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 811-4009
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GOVERNMENT SECURITIES 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, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
COMPASS [Graphic Omitted]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT o JUNE 30, 2007
Capital Appreciation Variable Account
Global Governments Variable Account
Government Securities Variable Account
High Yield Variable Account
Money Market Variable Account
Total Return Variable Account
Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life of Canada (U.S.) Holdings, Inc.
TABLE OF CONTENTS
Letter from the CEO of MFS ........................................ 1
Portfolio Composition ............................................. 2
Portfolio of Investments .......................................... 8
Financial Statements .............................................. 29
Notes to Financial Statements ..................................... 46
Investment Advisor ................................................ Back Cover
Custodian and Dividend Disbursing Agent ........................... Back Cover
Board Review of Investment Advisory Agreement ..................... Back Cover
Proxy Voting Policies and Information ............................. Back Cover
Quarterly Portfolio Disclosure .................................... Back Cover
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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 past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their
financial goals. We believe you should not let the headlines guide you in your
investment decisions and should be cautious about overreacting to short-term
volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term require diligence and patience, two
traits that in our experience are essential to capitalizing on the many
opportunities the financial markets can offer -- through both up and down
economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION -- CAPITAL APPRECIATION VARIABLE ACCOUNT
PORTFOLIO STRUCTURE
Common Stocks 96.0%
Cash and Other Net Assets 4.0%
TOP TEN HOLDINGS
General Electric Co. 3.4%
-----------------------------------------------
Cisco Systems, Inc. 3.2%
-----------------------------------------------
Intel Corp. 3.0%
-----------------------------------------------
Oracle Corp. 2.4%
-----------------------------------------------
Johnson & Johnson 2.3%
-----------------------------------------------
Genzyme Corp. 2.3%
-----------------------------------------------
Microsoft Corp. 2.2%
-----------------------------------------------
Procter & Gamble Co. 2.1%
-----------------------------------------------
Amdocs Ltd. 1.9%
-----------------------------------------------
Google, Inc., "A" 1.9%
-----------------------------------------------
EQUITY SECTORS
Technology 21.5%
-----------------------------------------------
Health Care 20.4%
-----------------------------------------------
Industrial Goods & Services 10.2%
-----------------------------------------------
Retailing 9.3%
-----------------------------------------------
Financial Services 7.7%
-----------------------------------------------
Consumer Staples 7.0%
-----------------------------------------------
Energy 5.6%
-----------------------------------------------
Special Products & Services 5.1%
-----------------------------------------------
Leisure 4.1%
-----------------------------------------------
Transportation 1.9%
-----------------------------------------------
Autos & Housing 1.2%
-----------------------------------------------
Utilities & Communications 1.1%
-----------------------------------------------
Basic Materials 0.9%
-----------------------------------------------
Percentages are based on net assets as of 06/30/07.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- GLOBAL GOVERNMENTS VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 91.0%
Cash and Other Net Assets 9.0%
FIXED INCOME SECTORS (i)
Non-U.S. Government Bonds 63.9%
-----------------------------------------------
U.S. Treasury Securities 9.0%
-----------------------------------------------
Commercial Mortgage-Backed Securities 8.4%
-----------------------------------------------
U.S. Government Agencies 5.5%
-----------------------------------------------
Emerging Markets Bonds 3.1%
-----------------------------------------------
Mortgage-Backed Securities 1.1%
-----------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 74.2%
-----------------------------------------------
AA 17.9%
-----------------------------------------------
A 4.4%
-----------------------------------------------
BBB 3.5%
-----------------------------------------------
PORTFOLIO FACTS
Average Duration (d,i) 5.9
-----------------------------------------------
Average Life (i,m) 8.3 yrs.
-----------------------------------------------
Average Maturity (i,m) 10.3 yrs.
-----------------------------------------------
Average Credit Quality of Rated Securities
(long-term)(a) AA+
-----------------------------------------------
Average Credit Quality of Rated Securities
(short-term)(a) A-1
-----------------------------------------------
COUNTRY WEIGHTINGS (i)
United States 32.7%
-----------------------------------------------
Japan 15.0%
-----------------------------------------------
Germany 14.0%
-----------------------------------------------
France 5.7%
-----------------------------------------------
United Kingdom 5.7%
-----------------------------------------------
Canada 5.6%
-----------------------------------------------
Spain 4.5%
-----------------------------------------------
Austria 3.8%
-----------------------------------------------
Ireland 2.5%
-----------------------------------------------
Other Countries 10.5%
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in the "AAA"-rating category. Percentages
are based on the total market value of investments as of 06/30/07.
Percentages are based on net assets as of 06/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- GOVERNMENT SECURITIES VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 96.7%
Cash and Other Net Assets 3.3%
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 52.2%
-----------------------------------------------
U.S. Government Agencies 24.3%
-----------------------------------------------
U.S. Treasury Securities 20.2%
-----------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 100.0%
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PORTFOLIO FACTS
Average Duration (d,i) 4.5
-----------------------------------------------
Average Life (i,m) 6.3 yrs.
-----------------------------------------------
Average Maturity (i,m) 13.9 yrs.
-----------------------------------------------
Average Credit Quality of Rated Securities
(long-term)(a) AAA
-----------------------------------------------
Average Credit Quality of Rated Securities
(short-term) (a) A-1
-----------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in the "AAA"-rating category. Percentages
are based on the total market value of investments as of 06/30/07.
Percentages are based on net assets as of 06/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- HIGH YIELD VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Bonds 89.2%
Floating Rate Loans 8.0%
Common Stocks 2.0%
Cash and Other Net Assets 0.8%
Preferred Stocks(o) 0.0%
Equity Warrants(o) 0.0%
TOP FIVE INDUSTRIES (i)
Medical & Health Technology & Services 8.5%
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Automotive 6.6%
-----------------------------------------------
Gaming & Lodging 6.3%
-----------------------------------------------
Broadcasting 5.3%
-----------------------------------------------
Printing & Publishing 4.6%
-----------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 2.2%
-----------------------------------------------
BBB 2.4%
-----------------------------------------------
BB 26.0%
-----------------------------------------------
B 53.1%
-----------------------------------------------
CCC 15.4%
-----------------------------------------------
Not Rated 0.9%
-----------------------------------------------
PORTFOLIO FACTS
Average Duration (d,i) 4.4
-----------------------------------------------
Average Life (i,m) 7.8 yrs.
-----------------------------------------------
Average Maturity (i,m) 8.2 yrs.
-----------------------------------------------
Average Credit Quality of Rated Securities
(long-term)(a) B+
-----------------------------------------------
Average Credit Quality of Rated Securities
(short-term)(a) A-1
-----------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(o) Less than 0.1%.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in the "AAA"-rating category. Percentages
are based on the total market value of investments as of 06/30/07.
Percentages are based on net assets as of 06/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- MONEY MARKET VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (u)
Commercial Paper 95.1%
Certificates of Deposit 6.0%
Other Assets Less Liabilities (1.1)%
SHORT-TERM CREDIT QUALITY (q)
Average Credit Quality of Short-Term
Bonds (a) A-1
----------------------------------------------
All holdings are rated "A-1"
MATURITY BREAKDOWN (u)
0 - 29 days 49.4%
----------------------------------------------
30 - 59 days 30.8%
----------------------------------------------
60 - 89 days 17.9%
----------------------------------------------
90 - 366 days 3.0%
----------------------------------------------
Other Assets Less Liabilities (1.1)%
----------------------------------------------
(a) The average credit quality is based upon a market weighted average of
portfolio holdings that are rated by public rating agencies.
(q) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. If not rated by any of the three
agencies, the security is considered Not Rated. U.S. Treasuries and U.S.
Agency securities are included in the "A-1"- rating category. Percentages
are based on the total market value of investments as of 06/30/07.
(u) For purposes of this presentation, accrued interest, where applicable, is
included.
From time to time "Other Assets Less Liabilities" may be negative due to
timing of cash receipts.
Percentages are based on net assets as of 06/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO COMPOSITION -- TOTAL RETURN VARIABLE ACCOUNT
PORTFOLIO STRUCTURE (i)
Common Stocks 59.6%
Bonds 38.9%
Cash & Other Net Assets 1.5%
TOP TEN HOLDINGS (i)
Fannie Mae, 5.5%, 30 years 4.0%
-----------------------------------------------
Bank of America Corp. 1.9%
-----------------------------------------------
Fannie Mae, 6.0%, 30 years 1.7%
-----------------------------------------------
U.S. Treasury Notes, 4.5%, 2009 1.6%
-----------------------------------------------
Allstate Corp. 1.4%
-----------------------------------------------
Genworth Financial, Inc., "A" 1.3%
-----------------------------------------------
Citigroup, Inc. 1.3%
-----------------------------------------------
U.S. Treasury Notes, 3.125%, 2008 1.3%
-----------------------------------------------
Wyeth 1.2%
-----------------------------------------------
Exxon Mobil Corp. 1.2%
-----------------------------------------------
EQUITY SECTORS
Financial Services 17.6%
-----------------------------------------------
Health Care 7.4%
-----------------------------------------------
Energy 7.2%
-----------------------------------------------
Utilities & Communications 4.9%
-----------------------------------------------
Industrial Goods & Services 4.8%
-----------------------------------------------
Technology 3.9%
-----------------------------------------------
Basic Materials 3.0%
-----------------------------------------------
Consumer Staples 3.0%
-----------------------------------------------
Retailing 2.6%
-----------------------------------------------
Autos & Housing 2.3%
-----------------------------------------------
Leisure 2.2%
-----------------------------------------------
Transportation 0.5%
-----------------------------------------------
Special Products & Services 0.2%
-----------------------------------------------
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 14.3%
-----------------------------------------------
High Grade Corporates 9.6%
-----------------------------------------------
U.S. Treasury Securities 8.2%
-----------------------------------------------
Commercial Mortgage-Backed Securities 3.9%
-----------------------------------------------
U.S. Government Agencies 1.6%
-----------------------------------------------
Asset-Backed Securities 0.6%
-----------------------------------------------
Emerging Markets Bonds 0.3%
-----------------------------------------------
Non-U.S. Government Bonds 0.3%
-----------------------------------------------
Residential Mortgage-Backed Securities 0.1%
-----------------------------------------------
High Yield Corporates (o) 0.0%
-----------------------------------------------
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable.
(o) Less than 0.1%.
Percentages are based on net assets as of 06/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
CAPITAL APPRECIATION VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
COMMON STOCKS - 96.0%
AEROSPACE - 3.3%
Embraer-Empresa Brasileira de Aeronautica
S.A., ADR ........................................... 26,080 $ 1,257,317
Precision Castparts Corp. ............................. 15,200 1,844,672
United Technologies Corp. ............................. 51,870 3,679,139
---------------
$ 6,781,128
---------------
ALCOHOLIC BEVERAGES - 0.8%
Diageo PLC ............................................ 78,900 $ 1,638,584
---------------
APPAREL MANUFACTURERS - 3.0%
LVMH Moet Hennessy Louis Vuitton S.A. ................. 25,500 $ 2,938,962
NIKE, Inc., "B" ....................................... 55,400 3,229,266
---------------
$ 6,168,228
---------------
AUTOMOTIVE - 1.2%
Bayerische Motoren Werke AG ........................... 17,800 $ 1,154,831
Harman International Industries, Inc. ................. 11,980 1,399,264
---------------
$ 2,554,095
---------------
BIOTECHNOLOGY - 6.4%
Amgen, Inc. (a) ....................................... 55,770 $ 3,083,523
Celgene Corp. (a) ..................................... 54,300 3,113,019
Genentech, Inc. (a) ................................... 14,000 1,059,240
Genzyme Corp. (a) ..................................... 73,030 4,703,132
Millipore Corp. (a) ................................... 16,100 1,208,949
---------------
$ 13,167,863
---------------
BROADCASTING - 1.1%
News Corp., "A" ....................................... 109,750 $ 2,327,798
---------------
BROKERAGE & ASSET MANAGERS - 3.4%
Charles Schwab Corp. .................................. 129,220 $ 2,651,594
E*TRADE Financial Corp. (a) ........................... 71,000 1,568,390
Mellon Financial Corp. ................................ 39,470 1,736,680
Merrill Lynch & Co., Inc. ............................. 11,630 972,035
---------------
$ 6,928,699
---------------
BUSINESS SERVICES - 3.9%
Amdocs Ltd. (a) ....................................... 101,020 $ 4,022,616
Automatic Data Processing, Inc. ....................... 16,960 822,051
Fidelity National Information Services, Inc ........ 23,800 1,291,864
Western Union Co. ..................................... 97,440 2,029,675
---------------
$ 8,166,206
---------------
CABLE TV - 1.1%
Comcast Corp., "A" (a) ................................ 77,600 $ 2,202,261
---------------
COMPUTER SOFTWARE - 6.9%
Adobe Systems, Inc. (a) ............................... 91,840 $ 3,687,376
Citrix Systems, Inc. (a) .............................. 31,100 1,047,137
Microsoft Corp. ....................................... 152,340 4,489,460
Oracle Corp. (a) ...................................... 252,540 4,977,563
---------------
$ 14,201,536
---------------
COMPUTER SOFTWARE - SYSTEMS - 1.9%
Apple Computer, Inc. (a) .............................. 18,650 $ 2,276,046
