ............................ $ 103,000 $ 95,906
Raytheon Co., 6.15%, 2008 ................... 114,000 115,114
--------------
$ 211,020
--------------
EMERGING MARKET QUASI-SOVEREIGN - 0.0%
Pemex Project Funding Master Trust,
8.625%, 2022 .............................. $ 39,000 $ 43,602
--------------
EMERGING MARKET SOVEREIGN - 0.2%
State of Israel, 4.625%, 2013 ............... $ 112,000 $ 103,723
United Mexican States, 6.375%, 2013 ......... 111,000 111,278
United Mexican States, 6.625%, 2015 ......... 10,000 10,125
United Mexican States, 5.625%, 2017 ......... 100,000 93,000
--------------
$ 318,126
--------------
ENERGY - INDEPENDENT - 0.2%
Devon Financing Corp. U.L.C.,
6.875%, 2011 .............................. $ 51,000 $ 53,025
Nexen, Inc., 5.875%, 2035 ................... 100,000 88,282
Ocean Energy, Inc., 7.25%, 2011 ............. 84,000 88,542
XTO Energy, Inc., 5.65%, 2016 ............... 190,000 180,166
--------------
$ 410,015
--------------
ENTERTAINMENT - 0.1%
Walt Disney Co., 6.375%, 2012 ............... $ 156,000 $ 160,080
--------------
FINANCIAL INSTITUTIONS - 0.2%
Countrywide Financial Corp.,
6.25%, 2016 ............................... $ 171,000 $ 167,603
General Electric Capital Corp.,
8.75%, 2007 ............................... 130,000 133,349
HSBC Finance Corp., 5.25%, 2011 ............. 145,000 141,619
--------------
$ 442,571
--------------
FOOD & NON ALCOHOLIC BEVERAGES - 0.4%
Cadbury Schweppes PLC,
5.125%, 2013 (a) .......................... $ 270,000 $ 253,627
Diageo Finance B.V., 5.5%, 2013 ............. 190,000 184,930
Miller Brewing Co., 5.5%, 2013 (a) .......... 276,000 264,817
--------------
$ 703,374
--------------
FOREST & PAPER PRODUCTS - 0.0%
MeadWestvaco Corp., 6.8%, 2032 .............. $ 69,000 $ 64,645
--------------
GAMING & LODGING - 0.1%
Marriott International, Inc., 6.2%, 2016 .... $ 139,000 $ 136,571
--------------
INSURANCE - 0.5%
AIG SunAmerica Institutional Funding II,
5.75%, 2009 ............................... $ 441,000 $ 441,251
American International Group, Inc.,
5.05%, 2015 (a) ........................... 150,000 139,936
ING Groep N.V., 5.775% to 2015,
FRN to 2049 ............................... 223,000 211,607
MetLife, Inc., 6.5%, 2032 ................... 48,000 47,914
--------------
$ 840,708
--------------
INSURANCE - PROPERTY & CASUALTY - 0.2%
Allstate Corp., 6.125%, 2032 ................ $ 185,000 $ 173,428
Fund American Cos., Inc., 5.875%, 2013 ...... 117,000 112,261
St. Paul Travelers Cos., Inc., 5.5%, 2015 ... 112,000 105,787
--------------
$ 391,476
--------------
INTERNATIONAL MARKET QUASI-SOVEREIGN - 0.2%
Hydro-Quebec, 6.3%, 2011 .................... $ 262,000 $ 269,556
--------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.2%
Cardinal Health, Inc., 5.85%, 2017 .......... $ 145,000 $ 138,254
HCA, Inc., 8.75%, 2010 ...................... 40,000 42,171
HCA, Inc., 6.95%, 2012 ...................... 139,000 135,682
--------------
$ 316,107
--------------
METALS & MINING - 0.0%
Alcan, Inc., 5%, 2015 ....................... $ 28,000 $ 25,870
--------------
MORTGAGE BACKED - 14.1%
Fannie Mae, 5.722%, 2009 .................... $ 415,000 $ 413,250
Fannie Mae, 4.01%, 2013 ..................... 19,191 17,466
Fannie Mae, 4.63%, 2014 ..................... 47,456 44,469
Fannie Mae, 4.518%, 2014 .................... 175,077 163,206
Fannie Mae, 4.847%, 2014 .................... 72,318 68,668
Fannie Mae, 4.925%, 2015 .................... 267,091 253,924
Fannie Mae, 5.5%, 2016 - 2035 ............... 9,117,963 8,811,168
Fannie Mae, 6%, 2017 - 2036 ................. 2,906,603 2,882,452
Fannie Mae, 5%, 2018 - 2035 ................. 2,545,868 2,425,254
Fannie Mae, 4.5%, 2018 - 2035 ............... 1,131,237 1,058,694
Fannie Mae, 6.5%, 2031 - 2036 ............... 976,884 984,923
Fannie Mae, 7.5%, 2031 ...................... 35,014 36,217
Freddie Mac, 6%, 2016 - 2036 ................ 1,622,747 1,607,477
Freddie Mac, 5%, 2017 - 2035 ................ 2,240,867 2,108,753
Freddie Mac, 4.5%, 2018 - 2035 .............. 907,332 851,793
Freddie Mac, 5.5%, 2020 - 2035 .............. 1,725,741 1,667,524
Freddie Mac, 6.5%, 2034 ..................... 232,153 233,613
Ginnie Mae, 6%, 2033 - 2034 ................. 504,101 500,690
Ginnie Mae, 4.5%, 2033 - 2034 ............... 168,573 154,116
Ginnie Mae, 5%, 2033 - 2034 ................. 186,912 176,826
Ginnie Mae, 5.5%, 2033 - 2035 ............... 916,048 888,936
Ginnie Mae, 6.5%, 2035 - 2036 ............... 107,313 108,268
--------------
$ 25,457,687
--------------
NATURAL GAS - PIPELINE - 0.2%
CenterPoint Energy Resources Corp.,
7.875%, 2013 .............................. $ 82,000 $ 89,134
Kinder Morgan Energy Partners LP,
6.75%, 2011 ............................... 165,000 168,559
Kinder Morgan Energy Partners LP,
5.125%, 2014 .............................. 46,000 41,994
Kinder Morgan Energy Partners LP,
7.75%, 2032 ............................... 71,000 76,406
--------------
$ 376,093
--------------
NETWORK & TELECOM - 0.4%
AT&T, Inc., 6.15%, 2034 ..................... $ 35,000 $ 32,121
BellSouth Corp., 6.55%, 2034 ................ 146,000 139,024
PCCW-HKTC Capital II Ltd.,
6%, 2013 (a) .............................. 99,000 93,897
Telecom Italia Capital, 5.25%, 2013 ......... 60,000 55,468
Telecom Italia Capital, 6%, 2034 ............ 97,000 83,752
Telefonica Europe B.V., 7.75%, 2010 ......... 50,000 53,042
Verizon New York, Inc., 6.875%, 2012 ........ 286,000 289,802
--------------
$ 747,106
--------------
OIL SERVICES - 0.0%
Halliburton Co., 5.5%, 2010 ................. $ 50,000 $ 49,527
--------------
OILS - 0.1%
Valero Energy Corp., 6.875%, 2012 ........... $ 111,000 $ 115,058
--------------
PHARMACEUTICALS - 0.2%
Allergan, Inc., 5.75%, 2016 (a) ............. $ 160,000 $ 155,464
Wyeth, 5.5%, 2013 ........................... 123,000 119,744
--------------
$ 275,208
--------------
POLLUTION CONTROL - 0.1%
Waste Management, Inc., 7.375%, 2010 ........ $ 134,000 $ 141,347
--------------
RAILROAD & SHIPPING - 0.0%
CSX Corp., 6.75%, 2011 ...................... $ 35,000 $ 36,316
Union Pacific Corp., 6.125%, 2012 ........... 50,000 50,544
--------------
$ 86,860
--------------
REAL ESTATE - 0.5%
Boston Properties, Inc., REIT, 5%, 2015 ..... $ 42,000 $ 38,529
EOP Operating LP, REIT, 6.8%, 2009 .......... 29,000 29,613
HRPT Properties Trust, REIT,
6.25%, 2016 ............................... 157,000 153,896
ProLogis, REIT, 5.75%, 2016 ................. 179,000 172,552
Simon Property Group LP, 5.1%, 2015 ......... 193,000 178,373
Vornado Realty Trust, REIT,
5.625%, 2007 .............................. 383,000 381,377
--------------
$ 954,340
--------------
RETAILERS - 0.4%
Home Depot, Inc., 5.4%, 2016 ................ $ 181,000 $ 173,503
Limited Brands, Inc., 5.25%, 2014 ........... 165,000 150,700
May Department Stores Co.,
5.75%, 2014 ............................... 150,000 145,688
Wal-Mart Stores, Inc., 5.25%, 2035 .......... 194,000 169,270
--------------
$ 639,161
--------------
TELECOMMUNICATIONS - WIRELESS - 0.0%
Cingular Wireless LLC, 6.5%, 2011 ........... $ 35,000 $ 35,866
--------------
U.S. GOVERNMENT AGENCIES - 3.5%
Aid-Egypt, 4.45%, 2015 ...................... $ 152,000 $ 141,224
Fannie Mae, 3.25%, 2006 ..................... 100,000 99,832
Fannie Mae, 3%, 2007 ........................ 244,000 239,973
Fannie Mae, 5.25%, 2007 ..................... 397,000 396,064
Fannie Mae, 6.625%, 2009 - 2010 ............. 1,428,000 1,487,926
Fannie Mae, 6%, 2011 ........................ 165,000 168,556
Federal Home Loan Bank, 3.25%, 2006 ......... 315,000 314,645
Federal Home Loan Bank, 3.75%, 2006 ......... 940,000 936,201
Federal Home Loan Bank, 3.9%, 2008 .......... 40,000 39,010
Freddie Mac, 3.75%, 2006 .................... 1,405,000 1,396,378
Small Business Administration,
4.35%, 2023 ............................... 42,901 39,434
Small Business Administration,
4.77%, 2024 ............................... 107,515 101,111
Small Business Administration,
5.18%, 2024 ............................... 176,207 170,049
Small Business Administration,
5.52%, 2024 ............................... 250,356 246,544
Small Business Administration,
4.99%, 2024 ............................... 143,946 137,106
Small Business Administration,
4.95%, 2025 ............................... 110,764 106,475
Small Business Administration,
5.09%, 2025 ............................... 133,394 127,212
Small Business Administration,
5.39%, 2025 ............................... 103,984 101,077
--------------
$ 6,248,817
--------------
U.S. TREASURY OBLIGATIONS - 8.5%
U.S. Treasury Bonds, 10.375%, 2012 .......... $ 140,000 $ 149,417
U.S. Treasury Bonds, 8%, 2021 ............... 37,000 47,320
U.S. Treasury Bonds, 6.25%, 2023 ............ 1,659,000 1,829,696
U.S. Treasury Bonds, 5.375%, 2031 ........... 2,549,000 2,593,011
U.S. Treasury Notes, 7%, 2006 ............... 99,000 99,039
U.S. Treasury Notes, 4.375%, 2007 ........... 146,000 144,882
U.S. Treasury Notes, 5.625%, 2008 ........... 2,704,000 2,725,337
U.S. Treasury Notes, 4.75%, 2008 ............ 942,000 933,574
U.S. Treasury Notes, 3.125%, 2009 ........... 3,000,000 2,845,542
U.S. Treasury Notes, 4%, 2009 ............... 23,000 22,293
U.S. Treasury Notes, 6.5%, 2010 ............. 1,148,000 1,199,436
U.S. Treasury Notes, 5%, 2011 ............... 1,400,000 1,396,555
U.S. Treasury Notes, 3.875%, 2013 ........... 199,000 185,241
U.S. Treasury Notes, 4.25%, 2013 ............ 250,000 236,582
U.S. Treasury Notes, 4.75%, 2014 ............ 150,000 146,326
U.S. Treasury Notes, TIPS, 4.25%, 2010 ...... 801,007 850,945
--------------
$ 15,405,196
--------------
UTILITIES - ELECTRIC POWER - 1.3%
Dominion Resources, Inc., 5.15%, 2015 ....... $ 141,000 $ 129,608
Duke Capital Corp., 8%, 2019 ................ 53,000 59,924
Exelon Generation Co. LLC,
6.95%, 2011 ............................... 74,000 77,157