Dell, Inc. (a) ........................................ 57,300 1,635,915
---------------
$ 3,911,961
---------------
CONSUMER GOODS & SERVICES - 4.1%
Apollo Group, Inc., "A" (a) ........................... 12,700 $ 742,061
Colgate-Palmolive Co. ................................. 26,410 1,712,689
eBay, Inc. (a) ........................................ 56,290 1,811,412
Procter & Gamble Co. .................................. 69,500 4,252,705
---------------
$ 8,518,867
---------------
ELECTRICAL EQUIPMENT - 6.9%
Danaher Corp. ......................................... 39,100 $ 2,952,050
General Electric Co. .................................. 185,500 7,100,940
Rockwell Automation, Inc. ............................. 34,160 2,372,070
W.W. Grainger, Inc. ................................... 20,480 1,905,664
---------------
$ 14,330,724
---------------
ELECTRONICS - 5.2%
Intel Corp. ........................................... 262,900 $ 6,246,504
KLA-Tencor Corp. ...................................... 36,800 2,022,160
Samsung Electronics Co. Ltd., GDR ..................... 4,665 1,438,191
Taiwan Semiconductor Manufacturing Co. Ltd., ADR ...... 101,444 1,129,072
---------------
$ 10,835,927
---------------
ENERGY - INTEGRATED - 1.8%
Exxon Mobil Corp. ..................................... 31,000 $ 2,600,280
Hess Corp. ............................................ 18,300 1,075,843
---------------
$ 3,676,123
---------------
FOOD & BEVERAGES - 2.6%
Nestle S.A ............................................ 7,034 $ 2,670,770
PepsiCo, Inc. ......................................... 42,480 2,754,828
---------------
$ 5,425,598
---------------
FOOD & DRUG STORES - 1.6%
CVS Caremark Corp. .................................... 91,569 $ 3,337,690
---------------
GAMING & LODGING - 1.5%
International Game Technology ......................... 38,830 $ 1,541,551
Royal Caribbean Cruises Ltd. .......................... 38,000 1,633,240
---------------
$ 3,174,791
---------------
GENERAL MERCHANDISE - 2.3%
Family Dollar Stores, Inc. ............................ 38,460 $ 1,319,947
Target Corp. .......................................... 55,050 3,501,180
---------------
$ 4,821,127
---------------
HEALTH MAINTENANCE ORGANIZATIONS - 0.8%
UnitedHealth Group, Inc. .............................. 32,440 $ 1,658,982
---------------
INSURANCE - 0.5%
Aflac, Inc. ........................................... 19,800 $ 1,017,720
---------------
INTERNET - 1.9%
Google, Inc., "A" (a) ................................. 7,560 $ 3,956,753
---------------
LEISURE & TOYS - 0.4%
Electronic Arts, Inc. (a) ............................. 16,160 $ 764,691
---------------
MAJOR BANKS - 2.1%
Bank of New York Co., Inc. (a) ........................ 25,900 $ 1,073,296
State Street Corp. .................................... 48,630 3,326,292
---------------
$ 4,399,588
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.8%
Cardinal Health, Inc. ................................. 22,900 $ 1,617,656
---------------
MEDICAL EQUIPMENT - 5.1%
Advanced Medical Optics, Inc. (a) ..................... 58,290 $ 2,033,155
Baxter International, Inc. ............................ 18,620 1,049,051
C.R. Bard, Inc. ....................................... 7,000 578,410
DENTSPLY International, Inc. .......................... 46,480 1,778,325
Medtronic, Inc. ....................................... 75,770 3,929,432
St. Jude Medical, Inc. (a) ............................ 29,670 1,231,008
---------------
$ 10,599,381
---------------
NETWORK & TELECOM - 4.4%
Cisco Systems, Inc. (a) ............................... 234,640 $ 6,534,724
Juniper Networks, Inc. (a) ............................ 56,100 1,412,037
QUALCOMM, Inc. ........................................ 26,420 1,146,364
---------------
$ 9,093,125
---------------
OIL SERVICES - 3.8%
Halliburton Co. ....................................... 28,900 $ 997,050
Noble Corp. ........................................... 32,460 3,165,499
Schlumberger Ltd. ..................................... 36,360 3,088,418
Weatherford International Ltd. (a) .................... 11,720 647,413
---------------
$ 7,898,380
---------------
OTHER BANKS & DIVERSIFIED FINANCIALS - 1.7%
American Express Co. .................................. 37,470 $ 2,292,415
Moody's Corp. ......................................... 19,400 1,206,680
---------------
$ 3,499,095
---------------
PERSONAL COMPUTERS & PERIPHERALS - 1.2%
EMC Corp. (a) ......................................... 64,480 $ 1,167,088
Network Appliance, Inc. (a) ........................... 44,400 1,296,480
---------------
$ 2,463,568
---------------
PHARMACEUTICALS - 7.3%
Allergan, Inc. ........................................ 48,020 $ 2,767,873
Bayer AG .............................................. 13,700 1,037,874
Johnson & Johnson ..................................... 76,570 4,718,243
Roche Holding AG ...................................... 16,640 2,950,981
Wyeth ................................................. 62,770 3,599,232
---------------
$ 15,074,203
---------------
SPECIALTY CHEMICALS - 0.9%
Praxair, Inc. ......................................... 26,300 $ 1,893,337
---------------
SPECIALTY STORES - 2.4%
Lowe's Cos., Inc. ..................................... 53,570 $ 1,644,063
Nordstrom, Inc. ....................................... 23,500 1,201,320
Staples, Inc. ......................................... 92,170 2,187,194
---------------
$ 5,032,577
---------------
TELEPHONE SERVICES - 1.1%
American Tower Corp., "A" (a) ......................... 55,880 $ 2,346,960
---------------
TOBACCO - 0.7%
Altria Group, Inc. .................................... 19,870 $ 1,393,682
---------------
TRUCKING - 1.9%
FedEx Corp. ........................................... 14,500 $ 1,609,065
United Parcel Service, Inc., "B" ...................... 32,240 2,353,520
---------------
$ 3,962,585
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $176,070,677) ..................................... $ 198,841,489
---------------
SHORT-TERM OBLIGATIONS - 3.0%
Cargill, Inc., 5.37%, due 7/02/07, at
Amortized Cost and Value (t)(y) ..................... $ 6,302,000 $ 6,301,060
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $182,371,737) ..................................... $ 205,142,549
---------------
OTHER ASSETS,
LESS LIABILITIES - 1.0% ............................................... 1,969,064
---------------
NET ASSETS - 100.0% ................................................... $ 207,111,613
---------------
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
GLOBAL GOVERNMENTS VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
BONDS - 88.4%
FOREIGN BONDS - 65.8%
AUSTRIA - 3.6%
Republic of Austria, 5%, 2012 (z) ...................... EUR 224,000 $ 308,821
------------
BELGIUM - 2.3%
Kingdom of Belgium, 3.75%, 2009 ........................ EUR 149,000 $ 199,288
------------
CANADA - 5.3%
Canada Housing Trust, 4.6%, 2011 ....................... CAD 51,000 $ 47,814
Government of Canada, 5.5%, 2009 ....................... CAD 50,000 47,828
Government of Canada, 4.5%, 2015 ....................... CAD 18,000 16,873
Quebec Province, 1.6%, 2013 ............................ JPY 42,000,000 338,793
------------
$ 451,308
------------
DENMARK - 1.1%
Kingdom of Denmark, 4%, 2015 ........................... DKK 519,000 $ 90,510
------------
FINLAND - 1.8%
Republic of Finland, 5.375%, 2013 ...................... EUR 108,000 $ 152,180
------------
FRANCE - 5.6%
Republic of France, 6%, 2025 ........................... EUR 196,000 $ 305,946
Republic of France, 4.75%, 2035 ........................ EUR 125,000 169,120
------------
$ 475,066
------------
GERMANY - 13.6%
Federal Republic of Germany, 3.5%, 2008 ................ EUR 69,000 $ 92,326
Federal Republic of Germany, 5.25%, 2010 ............... EUR 166,000 229,153
Federal Republic of Germany, 3.75%, 2015 ............... EUR 300,000 385,364
Federal Republic of Germany, 6.25%, 2030 ............... EUR 220,000 359,320
KfW Bankengruppe, 1.35%, 2014 .......................... JPY 12,000,000 95,567
------------
$ 1,161,730
------------
IRELAND - 2.5%
Republic of Ireland, 4.6%, 2016 ........................ EUR 155,000 $ 209,470
------------
JAPAN - 15.0%
Development Bank of Japan, 1.75%, 2010 ................. JPY 7,000,000 $ 57,719
Development Bank of Japan, 1.4%, 2012 .................. JPY 45,000,000 364,448
Development Bank of Japan, 1.6%, 2014 .................. JPY 40,000,000 323,468
Development Bank of Japan, 1.05%, 2023 ................. JPY 55,000,000 375,267
Development Bank of Japan, 2.3%, 2026 .................. JPY 10,000,000 81,366
Japan Finance Corp. for Municipal
Enterprises, 2%, 2016 .................................. JPY 10,000,000 81,996
------------
$ 1,284,264
------------
MALAYSIA - 1.4%
Petronas Capital Ltd., 7.875%, 2022 ................... $ 100,000 $ 118,001
------------
MEXICO - 1.1%
Pemex Project Funding Master Trust, 8.625%, 2022 ..... $ 23,000 $ 28,286
United Mexican States, 6.75%, 2034 .................... 60,000 63,990
------------
$ 92,276
------------
NETHERLANDS - 2.0%
Kingdom of Netherlands, 3.75%, 2014 .................... EUR 133,000 $ 171,237
------------
RUSSIA - 0.6%
Gazprom International S.A., 7.201%, 2020 ............... $ 51,503 $ 53,161
------------
SPAIN - 4.3%
Kingdom of Spain, 5.35%, 2011 .......................... EUR 266,000 $ 370,800
------------
UNITED KINGDOM - 5.6%
United Kingdom Conversion Loan, 9%, 2011 ............... GBP 38,000 $ 84,981
United Kingdom Treasury, 8%, 2015 ...................... GBP 55,000 128,397
United Kingdom Treasury, 8%, 2021 ...................... GBP 44,000 111,083
United Kingdom Treasury, 4.25%, 2036 ................... GBP 85,000 155,386
------------
$ 479,847
------------
TOTAL FOREIGN BONDS ................................................... $ 5,617,959
------------
U.S. BONDS - 22.6%
ASSET BACKED & SECURITIZED - 8.4%
Bayview Commercial Asset Trust, FRN, 4.9071%, 2023 (n) . CAD 30,000 $ 28,227
Citigroup/Deutsche Bank Commercial Mortgage
Trust, 5.648%, 2048 .................................... $ 100,000 98,098
Commercial Mortgage Asset Trust, FRN,
1.1259%, 2032 (i)(n) ................................... 1,375,678 48,522
Commercial Mortgage Pass-Through
Certificates, FRN, 5.51%, 2017 (n) ..................... 59,000 59,029
Commercial Mortgage Pass-Through
Certificates, FRN, 5.52%, 2017 (n) ..................... 100,000 100,018
Credit Suisse Commercial Mortgage Trust,
5.509%, 2039 ........................................... 23,010 22,269
Deutsche Mortgage & Asset Receiving Corp.,
6.538%, 2031 ........................................... 15,766 15,774
First Union National Bank Commercial
Mortgage Trust, FRN,
1.1829%, 2043 (i)(n) ................................... 1,585,449 44,850
IMPAC CMB Trust, FRN, 5.67%, 2036 ...................... 93,562 93,446
JPMorgan Chase Commercial Mortgage
Securities Corp., 5.44%, 2045 .......................... 19,156 18,531
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3802%, 2041 ................... 55,952 54,494
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3866%, 2044 ................... 30,000 28,923
Lehman Brothers Floating Rate Commercial
Mortgage Trust, FRN, 5.48%, 2018 (n) ................... 26,075 26,075
Merrill Lynch/Countrywide Commercial
Mortgage Trust, FRN, 5.204%, 2049 ...................... 50,000 47,458
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.795%, 2045 ...................................... 30,000 29,713
------------
$ 715,427
------------
MORTGAGE BACKED - 1.1%
Fannie Mae, 5.37%, 2013 ................................ $ 24,634 $ 24,317
Fannie Mae, 4.78%, 2015 ................................ 24,348 23,279
Fannie Mae, 5.09%, 2016 ................................ 25,000 24,289
Fannie Mae, 5.424%, 2016 ............................... 24,632 24,415
------------
$ 96,300
------------
U.S. GOVERNMENT AGENCIES - 5.5%
Aid-Egypt, 4.45%, 2015 ................................. $ 49,000 $ 45,946
Fannie Mae, 4.25%, 2007 ................................ 171,000 170,357
Freddie Mac, 4.2%, 2007 ................................ 99,000 98,542
Small Business Administration,
4.57%, 2025 ............................................ 43,533 40,632
Small Business Administration,
5.21%, 2026 ............................................ 113,346 110,106
------------
$ 465,583
------------
U.S. TREASURY OBLIGATIONS - 7.6%
U.S. Treasury Bonds, 8%, 2021 .......................... $ 131,000 $ 167,608
U.S. Treasury Bonds, 4.75%, 2037 ....................... 19,000 17,915
U.S. Treasury Notes, 3.125%, 2008 ...................... 1,000 977
U.S. Treasury Notes, 4%, 2010 .......................... 187,000 182,690
U.S. Treasury Notes, 4.75%, 2012 ....................... 121,000 120,093
U.S. Treasury Notes, 4%, 2015 (f) ...................... 174,000 162,935
------------
$ 652,218
------------
TOTAL U.S. BONDS ...................................................... $ 1,929,528
------------
TOTAL BONDS
(IDENTIFIED COST, $7,666,981) ....................................... $ 7,547,487
------------
CALL OPTIONS PURCHASED - 0.0%
CHF Currency - July 2007 @ $0.9967 (Premiums
Paid, $178) ............................................ CHF 52,736 $ 118
------------
PUT OPTIONS PURCHASED - 0.0%
CAD Currency - July 2007 @ $1.0195 (Premiums
Paid, $295) ............................................ CAD 97,380 $ 124
------------
SHORT-TERM OBLIGATIONS - 3.5%
Farmer Mac, 4.825%, due 7/02/07,
at Amortized Cost and Value (y) ..................... $ 300,000 $ 299,960
------------
REPURCHASE AGREEMENTS - 4.4%
Goldman Sachs, 4.50%, dated 6/29/07, due
7/02/07, total to be received $377,141
(secured by various U.S. Treasury and
Federal Agency obligations and Mortgage
Backed securities in a jointly traded
account), at Cost ................................... $ 377,000 $ 377,000
------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $8,344,414) (k) ................................... $ 8,224,689
------------
OTHER ASSETS,
LESS LIABILITIES - 3.7% ............................................... 316,404
------------
NET ASSETS - 100.0% ................................................... $ 8,541,093
------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 6/30/07
Appreciation and Depreciation in the table below are reported by currency.
NET UNREALIZED
CONTRACTS TO SETTLEMENT DATE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE RANGE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------------
APPRECIATION
Buy AUD 58,929 8/03/07 $ 49,358 $ 49,922 $ 564
Buy BRL 25,398 7/16/07 12,981 13,137 156
Sell BRL 24,889 7/16/07 12,899 12,874 25
Buy CAD 41,133 7/23/07 38,522 38,726 204
Buy EUR 707,892 9/19/07 947,935 960,705 12,770
Buy GBP 98,594 9/19/07 194,573 197,707 3,134
Sell JPY 14,936,173 7/17/07 123,798 121,573 2,225
Buy MXN 75,992 7/05/07 7,000 7,032 32
Sell MXN 114,590 7/05/07 10,650 10,603 47
Buy NOK 271,902 9/17/07 44,771 46,151 1,380
Buy PLN 52,816 8/31/07 18,768 19,010 242
Buy SEK 514,319 8/03/07 - 9/14/07 74,430 75,352 922
--------
$ 21,701
========
DEPRECIATION
Sell AUD 18,008 8/03/07 $ 15,212 $ 15,257 $ (45)
Sell CAD 271 7/23/07 250 256 (6)
Sell DKK 135,690 8/13/07 24,424 24,711 (287)
Sell EUR 537,209 7/23/07 - 9/19/07 718,331 728,868 (10,537)
Sell GBP 77,430 9/17/07 152,616 155,272 (2,656)
Buy JPY 7,504,503 7/11/07 - 7/17/07 62,106 61,065 (1,041)
Sell JPY 9,621,065 7/17/07 - 8/20/07 78,279 78,451 (172)
Buy MXN 226,682 7/05/07 21,006 20,975 (31)
Buy MYR 44,148 7/11/07 12,889 12,796 (93)
Sell NOK 271,144 9/17/07 45,000 46,022 (1,022)
Buy PLN 52,816 7/02/07 19,116 18,984 (132)
Sell PLN 52,816 7/02/07 18,742 18,984 (242)
Sell SEK 67,438 9/14/07 9,590 9,894 (304)
Buy SGD 33,595 8/06/07 22,059 22,026 (33)
--------
$(16,601)
========
At June 30, 2007, forward foreign currency purchases and sales under master netting agreements excluded above amounted to a net
receivable of $13 with Goldman Sachs & Co. and a net payable of $26,004 with Merrill Lynch International Bank.