FirstEnergy Corp., 6.45%, 2011 .............. 209,000 212,662
MidAmerican Energy Holdings Co.,
3.5%, 2008 ................................ 118,000 113,211
MidAmerican Energy Holdings Co., 5.875%,
2012 ...................................... 61,000 60,511
MidAmerican Funding LLC,
6.927%, 2029 .............................. 454,000 481,232
Northeast Utilities, 8.58%, 2006 ............ 54,240 54,394
Oncor Electric Delivery Co., 7%, 2022 ....... 152,000 157,522
Pacific Gas & Electric Co., 4.8%, 2014 ...... 45,000 41,933
Progress Energy, Inc., 7.1%, 2011 ........... 204,000 212,803
PSEG Power LLC, 6.95%, 2012 ................. 71,000 73,668
PSEG Power LLC, 5.5%, 2015 .................. 90,000 84,889
System Energy Resources, Inc.,
5.129%, 2014 (a) .......................... 94,907 91,296
TXU Energy Co., 7%, 2013 .................... 132,000 134,737
Waterford 3 Funding Corp., 8.09%, 2017 ...... 332,449 338,586
--------------
$ 2,324,133
--------------
TOTAL BONDS (IDENTIFIED COST, $71,274,772) ........... $ 69,166,555
--------------
SHORT-TERM OBLIGATIONS - 0.5%
New Center Asset Trust, 5.28%,
due 7/03/06, at Amortized Cost and
Value (y) ............................... $ 890,000 $ 889,739
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $169,905,551) (k) ................ $ 178,704,352
--------------
OTHER ASSETS,
LESS LIABILITIES - 0.9% ................................ 1,648,296
--------------
NET ASSETS - 100.0% .................................. $ 180,352,648
==============
PORTFOLIO FOOTNOTES:
(a) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At period end, the aggregate
values and percentages of net assets of these securities were as follows for
each variable account:
Global Governments Variable Account ................. $ 508,781 5.3%
High Yield Variable Account ......................... $11,052,607 19.3%
Total Return Variable Account ....................... $ 3,776,702 2.1%
(f) All or a portion of the security has been segregated as collateral for an
open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled
positions at period end.
(i) Interest only security for which the fund receives interest on notional
principal (Par amount). Par amount shown is the notional principal and does
not reflect the cost of the security.
(k) As of June 30, 2006, the Global Governments Variable Account held securities
fair valued in accordance with the policies adopted by the Board of
Managers, aggregating $7,811,290 and 81.62% of market value. An independent
pricing service provided an evaluated bid for 80.43% of the market value.
(k) As of June 30, 2006, the Government Securities Variable Account held
securities fair valued in accordance with the policies adopted by the Board
of Managers, aggregating $82,897,485 and 99.24% of market value. All of
these security values were provided by an independent pricing service using
an evaluated bid.
(k) As of June 30, 2006, the High Yield Variable Account held securities fair
valued in accordance with the policies adopted by the Board of Managers,
aggregating $52,348,372 and 92.87% of market value. All of these security
values were provided by an independent pricing service using an evaluated
bid.
(k) As of June 30, 2006, the Total Return Variable Account held securities fair
valued in accordance with the policies adopted by the Board of Managers,
aggregating $68,236,936 and 38.18% of market value. An independent pricing
service provided an evaluated bid for 38.10% of the market value.
(n) Non-income producing security.
(o) All or a portion of this position has not settled. Upon settlement date,
interest rates will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated
maturities shown as a result of contractual or optional prepayments by the
borrower. Such prepayments cannot be predicted with certainty. These loans
may be subject to restrictions on resale. Floating rate loans generally have
rates of interest which are determined periodically by reference to a base
lending rate plus a premium.
(t) Security exempt from registration with the U.S. Securities and Exchange
Commission under Section 4(2) of the Securities Act of 1933.
(y) The rate shown represents an annualized yield at time of purchase.
The following abbreviations are used in the Portfolio of Investments and
are defined:
ADR American Depository Receipt
CDO Collateralized Debt Obligation
FRN Floating Rate Note. The interest rate is the rate in effect as
of period end.
GDR Global Depository Receipt
IEU International Equity Unit
REIT Real Estate Investment Trust
STRIPS Separate Trading of Registered Interest and Principal of
Securities
TIPS Treasury Inflation Protected Security
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. All amounts are stated in U.S.
dollars unless otherwise indicated. A list of abbreviations is
shown below:
AUD Australian Dollar JPY Japanese Yen
BRL Brazilian Real KRW Korean Won
CAD Canadian Dollar MXN Mexican Peso
CHF Swiss Franc MYR Malaysian Ringgit
CLP Chilian Peso NOK Norwegian Krone
DKK Danish Krone NZD New Zealand Dollar
EUR Euro SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
IDR Indonesia Rupiah TRY Turkish Lira
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2006
(000 Omitted)
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Assets:
Investments --
Investments, cost .................... $222,328 $ 9,602 $ 85,836 $ 57,594 $ 54,516 $169,906
Unrealized appreciation (depreciation) 559 (32) (2,303) (1,228) -- 8,798
-------- -------- -------- -------- -------- --------
Total investments, at value ........ $222,887 $ 9,570 $ 83,533 $ 56,366 $ 54,516 $178,704
Cash ................................... -- 2 -- 398 0* 4
Receivable for forward foreign currency
exchange contracts ................... -- 31 -- -- -- --
Receivable for forward currency exchange
contracts subject to master netting
agreements ........................... -- 27 -- -- -- --
Receivable for investments sold ........ 4,421 181 -- 1,109 -- 1,331
Receivable for units sold .............. 41 -- 19 1 95 9
Interest and dividends receivable ...... 144 104 899 1,040 38 888
Receivable from Investment Adviser ..... -- 6 -- -- -- --
Receivable from sponsor ................ 2 -- 8 -- 1 6
Other assets ........................... 5 -- 2 1 2 4
-------- -------- -------- -------- -------- --------
Total assets ....................... $227,500 $ 9,921 $ 84,461 $ 58,915 $ 54,652 $180,946
======== ======== ======== ======== ======== ========
Liabilities:
Payable to custodian ................... $ 59 $ 47 $ 22 $-- $-- $--
Payable for forward foreign currency
exchange contracts ................... -- 146 -- 6 -- --
Payable for daily variation margin on
open futures contracts ............... -- -- 22 -- -- --
Payable for investments purchased ...... 1,368 142 -- 1,603 -- 427
Payable for units surrendered .......... 172 2 312 69 23 97
Payable to affiliates --
Investment Adviser ................... 5 -- 1 1 1 4
Administrative services fee .......... 0* 0* 0* 0* 0* 0*
Sponsor .............................. -- 0* -- 1 -- --
Accrued expenses and other liabilities . 65 52 42 52 29 65
-------- -------- -------- -------- -------- --------
Total liabilities .................. $ 1,669 $ 389 $ 399 $ 1,732 $ 53 $ 593
-------- -------- -------- -------- -------- --------
Net assets ....................... $225,831 $ 9,532 $ 84,062 $ 57,183 $ 54,599 $180,353
======== ======== ======== ======== ======== ========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2006 -- continued
(000 Omitted except for unit values)
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Unit Variable Variable Variable Variable Variable Variable
Unit Value Account Account Account Account Account Account
------ -------- ----------- ---------- ----------- -------- ------- --------
Net assets applicable to contract owners:
Capital Appreciation Variable Account --
Compass 2 ................................. 2,704 $53.799 $145,369
Compass 3 ................................. 177 35.422 6,263
Compass 3 - Level 2 ....................... 4,816 14.777 71,167
Global Governments Variable Account --
Compass 2 ................................. 102 $25.310 $2,581
Compass 3 ................................. 20 24.624 489
Compass 3 - Level 2 ....................... 442 14.476 6,403
Government Securities Variable Account --
Compass 2 ................................. 1,702 $37.158 $63,250
Compass 3 ................................. 50 25.918 1,284
Compass 3 - Level 2 ....................... 1,189 15.212 18,085
High Yield Variable Account --
Compass 2 ................................. 1,191 $37.412 $44,540
Compass 3 ................................. 38 27.449 1,044
Compass 3 - Level 2 ....................... 717 14.724 10,551
Money Market Variable Account --
Compass 2 ................................. 1,043 $20.618 $21,513
Compass 3 ................................. 163 16.864 2,747
Compass 3 - Level 2 ....................... 2,345 12.670 29,715
Total Return Variable Account --
Compass 2 ................................. 1,245 $46.986 $ 58,495
Compass 3 ................................. 175 45.715 8,012
Compass 3 - Level 2 ....................... 5,059 22.151 $112,068
-------- ------ ------- ------- ------- --------
Net assets applicable to owners of deferred contracts ......... 222,799 9,473 82,619 56,135 53,975 178,575
Reserve for variable annuities --
Compass 2 Contracts ....................................... 2,742 20 1,404 1,001 495 1,197
Compass 3 Contracts ....................................... 1 37 -- 1 7 42
Compass 3 - Level 2 Contracts ............................. 289 2 39 46 122 539
-------- ------ ------- ------- ------- --------
Net assets .............................................. $225,831 $9,532 $84,062 $57,183 $54,599 $180,353
======== ====== ======= ======= ======= ========
See notes to financial statements.
STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2006
(000 Omitted)
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Net investment income (loss):
Income --
Interest ............................. $ 139 $ 189 $ 2,298 $ 2,460 $ 1,284 $ 1,983
Dividends ............................ 1,050 -- -- 24 -- 1,210
-------- -------- -------- -------- -------- --------
Total investment income ............ $ 1,189 $ 189 $ 2,298 $ 2,484 $ 1,284 $ 3,193
-------- -------- -------- -------- -------- --------
Expenses --
Mortality and expense risk charges ... $ 1,554 $ 60 $ 556 $ 396 $ 339 $ 1,160
Management fee ....................... 923 36 242 235 135 704
Board of Managers fees ............... 12 1 4 3 3 9
Distribution risk fee ............... 6 0* 1 1 2 6
Administrative services fee .......... 25 2 9 6 5 19
Custodian fee ........................ 37 31 22 39 10 53
Printing ............................. 11 1 5 5 7 7
Auditing fees ........................ 16 21 19 21 10 23
Legal fees ........................... 3 0* 1 1 1 2
Miscellaneous ........................ 13 1 5 43 10
-------- -------- -------- -------- -------- --------
Total expenses ..................... $ 2,600 $ 153 $ 864 $ 711 $ 515 $ 1,993
Fees paid indirectly ................. (2) (0)* (3) (2) (0)* (2)
Reduction of expenses by Investment
Adviser ............................. -- (32) -- (23) -- --
-------- -------- -------- -------- -------- --------
Net expenses ....................... $ 2,598 $ 121 $ 861 $ 686 $ 515 $ 1,991
-------- -------- -------- -------- -------- --------
Net investment income (loss) ....... $ (1,409) $ 68 $ 1,437 $ 1,798 $ 769 $ 1,202
-------- -------- -------- -------- -------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions .............. $ 2,091 $ (153) $ (236) $ (867) $-- $ 4,475
Futures contracts .................... -- 4 165 -- -- --
Foreign currency transactions ........ (1) 176 -- (43) -- (0)*
-------- -------- -------- -------- -------- --------
Net realized gain (loss) on
investments and foreign currency
transactions ..................... $ 2,090 $ 27 $ (71) $ (910) $-- $ 4,475
-------- -------- -------- -------- -------- --------
Change in unrealized appreciation
(depreciation) --
Investments .......................... $ (7,384) $ 194 $ (2,597) $ 126 $-- $ (3,403)
Futures contracts .................... -- -- (1) -- -- --
Translation of assets and liabilities
in foreign currencies ............... 2 (123) -- 4 -- 1
-------- -------- -------- -------- -------- --------
Net unrealized gain (loss) on
investments and foreign currency
translation ...................... $ (7,382) $ 71 $ (2,598) $ 130 $-- $ (3,402)
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain
(loss) on investments and
foreign currency ................. $ (5,292) $ 98 $ (2,669) $ (780) $-- $ 1,073
-------- -------- -------- -------- -------- --------
Change in net assets from operations ... $ (6,701) $ 166 $ (1,232) $ 1,018 $ 769 $ 2,275
======== ======== ======== ======== ======== ========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(000 Omitted)
Capital Appreciation Global Governments Government Securities
Variable Account Variable Account Variable Account
---------------------- ----------------------- ----------------------
Six Months Six Months Six Months
Ended Ended Ended
June 30, Year Ended June 30, Year Ended June 30, Year Ended
2006 December 31, 2006 December 31, 2006 December 31,
(Unaudited) 2005 (Unaudited) 2005 (Unaudited) 2005
--------- --------- --------- --------- --------- ---------
Change in net assets:
From operations:
Net investment income (loss) ................... $ (1,409) $ (2,976) $ 68 $ 117 $ 1,437 $ 3,067
Net realized gain (loss) on investments
and foreign currency transactions ............ 2,090 34,399 27 72 (71) (283)
Net unrealized gain (loss) on investments
and foreign currency translation ............. (7,382) (33,087) 71 (1,228) (2,598) (1,853)
--------- --------- --------- --------- --------- ---------
Change in net assets from operations ......... $ (6,701) $ (1,664) $ 166 $ (1,039) $ (1,232) $ 931
--------- --------- --------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 2,450 $ 5,857 $ 169 $ 366 $ 589 $ 2,303
Net transfers between variable and fixed
accumulation accounts ........................ (3,111) (294) (83) 977 (416) 821
Withdrawals, surrenders, annuitizations, and
contract charges ............................. (25,805) (48,945) (942) (2,169) (7,655) (15,664)
--------- --------- --------- --------- --------- ---------
Net accumulation activity .................... $ (26,466) $ (43,382) $ (856) $ (826) $ (7,482) $ (12,540)
--------- --------- --------- --------- --------- ---------
Annuitization activity:
Annuitizations ................................... $ 266 $ 167 $ 0* $ 3 $ 208 $ 151
Annuity payments and contract charges ............ (220) (425) (4) (6) (105) (249)
Net transfers among accounts for annuity reserves -- (14) -- -- -- 5
Adjustments to annuity reserves .................. (5) 53 0* 0* 1 15
--------- --------- --------- --------- --------- ---------
Net annuitization activity ..................... $ 41 $ (219) $ (4) $ (3) $ 104 $ (78)
--------- --------- --------- --------- --------- ---------
Change in net assets from participant transactions $ (26,425) $ (43,601) $ (860) $ (829) $ (7,378) $ (12,618)
--------- --------- --------- --------- --------- ---------
Total change in net assets ..................... $ (33,126) $ (45,265) $ (694) $ (1,868) $ (8,610) $ (11,687)
Net assets:
At beginning of period ........................... 258,957 304,222 10,226 12,094 92,672 104,359
--------- --------- --------- --------- --------- ---------
At end of period ................................. $ 225,831 $ 258,957 $ 9,532 $ 10,226 $ 84,062 $ 92,672
========= ========= ========= ========= ========= =========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS -- continued
(000 Omitted)
High Yield Money Market Total Return
Variable Account Variable Account Variable Account
---------------------- ----------------------- ----------------------
Six Months Six Months Six Months
Ended Ended Ended
June 30, Year Ended June 30, Year Ended June 30, Year Ended
2006 December 31, 2006 December 31, 2006 December 31,
(Unaudited) 2005 (Unaudited) 2005 (Unaudited) 2005
--------- --------- --------- --------- --------- ---------
Change in net assets:
From operations:
Net investment income .......................... $ 1,798 $ 3,901 $ 769 $ 797 $ 1,202 $ 2,320
Net realized gain (loss) on investments
and foreign currency transactions ............ (910) 139 -- 0* 4,475 10,302
Net unrealized gain (loss) on investments
and foreign currency translation ............. 130 (3,665) -- -- (3,402) (9,613)
--------- --------- --------- --------- --------- ---------
Change in net assets from operations ......... $ 1,018 $ 375 $ 769 $ 797 $ 2,275 $ 3,009
--------- --------- --------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 454 $ 1,227 $ 783 $ 1,798 $ 2,489 $ 5,339
Net transfers between variable and fixed
accumulation accounts ........................ (3,746) (42) 2,476 35,078 1,329 14,789
Withdrawals, surrenders, annuitizations, and
contract charges ............................. (5,152) (12,450) (6,400) (30,896) (19,649) (35,779)
--------- --------- --------- --------- --------- ---------
Net accumulation activity .................... $ (8,444) $ (11,265) $ (3,141) $ 5,980 $ (15,831) $ (15,651)
--------- --------- --------- --------- --------- ---------
Annuitization activity:
Annuitizations ................................... $ 52 $ 21 $ 37 $ 57 $ 18 $ 125
Annuity payments and contract charges ............ (93) (169) (92) (156) (205) (426)
Net transfers among accounts for annuity reserves -- -- -- 156 -- 5
Adjustments to annuity reserves .................. (6) (74) 3 12 -- (44)
--------- --------- --------- --------- --------- ---------
Net annuitization activity ..................... $ (47) $ (222) $ (52) $ 69 $ (187) $ (340)
--------- --------- --------- --------- --------- ---------
Change in net assets from participant
transactions ................................... $ (8,491) $ (11,487) $ (3,193) $ 6,049 $ (16,018) $ (15,991)
--------- --------- --------- --------- --------- ---------
Total change in net assets ..................... $ (7,473) $ (11,112) $ (2,424) $ 6,846 $ (13,743) $ (12,982)
Net assets:
At beginning of period ........................... 64,656 75,768 57,023 50,177 194,096 207,078
--------- --------- --------- --------- --------- ---------
At end of period ................................. $ 57,183 $ 64,656 $ 54,599 $ 57,023 $ 180,353 $ 194,096
========= ========= ========= ========= ========= =========
* Amount less than $500.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
Capital Appreciation Variable Account
--------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446 $ 80.578
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.274 $ 0.580 $ 0.744 $ 0.402 $ 0.369 $ 0.598
Expenses .......................... (0.600) (1.179) (1.109) (0.951) (1.002) (1.401)
--------- --------- --------- --------- --------- ---------
Net investment loss ........... $ (0.326) $ (0.599) $ (0.365) $ (0.549) $ (0.633) $ (0.803)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (1.321) 0.420 5.176 11.504 (18.954) (20.329)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (1.647) $ (0.179) $ 4.811 $ 10.955 $ (19.587) $ (21.132)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 53.799 $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... (2.97)(n) (0.32) 9.47(b) 27.48(j) (32.95) (26.22)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.15(a) 2.16 2.14 2.12 2.12 0.79(m)