FUTURES CONTRACTS OUTSTANDING AT 6/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 10 yr (Long) ............. 1 $105,703 Sep-07 $481
At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
GOVERNMENT SECURITIES VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
BONDS - 93.4%
AGENCY - OTHER - 4.6%
Financing Corp., 9.4%, 2018 ........................... $ 780,000 $ 1,023,589
Financing Corp., 10.35%, 2018 ......................... 1,150,000 1,610,504
Financing Corp., STRIPS, 0%, 2017 ..................... 1,220,000 698,726
---------------
$ 3,332,819
---------------
MORTGAGE BACKED - 52.2%
Fannie Mae, 5.78%, 2008 ............................... $ 181,026 $ 181,116
Fannie Mae, 4.73%, 2012 ............................... 93,422 90,375
Fannie Mae, 4.79%, 2012 ............................... 934,169 901,347
Fannie Mae, 4.845%, 2013 .............................. 258,041 248,642
Fannie Mae, 5%, 2013 - 2027 ........................... 3,010,057 2,941,327
Fannie Mae, 5.06%, 2013 ............................... 103,932 101,676
Fannie Mae, 4.545%, 2014 .............................. 131,187 124,243
Fannie Mae, 4.6%, 2014 ................................ 124,077 118,356
Fannie Mae, 4.666%, 2014 .............................. 769,285 733,349
Fannie Mae, 4.77%, 2014 ............................... 104,942 100,061
Fannie Mae, 4.839%, 2014 .............................. 863,048 829,076
Fannie Mae, 4.871%, 2014 .............................. 475,735 460,024
Fannie Mae, 5.1%, 2014 ................................ 136,260 133,382
Fannie Mae, 4.56%, 2015 ............................... 159,967 151,334
Fannie Mae, 4.62%, 2015 ............................... 178,245 169,322
Fannie Mae, 4.665%, 2015 .............................. 107,946 102,708
Fannie Mae, 4.69%, 2015 ............................... 88,030 83,925
Fannie Mae, 4.7%, 2015 ................................ 124,037 118,265
Fannie Mae, 4.74%, 2015 ............................... 99,763 94,541
Fannie Mae, 4.815%, 2015 .............................. 117,000 111,242
Fannie Mae, 4.82%, 2015 ............................... 340,038 324,612
Fannie Mae, 4.85%, 2015 ............................... 88,165 84,940
Fannie Mae, 4.89%, 2015 ............................... 87,317 84,299
Fannie Mae, 4.925%, 2015 .............................. 343,786 330,672
Fannie Mae, 5.471%, 2015 .............................. 122,730 122,050
Fannie Mae, 6.5%, 2016 - 2036 ......................... 1,606,013 1,631,410
Fannie Mae, 4.996%, 2017 .............................. 302,077 292,386
Fannie Mae, 5.5%, 2017 - 2035 ......................... 10,361,771 10,061,247
Fannie Mae, 6%, 2017 - 2034 ........................... 2,155,062 2,148,628
Fannie Mae, 4.5%, 2019 - 2020 ......................... 2,935,411 2,792,813
Fannie Mae, 4.88%, 2020 ............................... 89,555 86,900
Fannie Mae, 7.5%, 2022 - 2031 ......................... 174,623 182,661
Freddie Mac, 4.5%, 2013 - 2021 ........................ 480,425 476,834
Freddie Mac, 4.375%, 2015 ............................. 508,421 493,878
Freddie Mac, 5%, 2016 - 2027 .......................... 2,415,965 2,394,441
Freddie Mac, 6%, 2021 - 2035 .......................... 2,433,691 2,426,043
Freddie Mac, 5.5%, 2025 - 2035 ........................ 3,748,504 3,637,137
Freddie Mac, 6.5%, 2032 - 2037 ........................ 725,533 738,410
Ginnie Mae, 5.5%, 2033 ................................ 1,509,006 1,467,531
---------------
$ 37,571,203
---------------
U.S. GOVERNMENT AGENCIES - 19.2%
Aid-Egypt, 4.45%, 2015 ................................ $ 473,000 $ 443,518
Aid-Israel, 6.6%, 2008 ................................ 270,727 270,983
Aid-Peru, 9.98%, 2008 ................................. 273,048 279,779
Empresa Energetica Cornito Ltd.,
6.07%, 2010 ......................................... 1,567,000 1,582,294
Fannie Mae, 4.625%, 2013 .............................. 213,000 204,657
Farmer Mac, 5.5%, 2011 (n) ............................ 690,000 693,912
Federal Home Loan Bank, 4.625%, 2008 .................. 1,750,000 1,742,400
Federal Home Loan Bank, 5.25%, 2009 ................... 1,065,000 1,065,577
Freddie Mac, 6.625%, 2009 ............................. 673,000 692,731
Overseas Private Investment Corp.,
0%, 2007 ............................................ 99,272 108,094
Small Business Administration,
8.7%, 2009 .......................................... 22,295 22,754
Small Business Administration,
10.05%, 2009 ........................................ 3,137 3,200
Small Business Administration,
6.44%, 2021 ......................................... 492,004 503,477
Small Business Administration,
6.625%, 2021 ........................................ 592,463 608,839
Small Business Administration,
4.98%, 2023 ......................................... 231,013 223,335
Small Business Administration,
4.34%, 2024 ......................................... 337,163 312,247
Small Business Administration,
4.77%, 2024 ......................................... 537,075 511,455
Small Business Administration,
4.86%, 2024 ......................................... 297,743 284,318
Small Business Administration,
4.87%, 2024 ......................................... 348,836 332,726
Small Business Administration,
4.88%, 2024 ......................................... 263,124 251,368
Small Business Administration,
4.99%, 2024 ......................................... 387,316 373,347
Small Business Administration,
4.76%, 2025 ......................................... 508,842 479,656
Small Business Administration,
5.11%, 2025 ......................................... 307,800 299,139
U.S. Department of Housing & Urban
Development, 6.36%, 2016 ............................ 500,000 506,577
U.S. Department of Housing & Urban
Development, 6.59%, 2016 ............................ 2,045,000 2,060,575
---------------
$ 13,856,958
---------------
U.S. TREASURY OBLIGATIONS - 17.4%
U.S. Treasury Bonds, 9.25%, 2016 ...................... $ 409,000 $ 528,313
U.S. Treasury Bonds, 7.5%, 2016 ....................... 810,000 955,231
U.S. Treasury Bonds, 7.875%, 2021 ..................... 1,785,000 2,246,171
U.S. Treasury Bonds, 6.25%, 2023 ...................... 1,009,000 1,120,385
U.S. Treasury Bonds, 6%, 2026 ......................... 405,000 442,083
U.S. Treasury Bonds, 0%, 2027 ......................... 810,000 282,427
U.S. Treasury Bonds, 5.25%, 2028 ...................... 346,000 348,379
U.S. Treasury Bonds, 4.5%, 2036 ....................... 517,000 468,127
U.S. Treasury Bonds, STRIPS, 0%, 2021 ................. 1,174,000 552,861
U.S. Treasury Notes, 6.5%, 2010 (f) ................... 2,216,000 2,301,697
U.S. Treasury Notes, 12%, 2013 ........................ 19,000 20,444
U.S. Treasury Notes, 4%, 2014 ......................... 1,879,000 1,778,738
U.S. Treasury Notes, TIPS, 3.875%, 2009 ............... 691,745 702,771
U.S. Treasury Notes, TIPS, 2.375%, 2017 ............... 799,250 780,331
---------------
$ 12,527,958
---------------
TOTAL BONDS
(IDENTIFIED COST, $69,116,794) ...................................... $ 67,288,938
----------------
REPURCHASE AGREEMENTS - 3.1%
Goldman Sachs, 4.5%, dated 6/29/07,
due 7/02/07, total to be received
$2,258,847 (secured by various U.S.
Treasury and Federal Agency obligations
and Mortgage Backed securities in a
jointly traded account), at Cost .................... $ 2,258,000 $ 2,258,000
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $71,374,794) (k) .................................. $ 69,546,938
---------------
OTHER ASSETS,
LESS LIABILITIES - 3.5% ............................................... 2,532,756
---------------
NET ASSETS - 100.0% ................................................... $ 72,079,694
---------------
FUTURES CONTRACTS OUTSTANDING AT 6/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Short) ................ 14 $1,508,500 Sep-07 $ 21,169
U.S. Treasury Note 5 yr (Long) ............ 26 2,706,031 Sep-07 (18,039)
U.S. Treasury Note 10 yr (Long) ........... 6 634,219 Sep-07 3,854
- ------------------------------------------------------------------------------------------------------------------
$ 6,984
========
At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
HIGH YIELD VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
BONDS - 87.0%
AEROSPACE - 1.9%
Bombardier, Inc., 8%, 2014 (n) ........................ $ 151,000 $ 156,285
DRS Technologies, Inc., 7.625%, 2018 .................. 215,000 217,150
Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) .. 390,000 407,536
Vought Aircraft Industries, Inc., 8%, 2011 ............ 255,000 253,725
---------------
$ 1,034,696
---------------
AIRLINES - 0.8%
Continental Airlines, Inc., 6.9%, 2017 ................ $ 60,700 $ 59,790
Continental Airlines, Inc., 6.748%, 2017 .............. 64,312 63,106
Continental Airlines, Inc., 6.795%, 2018 .............. 103,686 101,093
Continental Airlines, Inc., 7.566%, 2020 .............. 232,249 232,829
---------------
$ 456,818
---------------
APPAREL MANUFACTURERS - 0.5%
Levi Strauss & Co., 12.25%, 2012 ...................... $ 150,000 $ 162,375
Levi Strauss & Co., 9.75%, 2015 ....................... 115,000 123,050
---------------
$ 285,425
---------------
ASSET BACKED & SECURITIZED - 1.6%
ARCap REIT, Inc., "H", 6.1%, 2045 (n) ................. $ 165,567 $ 134,606
Asset Securitization Corp., FRN, 8.6363%, 2029 (z) .... 200,000 211,071
Crest Ltd., 7%, 2040 .................................. 154,000 139,539
First Union National Bank Commercial
Mortgage Corp., 6.75%, 2032 ......................... 165,000 165,086
Wachovia Credit, CDO, FRN,
6.71%, 2026 (z) ..................................... 250,000 243,025
---------------
$ 893,327
---------------
AUTOMOTIVE - 5.4%
Ford Motor Co., 7.45%, 2031 ........................... $ 155,000 $ 123,806
Ford Motor Credit Co., 9.75%, 2010 .................... 960,000 1,002,418
Ford Motor Credit Co., 8.625%, 2010 ................... 190,000 192,980
Ford Motor Credit Co., 7%, 2013 ....................... 143,000 132,489
Ford Motor Credit Co., 8%, 2016 ....................... 270,000 258,619
Ford Motor Credit Co., FRN, 8.105%, 2012 .............. 160,000 159,594
General Motors Corp., 8.375%, 2033 .................... 603,000 550,238
Goodyear Tire & Rubber Co., 9%, 2015 .................. 230,000 247,825
TRW Automotive, Inc., 7%, 2014 (n) .................... 265,000 252,413
TRW Automotive, Inc., 7.25%, 2017 (n) ................. 30,000 28,575
---------------
$ 2,948,957
---------------
BROADCASTING - 5.0%
Allbritton Communications Co., 7.75%, 2012 ............ $ 355,000 $ 356,775
Bonten Media Acquisition Co., 9%, 2015 (n)(p) ......... 135,000 131,625
CanWest MediaWorks LP, 9.25%, 2015 (z) ................ 120,000 120,300
Clear Channel Communications, Inc., 5.5%, 2014 ........ 535,000 457,192
Intelsat Bermuda Ltd., 11.25%, 2016 ................... 480,000 537,600
Intelsat Bermuda Ltd., FRN, 8.8719%, 2015 ............. 120,000 122,550
Intelsat Ltd., 0% to 2010, 9.25% to 2015 .............. 235,000 193,288
ION Media Networks, Inc., FRN, 11.6056%, 2013 (n) ..... 170,000 175,950
Univision Communications, Inc., 9.75%, 2015 (n)(p) .... 665,000 656,688
---------------
$ 2,751,968
---------------
BUILDING - 1.6%
Builders FirstSource, Inc., FRN, 9.61%, 2012 .......... $ 145,000 $ 146,813
Interface, Inc., 10.375%, 2010 ........................ 167,000 179,525
Interface, Inc., 9.5%, 2014 ........................... 30,000 32,325
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 ..... 216,000 156,600
Nortek Holdings, Inc., 8.5%, 2014 ..................... 215,000 204,788
Ply Gem Industries, Inc., 9%, 2012 .................... 190,000 170,763
---------------
$ 890,814
---------------
BUSINESS SERVICES - 1.1%
Nortel Networks Ltd., 10.75%, 2016 (n) ................ $ 140,000 $ 154,700
SunGard Data Systems, Inc., 10.25%, 2015 .............. 410,000 433,575
---------------
$ 588,275
---------------
CABLE TV - 2.8%
CCH I Holdings LLC, 11%, 2015 ......................... $ 350,000 $ 365,313
CCH II Holdings LLC, 10.25%, 2010 ..................... 230,000 240,350
CCO Holdings LLC, 8.75%, 2013 ......................... 335,000 340,863
CSC Holdings, Inc., 6.75%, 2012 ....................... 355,000 337,250
NTL Cable PLC, 9.125%, 2016 ........................... 228,000 238,830
---------------
$ 1,522,606
---------------
CHEMICALS - 3.4%
Equistar Chemicals LP, 10.125%, 2008 .................. $ 129,000 $ 134,160
Equistar Chemicals LP, 10.625%, 2011 .................. 34,000 35,785
Innophos, Inc., 8.875%, 2014 .......................... 265,000 274,275
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 ......... 348,000 297,540
Koppers, Inc., 9.875%, 2013 ........................... 220,000 234,850
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 265,000 267,650
Mosaic Co., 7.625%, 2016 (n) .......................... 305,000 311,863
Nalco Co., 8.875%, 2013 ............................... 285,000 295,688
---------------
$ 1,851,811
---------------
CONSUMER GOODS & SERVICES - 4.9%
ACCO Brands Corp., 7.625%, 2015 ....................... $ 250,000 $ 245,625
Corrections Corp. of America, 6.25%, 2013 ............. 180,000 172,800
GEO Group, Inc., 8.25%, 2013 .......................... 280,000 288,750
Jarden Corp., 7.5%, 2017 .............................. 220,000 217,250
Kar Holdings, Inc., 10%, 2015 (n) ..................... 385,000 375,375
Playtex Products, Inc., 9.375%, 2011 .................. 180,000 184,950
Realogy Corp., 10.5%, 2014 (n) ........................ 100,000 95,250
Realogy Corp., 12.375%, 2015 (n) ...................... 340,000 310,250
Service Corp. International, 7.375%, 2014 ............. 115,000 115,575
Service Corp. International, 7%, 2017 ................. 370,000 352,425
Visant Holding Corp., 8.75%, 2013 ..................... 315,000 327,600
---------------
$ 2,685,850
---------------
CONTAINERS - 1.7%
Berry Plastics Holding Corp., 8.875%, 2014 ............ $ 175,000 $ 177,188
Graham Packaging Co. LP, 9.875%, 2014 ................. 165,000 166,856
Greif, Inc., 6.75%, 2017 .............................. 165,000 161,288
Owens-Brockway Glass Container, Inc., 8.25%, 2013 ..... 390,000 403,650
---------------
$ 908,982
---------------
DEFENSE ELECTRONICS - 0.9%
L-3 Communications Corp., 6.125%, 2014 ................ $ 310,000 $ 292,175
L-3 Communications Corp., 5.875%, 2015 ................ 210,000 194,775
---------------
$ 486,950
---------------
ELECTRONICS - 2.1%
Avago Technologies Finance, 11.875%, 2015 ............. $ 165,000 $ 184,388
Freescale Semiconductor, Inc., 10.125%, 2016 (n) ...... 580,000 545,200
NXP B.V./NXP Funding LLC, 7.875%, 2014 ................ 110,000 108,350
NXP B.V./NXP Funding LLC, 9.5%, 2015 .................. 100,000 98,500
Spansion LLC, 11.25%, 2016 (z) ........................ 185,000 190,550
---------------
$ 1,126,988
---------------
EMERGING MARKET SOVEREIGN - 1.0%
Republic of Argentina, FRN, 5.475%, 2012 .............. $ 303,750 $ 288,512
Republic of Venezuela, 7%, 2018 ....................... 141,000 124,433
Republic of Venezuela, 6%, 2020 ....................... 155,000 125,395
---------------
$ 538,340
---------------
ENERGY - INDEPENDENT - 3.8%
Chaparral Energy, Inc., 8.875%, 2017 (n) .............. $ 235,000 $ 232,063
Chesapeake Energy Corp., 7%, 2014 ..................... 184,000 182,620
Chesapeake Energy Corp., 6.375%, 2015 ................. 305,000 290,894
Cimarex Energy Co., 7.125%, 2017 ...................... 180,000 175,500