Net investment loss ............... (1.12)(a) (1.08) (0.70) (1.20) (1.36) (1.19)(m)
Portfolio turnover (%) .............. 36 130 65 104 80 123
Number of units outstanding at end
of period (000 Omitted) ........... 2,704 3,018 3,544 4,040 4,521 5,340
Capital Appreciation Variable Account
--------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period .............. $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314 $ 53.342
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.173 $ 0.370 $ 0.458 $ 0.260 $ 0.240 $ 0.417
Expenses .......................... (0.403) (0.795) (0.753) (0.648) (0.688) (1.025)
--------- --------- --------- --------- --------- ---------
Net investment loss ........... $ (0.230) $ (0.425) $ (0.295) $ (0.388) $ (0.448) $ (0.608)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.872) 0.271 3.434 7.593 (12.532) (13.420)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (1.102) $ (0.154) $ 3.139 $ 7.205 $ (12.980) $ (14.028)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 35.422 $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... (3.02)(n) (0.42) 9.36(b) 27.36(j) (33.02) (26.30)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.25(a) 2.26 2.24 2.22 2.22 0.79(m)
Net investment loss ............... (1.36)(a) (1.20) (0.87) (1.31) (1.42) (1.19)(m)
Portfolio turnover (%) .............. 36 130 65 104 80 123
Number of units outstanding at end
of period (000 Omitted) ........... 177 237 413 621 812 999
FINANCIAL HIGHLIGHTS -- continued
Capital Appreciation Variable Account
--------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292 $ 22.072
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.074 $ 0.158 $ 0.205 $ 0.109 $ 0.100 $ 0.154
Expenses .......................... (0.160) (0.316) (0.297) (0.254) (0.260) (0.357)
--------- --------- --------- --------- --------- ---------
Net investment loss ........... $ (0.086) $ (0.158) $ (0.092) $ (0.145) $ (0.160) $ (0.203)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.363) 0.117 1.419 3.156 (5.203) (5.577)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (0.449) $ (0.041) $ 1.327 $ 3.011 $ (5.363) $ (5.780)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 14.777 $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... (2.95)(n) (0.27) 9.52(b) 27.55(j) (32.92) (26.19)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.10(a) 2.11 2.09 2.07 2.07 0.79(m)
Net investment loss ............... (1.19)(a) (1.05) (0.65) (1.17) (1.32) (1.19)(m)
Portfolio turnover (%) .............. 36 130 65 104 80 123
Number of units outstanding at end
of period (000 Omitted) ........... 4,816 5,248 5,798 6,086 6,148 6,705
(a) Annualized.
(b) The accounts' net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual resulted in an increase in the net asset value of $0.039, $0.026, and $0.010 per unit for Compass 2,
Compass 3, and Compass 3 - Level 2, respectively, based on units outstanding on the day the proceeds were recorded.
(d) Per unit data are based on average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(j) The accounts' net asset value and total return calculation includes proceeds received on March 26, 2003 for the partial
payment of a non- recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment
transactions. The proceedsresulted in an increase in the net asset value of $0.900, $0.594, and $0.247 per unit for Compass 2,
Compass 3, and Compass 3 - Level 2, respectively, based on units outstanding on the day the proceeds were received. Excluding
the effect of this payment from the ending net asset value per unit, the Compass 2, Compass 3, and Compass 3 - Level 2 total
return per unit value for the year ended December 31, 2003 would have been lower by approximately 2.24%, 2.24%, and 2.25%,
respectively.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
Global Governments Variable Account
--------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period .............. $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653 $ 19.378
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.401 $ 0.925 $ 0.872 $ 0.877 $ 0.861 $ 0.946
Expenses .......................... (0.258) (0.651) (0.633) (0.584) (0.486) (0.500)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.143 $ 0.274 $ 0.239 $ 0.293 $ 0.375 $ 0.446
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ... 0.302 (2.649) 1.832 2.751 3.097 (1.171)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.445 $ (2.375) $ 2.071 $ 3.044 $ 3.472 $ (0.725)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 25.310 $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r) ........... 1.79(n) (8.72) 8.23 13.76 18.61 (3.74)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) ................... 3.17(a) 2.95 2.67 2.47 2.44 1.39(m)
Expenses after expense
reductions (f) ................... 2.50(a) 2.50 2.50 2.47 2.50(e) 1.28(m)
Net investment income ............. 1.39(a) 1.04 0.94 1.23 1.73 2.23(m)
Portfolio turnover (%) .............. 48 144 128 130 126 72
Number of units outstanding at
end of period (000 Omitted) ....... 102 116 128 161 160 134
Global Governments Variable Account
--------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269 $ 19.007
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.463 $ 0.949 $ 0.883 $ 0.869 $ 0.846 $ 1.063
Expenses .......................... (0.258) (0.688) (0.662) (0.600) (0.511) (0.579)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.205 $ 0.261 $ 0.221 $ 0.269 $ 0.335 $ 0.484
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... 0.210 (2.613) 1.762 2.671 3.034 (1.222)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.415 $ (2.352) $ 1.983 $ 2.940 $ 3.369 $ (0.738)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 24.624 $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r) ........... 1.71(n) (8.85) 8.07 13.59 18.44 (3.88)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) .................. 3.32(a) 3.10 2.82 2.62 2.56 1.39(m)
Expenses after expense
reductions (f) .................. 2.65(a) 2.65 2.65 2.62 2.65(e) 1.28(m)
Net investment income ............. 1.32(a) 0.97 0.85 1.15 1.77 2.23(m)
Portfolio turnover (%) .............. 48 144 128 130 126 72
Number of units outstanding at
end of period (000 Omitted) ....... 20 26 28 41 58 68
FINANCIAL HIGHLIGHTS -- continued
Global Governments Variable Account
--------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
------------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period .............. $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669 $ 11.083
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.262 $ 0.526 $ 0.497 $ 0.494 $ 0.499 $ 0.520
Expenses .......................... (0.169) (0.371) (0.361) (0.331) (0.281) (0.274)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.093 $ 0.155 $ 0.136 $ 0.163 $ 0.218 $ 0.246
Net realized and unrealized
gain (loss) on investments and
foreign currency transactions ... 0.162 (1.514) 1.048 1.578 1.768 (0.660)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.255 $ (1.359) $ 1.184 $ 1.741 $ 1.986 $ (0.414)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 14.476 $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r) ........... 1.79(n) (8.72) 8.23 13.76 18.61 (3.74)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) ................... 3.17(a) 2.95 2.67 2.47 2.42 1.40(m)
Expenses after expense
reductions (f) ................... 2.50(a) 2.50 2.50 2.47 2.50(e) 1.28(m)
Net investment income ............. 1.39(a) 1.04 0.94 1.21 1.70 2.23(m)
Portfolio turnover (%) .............. 48 144 128 130 126 72
Number of units outstanding at end
of period (000 Omitted) ........... 442 468 500 559 568 574
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense reimbursement
agreement.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
Government Securities Variable Account
-------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448 $ 31.520
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.993 $ 1.936 $ 1.834 $ 1.482 $ 1.862 $ 2.183
Expenses .......................... (0.373) (0.752) (0.726) (0.711) (0.677) (0.661)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.620 $ 1.184 $ 1.108 $ 0.771 $ 1.185 $ 1.522
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (1.141) (0.843) (0.240) (0.425) 1.491 0.406
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (0.521) $ 0.341 $ 0.868 $ 0.346 $ 2.676 $ 1.928
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 37.158 $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. (1.38)(n) 0.91 2.38 0.96 8.00 6.12
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.00(a) 2.01 1.97 1.95 1.94 0.66(m)
Net investment income ............. 3.27(a) 3.09 2.96 2.08 3.19 4.42(m)
Portfolio turnover (%) .............. 13 69 89 138 139 89
Number of units outstanding at
end of period (000 Omitted) ....... 1,702 1,852 2,125 2,447 2,759 3,043
Government Securities Variable Account
--------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434 $ 22.105
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.657 $ 1.316 $ 1.244 $ 1.045 $ 1.300 $ 1.590
Expenses .......................... (0.263) (0.543) (0.525) (0.514) (0.495) (0.510)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.394 $ 0.773 $ 0.719 $ 0.531 $ 0.805 $ 1.080
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.771) (0.560) (0.138) (0.314) 1.045 0.249
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (0.377) $ 0.213 $ 0.581 $ 0.217 $ 1.850 $ 1.329
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 25.918 $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. (1.43)(n) 0.82 2.28 0.86 7.89 6.01
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.10(a) 2.11 2.07 2.05 2.04 0.66(m)
Net investment income ............. 3.13(a) 2.96 2.82 2.08 3.36 4.42(m)
Portfolio turnover (%) .............. 13 69 89 138 139 89
Number of units outstanding at
end of period (000 Omitted) ...... 50 69 100 147 205 254
FINANCIAL HIGHLIGHTS -- continued
Government Securities Variable Account
-------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663 $ 12.868
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.400 $ 0.781 $ 0.742 $ 0.597 $ 0.732 $ 0.826
Expenses .......................... (0.148) (0.299) (0.289) (0.282) (0.267) (0.248)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.252 $ 0.482 $ 0.453 $ 0.315 $ 0.465 $ 0.578
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.461) (0.335) (0.091) (0.166) 0.635 0.217
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ (0.209) $ 0.147 $ 0.362 $ 0.149 $ 1.100 $ 0.795
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 15.212 $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. (1.36)(n) 0.96 2.43 1.01 8.05 6.17
Ratios (%) (to average net assets):
Expenses (f) ...................... 1.95(a) 1.96 1.92 1.90 1.89 0.66(m)
Net investment income ............. 3.30(a) 3.12 2.99 2.10 3.17 4.42(m)
Portfolio turnover (%) .............. 13 69 89 138 139 89
Number of units outstanding at
end of period (000 Omitted) ....... 1,189 1,280 1,377 1,562 1,692 1,617
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
High Yield Variable Account
--------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period .............. $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969 $ 29.882
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 1.513 $ 2.959 $ 2.857 $ 2.769 $ 3.015 $ 3.684
Expenses .......................... (0.418) (0.820) (0.770) (0.689) (0.617) (0.699)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 1.095 $ 2.139 $ 2.087 $ 2.080 $ 2.398 $ 2.985
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.523) (1.968) 0.526 3.471 (2.862) (3.898)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.572 $ 0.171 $ 2.613 $ 5.551 $ (0.464) $ (0.913)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 37.412 $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r)(s) ........ 1.55(n) 0.47 7.67 19.47 (1.60) (3.05)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) .................. 2.31(a) 2.28(o) 2.21 2.20 2.18 0.90(m)
Expenses after expense
reductions (f) .................. 2.23(a) 2.25 -- -- -- --
Net investment income ............. 5.74(a) 5.76 5.91 6.53 7.84 9.16(m)
Portfolio turnover (%) .............. 45 53 81 164 172 103
Number of units outstanding at end
of period (000 Omitted) ........... 1,191 1,323 1,601 1,827 2,069 2,328
High Yield Variable Account
-------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349 $ 22.043
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 1.062 $ 2.118 $ 2.021 $ 1.964 $ 2.141 $ 3.188
Expenses .......................... (0.311) (0.620) (0.576) (0.514) (0.469) (0.643)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.751 $ 1.498 $ 1.445 $ 1.450 $ 1.672 $ 2.545
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.345) (1.398) 0.450 2.612 (2.035) (3.239)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.406 $ 0.100 $ 1.895 $ 4.062 $ (0.363) $ (0.694)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 27.449 $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r)(s) ........ 1.50(n) 0.37 7.57 19.35 (1.70) (3.15)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) .................. 2.41(a) 2.38(o) 2.31 2.30 2.28 0.90(m)
Expenses after expense
reductions (f) .................. 2.33(a) 2.35 -- -- -- --
Net investment income ............. 5.60(a) 5.64 5.75 6.41 8.45 9.16(m)
Portfolio turnover (%) .............. 45 53 81 164 172 103
Number of units outstanding at end
of period (000 Omitted) ........... 38 47 67 115 178 231
FINANCIAL HIGHLIGHTS -- continued
High Yield Variable Account
--------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376 $ 11.728
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.584 $ 1.142 $ 1.019 $ 1.161 $ 1.220 $ 0.784
Expenses .......................... (0.160) (0.312) (0.275) (0.286) (0.257) (0.151)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.424 $ 0.830 $ 0.744 $ 0.875 $ 0.963 $ 0.633
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.195) (0.756) 0.291 1.312 (1.140) (0.985)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.229 $ 0.074 $ 1.035 $ 2.187 $ (0.177) $ (0.352)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 14.724 $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376
========= ========= ========= ========= ========= =========
Total Return (%) (k)(r)(s) ........ 1.58(n) 0.52 7.73 19.53 (1.55) (3.01)
Ratios (%) (to average net assets):
Expenses before expense
reductions (f) .................. 2.26(a) 2.23(o) 2.16 2.15 2.13 0.90(m)
Expenses after expense
reductions (f) .................. 2.18(a) 2.20 -- -- -- --
Net investment income ............. 5.76(a) 5.81 5.77 6.57 6.08 9.16(m)
Portfolio turnover (%) .............. 45 53 81 164 172 103
Number of units outstanding at end
of period (000 Omitted) ........... 717 937 971 2,631 2,684 1,131
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
(o) Due to a revision, the ratios of expenses before expense reductions for the year ended December 31, 2005 not previously
reported, were 2.28%, 2.38% and 2.23% for Compass 2, Compass 3 and Compass 3 - Level 2, respectively. There was no impact to net
assets or the expenses charged to the shareholder.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
Money Market Variable Account
-------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341 $ 19.862
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.486 $ 0.661 $ 0.281 $ 0.247 $ 0.382 $ 0.950
Expenses .......................... (0.199) (0.403) (0.396) (0.381) (0.401) (0.471)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.287 $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479
Net realized and unrealized gain
(loss) on investments ........... -- (0.000)(w) -- -- -- --
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.287 $ 0.258 $ (0.115) $ (0.134) $ (0.019) $ 0.479
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 20.618 $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. 1.41(n) 1.29 (0.57) (0.66) (0.09) 2.41
Ratios (%) (to average net assets):
Expenses (f) ...................... 1.94(a) 1.99 1.96 1.87 1.96 0.65(m)
Net investment income (loss) ...... 2.85(a) 1.38 (0.56) (0.63) (0.12) 2.51(m)
Number of units outstanding at
end of period (000 Omitted) ..... 1,043 1,128 1,009 1,172 1,626 1,986
Money Market Variable Account
---------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712 $ 16.334
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.393 $ 0.539 $ 0.229 $ 0.198 $ 0.318 $ 0.784
Expenses .......................... (0.167) (0.344) (0.339) (0.325) (0.350) (0.406)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.226 $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378
Net realized and unrealized gain
(loss) on investments ........... -- (0.000)(w) -- -- -- --
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.226 $ 0.195 $ (0.110) $ (0.127) $ (0.032) $ 0.378
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 16.864 $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. 1.36(n) 1.19 (0.67) (0.76) (0.19) 2.31
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.04(a) 2.09 2.06 1.97 2.06 0.65(m)
Net investment income (loss) ...... 2.71(a) 1.42 (0.71) (0.74) (0.14) 2.51(m)
Number of units outstanding at
end of period (000 Omitted) ..... 163 218 97 155 186 222
FINANCIAL HIGHLIGHTS -- continued
Money Market Variable Account
--------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472 $ 12.172
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.297 $ 0.405 $ 0.181 $ 0.131 $ 0.223 $ 0.710
Expenses .......................... (0.118) (0.240) (0.245) (0.207) (0.229) (0.410)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.179 $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300
Net realized and unrealized gain
(loss) on investments ........... -- (0.000)(w) -- -- -- --
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.179 $ 0.165 $ (0.064) $ (0.076) $ (0.006) $ 0.300
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 12.670 $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472
========= ========= ========= ========= ========= =========
Total Return (%) (k) .............. 1.43(n) 1.34 (0.52) (0.61) (0.04) 2.46
Ratios (%) (to average net assets):
Expenses (f) ...................... 1.89(a) 1.94 1.91 1.82 1.91 0.65(m)
Net investment income (loss) ...... 2.87(a) 1.39 (0.48) (0.61) (0.01) 2.51(m)
Number of units outstanding at end
of period (000 Omitted) ........... 2,345 2,384 2,259 896 1,113 2,835
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
(w) Per unit amount was less than $0.001.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable accounts' unit
class (assuming reinvestment of all distributions) held for the entire period.