Forest Oil Corp., 7.25%, 2019 (n) ..................... 150,000 145,500
Hilcorp Energy I LP, 7.75%, 2015 (n) .................. 90,000 87,300
Hilcorp Energy I LP, 9%, 2016 (n) ..................... 240,000 248,400
Mariner Energy, Inc., 8%, 2017 ........................ 190,000 188,575
Newfield Exploration Co., 6.625%, 2014 ................ 255,000 246,075
Plains Exploration & Production Co., 7%, 2017 ......... 35,000 33,163
Quicksilver Resources, Inc., 7.125%, 2016 ............. 260,000 250,900
---------------
$ 2,080,990
---------------
ENTERTAINMENT - 0.5%
AMC Entertainment, Inc., 8%, 2014 ..................... $ 95,000 $ 93,100
AMC Entertainment, Inc., 11%, 2016 .................... 165,000 182,325
---------------
$ 275,425
---------------
FINANCIAL INSTITUTIONS - 2.7%
General Motors Acceptance Corp., 6.875%, 2011 ......... $ 558,000 $ 548,879
General Motors Acceptance Corp., 6.75%, 2014 .......... 825,000 790,066
General Motors Acceptance Corp., 8%, 2031 ............. 155,000 158,500
---------------
$ 1,497,445
---------------
FOOD & BEVERAGES - 1.0%
B&G Foods Holding Corp., 8%, 2011 ..................... $ 175,000 $ 175,000
Del Monte Corp., 6.75%, 2015 .......................... 185,000 176,213
Michael Foods, Inc., 8%, 2013 ......................... 175,000 176,750
---------------
$ 527,963
---------------
FOREST & PAPER PRODUCTS - 1.7%
Buckeye Technologies, Inc., 8%, 2010 .................. $ 65,000 $ 65,000
Buckeye Technologies, Inc., 8.5%, 2013 ................ 375,000 383,438
Jefferson Smurfit Corp., 8.25%, 2012 .................. 254,000 252,095
JSG Funding PLC, 7.75%, 2015 .......................... 25,000 25,031
MDP Acquisitions PLC, 9.625%, 2012 .................... 19,000 19,903
Millar Western Forest Products, 7.75%, 2013 ........... 235,000 202,394
---------------
$ 947,861
---------------
GAMING & LODGING - 5.6%
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (n) $ 30,000 $ 29,550
Great Canadian Gaming Corp., 7.25%, 2015 (n) .......... 155,000 154,225
Greektown Holdings, 10.75%, 2013 (n) .................. 155,000 164,300
Harrah's Entertainment, Inc., 5.75%, 2017 ............. 500,000 400,000
Majestic Star Casino LLC, 9.75%, 2011 ................. 260,000 251,550
Mandalay Resort Group, 9.375%, 2010 ................... 175,000 184,625
MGM Mirage, Inc., 8.5%, 2010 .......................... 140,000 146,475
MGM Mirage, Inc., 8.375%, 2011 ........................ 365,000 373,213
MGM Mirage, Inc., 6.75%, 2013 ......................... 200,000 190,000
MGM Mirage, Inc., 5.875%, 2014 ........................ 195,000 176,475
Pinnacle Entertainment, Inc., 8.25%, 2012 ............. 185,000 190,550
Station Casinos, Inc., 6.5%, 2014 ..................... 390,000 345,150
Wimar Opco LLC, 9.625%, 2014 (n) ...................... 280,000 269,500
Wynn Las Vegas LLC, 6.625%, 2014 ...................... 215,000 207,206
---------------
$ 3,082,819
---------------
INDUSTRIAL - 1.2%
Blount, Inc., 8.875%, 2012 ............................ $ 245,000 $ 247,450
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 ..... 370,000 386,188
---------------
$ 633,638
---------------
INSURANCE - HEALTH - 0.2%
Centene Corp., 7.25%, 2014 ............................ $ 130,000 $ 128,700
---------------
INSURANCE - PROPERTY & CASUALTY - 0.3%
USI Holdings Corp., 9.75%, 2015 (n) ................... $ 165,000 $ 164,175
---------------
MACHINERY & TOOLS - 0.7%
Case New Holland, Inc., 7.125%, 2014 .................. $ 370,000 $ 374,625
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 7.4%
Advanced Medical Optics, Inc., 7.5%, 2017 (n) ......... $ 210,000 $ 198,450
Community Health Systems, Inc., 8.875%, 2015 (z) ...... 350,000 354,813
Cooper Cos., Inc., 7.125%, 2015 (n) ................... 270,000 267,300
DaVita, Inc., 6.625%, 2013 ............................ 125,000 122,031
DaVita, Inc., 7.25%, 2015 ............................. 445,000 439,438
HCA, Inc., 6.375%, 2015 ............................... 395,000 335,750
HCA, Inc., 9.25%, 2016 (n) ............................ 810,000 862,650
HealthSouth Corp., 10.75%, 2016 ....................... 190,000 206,150
Omnicare, Inc., 6.875%, 2015 .......................... 135,000 128,250
Psychiatric Solutions, Inc., 7.75%, 2015 .............. 295,000 291,681
U.S. Oncology, Inc., 10.75%, 2014 ..................... 365,000 390,550
Universal Hospital Services, Inc., 8.5%, 2015 (n)(p) .. 155,000 153,450
Universal Hospital Services, Inc., FRN, 8.7594%, 2015 (n) 45,000 45,000
Vanguard Health Holding II, 9%, 2014 .................. 130,000 128,700
VWR Funding, Inc., 10.25%, 2015 (p)(z) ................ 135,000 134,663
---------------
$ 4,058,876
---------------
METALS & MINING - 4.2%
Arch Western Finance LLC, 6.75%, 2013 ................. $ 470,000 $ 451,200
Chaparral Steel Co., 10%, 2013 ........................ 225,000 245,531
FMG Finance Ltd., 10.625%, 2016 (n) ................... 275,000 327,250
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 ..... 220,000 232,100
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 .... 455,000 485,713
Peabody Energy Corp., 5.875%, 2016 .................... 225,000 210,375
Peabody Energy Corp., 7.375%, 2016 .................... 175,000 178,500
PNA Group, Inc., 10.75%, 2016 (n) ..................... 155,000 168,950
---------------
$ 2,299,619
---------------
NATURAL GAS - DISTRIBUTION - 0.7%
AmeriGas Partners LP, 7.125%, 2016 .................... $ 200,000 $ 196,500
Inergy LP, 6.875%, 2014 ............................... 175,000 165,813
---------------
$ 362,313
---------------
NATURAL GAS - PIPELINE - 2.2%
Atlas Pipeline Partners LP, 8.125%, 2015 .............. $ 270,000 $ 269,325
El Paso Performance-Linked Trust, CLN, 7.75%, 2011 (n) 275,000 283,250
Transcontinental Gas Pipe Line Corp., 7%, 2011 ........ 135,000 139,725
Williams Cos., Inc., 7.125%, 2011 ..................... 132,000 135,300
Williams Cos., Inc., 8.75%, 2032 ...................... 150,000 173,625
Williams Partners LP, 7.25%, 2017 ..................... 205,000 206,025
---------------
$ 1,207,250
---------------
NETWORK & TELECOM - 3.3%
Cincinnati Bell, Inc., 8.375%, 2014 ................... $ 300,000 $ 303,000
Citizens Communications Co., 9.25%, 2011 .............. 225,000 243,000
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) ....... 205,000 217,300
Qwest Capital Funding, Inc., 7.25%, 2011 .............. 175,000 174,125
Qwest Corp., 7.875%, 2011 ............................. 95,000 99,038
Qwest Corp., 8.875%, 2012 ............................. 300,000 323,250
Time Warner Telecom Holdings, Inc., 9.25%, 2014 ....... 165,000 174,900
Windstream Corp., 8.625%, 2016 ........................ 185,000 195,638
Windstream Corp., 7%, 2019 ............................ 60,000 57,300
---------------
$ 1,787,551
---------------
OIL SERVICES - 1.8%
Basic Energy Services, Inc., 7.125%, 2016 ............. $ 340,000 $ 324,700
Bristow Group, Inc., 7.5%, 2017 (z) ................... 115,000 115,288
Compagnie Generale de Geophysique-Veritas, 7.75%, 2017 255,000 258,188
GulfMark Offshore, Inc., 7.75%, 2014 .................. 110,000 111,100
Hanover Compressor Co., 9%, 2014 ...................... 190,000 200,925
---------------
$ 1,010,201
---------------
PHARMACEUTICALS - 0.3%
Warner Chilcott Corp., 8.75%, 2015 .................... $ 169,000 $ 173,648
---------------
PRINTING & PUBLISHING - 3.6%
American Media Operations, Inc., 10.25%, 2009 ......... $ 295,000 $ 280,250
Dex Media, Inc., 0% to 2008, 9% to 2013 ............... 425,000 400,031
Dex Media, Inc., 0% to 2008, 9% to 2013 ............... 300,000 282,375
Idearc, Inc., 8%, 2016 ................................ 590,000 595,900
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 (n) .... 130,000 91,650
R.H. Donnelley Corp., 8.875%, 2016 .................... 305,000 317,200
---------------
$ 1,967,406
---------------
RETAILERS - 1.4%
Buhrmann U.S., Inc., 7.875%, 2015 ..................... $ 260,000 $ 256,100
Couche-Tard, Inc., 7.5%, 2013 ......................... 145,000 146,088
Neiman Marcus Group, Inc., 9%, 2015 (p) ............... 185,000 197,950
Rite Aid Corp., 9.5%, 2017 (n) ........................ 170,000 163,200
---------------
$ 763,338
---------------
SPECIALTY STORES - 1.4%
Claire's Stores, Inc., 9.25%, 2015 (n) ................ $ 200,000 $ 190,000
Claire's Stores, Inc., 10.5%, 2017 (z) ................ 80,000 73,000
Michaels Stores, Inc., 11.375%, 2016 (n) .............. 260,000 271,700
Payless ShoeSource, Inc., 8.25%, 2013 ................. 210,000 213,675
---------------
$ 748,375
---------------
SUPERMARKETS - 0.6%
Stater Brothers Holdings, Inc., 7.75%, 2015 (n) ....... $165,000 $ 165,413
SUPERVALU, Inc., 7.5%, 2014 ........................... 185,000 189,625
---------------
$ 355,038
---------------
TELECOMMUNICATIONS - WIRELESS - 1.0%
Centennial Communications Corp., 10%, 2013 ............ $ 50,000 $ 53,625
Centennial Communications Corp., 10.125%, 2013 ........ 120,000 128,700
MetroPCS Wireless, Inc., 9.25%, 2014 (n) .............. 80,000 82,600
Wind Acquisition Finance S.A., 10.75%, 2015 (n) ....... 250,000 286,875
---------------
$ 551,800
---------------
TRANSPORTATION - SERVICES - 1.0%
Hertz Corp., 8.875%, 2014 ............................. $ 360,000 $ 375,300
Stena AB, 7%, 2016 .................................... 181,000 181,000
---------------
$ 556,300
---------------
U.S. TREASURY OBLIGATIONS - 2.0%
U.S. Treasury Bonds, 4.5%, 2036 ....................... $ 1,244,000 $ 1,126,403
---------------
UTILITIES - ELECTRIC POWER - 3.7%
AES Corp., 9.375%, 2010 ............................... $ 255,000 $ 271,256
Edison Mission Energy, 7%, 2017 (n) ................... 510,000 480,675
Edison Mission Energy, 7.625%, 2027 (n) ............... 70,000 66,150
Mirant North American LLC, 7.375%, 2013 ............... 240,000 245,400
NRG Energy, Inc., 7.375%, 2016 ........................ 665,000 666,663
Reliant Energy, Inc., 7.875%, 2017 .................... 285,000 277,163
---------------
$ 2,007,307
---------------
TOTAL BONDS (IDENTIFIED COST, $47,602,931) ............................ $ 47,660,873
---------------
COMMON STOCKS - 2.0%
CABLE TV - 0.4%
Comcast Corp., "A" (a) ................................ 5,200 $ 146,224
Time Warner Cable, Inc. (a) ........................... 2,800 109,676
---------------
$ 255,900
---------------
CONSUMER GOODS & SERVICES - 0.1%
Central Garden & Pet Co. (a) .......................... 2,300 $ 28,198
---------------
ELECTRONICS - 0.1%
Intel Corp. ........................................... 2,300 $ 54,648
---------------
ENERGY - INDEPENDENT - 0.4%
Chesapeake Energy Corp. ............................... 1,600 $ 55,360
Foundation Coal Holdings, Inc. ........................ 3,860 156,870
---------------
$ 212,230
---------------
ENERGY - INTEGRATED - 0.1%
Chevron Corp. ......................................... 700 $ 58,968
---------------
FOREST & PAPER PRODUCTS - 0.1%
Louisiana-Pacific Corp. ............................... 2,600 $ 49,192
---------------
MAJOR BANKS - 0.1%
Bank of America Corp. ................................. 600 $ 29,334
JPMorgan Chase & Co. .................................. 600 29,070
---------------
$ 58,404
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.1%
Omnicare, Inc. ........................................ 1,700 $ 61,302
---------------
METALS & MINING - 0.0%
Oxford Automotive, Inc. (a) ........................... 53 $ 0
---------------
NATURAL GAS - PIPELINE - 0.1%
Williams Cos., Inc. ................................... 2,300 $ 72,726
---------------
PHARMACEUTICALS - 0.1%
Johnson & Johnson ..................................... 900 $ 55,458
---------------
PRINTING & PUBLISHING - 0.0%
Golden Books Family Entertainment,
Inc. (a) ............................................ 21,250 $ 0
---------------
REAL ESTATE - 0.2%
Host Hotels & Resorts, Inc., REIT ..................... 5,000 $ 115,600
---------------
TELEPHONE SERVICES - 0.2%
Windstream Corp. ...................................... 6,500 $ 95,940
---------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $1,064,431) ..................... $ 1,118,566
---------------
FLOATING RATE LOANS (g)(r) - 8.0%
AUTOMOTIVE - 1.1%
Ford Motor Co., Term Loan B, 8.36%, 2013 .............. $ 426,238 $ 427,689
Mark IV Industries, Inc., Second Lien Term
Loan, 11.1%, 2011 ................................... 169,464 169,958
---------------
$ 597,647
---------------
BROADCASTING - 0.2%
Gray Television, Inc., Term Loan, 6.85%, 2014 ......... $ 128,430 $ 127,868
---------------
BUILDING - 0.1%
Building Materials Holding Corp., Second
Lien Term Loan, 11.13%, 2014 ........................ $ 69,143 $ 67,645
---------------
CABLE TV - 0.9%
Charter Communications Operating LLC, Term
Loan, 7.36%, 2014 ................................... $ 135,676 $ 134,286
CSC Holdings, Inc., Incremental Term Loan,
7.07%, 2013 ......................................... 197,927 197,698
Mediacom Illinois LLC, Term Loan A, 6.86%, 2012 ....... 177,515 175,962
---------------
$ 507,946
---------------
CHEMICALS - 0.5%
Celanese AG, Term Loan B, 7.1%, 2014 .................. $ 280,004 $ 280,266
---------------
CONTAINERS - 0.4%
Altivity Packaging LLC, Second Lien Term
Loan, 10.32%, 2013 .................................. $ 157,576 $ 160,071
Altivity Packaging LLC, Second Lien Term
Loan, 10.32%, 2013 .................................. 50,424 51,223
---------------
$ 211,294
---------------
FOOD & BEVERAGES - 0.8%
Dean Foods Co., Term Loan B, 6.86%, 2014 .............. $ 214,453 $ 214,051
Dole Food Co., Inc., Letter of Credit, 5.23%, 2013 .... 18,525 18,435
Dole Food Co., Inc., Term Loan, 7.54%, 2013 ........... 41,159 40,961
Dole Food Co., Inc., Term Loan C, 7.45%, 2013 ......... 137,198 136,537
---------------
$ 409,984
---------------
FOREST & PAPER PRODUCTS - 0.6%
Georgia-Pacific Corp., Term Loan, 7.11%, 2012 ......... $ 290,785 $ 291,318
Georgia-Pacific Corp., Term Loan B-2, 7.11%, 2012 ..... 19,057 19,088
---------------
$ 310,406
---------------
GAMING & LODGING - 0.6%
Gulfside Casino, Term Loan B, 10.34%, 2012 ............ $ 318,112 $ 319,702
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.8%
Community Health Systems, Inc., Term Loan B, 2012 (o) . $ 153,942 $ 154,111
Community Health Systems, Inc., Term Loan B, 2014 (o) . 10,196 10,207
HCA, Inc., Term Loan B, 7.61%, 2012 ................... 287,805 288,781
---------------
$ 453,099
---------------
NATURAL GAS - PIPELINE - 0.2%
Kinder Morgan, Inc., Term Loan, 6.82%, 2014 ........... $ 95,908 $ 95,704
---------------
POLLUTION CONTROL - 0.4%
Allied Waste North America, Inc., Term Loan,
7.09%, 2012 ......................................... $ 136,143 $ 136,398
Allied Waste North America, Inc.,Term Loan
A, Credit Linked Deposit, 7.07%, 2012 ............... 77,942 78,137
---------------
$ 214,535
---------------
PRINTING & PUBLISHING - 1.0%
Idearc, Inc., Term Loan B, 7.36%, 2014 ................ $ 290,974 $ 291,822
Nielsen Finance LLC, Term Loan B, 7.61%, 2013 ......... 247,829 249,161
---------------
$ 540,983
---------------
SPECIALTY STORES - 0.4%
Michaels Stores, Inc., Term Loan B, 7.63%, 2013 ....... $ 228,898 $ 226,323
---------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $4,361,453) $ 4,363,402
---------------
PREFERRED STOCKS - 0.0%
REAL ESTATE - 0.0%
HRPT Properties Trust, "B", REIT, 8.75%
(Identified Cost, $5,470) ........................... 200 $ 5,074
---------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES/PAR VALUE ($)
WARRANTS - 0.0%
NETWORK & TELECOM - 0.0%
Knology, Inc.