Total Return Variable Account
--------------------------------------------------------------------------------------
Compass 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562 $ 39.126
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.813 $ 1.521 $ 1.450 $ 1.237 $ 1.407 $ 1.513
Expenses .......................... (0.210) (0.970) (0.905) (0.800) (0.777) (0.830)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.603 $ 0.551 $ 0.545 $ 0.437 $ 0.630 $ 0.683
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.076) 0.179 3.613 5.184 (3.242) (1.247)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.527 $ 0.730 $ 4.158 $ 5.621 $ (2.612) $ (0.564)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 46.986 $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... 1.13(n) 1.60 10.00(b) 15.64 (6.77) (1.44)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.13(a) 2.12 2.11 2.10 2.08 0.85(m)
Net investment income ............. 2.52(a) 1.18 1.25 1.13 1.43 1.67(m)
Portfolio turnover (%) .............. 22 49 64 62 76 104
Number of units outstanding at end
of period (000 Omitted) ........... 1,245 1,349 1,511 1,688 1,871 2,080
Total Return Variable Account
--------------------------------------------------------------------------------------
Compass 3
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771 $ 38.380
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.765 $ 1.450 $ 1.375 $ 1.200 $ 1.360 $ 1.599
Expenses .......................... (0.198) (1.019) (0.929) (0.823) (0.804) (0.939)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.567 $ 0.431 $ 0.446 $ 0.377 $ 0.556 $ 0.660
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.088) 0.213 3.549 5.060 (3.167) (1.269)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.479 $ 0.644 $ 3.995 $ 5.437 $ (2.611) $ (0.609)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 45.715 $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... 1.06(n) 1.45 9.84(b) 15.46 (6.91) (1.59)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.28(a) 2.27 2.26 2.25 2.23 0.85(m)
Net investment income ............. 2.39(a) 0.97 1.07 1.01 1.61 1.67(m)
Portfolio turnover (%) .............. 22 49 64 62 76 104
Number of units outstanding at end
of period (000 Omitted) ........... 175 217 315 453 634 838
FINANCIAL HIGHLIGHTS -- continued
Total Return Variable Account
--------------------------------------------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------------------------------------------
Six Months
Ended Years Ended December 31,
June 30, 2006 ----------------------------------------------------------------------
(Unaudited) 2005 2004 2003 2002 2001
--------- --------- --------- --------- --------- ---------
Per unit data: (d)
Net asset value --
beginning of period ............. $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180 $ 18.446
--------- --------- --------- --------- --------- ---------
Investment income ................. $ 0.379 $ 0.710 $ 0.676 $ 0.575 $ 0.658 $ 0.687
Expenses .......................... (0.098) (0.457) (0.425) (0.376) (0.367) (0.382)
--------- --------- --------- --------- --------- ---------
Net investment income ......... $ 0.281 $ 0.253 $ 0.251 $ 0.199 $ 0.291 $ 0.305
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions ........... (0.033) 0.091 1.709 2.451 (1.522) (0.571)
--------- --------- --------- --------- --------- ---------
Change in unit value .............. $ 0.248 $ 0.344 $ 1.960 $ 2.650 $ (1.231) $ (0.266)
--------- --------- --------- --------- --------- ---------
Unit value:
Net asset value -- end of period .. $ 22.151 $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180
========= ========= ========= ========= ========= =========
Total Return (%) (k)(s) ........... 1.13(n) 1.60 10.00(b) 15.64 (6.77) (1.44)
Ratios (%) (to average net assets):
Expenses (f) ...................... 2.13(a) 2.12 2.11 2.10 2.08 0.85(m)
Net investment income ............. 3.34(a) 1.17 1.24 1.11 1.55 1.67(m)
Portfolio turnover (%) .............. 22 49 64 62 76 104
Number of units outstanding at end
of period (000 Omitted) ........... 5,063 5,462 5,646 5,946 6,236 6,537
(a) Annualized.
(b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual did not have a material impact on the net asset value per unit based on the units outstanding on the day
the proceeds were recorded.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(m) Excluding mortality and expense risk charges, distribution expense risk charges, and contract maintenance charges.
(n) Not annualized.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) BUSINESS AND ORGANIZATION
Capital Appreciation Variable Account, Global Governments Variable Account,
Government Securities Variable Account, High Yield Variable Account, Money
Market Variable Account, and Total Return Variable Account (the variable
account(s)) are separate accounts established by Sun Life Assurance Company of
Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and
Compass 3 combination fixed/variable annuity contracts. The variable accounts
operate as open-end management investment companies as those terms are defined
in the Investment Company Act of 1940, as amended.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The High
Yield Variable Account can invest up to 100% of its portfolio in high- yield
securities rated below investment grade. Investments in high-yield securities
involve greater degrees of credit and market risk than investments in
higher-rated securities and tend to be more sensitive to economic conditions.
The Capital Appreciation Variable Account, Global Governments Variable Account,
High Yield Variable Account and Total Return Variable Account can invest in
foreign securities, including securities of emerging market issuers. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing in
foreign securities previously described are heightened when investing in
emerging markets countries.
Investment Valuations - Money market instruments are valued at amortized cost,
which approximates market value. Amortized cost involves valuing an instrument
at its cost as adjusted for amortization of premium or accretion of discount
rather than its current market value. Each money market fund's use of amortized
cost is subject to the fund's compliance with Rule 2a-7 under the Investment
Company Act of 1940. The amortized cost value of an instrument can be different
from the market value of an instrument. Equity securities, including restricted
equity securities, are generally valued at the last sale or official closing
price as reported by an independent pricing service on the market or exchange on
which they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. Debt instruments (other than
short-term instruments), including restricted debt instruments, are generally
valued at an evaluated or composite bid as reported by an independent pricing
service. Values of debt instruments obtained from pricing services can utilize
both dealer-supplied valuations and electronic data processing techniques, which
take into account factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Short-term instruments with a maturity at
issuance of 397 days or less are generally valued at amortized cost, which
approximates market value. Exchange-traded options are generally valued at the
last sale or official closing price as reported by an independent pricing
service on the exchange on which they are primarily traded. Exchange-traded
options for which there were no sales reported that day are generally valued at
the last daily bid quotation as reported by an independent pricing service on
the exchange on which they are primarily traded. Options not traded on an
exchange are generally valued at broker-dealer bid quotation. Foreign currency
options are generally valued using an external pricing model that uses market
data from an independent source. Futures contracts are generally valued at last
posted settlement price as reported by an independent pricing service on the
market on which they are primarily traded. Futures contracts for which there
were no trades that day for a particular position are generally valued at the
closing bid quotation as reported by an independent pricing service on the
market on which they are primarily traded. Forward foreign currency contracts
are generally valued at the mean of bid and asked prices for the time period
interpolated from rates reported by an independent pricing service for proximate
time periods. Securities and other assets generally valued on the basis of
information from an independent pricing service may also be valued at a
broker-dealer bid quotation. The values of foreign securities and other assets
and liabilities expressed in foreign currencies are converted to U.S. dollars
using the mean of bid and asked prices for rates reported by an independent
pricing service. The Board of Managers has delegated primary responsibility for
determining or causing to be determined the value of the variable accounts'
investments (including any fair valuation) to the adviser pursuant to valuation
policies and procedures approved by the Board. If the adviser determines that
reliable market quotations are not readily available, investments are valued at
fair value as determined in good faith by the adviser in accordance with such
procedures under the oversight of the Board of Managers. Under the variable
accounts' valuation policies and procedures, market quotations are not
considered to be readily available for many types of debt instruments. These
investments are generally valued at fair value based on information from
independent pricing services. The adviser may rely on independent pricing
services or other information (such as the correlation with price movements of
similar securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the variable accounts' net asset value
can differ depending on the source and method used to determine value. When fair
valuation is used, the value of investments used to determine the variable
accounts' net asset value may differ from quoted or published prices for the
same investments. In addition, investments may be valued at fair value if the
adviser determines that an investment's value has been materially affected by
events occurring after the close of the exchange or market on which the
investment is principally traded (such as foreign exchange or market) and prior
to the determination of the variable accounts' net asset value, or after the
halting of trading of a specific security where trading does not resume prior to
the close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the variable accounts' net asset value may be
deemed to have a material affect on the value of securities traded in foreign
markets. Accordingly, the variable accounts' foreign equity securities may often
be valued at fair value.
Repurchase Agreements - Each variable account may enter into repurchase
agreements with institutions that the variable accounts' investment adviser has
determined are creditworthy. Each repurchase agreement is recorded at cost. The
variable accounts require that the securities collateral in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
variable account to obtain those securities in the event of a default under the
repurchase agreement. The variable accounts monitor, on a daily basis, the value
of the collateral to ensure that its value, including accrued interest, is
greater than amounts owed to the variable accounts under each such repurchase
agreement. The variable accounts, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Inflation-Adjusted Debt Securities - Certain variable accounts invest in
inflation-adjusted debt securities issued by the U.S. Treasury. The variable
accounts may also invest in inflation-adjusted debt securities issued by U.S.
Government agencies and instrumentalities other than the U.S. Treasury and by
other entities such as U.S. and foreign corporations and foreign governments.
The principal value of these debt securities is adjusted by references to
changes in the Consumer Price Index or another general price or wage index.
These debt securities typically pay a fixed rate of interest, but this fixed
rate is applied to the inflation-adjusted principal amount. The principal paid
at maturity of the debt security is typically equal to the inflation-adjusted
principal amount, or the security's original par value, whichever is greater.
Other types of inflation-adjusted securities may use other methods to adjust
for other measures of inflation.
Foreign Currency Translation - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
Derivative Risk - Certain variable accounts may invest in derivatives for
hedging or non-hedging purposes. While hedging can reduce or eliminate losses,
it can also reduce or eliminate gains. When the variable accounts use
derivatives as an investment to gain market exposure, or for hedging purposes,
gains and losses from derivative instruments may be substantially greater than
the derivative's original cost. Derivative instruments include forward currency
exchange contracts and futures contracts for the Global Governments Variable
Account, futures contracts for the Government Securities Variable Account, and
forward currency exchange contracts for the High Yield Variable Account.
Purchased Options - Certain variable accounts may purchase call or put options
for a premium. Purchasing call options may be a hedge against an anticipated
increase in the dollar cost of securities to be acquired or to increase the
variable account's exposure to the underlying instrument. Purchasing put options
may hedge against a decline in the value of portfolio securities. The premium
paid is included as an investment in the Statement of Assets and Liabilities and
is subsequently adjusted to the current value of the option. Premiums paid for
purchased options which have expired are treated as realized losses on
investments in the Statement of Operations. Premiums paid for purchased options
which are exercised or closed are added to the amount paid or offset against the
proceeds on the underlying security or financial instrument to determine the
realized gain or loss. The risk of loss associated with purchased options is
limited to the premium paid.