(Identified Cost, $0) (a)(z) $0.10 11/22/97 500 $ 2,023
---------------
ISSUER SHARES/PAR VALUE ($)
SHORT-TERM OBLIGATIONS - 1.5%
New Center Asset Trust, 5.36%, due 7/02/07,
at Amortized Cost and Value (y) ..................... $ 823,000 $ 822,877
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $53,857,162) (k) .................................. $ 53,972,815
---------------
OTHER ASSETS,
LESS LIABILITIES - 1.5% ............................................... 815,244
---------------
NET ASSETS - 100.0% ................................................... $ 54,788,059
---------------
SWAP AGREEMENTS AT 6/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 200,000 JPMorgan Chase Bank 4.1% (fixed rate) (1) $ 1,536
6/20/09 USD 100,000 JPMorgan Chase Bank 4.8% (fixed rate) (1) 2,006
6/20/12 USD 200,000 Morgan Stanley Capital Services, Inc. 3.76% (fixed rate) (2) (6,438)
6/20/12 USD 100,000 Morgan Stanley Capital Services, Inc. 4.15% (fixed rate) (2) (1,713)
6/20/12 USD 200,000 Goldman Sachs International (3) 1.49% (fixed rate) 553
3/20/17 USD 35,000 JPMorgan Chase Bank (4) 0.80% (fixed rate) (156)
3/20/17 USD 30,000 Merrill Lynch International (4) 0.81% (fixed rate) (82)
3/20/17 USD 35,000 JPMorgan Chase Bank (4) 0.78% (fixed rate) (103)
-------
$(4,397)
=======
(1) Variable account to pay notional amount upon a defined credit default event by Abitibi - Consolidated, 8.375%, 4/01/15.
(2) Variable account to pay notional amount upon a defined credit default event by Bowater, Inc., 6.5%, 6/15/13.
(3) Variable account to receive notional amount upon a defined credit default event by Constellation Brands, 8%, 2/15/08.
(4) Variable account to receive notional amount upon a defined credit default event by Waste Management, Inc., 7.375%, 8/01/10.
At June 30, 2007, the variable account had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
MONEY MARKET VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
CERTIFICATES OF DEPOSIT - 5.9%
OTHER BANKS & DIVERSIFIED FINANCIALS - 5.9%
Credit Suisse, NY, 5.31%, due 09/27/07 ................. $ 1,407,000 $ 1,407,000
Fortis Bank, NY, 5.29%, due 07/02/07 ................... 1,427,000 1,427,000
------------
TOTAL CERTIFICATES OF DEPOSIT,
AT AMORTIZED COST AND VALUE ........................ $ 2,834,000
------------
COMMERCIAL PAPER (y) - 95.1%
ASSET BACKED & SECURITIZED - 3.2%
Yorktown Capital LLC, 5.27%, due 7/27/07 (t) ........... $ 1,559,000 $ 1,553,066
------------
AUTOMOTIVE - 3.0%
Toyota Motor Credit Corp., 5.2%, due 7/27/07 ........... $ 1,435,000 $ 1,429,610
------------
BUSINESS SERVICES - 3.0%
Siemens Capital Corp. LLC, 5.27%, due 9/17/07 .......... $ 1,465,000 $ 1,448,272
------------
FINANCIAL INSTITUTIONS - 48.3%
American Express Credit Corp., 5.25%, due 9/25/07 ...... $ 1,355,000 $ 1,338,006
Bryant Park Funding LLC, 5.24%, due 8/15/07 (t) ........ 1,440,000 1,430,568
CAFCO LLC, 5.25%, due 7/06/07 (t) ...................... 1,431,000 1,429,957
CRC Funding LLC, 5.27%, due 8/09/07 (t) ................ 1,455,000 1,446,693
Ciesco LLC, 5.245%, due 7/12/07 (t) .................... 1,430,000 1,427,708
Citibank Credit Card Issuance Trust, 5.24%,
due 7/12/07 (t) ...................................... 1,440,000 1,437,694
FCAR Owner Trust, 5.3%, due 7/20/07 .................... 1,427,000 1,423,008
Fairway Finance Corp., 5.245%, due 7/13/07 (t) ......... 291,000 290,491
Falcon Asset Securitization LLC, 5.25%, due
7/10/07 - 9/10/07 (t) ................................ 1,447,000 1,437,874
Govco LLC, 5.25%, due 7/02/07 (t) ...................... 650,000 649,905
Govco LLC, 5.24%, due 8/13/07 (t) ...................... 535,000 531,651
Jupiter Securitization Co. LLC, 5.25%,
due 7/05/07 (t) ...................................... 1,430,000 1,429,166
Kitty Hawk Funding Corp., 5.25%, due 9/20/07 (t) ....... 1,450,000 1,432,872
Ranger Funding Co. LLC, 5.24%, due 7/11/07 (t) ......... 1,430,000 1,427,919
Scaldis Capital LLC, 5.255%, due 7/02/07 (t) ........... 1,342,000 1,341,804
Sheffield Receivables Corp., 5.29%, due 7/13/07 (t) .... 1,440,000 1,437,461
Thunder Bay Funding LLC, 5.26%, due 8/03/07 (t) ........ 906,000 901,632
Thunder Bay Funding LLC, 5.27%, due 8/15/07 (t) ........ 700,000 695,389
Windmill Funding Corp., 5.26%, due 7/27/07 (t) ......... 1,640,000 1,633,770
------------
$ 23,143,568
------------
FOOD & BEVERAGES - 3.0%
Hershey Foods Corp., 5.2%, due 8/16/07 (t) ............. $ 1,432,000 $ 1,422,485
------------
INSURANCE - 3.0%
MetLife, Inc., 5.24%, due 8/15/07 (t) .................. $ 1,424,000 $ 1,414,673
------------
MAJOR BANKS - 13.8%
Abbey National North America LLC, 5.2%, due 11/27/07 ... $ 1,444,000 $ 1,412,922
Barclays U.S. Funding Corp., 5.21%, due 7/09/07 ........ 1,280,000 1,278,518
HBOS Treasury Services PLC, 5.23%, due 8/13/07 ......... 1,224,000 1,216,354
Natexis Banques Populaires, U.S. Finance Co. ...........
LLC, 5.37%, due 7/02/07 .............................. 1,250,000 1,249,814
Societe Generale North America, 5.255%, due 9/27/07 .... 1,458,000 1,439,271
------------
$ 6,596,879
------------
OTHER BANKS & DIVERSIFIED FINANCIALS - 17.8%
Bank of Montreal, 5.23%, due 8/15/07 ................... $ 1,420,000 $ 1,410,717
Citigroup Funding, Inc., 5.265%, due 9/20/07 ........... 948,000 936,770
Citigroup Funding, Inc., 5.26%, due 7/27/07 ............ 488,000 486,146
DEPFA Bank PLC, 5.23%, due 8/02/07 (t) ................. 1,424,000 1,417,380
Dexia Delaware LLC, 5.245%, due 8/06/07 ................ 1,422,000 1,414,542
ING America Insurance Holdings, Inc., 5.23%, due 8/13/07 1,440,000 1,431,004
UBS Financial Delaware LLC, 5.24%, due 7/25/07 ......... 1,437,000 1,431,980
------------
$ 8,528,539
------------
TOTAL COMMERCIAL PAPER,
AT AMORTIZED COST AND VALUE ........................................ $ 45,537,092
------------
TOTAL INVESTMENTS,
AT AMORTIZED COST AND VALUE ........................................ $ 48,371,092
------------
OTHER ASSETS,
LESS LIABILITIES - (1.0)% ............................................ (496,976)
------------
NET ASSETS - 100.0% .................................................. $ 47,874,116
------------
See portfolio footnotes and notes to financial statements.
PORTFOLIO OF INVESTMENTS (unaudited) -- June 30, 2007
TOTAL RETURN VARIABLE ACCOUNT
ISSUER SHARES/PAR VALUE ($)
COMMON STOCKS - 59.6%
AEROSPACE - 2.0%
Lockheed Martin Corp. ................................. 18,750 $ 1,764,938
Northrop Grumman Corp. ................................ 9,530 742,101
United Technologies Corp. ............................. 14,480 1,027,066
---------------
$ 3,534,105
---------------
ALCOHOLIC BEVERAGES - 0.4%
Diageo PLC ............................................ 30,246 $ 628,145
---------------
APPAREL MANUFACTURERS - 0.5%
Hanesbrands, Inc. (a) ................................. 1,052 $ 28,436
NIKE, Inc., "B" ....................................... 14,480 844,039
---------------
$ 872,475
---------------
AUTOMOTIVE - 0.9%
Bayerische Motoren Werke AG ........................... 15,810 $ 1,025,723
Johnson Controls, Inc. ................................ 5,500 636,735
---------------
$ 1,662,458
---------------
BIOTECHNOLOGY - 1.1%
Amgen, Inc. (a) ....................................... 36,330 $ 2,008,686
---------------
BROADCASTING - 0.9%
Citadel Broadcasting Corp. ............................ 365 $ 2,354
E.W. Scripps Co., "A" ................................. 19,860 907,403
Viacom, Inc., "B" (a) ................................. 11,015 458,554
Walt Disney Co. ....................................... 4,760 162,506
WPP Group PLC ......................................... 10,270 153,599
---------------
$ 1,684,416
---------------
BROKERAGE & ASSET MANAGERS - 2.4%
Bear Stearns Cos., Inc. ............................... 1,920 $ 268,800
Franklin Resources, Inc. .............................. 3,780 500,737
Goldman Sachs Group, Inc. ............................. 5,420 1,174,785
Julius Baer Holding Ltd. .............................. 1,729 123,594
KKR Private Equity Investments LP, IEU (z) ............ 6,600 148,500
Lehman Brothers Holdings, Inc. ........................ 3,090 230,267
Mellon Financial Corp. ................................ 17,120 753,280
Merrill Lynch & Co., Inc. ............................. 6,830 570,851
Morgan Stanley ........................................ 5,830 489,020
---------------
$ 4,259,834
---------------
BUSINESS SERVICES - 0.2%
Accenture Ltd., "A" ................................... 8,510 $ 364,994
---------------
CABLE TV - 0.2%
Time Warner Cable, Inc. (a) ........................... 8,150 $ 319,236
---------------
CHEMICALS - 0.8%
3M Co. ................................................ 3,200 $ 277,728
Dow Chemical Co. ...................................... 2,910 128,680
PPG Industries, Inc. .................................. 9,940 756,533
Syngenta AG ........................................... 1,540 300,183
---------------
$ 1,463,124
---------------
COMPUTER SOFTWARE - 1.5%
Compuware Corp. (a) ................................... 85,960 $ 1,019,486
Oracle Corp. (a) ...................................... 80,200 1,580,742
---------------
$ 2,600,228
---------------
COMPUTER SOFTWARE - SYSTEMS - 0.5%
Hewlett-Packard Co. ................................... 16,940 $ 755,863
International Business Machines Corp. ................. 1,900 199,975
---------------
$ 955,838
---------------
CONSTRUCTION - 1.4%
D.R. Horton, Inc. ..................................... 23,090 $ 460,184
Masco Corp. ........................................... 59,510 1,694,250
Sherwin-Williams Co. .................................. 2,550 169,499
Toll Brothers, Inc. (a) ............................... 6,750 168,615
---------------
$ 2,492,548
---------------
CONSUMER GOODS & SERVICES - 0.5%
Procter & Gamble Co. .................................. 15,400 $ 942,326
---------------
CONTAINERS - 1.1%
Owens-Illinois, Inc. (a) .............................. 53,920 $ 1,887,200
Smurfit-Stone Container Corp. (a) ..................... 5,430 72,273
---------------
$ 1,959,473
---------------
ELECTRICAL EQUIPMENT - 2.2%
Cooper Industries Ltd., "A" ........................... 960 $ 54,806
General Electric Co. .................................. 33,050 1,265,154
Rockwell Automation, Inc. ............................. 6,260 434,694
Tyco International Ltd. ............................... 43,480 1,469,189
W.W. Grainger, Inc. ................................... 6,310 587,146
WESCO International, Inc. (a) ......................... 2,660 160,797
---------------
$ 3,971,786
---------------
ELECTRONICS - 0.6%
Applied Materials, Inc. ............................... 3,430 $ 68,154
Intel Corp. ........................................... 33,900 805,464
SanDisk Corp. (a) ..................................... 5,800 283,852
---------------
$ 1,157,470
---------------
ENERGY - INDEPENDENT - 2.9%
Anadarko Petroleum Corp. .............................. 37,480 $ 1,948,585
Apache Corp. .......................................... 8,180 667,406
Devon Energy Corp. .................................... 22,840 1,788,144
EOG Resources, Inc. ................................... 2,970 216,988
Sunoco, Inc. .......................................... 2,020 160,954
Talisman Energy, Inc. ................................. 8,270 159,859
Ultra Petroleum Corp. (a) ............................. 3,130 172,901
---------------
$ 5,114,837
---------------
ENERGY - INTEGRATED - 3.4%
Chevron Corp. ......................................... 7,605 $ 640,645
ConocoPhillips ........................................ 9,100 714,350
Exxon Mobil Corp. ..................................... 25,322 2,124,009
Hess Corp. ............................................ 16,390 966,354
Royal Dutch Shell PLC, ADR ............................ 2,310 187,572
TOTAL S.A., ADR ....................................... 17,700 1,433,346
---------------
$ 6,066,276
---------------
FOOD & BEVERAGES - 1.0%
Kellogg Co. ........................................... 12,240 $ 633,910
Nestle S.A ............................................ 1,600 607,511
PepsiCo, Inc. ......................................... 8,210 532,419
Tyson Foods, Inc., "A" ................................ 2,860 65,894
---------------
$ 1,839,734
---------------
FOOD & DRUG STORES - 0.6%
CVS Caremark Corp. .................................... 20,734 $ 755,754
Sally Beauty Holdings, Inc. (a) ....................... 41,010 369,090
---------------
$ 1,124,844
---------------
FOREST & PAPER PRODUCTS - 0.5%
Bowater, Inc. ......................................... 30,140 $ 751,993
MeadWestvaco Corp. .................................... 6,200 218,984
---------------
$ 970,977
---------------
GAMING & LODGING - 0.2%
Royal Caribbean Cruises Ltd. .......................... 6,670 $ 286,677
---------------
GENERAL MERCHANDISE - 1.3%
Macy's, Inc. .......................................... 52,220 $ 2,077,312
Wal-Mart Stores, Inc. ................................. 4,200 202,062
---------------
$ 2,279,374
---------------
HEALTH MAINTENANCE ORGANIZATIONS - 0.7%
UnitedHealth Group, Inc. .............................. 7,090 $ 362,583
WellPoint, Inc. (a) ................................... 10,270 819,854
---------------
$ 1,182,437
---------------
INSURANCE - 5.6%
Aflac, Inc. ........................................... 9,310 $ 478,534
Allstate Corp. ........................................ 39,650 2,438,872
Chubb Corp. ........................................... 3,690 199,777
Conseco, Inc. (a) ..................................... 69,000 1,441,410
Genworth Financial, Inc., "A" ......................... 67,890 2,335,416
Hartford Financial Services Group, Inc. ............... 8,780 864,918
MetLife, Inc. ......................................... 14,650 944,632
Principal Financial Group, Inc. ....................... 1,400 81,606
Prudential Financial, Inc. ............................ 400 38,892
Travelers Cos., Inc. .................................. 21,520 1,151,320
---------------
$ 9,975,377
---------------
LEISURE & TOYS - 0.1%
Polaris Industries, Inc. .............................. 2,300 $ 124,568
---------------
MACHINERY & TOOLS - 0.6%
Deere & Co. ........................................... 6,010 $ 725,647
Eaton Corp. ........................................... 800 74,400
Timken Co. ............................................ 5,450 196,800
---------------
$ 996,847
---------------
MAJOR BANKS - 5.2%
Bank of America Corp. ................................. 67,868 $ 3,318,066
Bank of New York Co., Inc. ............................ 45,010 1,865,214
JPMorgan Chase & Co. .................................. 41,032 1,988,000
PNC Financial Services Group, Inc. .................... 11,090 793,822
State Street Corp. .................................... 5,100 348,840
SunTrust Banks, Inc. .................................. 11,500 986,010
---------------