Futures Contracts - Certain variable accounts may enter into futures contracts
for the delayed delivery of securities or currency, or contracts based on
financial indices at a fixed price on a future date. In entering such contracts,
the variable accounts are required to deposit with the broker either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the variable account each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses by the
variable accounts. Upon entering into such contracts, the variable accounts bear
the risk of interest or exchange rates or securities prices moving unexpectedly,
in which case, the variable accounts may not achieve the anticipated benefits of
the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - Certain variable accounts may
enter into forward foreign currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the contract. The variable accounts may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the variable accounts may enter into
contracts to deliver or receive foreign currency it will receive from or require
for its normal investment activities. The variable accounts may also use
contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the variable accounts may enter into contracts with
the intent of changing the relative exposure of the variable accounts' portfolio
of securities to different currencies to take advantage of anticipated changes.
The forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded as
unrealized until the contract settlement date. On contract settlement date, the
gains or losses are recorded as realized gains or losses on foreign currency
transactions.
Loans and Other Direct Debt Instruments - Certain variable accounts may invest
in loans and loan participations or other receivables. These investments may
include standby financing commitments, including revolving credit facilities,
which obligate the variable account to supply additional cash to the borrower on
demand. Loan participations involve a risk of insolvency of the lending bank or
other financial intermediary.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. For the Money
Market Variable Account, all premium and discount is amortized and accreted for
financial statement purposes and tax reporting purposes in accordance with
generally accepted accounting principles and federal tax regulations,
respectively. For all other variable accounts, all premium and discount is
amortized or accreted for financial statement purposes in accordance with U.S.
generally accepted principles; and all discount is accreted for tax reporting
purposes as required by federal income tax regulations. Certain variable
accounts earn certain fees in connection with its floating rate loan purchasing
activities. These fees are in addition to interest payments earned and may
include amendment fees, commitment fees, consent fees, and prepayment fees.
These fees are recorded on an accrual basis as income in the accompanying
financial statements. Dividends received in cash are recorded on the ex-dividend
date. Certain dividends from foreign securities will be recorded when the
variable account is informed of the dividend if such information is obtained
subsequent to the ex-dividend date. Dividend and interest payments received in
additional securities are recorded on the ex-dividend or ex-interest date in an
amount equal to the value of the security on such date.
The variable accounts may receive proceeds from litigation settlements involving
its portfolio holdings. Any proceeds received are reflected in realized
gain/loss in the Statement of Operations, or in unrealized gain/loss if the
security is still held by the variable accounts.
Fees Paid Indirectly - The variable accounts' custody fee is reduced according
to an arrangement that measures the value of cash deposited with the custodian
by the variable accounts. This amount, for the six months ended June 30, 2006
is shown as a reduction of total expenses on the Statement of Operations.
Federal Income Taxes - The variable accounts are funding vehicles for individual
variable annuities. The operations of the variable accounts are part of the
operations of Sun Life Assurance Company of Canada (U.S.), the Sponsor, and are
not taxed separately; the variable accounts are not taxed as regulated
investment companies. The Sponsor qualifies for the federal income tax treatment
granted to life insurance companies under Subchapter L of the Internal Revenue
Code. Accordingly, no provision for federal income or excise tax is necessary.
Foreign taxes have been provided for on interest and dividend income earned on
foreign investments in accordance with the applicable country's tax rates and to
the extent unrecoverable are recorded as a reduction of investment income.
(3) CONTRACT CHARGES
The Sponsor makes a deduction from the variable accounts at the end of each
valuation period, during both the accumulation period and after annuity payments
begin, for assuming the mortality and expense risks under the contracts. The
rate of the deduction may be changed annually but in no event may it exceed
1.25% of the average net assets of each variable account attributable to Compass
3 contracts, or, with respect to Compass 2 contracts, 1.30% of the assets of
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, and Money Market Variable Account, or 1.25% of the
assets of Global Governments Variable Account and Total Return Variable Account
attributable to such contracts.
For assuming the distribution expense risk under Compass 3 contracts, the
Sponsor makes a deduction from the variable accounts at the end of each
valuation period for the first seven contract years at an effective annual rate
of 0.15% of the net assets of the variable accounts attributable to such
contracts. Contracts are transferred from Compass 3 to Compass 3 -- Level 2 in
the month following the seventh contract anniversary. No deduction is made after
the seventh contract anniversary. No deduction is made with respect to assets
attributable to Compass 2 contracts.
Each year, on the contract anniversary, a contract maintenance charge of $25
with respect to Compass 2 contracts and $30 with respect to Compass 3 contracts
is deducted from each contract's accumulation account and paid to the Sponsor to
cover administrative expenses relating to the contract. After the annuity
commencement date, the annual contract maintenance charge is deducted pro rata
from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges (including the distribution expense charge
described above applicable to Compass 3 contracts) exceed 5% of the purchase
payments made under a Compass 2 contract or 9% of the purchase payments made
under a Compass 3 contract.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to February
1, 1987 have been calculated using the 1971 Individual Annuitant Mortality
Table. Annuity reserves for contracts with annuity commencement dates between
February 1, 1987 and December 31, 1998 have been calculated using the 1983
Individual Annuitant Mortality Table. Annuity reserves for contracts with
annuity commencement dates on or after January 1, 1999 have been calculated
using the Annuity Mortality 2000 table. Annuity reserves for contracts in the
current payment period are calculated using an assumed interest rate of 4%.
Required adjustments are accomplished by transfers to or from the Sponsor.
(5) TRANSACTIONS WITH AFFILIATES
Investment Adviser - Each variable account has an investment advisory
agreement with MFS to provide overall investment advisory and administrative
services, and general office facilities. The management fee is computed daily
and paid monthly at the following annual rate based on a percentage of each
variable account's average daily net assets:
Annual Rate of
Management Fee Annual Rate of
Based on Average Management Fee
Daily Net Assets Based on Average Effective
Not Exceeding $300 Daily Net Assets Management
Million In Excess of $300 Million Fees
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Variable Account ............ 0.75% 0.675% 0.75%
Global Governments Variable Account .............. 0.75% 0.675% 0.75%
Government Securities Variable Account ........... 0.55% 0.495% 0.55%
High Yield Variable Account ...................... 0.75%(a) 0.675%(a) 0.675%
Money Market Variable Account .................... 0.50%(b) 0.50%(b) 0.50%
Total Return Variable Account .................... 0.75% 0.675% 0.75%
(a) High Yield Variable Account: The investment adviser has agreed in writing
to reduce its management fee to 0.675% of average daily net assets until
August 31, 2006. This management fee reduction amounted to $23,484 which
is shown as a reduction of total expenses in the Statement of Operations.
(b) Money Market Variable Account: The investment adviser has agreed in
writing to reduce its management fee to 0.45% of average daily net assets
in excess of $500 million, which may be rescinded or changed with the
Board of Managers approval. For the six months ended June 30, 2006, the
variable account's average daily net assets did not exceed $500 million,
and therefore, the management fee was not reduced.
The Investment Adviser has agreed in writing to pay each variable accounts'
operating expenses, exclusive of taxes, extraordinary expenses, brokerage and
transaction costs, mortality and expense risk charges, distribution expense
risk charges, and contract maintenance charges, such that operating expenses
do not exceed 1.25% annually of the average daily net assets of each variable
account. For the six months ended June 30, 2006 each variable accounts' actual
operating expenses, (except for the Global Governments Variable Account), did
not exceed the limit and therefore, the investment adviser did not pay any
portion of the variable accounts' expenses. For the six months ended June 30,
2006 the reduction of the Global Governments Variable Account amounted to
$32,370 and is reflected as a reduction of total expenses in the Statement of
Operations.
Administrator - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Managers. Prior
to June 1, 2006, each fund was allocated a portion of these administrative costs
based on its size and relative average net assets. Effective June 1, 2006, each
fund is charged an annual fixed amount of $10,000 plus a fee based on calendar
year average net assets.
The administrative services fee incurred for the six months ended June 30,
2006 was equivalent to the following annual effective rate of the variable
accounts' average daily net assets:
Capital Global Government High Money Total
Appreciation Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
- ----------------------------------------------------------------------------------------------------------------------------
Percent of average daily net assets ......... 0.0203% 0.0321% 0.0202% 0.0200% 0.0201% 0.0203%
====== ====== ====== ====== ====== ======
Managers' and Officers' Compensation - Each variable account pays compensation
to Independent Managers in the form of a retainer, attendance fees, and
additional compensation to the Board chairperson. Each variable account does
not pay compensation directly to officers or members of the Board of Managers
who are affiliated with the Investment Adviser or the Sponsor. Certain
officers and Managers of the variable accounts are officers or directors of
MFS, MFD and MFSC.
Other - These variable accounts and certain other MFS funds (the funds) have
entered into a services agreement (the Agreement) which provides for payment of
fees by the funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. MFS has agreed to bear all expenses associated with office space,
other administrative support, and supplies provided to the ICCO. For the six
months ended June 30, 2006 the fees paid to Tarantino LLC was the following:
Capital Appreciation Variable Account .......................... $601
Global Governments Variable Account ............................ 23
Government Securities Variable Account ......................... 212
High Yield Variable Account .................................... 151
Money Market Variable Account .................................. 130
Total Return Variable Account .................................. 452
(6) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
Purchases Sales
- -----------------------------------------------------------------------------
Capital Appreciation Variable Account ....... $85,325,378 $115,400,221
Global Governments Variable Account ......... 2,516,288 3,858,239
Government Securities Variable Account ...... 4,450 398,775
High Yield Variable Account ................. 26,745,345 31,385,736
Total Return Variable Account ............... 30,773,120 40,416,693
Purchases and sales of Money Market Variable Account, exclusive of securities
subject to repurchase agreements, aggregated $361,585,000 and $364,248,000,
respectively.