$ 9,299,952
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.4%
Omnicare, Inc. ........................................ 7,000 $ 252,420
Tenet Healthcare Corp. (a) ............................ 71,360 464,554
---------------
$ 716,974
---------------
MEDICAL EQUIPMENT - 2.0%
Boston Scientific Corp. (a) ........................... 94,170 $ 1,444,568
Cooper Cos., Inc. ..................................... 19,280 1,028,010
DENTSPLY International, Inc. .......................... 4,250 162,605
Pall Corp. ............................................ 19,840 912,442
---------------
$ 3,547,625
---------------
METALS & MINING - 0.1%
BHP Billiton PLC ...................................... 6,280 $ 174,127
---------------
NATURAL GAS - DISTRIBUTION - 0.1%
Questar Corp. ......................................... 1,800 $ 95,130
---------------
NATURAL GAS - PIPELINE - 0.6%
Williams Cos., Inc. ................................... 34,040 $ 1,076,345
---------------
NETWORK & TELECOM - 1.3%
Cisco Systems, Inc. (a) ............................... 10,640 $ 296,324
Motorola, Inc. ........................................ 23,200 410,640
Nortel Networks Corp. (a) ............................. 70,127 1,686,554
---------------
$ 2,393,518
---------------
OIL SERVICES - 0.9%
GlobalSantaFe Corp. ................................... 8,190 $ 591,728
Halliburton Co. ....................................... 3,300 113,850
Noble Corp. ........................................... 8,425 821,606
---------------
$ 1,527,184
---------------
OTHER BANKS & DIVERSIFIED FINANCIALS - 4.4%
American Express Co. .................................. 11,480 $ 702,346
Capital One Financial Corp. ........................... 2,400 188,256
Citigroup, Inc. ....................................... 45,156 2,316,051
Countrywide Financial Corp. ........................... 18,960 689,196
Fannie Mae ............................................ 17,300 1,130,209
Freddie Mac ........................................... 14,170 860,119
New York Community Bancorp, Inc. ...................... 58,470 995,159
UBS AG ................................................ 10,661 637,122
UBS AG ................................................ 5,800 348,058
---------------
$ 7,866,516
---------------
PHARMACEUTICALS - 3.2%
Abbott Laboratories ................................... 2,440 $ 130,662
Eli Lilly & Co. ....................................... 10,830 605,180
GlaxoSmithKline PLC ................................... 7,000 183,399
GlaxoSmithKline PLC, ADR .............................. 7,180 376,017
Johnson & Johnson ..................................... 21,270 1,310,657
Merck & Co., Inc. ..................................... 11,120 553,776
Warner Chilcott Ltd., "A" (a) ......................... 25,860 467,807
Wyeth ................................................. 37,970 2,177,200
---------------
$ 5,804,698
---------------
PRINTING & PUBLISHING - 0.8%
New York Times Co., "A" ............................... 56,050 $ 1,423,670
---------------
RAILROAD & SHIPPING - 0.4%
Burlington Northern Santa Fe Corp. .................... 5,470 $ 465,716
Norfolk Southern Corp. ................................ 4,600 241,822
---------------
$ 707,538
---------------
SPECIALTY CHEMICALS - 0.5%
Air Products & Chemicals, Inc. ........................ 7,830 $ 629,297
Praxair, Inc. ......................................... 3,810 274,282
---------------
$ 903,579
---------------
SPECIALTY STORES - 0.2%
Lowe's Cos., Inc. ..................................... 2,170 $ 66,597
Staples, Inc. ......................................... 12,700 301,371
---------------
$ 367,968
---------------
TELECOMMUNICATIONS - WIRELESS - 0.4%
Sprint Nextel Corp. ................................... 17,500 $ 362,425
Vodafone Group PLC, ADR ............................... 10,439 351,064
---------------
$ 713,489
---------------
TELEPHONE SERVICES - 1.9%
AT&T, Inc. ............................................ 18,464 $ 766,256
Embarq Corp. .......................................... 7,910 501,257
Qwest Communications International,
Inc. (a) ............................................ 45,790 444,163
TELUS Corp. ........................................... 2,220 133,204
TELUS Corp. (non-voting shares) ....................... 850 50,186
Verizon Communications, Inc. .......................... 38,820 1,598,219
---------------
$ 3,493,285
---------------
TOBACCO - 1.1%
Altria Group, Inc. .................................... 28,930 $ 2,029,150
---------------
TRUCKING - 0.1%
United Parcel Service, Inc., "B" ...................... 2,300 $ 167,900
---------------
UTILITIES - ELECTRIC POWER - 1.9%
Dominion Resources, Inc. .............................. 5,890 $ 508,366
DPL, Inc. ............................................. 8,170 231,538
Edison International .................................. 2,840 159,381
Entergy Corp. ......................................... 2,280 244,758
FPL Group, Inc. ....................................... 19,850 1,126,289
Integrys Energy Group, Inc. ........................... 2,880 146,102
NRG Energy, Inc. (a) .................................. 10,320 429,002
PPL Corp. ............................................. 2,220 103,874
Public Service Enterprise Group, Inc. ................. 5,800 509,124
---------------
$ 3,458,434
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST, $88,861,003) ...................................... $ 106,606,172
---------------
BONDS - 38.7%
AGENCY - OTHER - 0.0%
Financing Corp., 9.65%, 2018 .......................... $ 45,000 $ 60,665
---------------
ASSET BACKED & SECURITIZED - 4.5%
Banc of America Commercial Mortgage, Inc.,
"A4", FRN, 5.3533%, 2047 ............................ $ 100,000 $ 96,445
Banc of America Commercial Mortgage, Inc.,
"AM", FRN, 5.3533%, 2047 ............................ 102,153 98,105
Banc of America Commercial Mortgage, Inc.,
FRN, 4.857%, 2043 ................................... 200,000 188,450
Banc of America Commercial Mortgage, Inc.,
FRN, 5.482%, 2049 ................................... 161,384 155,966
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.12%, 2040 (z) ......................... 250,000 249,999
Bear Stearns Commercial Mortgage
Securities, Inc., FRN, 5.116%, 2041 ................. 82,288 78,950
BlackRock Capital Finance LP,
7.75%, 2026 (n) ..................................... 37,336 37,202
Chase Commercial Mortgage Securities Corp.,
7.543%, 2032 ........................................ 49,756 50,407
Citigroup Commercial Mortgage Trust,
5.462%, 2049 ........................................ 219,581 211,994
Citigroup/Deutsche Bank Commercial Mortgage
Trust, 5.648%, 2048 ................................. 200,000 196,195
Citigroup/Deutsche Bank Commercial Mortgage
Trust, "H", FRN, 5.8816%, 2049 (z) .................. 59,453 54,888
Citigroup/Deutsche Bank Commercial Mortgage
Trust, "J", FRN, 5.8816%, 2049 (z) .................. 90,000 81,165
Citigroup/Deutsche Bank Commercial Mortgage
Trust, FRN, 5.3996%, 2044 ........................... 200,000 196,259
Countrywide Asset-Backed Certificates, FRN,
4.823%, 2035 ........................................ 40,020 39,727
Countrywide Asset-Backed Certificates, FRN,
5.689%, 2046 ........................................ 90,000 89,336
Credit Suisse Commercial Mortgage Trust,
5.509%, 2039 ........................................ 128,277 124,145
Credit Suisse Mortgage Capital Certificate,
5.343%, 2039 ........................................ 220,000 210,593
CRIIMI MAE Commercial Mortgage Trust, 7%,
2033 (n) ............................................ 103,068 102,326
ASSET BACKED & SECURITIZED - CONTINUED
Deutsche Mortgage & Asset Receiving Corp.,
6.538%, 2031 ........................................ 60,125 60,171
Falcon Franchise Loan LLC,
7.382%, 2010 (n) .................................... 16,585 16,739
GE Commercial Mortgage Corp., FRN, 5.5182%,
2044 ................................................ 130,000 125,891
GMAC Mortgage Corp. Loan Trust, FRN,
5.805%, 2036 ........................................ 115,000 114,434
Greenwich Capital Commercial Funding Corp.,
4.305%, 2042 ........................................ 107,385 104,612
Greenwich Capital Commercial Funding Corp.,
FRN, 5.317%, 2036 ................................... 60,728 59,324
Greenwich Capital Commercial Funding Corp.,
FRN, 6.1126%, 2038 .................................. 100,000 100,637
JPMorgan Chase Commercial Mortgage
Securities Corp., 4.78%, 2042 ....................... 152,000 141,354
JPMorgan Chase Commercial Mortgage
Securities Corp., 5.552%, 2045 ...................... 210,000 205,220
JPMorgan Chase Commercial Mortgage
Securities Corp., 5.44%, 2045 ....................... 106,496 103,021
JPMorgan Chase Commercial Mortgage
Securities Corp., 5.372%, 2047 ...................... 170,000 162,660
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.3802%, 2041 ................ 39,903 38,863
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.4721%, 2043 ................ 200,000 193,862
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.475%, 2043 ................. 210,000 204,522
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.855%, 2043 ................. 200,000 199,745
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 6.0657%, 2045 ................ 210,000 211,270
JPMorgan Chase Commercial Mortgage
Securities Corp., FRN, 5.038%, 2046 ................. 197,476 188,215
LB-UBS Commercial Mortgage Trust, 5.413%, 2039 ........ 56,518 54,438
LB-UBS Commercial Mortgage Trust, 5.455%, 2040 ........ 279,000 268,736
Merrill Lynch Mortgage Trust, FRN, 5.843%, 2039 ....... 197,000 194,883
Merrill Lynch Mortgage Trust, FRN, 5.4405%, 2044 ...... 88,000 84,998
Merrill Lynch/Countrywide Commercial
Mortgage Trust, FRN, 5.204%, 2049 ................... 220,000 208,813
Morgan Stanley Capital I, Inc.,
5.168%, 2042 ........................................ 48,533 46,692
Morgan Stanley Capital I, Inc., FRN,
0.6998%, 2030 (i)(n) ................................ 6,894,350 73,226
Multi-Family Capital Access One, Inc.,
6.65%, 2024 ......................................... 39,834 40,148
Residential Asset Mortgage Products, Inc.,
4.109%, 2035 ........................................ 90,392 89,605
Residential Asset Mortgage Products, Inc.,
FRN, 4.9708%, 2034 .................................. 92,000 89,943
Residential Funding Mortgage Securities,
Inc., FRN, 5.32%, 2035 .............................. 129,000 127,254
Spirit Master Funding LLC,
5.05%, 2023 (z) ..................................... 183,074 171,402
Structured Asset Securities Corp., FRN,
4.67%, 2035 ......................................... 244,773 242,201
Wachovia Bank Commercial Mortgage Trust,
4.935%, 2042 ........................................ 240,000 226,948
Wachovia Bank Commercial Mortgage Trust,
5.339%, 2048 ........................................ 220,000 210,617
Wachovia Bank Commercial Mortgage Trust,
FRN, 4.847%, 2041 ................................... 50,000 47,145
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.083%, 2042 ................................... 185,000 176,499
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.118%, 2042 ................................... 200,000 191,182
Wachovia Bank Commercial Mortgage Trust,
FRN, 6.0213%, 2043 (z) .............................. 150,000 139,786
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.3683%, 2044 .................................. 130,000 125,028
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.4905%, 2044 .................................. 149,000 143,995
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.466%, 2045 ................................... 189,000 183,423
Wachovia Bank Commercial Mortgage Trust,
FRN, 6.1637%, 2045 .................................. 140,000 141,159
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.795%, 2045 ................................... 150,000 148,565
Wachovia Bank Commercial Mortgage Trust,
FRN, 5.603%, 2048 ................................... 200,000 195,366
---------------
$ 8,114,744
---------------
AUTOMOTIVE - 0.1%
Johnson Controls, Inc., 5.5%, 2016 .................... $ 136,000 $ 131,685
---------------
BROADCASTING - 0.2%
CBS Corp., 6.625%, 2011 ............................... $ 137,000 $ 140,620
News America Holdings, 8.5%, 2025 ..................... 99,000 116,270
News America, Inc., 6.2%, 2034 ........................ 42,000 39,152
---------------
$ 296,042
---------------
BROKERAGE & ASSET MANAGERS - 0.4%
Goldman Sachs Group, Inc.,
5.625%, 2017 ........................................ $ 176,000 $ 168,681
Merrill Lynch & Co., Inc., 6.05%, 2016 ................ 200,000 197,825
Merrill Lynch & Co., Inc., 6.11%, 2037 ................ 130,000 121,982
Morgan Stanley, 5.75%, 2016 ........................... 100,000 97,691
Morgan Stanley Group, Inc.,
6.75%, 2011 ......................................... 156,000 161,745
---------------
$ 747,924
---------------
BUILDING - 0.1%
CRH America, Inc., 6.95%, 2012 ........................ $ 208,000 $ 216,128
---------------
BUSINESS SERVICES - 0.1%
Cisco Systems, Inc., 5.5%, 2016 ....................... $ 135,000 $ 131,734
Xerox Corp., 5.5%, 2012 ............................... 80,000 78,626
Xerox Corp., 6.4%, 2016 ............................... 40,000 40,247
---------------
$ 250,607
---------------
CABLE TV - 0.1%
Cox Communications, Inc.,
4.625%, 2013 ........................................ $ 159,000 $ 148,919
Time Warner Entertainment Co. LP, 8.375%, 2033 ........ 110,000 127,660
---------------
$ 276,579
---------------
CONGLOMERATES - 0.1%
Kennametal, Inc., 7.2%, 2012 .......................... $ 211,000 $ 221,409
---------------
CONSUMER GOODS & SERVICES - 0.2%
Fortune Brands, Inc., 5.125%, 2011 .................... $ 158,000 $ 154,178
Western Union Co., 5.4%, 2011 ......................... 210,000 207,181
---------------
$ 361,359
---------------
DEFENSE ELECTRONICS - 0.1%
BAE Systems Holdings, Inc.,
5.2%, 2015 (n) ...................................... $ 103,000 $ 98,398
---------------
EMERGING MARKET QUASI-SOVEREIGN - 0.0%
Pemex Project Funding Master Trust, 8.625%, 2022 ...... $ 39,000 $ 47,964
---------------
EMERGING MARKET SOVEREIGN - 0.1%
State of Israel, 4.625%, 2013 ......................... $ 112,000 $ 105,970
---------------
ENERGY - INDEPENDENT - 0.3%
Anadarko Petroleum Corp., 5.95%, 2016 ................. $ 80,000 $ 78,114
Nexen, Inc., 5.875%, 2035 ............................. 100,000 89,743
Ocean Energy, Inc., 7.25%, 2011 ....................... 165,000 173,667
XTO Energy, Inc., 5.65%, 2016 ......................... 190,000 184,504
---------------
$ 526,028
---------------
ENTERTAINMENT - 0.1%
Walt Disney Co., 5.625%, 2016 ......................... $ 137,000 $ 135,970
---------------
FINANCIAL INSTITUTIONS - 0.7%