Purchases and sales of U.S. Government Securities, other than purchased option
transactions and short-term obligations, were as follows:
Purchases Sales
- ---------------------------------------------------------------------------
Global Governments Variable Account ......... $ 1,365,263 $ 1,075,642
Government Securities Variable Account ...... 10,880,299 15,700,546
Total Return Variable Account ............... 10,808,724 17,085,220
(7) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as
follows:
Six Months Ended June 30, 2006 (000 Omitted)
----------------------------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuiti- Net
Payments Accumulation and Contract Accumulation zation Increase
Received Account Charges Activity Activity (Decrease)
------------- --------------- ---------------- ---------------- -------- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- ------- ---- -------- ---- -------- -------- --------
Capital Appreciation
Variable Account
Compass 2 Contracts . 15 $ 869 (40) $(2,274) (289) $(16,208) (314) $(17,613) $ 58 $(17,555)
Compass 3 Contracts . 12 434 (53) (1,965) (19) (716) (60) (2,247) (1) (2,248)
Compass 3 - Level 2
Contracts ........ 75 1,147 69 1,128 (576) (8,881) (432) (6,606) (16) (6,622)
------- -------- -------- -------- -------- --------
$ 2,450 $ (3,111) $(25,805) $(26,466) $ 41 $(26,425)
======= ======== ======== ======== ======== ========
Global Governments
Variable Account
Compass 2 Contracts . 1 $ 22 0* $ 17 (15) $ (380) (14) $ (341) $ 2 $ (339)
Compass 3 Contracts . 3 76 (7) (166) (3) (65) (6) (155) (1) (156)
Compass 3 - Level 2
Contracts ......... 6 71 4 66 (35) (497) (26) (360) (5) (365)
------- -------- -------- -------- -------- --------
$ 169 $ (83) $ (942) $ (856) $ (4) $ (860)
======= ======== ======== ======== ======== ========
Government Securities
Variable Account
Compass 2 Contracts . 6 $ 231 (14) $ (509) (142) $ (5,300) (150) $ (5,578) $ 108 $ (5,470)
Compass 3 Contracts . 5 131 (20) (537) (4) (112) (19) (518) -- (518)
Compass 3 - Level 2
Contracts ......... 15 227 41 630 (147) (2,243) (91) (1,386) (4) (1,390)
------- -------- -------- -------- -------- --------
$ 589 $ (416) $ (7,655) $ (7,482) $ 104 $ (7,378)
======= ======== ======== ======== ======== ========
High Yield
Variable Account
Compass 2 Contracts . 6 $ 203 (32) $(1,209) (106) $ (3,969) (132) $ (4,975) $ (48) $ (5,023)
Compass 3 Contracts . 3 96 (9) (241) (3) (93) (9) (238) 0* (238)
Compass 3 - Level 2
Contracts ........ 11 155 (157) (2,296) (74) (1,090) (220) (3,231) 1 (3,230)
------- -------- -------- -------- -------- --------
$ 454 $ (3,746) $ (5,152) $ (8,444) $ (47) $ (8,491)
======= ======== ======== ======== ======== ========
Money Market
Variable Account
Compass 2 Contracts . 6 $ 122 21 $ 430 (112) $ (2,291) (85) $ (1,739) $ (23) $ (1,762)
Compass 3 Contracts . 15 247 (55) (912) (15) (260) (55) (925) (9) (934)
Compass 3 - Level 2
Contracts ......... 33 414 234 2,958 (306) (3,849) (39) (477) (20) (497)
------- -------- -------- -------- -------- --------
$ 783 $ 2,476 $ (6,400) $ (3,141) $ (52) $ (3,193)
======= ======== ======== ======== ======== ========
Total Return
Variable Account
Compass 2 Contracts . 6 $ 259 24 $ 1,144 (134) $ (6,338) (104) $ (4,935) $ (93) $ (5,028)
Compass 3 Contracts . 14 638 (39) (1,809) (17) (762) (42) (1,933) (4) (1,937)
Compass 3 - Level 2
Contracts ......... 71 1,592 89 1,994 (563) (12,549) (403) (8,963) (90) (9,053)
------- -------- -------- -------- -------- --------
$ 2,489 $ 1,329 $(19,649) $(15,831) $ (187) $(16,018)
======= ======== ======== ======== ======== ========
*Amount less than 500.
Year Ended December 31, 2005 (000 Omitted)
----------------------------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuiti- Net
Payments Accumulation and Contract Accumulation zation Increase
Received Account Charges Activity Activity (Decrease)
------------- --------------- ---------------- ---------------- -------- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- ------- ---- -------- ---- -------- -------- --------
Capital Appreciation
Variable Account
Compass 2 Contracts . 35 $ 1,936 (21) $(1,091) (540) $(29,700) (526) $(28,855) $ (212) $(29,067)
Compass 3 Contracts . 38 1,358 (152) (5,445) (62) (2,250) (176) (6,337) 0* (6,337)
Compass 3 - Level 2
Contracts ......... 171 2,563 412 6,242 (1,133) (16,995) (550) (8,190) (7) (8,197)
------- -------- -------- -------- -------- --------
$ 5,857 $ (294) $(48,945) $(43,382) $ (219) $(43,601)
======= ======== ======== ======== ======== ========
Global Governments
Variable Account
Compass 2 Contracts . 1 $ 29 12 $ 324 (25) $ (653) (12) $ (300) $ 1 $ (299)
Compass 3 Contracts . 4 103 0* 7 (6) (157) (2) (47) (3) (50)
Compass 3 - Level 2
Contracts ......... 16 234 43 646 (91) (1,359) (32) (479) (1) (480)
------- -------- -------- -------- -------- --------
$ 366 $ 977 $ (2,169) $ (826) $ (3) $ (829)
======= ======== ======== ======== ======== ========
Government Securities
Variable Account
Compass 2 Contracts . 31 $ 1,174 7 $ 275 (311) $(11,710) (273) $(10,261) $ (68) $(10,329)
Compass 3 Contracts . 13 341 (29) (746) (15) (383) (31) (788) -- (788)
Compass 3 - Level 2
Contracts ......... 51 788 84 1,292 (232) (3,571) (97) (1,491) (10) (1,501)
------- -------- -------- -------- -------- --------
$ 2,303 $ 821 $(15,664) $(12,540) $ (78) $(12,618)
======= ======== ======== ======== ======== ========
High Yield
Variable Account
Compass 2 Contracts . 18 $ 671 (27) $(1,007) (269) $ (9,848) (278) $(10,184) $ (200) $(10,384)
Compass 3 Contracts . 9 250 (15) (416) (14) (371) (20) (537) (8) (545)
Compass 3 - Level 2
Contracts ......... 21 306 100 1,381 (155) (2,231) (34) (544) (14) (558)
------- -------- -------- -------- -------- --------
$ 1,227 $ (42) $(12,450) $(11,265) $ (222) $(11,487)
======= ======== ======== ======== ======== ========
Money Market
Variable Account
Compass 2 Contracts . 12 $ 326 349 $ 7,007 (242) $ (4,879) 119 $ 2,454 $ 9 $ 2,463
Compass 3 Contracts . 33 568 142 2,330 (54) (884) 121 2,014 4 2,018
Compass 3 - Level 2
Contracts ......... 71 904 2,082 25,741 (2,028) (25,133) 125 1,512 56 1,568
------- -------- -------- -------- -------- --------
$ 1,798 $ 35,078 $(30,896) $ 5,980 $ 69 $ 6,049
======= ======== ======== ======== ======== ========
Total Return
Variable Account
Compass 2 Contracts . 11 $ 557 104 $ 4,770 (277) $(12,683) (162) $ (7,356) $ (135) $ (7,491)
Compass 3 Contracts . 31 1,416 (84) (3,724) (45) (2,024) (98) (4,332) (86) (4,418)
Compass 3 - Level 2
Contracts ......... 156 3,366 635 13,743 (975) (21,072) (184) (3,963) (119) (4,082)
------- -------- -------- -------- -------- --------
$ 5,339 $ 14,789 $(35,779) $(15,651) $ (340) $(15,991)
======= ======== ======== ======== ======== ========
*Amount less than 500.
(8) LINE OF CREDIT
The variable accounts and other affiliated funds participate in a $1 billion
unsecured committed line of credit provided by a syndication of banks under a
credit agreement. In addition, the variable accounts and other affiliated
funds have established uncommitted borrowing arrangements with certain banks.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to each variable account for the six months ended June 30, 2006 is
included in miscellaneous expense on the statement of operations and was as
follows:
Commitment fee
- -------------------------------------------------------------------------
Capital Appreciation Variable Account .................... $1,387
Global Governments Variable Account ...................... 53
Government Securities Variable Account ................... 485
High Yield Variable Account .............................. 351
Money Market Variable Account ............................ 98
Total Return Variable Account ............................ 1,043
The variable accounts had no significant borrowings during the six months
ended June 30, 2006.
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
accounts' Investment Advisory Agreement with MFS will be available on or
before November 1, 2006 by clicking on "Sun Life Annuities" in the "Products
and Performance" section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the accounts' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the accounts voted proxies relating to portfolio
securities during the most recent twelve month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The accounts will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The accounts' Form N-Q may be
reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549 0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The accounts' Form N-Q is available
on the EDGAR database on the Commission's Internet Web site at http://
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
publicinfor@sec.gov or by writing the Public Reference Section at the above
address.
Sun Life Financial Distributors Inc.
COUS-SEM-6/06 24M
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this Form N-CSR, the registrant's principal financial
officer and principal executive officer have concluded that those
disclosure controls and procedures provide reasonable assurance that the
material information required to be disclosed by the registrant on this
report is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of the Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) TOTAL RETURN VARIABLE ACCOUNT
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: August 23, 2006
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: August 23, 2006
---------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: August 23, 2006
---------------
* Print name and title of each signing officer under his or her signature.