American Express Co., 5.5%, 2016 ...................... $ 200,000 $ 195,443
Capital One Financial Co., 6.15%, 2016 ................ 130,000 128,348
Capmark Financial Group, Inc.,
5.875%, 2012 (z) .................................... 170,000 167,772
CIT Group, Inc., 6.1% to 2017,
FRN to 2067 ......................................... 10,000 9,107
Countrywide Financial Corp.,
6.25%, 2016 ......................................... 171,000 167,939
HSBC Finance Corp., 5.25%, 2011 ....................... 145,000 143,299
ORIX Corp., 5.48%, 2011 ............................... 210,000 207,020
Residential Capital LLC, 6.875%, 2015 ................. 170,000 164,886
---------------
$ 1,183,814
---------------
FOOD & BEVERAGES - 0.3%
Diageo Finance B.V., 5.5%, 2013 ....................... $ 230,000 $ 226,403
Miller Brewing Co., 5.5%, 2013 (n) .................... 276,000 271,385
---------------
$ 497,788
---------------
FOOD & DRUG STORES - 0.1%
CVS Caremark Corp., 6.125%, 2016 ...................... $ 110,000 $ 109,047
CVS Caremark Corp., 5.75%, 2017 ....................... 70,000 67,537
---------------
$ 176,584
---------------
FOREST & PAPER PRODUCTS - 0.0%
MeadWestvaco Corp., 6.8%, 2032 ........................ $ 69,000 $ 62,967
---------------
GAMING & LODGING - 0.2%
Marriott International, Inc., 6.375%, 2017 ............ $ 230,000 $ 230,587
Wyndham Worldwide Corp., 6%, 2016 ..................... 100,000 96,447
---------------
$ 327,034
---------------
INSURANCE - 0.3%
American International Group, Inc.,
6.25%, 2037 ......................................... $ 100,000 $ 94,551
ING Groep N.V., 5.775% to 2015,
FRN to 2049 ......................................... 223,000 215,228
MetLife, Inc., 6.5%, 2032 ............................. 48,000 49,368
MetLife, Inc., 6.4%, 2036 ............................. 120,000 111,162
---------------
$ 470,309
---------------
INSURANCE - PROPERTY & CASUALTY - 0.3%
Allstate Corp., 6.125%, 2032 .......................... $ 185,000 $ 181,052
Chubb Corp., 6.375% to 2017,
FRN to 2037 ......................................... 200,000 195,580
Fund American Cos., Inc.,
5.875%, 2013 ........................................ 117,000 115,053
---------------
$ 491,685
---------------
INTERNATIONAL MARKET QUASI-SOVEREIGN - 0.3%
Hydro-Quebec, 6.3%, 2011 .............................. $ 262,000 $ 270,535
Province of Ontario, 5%, 2011 ......................... 200,000 198,012
---------------
$ 468,547
---------------
MACHINERY & TOOLS - 0.1%
Atlas Copco AB, 5.6%, 2017 (z) ........................ $ 160,000 $ 155,908
---------------
MAJOR BANKS - 1.4%
Bank of America Corp., 5.3%, 2017 ..................... $ 250,000 $ 238,721
Bank of America Corp., 5.49%, 2019 .................... 100,000 94,651
BNP Paribas, 7.195% to 2037,
FRN to 2049(z) ...................................... 100,000 101,134
DBS Capital Funding Corp.,
7.657% to 2011, FRN to 2049(n) ...................... 170,000 181,181
HBOS Capital Funding LP,
6.071% to 2014, FRN to 2049(n) ...................... 100,000 99,528
MUFG Capital Finance 1 Ltd.,
6.346% to 2016, FRN to 2049 ......................... 200,000 196,515
PNC Funding Corp., 5.625%, 2017 ....................... 90,000 88,167
Socgen Real Estate LLC, 7.64% to 2007, FRN
to 2049(n) .......................................... 361,000 362,752
UniCredito Italiano Capital Trust II,
9.2% to 2010, FRN to 2049(n) ........................ 208,000 229,678
Wachovia Corp., 5.25%, 2014 ........................... 343,000 333,185
Wells Fargo National Bank, 4.75%, 2015 ................ 315,000 295,383
Wells Fargo National Bank, 5.75%, 2016 ................ 250,000 249,567
---------------
$ 2,470,462
---------------
MEDICAL & HEALTH TECHNOLOGY & SERVICES - 0.3%
Baxter International, Inc., 5.9%, 2016 ................ $ 136,000 $ 135,987
Cardinal Health, Inc., 5.85%, 2017 .................... 106,999 103,908
HCA, Inc., 8.75%, 2010 ................................ 40,000 41,750
Hospira, Inc., 5.55%, 2012 ............................ 50,000 49,565
Hospira, Inc., 6.05%, 2017 ............................ 174,000 171,343
McKesson Corp., 5.7%, 2017 ............................ 100,000 96,610
---------------
$ 599,163
---------------
METALS & MINING - 0.1%
Vale Overseas Ltd., 6.25%, 2017 ....................... $ 150,000 $ 148,773
---------------
MORTGAGE BACKED - 14.3%
Fannie Mae, 4.01%, 2013 ............................... $ 18,856 $ 17,518
Fannie Mae, 4.545%, 2014 .............................. 141,937 134,424
Fannie Mae, 4.63%, 2014 ............................... 46,682 44,263
Fannie Mae, 4.839%, 2014 .............................. 69,082 66,363
Fannie Mae, 4.56%, 2015 ............................... 38,767 36,675
Fannie Mae, 4.78%, 2015 ............................... 38,957 37,247
Fannie Mae, 4.925%, 2015 .............................. 263,037 253,003
Fannie Mae, 5.09%, 2016 ............................... 40,000 38,862
Fannie Mae, 5.5%, 2016 - 2036 ......................... 8,482,578 8,233,566
Fannie Mae, 4.996%, 2017 .............................. 88,586 85,744
Fannie Mae, 5.05%, 2017 ............................... 39,000 37,775
Fannie Mae, 6%, 2017 - 2037 ........................... 3,793,883 3,774,078
Fannie Mae, 4.5%, 2018 - 2035 ......................... 976,918 918,430
Fannie Mae, 5%, 2018 - 2036 ........................... 2,951,726 2,811,480
Fannie Mae, 6.5%, 2031 - 2037 ......................... 1,046,525 1,062,442
Fannie Mae, 7.5%, 2031 ................................ 24,677 25,756
Freddie Mac, 6%, 2016 - 2037 .......................... 2,015,562 2,008,435
Freddie Mac, 5%, 2017 - 2035 .......................... 2,160,597 2,043,686
Freddie Mac, 4.5%, 2018 - 2035 ........................ 795,553 751,765
Freddie Mac, 5.5%, 2020 - 2035 ........................ 1,614,693 1,569,522
Freddie Mac, 6.5%, 2034 ............................... 198,172 201,206
Ginnie Mae, 4.5%, 2033 - 2034 ......................... 147,459 135,175
Ginnie Mae, 5%, 2033 - 2034 ........................... 158,266 149,839
Ginnie Mae, 5.5%, 2033 - 2035 ......................... 664,063 645,720
Ginnie Mae, 6%, 2033 - 2035 ........................... 464,500 462,939
Ginnie Mae, 6.5%, 2035 - 2036 ......................... 81,592 82,992
---------------
$ 25,628,905
---------------
NATURAL GAS - PIPELINE - 0.3%
CenterPoint Energy Resources Corp., 7.875%, 2013 ...... $ 112,000 $ 122,252
Kinder Morgan Energy Partners LP, 6.75%, 2011 ......... 165,000 170,754
Kinder Morgan Energy Partners LP, 5.125%, 2014 ........ 46,000 43,387
Kinder Morgan Energy Partners LP, 7.75%, 2032 ......... 71,000 77,649
Spectra Energy Capital LLC, 8%, 2019 .................. 53,000 58,822
---------------
$ 472,864
---------------
NETWORK & TELECOM - 0.6%
AT&T, Inc., 6.15%, 2034 ............................... $ 139,000 $ 133,274
BellSouth Corp., 6.55%, 2034 .......................... 146,000 145,754
Deutsche Telekom B.V., 5.75%, 2016 .................... 176,000 171,690
Telecom Italia Capital, 5.25%, 2013 ................... 60,000 57,172
Telefonica Emisiones S.A.U.,
7.045%, 2036 ........................................ 110,000 113,913
Telefonica Europe B.V., 7.75%, 2010 ................... 50,000 53,004
TELUS Corp., 8%, 2011 ................................. 180,000 192,483
Verizon New York, Inc., 6.875%, 2012 .................. 286,000 298,186
---------------
$ 1,165,476
---------------
OIL SERVICES - 0.0%
Halliburton Co., 5.5%, 2010 ........................... $ 38,000 $ 37,963
Weatherford International, Inc.,
6.35%, 2017 (z) ..................................... 40,000 40,528
---------------
$ 78,491
---------------
OILS - 0.1%
Valero Energy Corp., 6.875%, 2012 ..................... $ 111,000 $ 116,243
---------------
OTHER BANKS & DIVERSIFIED FINANCIALS - 0.8%
Citigroup, Inc., 5%, 2014 ............................. $ 250,000 $ 237,815
Credit Suisse (USA), Inc., 4.125%, 2010 ............... 171,000 165,906
Credit Suisse (USA), Inc., 4.875%, 2010 ............... 121,000 119,170
Mizuho Capital Investment 1 Ltd.,
6.686% to 2016, FRN to 2049 (n) ..................... 190,000 187,869
Nordea Bank AB, 5.424% to 2015,
FRN to 2049 (n) ..................................... 100,000 94,353
UBS Preferred Funding Trust V,
6.243% to 2016, FRN to 2049 ......................... 190,000 190,750
UFJ Finance Aruba AEC, 6.75%, 2013 .................... 145,000 153,105
Woori Bank, 6.125% to 2011,
FRN to 2016 (n) ..................................... 220,000 221,055
---------------
$ 1,370,023
---------------
PHARMACEUTICALS - 0.1%
Allergan, Inc., 5.75%, 2016 ........................... $ 160,000 $ 159,117
---------------
POLLUTION CONTROL - 0.1%
Waste Management, Inc., 7.375%, 2010 .................. $ 134,000 $ 140,393
---------------
RAILROAD & SHIPPING - 0.2%
Burlington Northern Santa Fe Corp., 5.65%, 2017 ....... $ 200,000 $ 194,831
CSX Corp., 6.75%, 2011 ................................ 35,000 36,173
CSX Corp., 7.9%, 2017 ................................. 120,000 133,608
Union Pacific Corp., 6.125%, 2012 ..................... 50,000 50,651
---------------
$ 415,263
---------------
REAL ESTATE - 0.5%
Boston Properties, Inc., REIT, 5%, 2015 ............... $ 42,000 $ 39,736
Erp Operating LP, 5.75%, 2017 ......................... 180,000 176,464
HRPT Properties Trust, REIT,
6.25%, 2016 ......................................... 180,000 181,080
Kimco Realty Corp., REIT, 5.783%, 2016 ................ 100,000 98,748
ProLogis, REIT, 5.75%, 2016 ........................... 179,000 176,557
Simon Property Group LP, REIT,
5.1%, 2015 .......................................... 193,000 183,456
---------------
$ 856,041
---------------
RETAILERS - 0.3%
Federated Retail Holdings, Inc.,
5.35%, 2012 ......................................... $ 40,000 $ 39,298
Home Depot, Inc., 5.4%, 2016 .......................... 122,000 114,362
Limited Brands, Inc., 5.25%, 2014 ..................... 165,000 153,476
Wal-Mart Stores, Inc., 5.25%, 2035 .................... 194,000 169,585
---------------
$ 476,721
---------------
TELECOMMUNICATIONS - WIRELESS - 0.2%
Cingular Wireless LLC, 6.5%, 2011 ..................... $ 35,000 $ 36,195
Nextel Communications, Inc.,
5.95%, 2014 ......................................... 180,000 171,442
Vodafone Group PLC, 5.625%, 2017 ...................... 182,000 174,027
---------------
$ 381,664
---------------
U.S. GOVERNMENT AGENCIES - 1.5%
Aid-Egypt, 4.45%, 2015 ................................ $ 152,000 $ 142,526
Fannie Mae, 6.625%, 2009 - 2010 ....................... 1,428,000 1,486,118
Fannie Mae, 6%, 2011 .................................. 165,000 169,342
Federal Home Loan Bank, 3.9%, 2008 .................... 40,000 39,628
Small Business Administration,
4.35%, 2023 ......................................... 38,767 36,174
Small Business Administration,
4.77%, 2024 ......................................... 94,778 90,257
Small Business Administration,
4.99%, 2024 ......................................... 132,794 128,005
Small Business Administration,
5.18%, 2024 ......................................... 156,603 152,901
Small Business Administration,
5.52%, 2024 ......................................... 225,763 224,804
Small Business Administration,
4.95%, 2025 ......................................... 102,605 97,421
Small Business Administration,
5.09%, 2025 ......................................... 125,411 120,885
Small Business Administration,
5.39%, 2025 ......................................... 95,746 94,107
---------------
$ 2,782,168
---------------
U.S. TREASURY OBLIGATIONS - 8.1%
U.S. Treasury Bonds, 8%, 2021 ......................... $ 37,000 $ 47,340
U.S. Treasury Bonds, 6.25%, 2023 ...................... 211,000 234,293
U.S. Treasury Bonds, 6%, 2026 ......................... 15,000 16,373
U.S. Treasury Bonds, 6.75%, 2026 ...................... 933,000 1,103,856
U.S. Treasury Bonds, 5.375%, 2031 ..................... 1,707,000 1,752,876
U.S. Treasury Bonds, 4.5%, 2036 ....................... 175,000 158,457
U.S. Treasury Notes, 5.625%, 2008 ..................... 1,855,000 1,864,275
U.S. Treasury Notes, 3.125%, 2008 ..................... 2,315,000 2,262,371
U.S. Treasury Notes, 4.75%, 2008 ...................... 46,000 45,853
U.S. Treasury Notes, 4.5%, 2009 ....................... 2,916,000 2,894,812
U.S. Treasury Notes, 4%, 2009 ......................... 23,000 22,624
U.S. Treasury Notes, 4.875%, 2009 ..................... 1,553,000 1,551,908
U.S. Treasury Notes, 6.5%, 2010 ....................... 128,000 132,950
U.S. Treasury Notes, 5.125%, 2011 ..................... 180,000 181,364
U.S. Treasury Notes, 10.375%, 2012 .................... 140,000 142,669
U.S. Treasury Notes, 3.875%, 2013 ..................... 199,000 189,003
U.S. Treasury Notes, 4.25%, 2013 ...................... 250,000 240,684
U.S. Treasury Notes, 4.75%, 2014 ...................... 150,000 148,125
U.S. Treasury Notes, TIPS, 4.25%, 2010 ................ 821,679 852,813
U.S. Treasury Notes, TIPS, 2%, 2014 ................... 730,283 701,813
---------------
$ 14,544,459
---------------
UTILITIES - ELECTRIC POWER - 1.1%
Dominion Resources, Inc., 5.15%, 2015 ................. $ 141,000 $ 133,923
Exelon Generation Co. LLC, 6.95%, 2011 ................ 232,000 240,863
FirstEnergy Corp., 6.45%, 2011 ........................ 209,000 214,311
MidAmerican Energy Holdings Co., 3.5%, 2008 ........... 118,000 115,997
MidAmerican Energy Holdings Co., 5.875%, 2012 ......... 61,000 61,526
MidAmerican Funding LLC, 6.927%, 2029 ................. 154,000 166,264
Oncor Electric Delivery Co., 7%, 2022 ................. 152,000 158,746
Pacific Gas & Electric Co., 4.8%, 2014 ................ 45,000 42,529
Pacific Gas & Electric Co., 5.8%, 2037 ................ 50,000 46,639
PSEG Power LLC, 6.95%, 2012 ........................... 71,000 74,314
PSEG Power LLC, 5.5%, 2015 ............................ 90,000 86,570
System Energy Resources, Inc.,
5.129%, 2014 (n) .................................... 85,401 82,619
TXU Energy Co., 7%, 2013 .............................. 132,000 136,157
Waterford 3 Funding Corp.,
8.09%, 2017 ......................................... 326,415 333,318
---------------
$ 1,893,776
---------------
TOTAL BONDS
(IDENTIFIED COST, $70,717,980) ...................................... $ 69,126,110
---------------
SHORT-TERM OBLIGATIONS - 1.4%
New Center Asset Trust, 5.36%,
due 7/02/07, at Amortized Cost and Value (y) ........ $ 2,484,000 $ 2,483,630
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $162,062,613) (k) ................................. $ 178,215,912
---------------
OTHER ASSETS,
LESS LIABILITIES - 0.3% ............................................... 582,822
---------------
NET ASSETS - 100.0% ................................................... $ 178,798,734
---------------
See portfolio footnotes and notes to financial statements.
Portfolio Footnotes:
(a) Non-income producing security.
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the variable account receives interest on notional principal (Par amount). Par amount shown is
the notional principal and does not reflect the cost of the security.
(k) As of June 30, 2007, the variable accounts held securities fair valued in accordance with the policies adopted by the Board of
Managers. An independent pricing service provided an evaluated bid for a percent of the market value.
% OF EVALUATED
VARIABLE ACCOUNT MARKET VALUE MARKET VALUE BID %
- ---------------------------------------------------------------------------------------------------------------------------------
Global Governments Variable Account ......................................... $ 7,192,031 87.44% 87.44%(1)
Government Securities Variable Account ...................................... 67,288,938 96.75 96.35
High Yield Variable Account ................................................. 46,481,071 86.12 85.89
Total Return Variable Account ............................................... 72,400,887 40.63 38.49
(1) Non evaluated bid percentage less than 0.01%.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the
ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period
end, the aggregate value of these securities was:
% OF
VARIABLE ACCOUNT MARKET VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Global Governments Variable Account ............................................................. $ 306,721 3.6%
Government Securities Variable Account .......................................................... 693,912 1.0
High Yield Variable Account ..................................................................... 9,820,842 17.9
Total Return Variable Account ................................................................... 2,058,311 1.2
(o) All or a portion of this position has not settled. Upon settlement date, interest rates will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional
prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions
on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base
lending rate plus a premium.
(t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of the Securities Act
of 1933.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale.
These securities generally may be resold in transactions exempt from registration or to the public if the securities are
subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an
acceptable price may be difficult. The variable a ccounts hold the following restricted securities:
CURRENT TOTAL %
VARIABLE ACQUISITION ACQUISITION MARKET OF NET
ACCOUNT RESTRICTED SECURITIES DATE COST VALUE ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL
GOVERNMENTS
VARIABLE
ACCOUNT Republic of Austria, 5%, 2012 ....................... 11/07/02 - 6/13/07 $305,779 $ 308,821 3.6%
========== ====
HIGH YIELD Asset Securitization Corp., FRN, 8.6363%, 2029 ...... 1/25/05 $172,565 $ 211,071
VARIABLE Bristow Group, Inc., 7.5%, 2017 ..................... 6/07/07 115,000 115,288
ACCOUNT CanWest MediaWorks LP, 9.25%, 2015 .................. 6/28/07 120,000 120,300
Claire's Stores, Inc., 10.5%, 2017 .................. 6/26/07 74,200 73,000
Community Health Systems, Inc., 8.875%, 2015 ........ 6/27/07 347,529 354,813
Knology, Inc. ....................................... 10/16/97 -- 2,023
Spansion LLC, 11.25%, 2016 .......................... 6/07/07 - 6/12/07 195,519 190,550
VWR Funding, Inc., 10.25%, 2015 ..................... 6/26/07 135,000 134,663
Wachovia Credit, CDO, FRN, 6.71%, 2026 .............. 6/08/06 250,000 243,025
- ---------------------------------------------------------------------------------------------------------------------------------
Total Restricted Securities ......................... $1,444,733 2.6%
========== ====
TOTAL RETURN Atlas Copco AB, 5.6%, 2017 .......................... 5/15/07 $159,928 $ 155,908
VARIABLE Bayview Financial Revolving Mortgage Loan Trust, FRN,
ACCOUNT 6.12%, 2040 ....................................... 3/01/06 250,000 249,999
BNP Paribas, 7.195% to 2037, FRN to 2049 ............ 6/18/07 100,000 101,134
Capmark Financial Group, Inc., 5.875%, 2012 ......... 5/03/07 169,927 167,772
Citigroup/Deutsche Bank Commercial Mortgage Trust,
"H", FRN, 5.8816%, 2049 ........................... 3/14/07 58,983 54,888
Citigroup/Deutsche Bank Commercial Mortgage Trust,
"J", FRN, 5.8816%, 2049 ........................... 3/14/07 88,632 81,165
KKR Private Equity Investments LP, IEU .............. 5/03/06 165,000 148,500
Spirit Master Funding LLC, 5.05%, 2023 .............. 10/04/05 180,714 171,402
Wachovia Bank Commercial Mortgage Trust, FRN,
6.0213%, 2043 ..................................... 3/14/07 150,240 139,786
Weatherford International, Inc., 6.35%, 2017 ........ 6/14/07 39,968 40,528
- ---------------------------------------------------------------------------------------------------------------------------------
Total Restricted Securities ......................... $1,311,082 0.7%
========== ====
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
CDO Collateralized Debt Obligation
CLN Credit-Linked Note
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
GDR Global Depository Receipt
IEU International Equity Unit
REIT Real Estate Investment Trust
STRIPS Separate Trading of Registered Interest and Principal of Securities
TIPS Treasury Inflation Protected Security
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless
otherwise indicated. A list of abbreviations is shown below:
AUD Australian Dollar
BRL Brazilian Real
CAD Canadian Dollar
CHF Swiss Franc
DKK Danish Krone
EUR Euro
GBP British Pound
JPY Japanese Yen
MXN Mexican Peso
MYR Malaysian Ringgit
NOK Norwegian Krone
PLN Polish Zloty
SEK Swedish Krona
SGD Singapore Dollar
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2007
(000 Omitted)
Capital
Apprecia- Global Government High Money Total
tion Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Assets:
Investments --
Investments, cost .............................. $182,372 $ 8,344 $ 71,375 $ 53,857 $ 48,371 $162,063
Unrealized appreciation (depreciation) ......... 22,771 (119) (1,828) 116 -- 16,153
-------- -------- -------- -------- -------- --------
Total investments, at value .................. $205,143 $ 8,225 $ 69,547 $ 53,973 $ 48,371 $178,216
Cash ............................................. 1 0* 0* 94 -- 72
Receivable for forward foreign currency
exchange contracts ............................. -- 22 -- -- -- --
Receivable for daily variation margin on
open futures contracts ......................... -- 1 -- -- -- --
Receivable for investments sold .................. 15,943 130 1,567 917 -- 1,162
Receivable for units sold ........................ 5 117 319 2 3 46
Interest and dividends receivable ................ 203 124 736 987 19 796
Receivable from investment adviser ............... -- 5 -- -- -- --
Receivable from sponsor .......................... -- -- -- 3 -- 0*
Unrealized appreciation on credit
default swaps ................................... -- -- -- 4 -- --
Other assets ..................................... 3 0* 1 1 1 3
-------- -------- -------- -------- -------- --------
Total assets ................................. $221,298 $ 8,624 $ 72,170 $ 55,981 $ 48,394 $180,295
======== ======== ======== ======== ======== ========
Liabilities:
Payable for forward foreign currency exchange
contracts ...................................... $ -- $ 17 $ -- $ -- $ -- $ --
Payable for forward currency exchange contracts
subject to master netting agreements ........... -- 26 -- -- -- --
Payable for daily variation on open futures
contracts ...................................... -- -- 2 -- -- --
Payable for investments purchased ................ 14,019 -- -- 1,080 -- 1,258
Payable for units surrendered .................... 97 1 31 57 496 166
Unnrealized depreciation on credit default swaps . -- -- -- 9 -- --
Payable to affiliates --
Investment Adviser ............................. 13 1 3 3 2 11
Administrative services fee .................... 1 0* 0* 0* 0* 0*
Sponsor ........................................ 6 0* 21 -- 8 --
Accrued expenses and other liabilities ........... 50 38 33 44 14 61
-------- -------- -------- -------- -------- --------
Total liabilities ............................ $ 14,186 $ 83 $ 90 $ 1,193 $ 520 $ 1,496
-------- -------- -------- -------- -------- --------
Net assets ................................. $207,112 $ 8,541 $ 72,080 $ 54,788 $ 47,874 $178,799
======== ======== ======== ======== ======== ========
* Amount was less than $500.
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited) -- June 30, 2007 -- continued
(000 Omitted except for unit values)
Capital
Apprecia- Global Government High Money Total
tion Governments Securities Yield Market Return
Unit Variable Variable Variable Variable Variable Variable
Unit Value Account Account Account Account Account Account
---- ---- -------- -------- -------- -------- -------- --------
Net assets applicable to
contract owners:
Capital Appreciation Variable
Account --
Compass 2 ................... 2,138 $61.871 $132,296
Compass 3 ................... 98 40.697 3,977
Compass 3 - Level 2 ......... 3,994 17.003 67,913
Global Governments Variable
Account --
Compass 2 ................... 93 $25.298 $ 2,362
Compass 3 ................... 19 24.576 458
Compass 3 - Level 2 ......... 391 14.469 5,664
Government Securities
Variable Account --
Compass 2 ................... 1,407 $38.684 $ 54,420
Compass 3 ................... 36 26.956 979
Compass 3 - Level 2 ......... 958 15.844 15,182
High Yield Variable
Account --
Compass 2 ................... 1,032 $41.086 $ 42,391
Compass 3 ................... 30 30.115 899
Compass 3 - Level 2 ......... 647 16.178 10,468
Money Market Variable
Account --
Compass 2 ................... 940 $21.336 $ 20,053
Compass 3 ................... 88 17.434 1,542
Compass 3 - Level 2 ......... 1,971 13.117 25,858
Total Return Variable
Account --
Compass 2 ................... 1,045 $54.074 $ 56,497
Compass 3 ................... 127 52.534 6,672
Compass 3 - Level 2 ......... 4,459 25.493 113,680
-------- -------- -------- -------- -------- --------
Net assets applicable to owners of deferred contracts 204,186 8,484 70,581 53,758 47,453 176,849
Reserve for variable annuities --
Compass 2 Contracts ............................ 2,629 17 1,455 983 323 1,398
Compass 3 Contracts ............................ 1 1 -- 1 1 2
Compass 3 - Level 2 Contracts .................. 296 39 44 46 97 550
-------- -------- -------- -------- -------- --------
Net assets ................................... $207,112 $ 8,541 $ 72,080 $ 54,788 $ 47,874 $178,799
======== ======== ======== ======== ======== ========
See notes to financial statements.
STATEMENTS OF OPERATIONS (Unaudited) -- Six Months Ended June 30, 2007
(000 Omitted)
Capital
Apprecia- Global Government High Money Total
tion Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- --------
Net investment income (loss):
Income --
Interest ....................................... $ 118 $ 182 $ 2,002 $ 2,330 $ 1,259 $ 1,951
Dividends ...................................... 1,257 -- -- 11 -- 1,086
-------- -------- -------- -------- -------- --------
Total investment income ...................... $ 1,375 $ 182 $ 2,002 $ 2,341 $ 1,259 $ 3,037
-------- -------- -------- -------- -------- --------
Expenses --
Mortality and expense risk charges ............. $ 1,331 $ 55 $ 473 $ 366 $ 296 $ 1,109
Management fee ................................. 790 33 206 217 117 672
Boards of Managers fees ........................ 10 0* 3 3 2 8
Distribution fee ............................... 3 0* 1 1 1 5
Administrative fee ............................. 30 5 11 8 7 26
Custodian fee .................................. 22 21 12 7 6 19
Printing ....................................... 8 1 4 4 5 5
Auditing fees .................................. 17 22 20 22 11 23
Legal fees ..................................... 3 3 3 3 3 3
Miscellaneous .................................. 10 4 5 4 5 11
-------- -------- -------- -------- -------- --------
Total expenses ............................... $ 2,224 $ 144 $ 738 $ 635 $ 453 $ 1,881
Fees paid indirectly ........................... (0)* -- (0)* (0)* (0)* (1)
Reduction of expenses by Investment Adviser .... -- (34) -- (15) -- --
-------- -------- -------- -------- -------- --------
Net expenses ................................. $ 2,224 $ 110 $ 738 $ 620 $ 453 $ 1,880
-------- -------- -------- -------- -------- --------
Net investment income (loss) ................. $ (849) $ 72 $ 1,264 $ 1,721 $ 806 $ 1,157
-------- -------- -------- -------- -------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions ........................ $ 8,828 $ 55 $ 583 $ 877 $ -- $ 8,992
Futures contracts .............................. -- (1) 64 -- -- --
Swap transactions .............................. -- -- -- 13 -- --
Foreign currency transactions .................. (1) (45) -- -- -- (2)
-------- -------- -------- -------- -------- --------
Net realized gain (loss) on investments and
foreign currency transactions .............. $ 8,827 $ 9 $ 647 $ 890 $ -- $ 8,990
-------- -------- -------- -------- -------- --------
Change in unrealized appreciation
(depreciation) --
Investments .................................... $ 5,418 $ (218) $ (1,699) $ (1,250) $ -- $ (898)
Futures contracts .............................. -- 0* (35) -- -- --
Swap transactions .............................. -- -- -- (4) -- --
Translation of assets and liabilities in
foreign currencies ........................... (0)* (13) -- -- -- --
-------- -------- -------- -------- -------- --------
Net unrealized gain (loss) on investments
and foreign currency translation ........... $ 5,418 $ (231) $ (1,734) $ (1,254) $ -- $ (898)
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments and foreign currency ........... $ 14,245 $ (222) $ (1,087) $ (364) $ -- $ 8,092
-------- -------- -------- -------- -------- --------
Change in net assets from operations ............. $ 13,396 $ (150) $ 177 $ 1,357 $ 806 $ 9,249
======== ======== ======== ======== ======== ========
* Amount less than $500.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(000 Omitted)
Capital Appreciation Global Governments Government Securities
Variable Account Variable Account Variable Account
-------------------- ---------------------- --------------------
Six Months Six Months Six Months
Ended Ended Ended
6/30/07 Year Ended 6/30/07 Year Ended 6/30/07 Year Ended
(Unaudited) 12/31/06 (Unaudited) 12/31/06 (Unaudited) 12/31/06
-------- -------- -------- -------- -------- --------
Change in net assets:
From operations:
Net investment income (loss) ................... $ (849) $ (2,616) $ 72 $ 140 $ 1,264 $ 2,792
Net realized gain (loss) on investments
and foreign currency transactions ............ 8,827 3,539 9 (100) 647 (433)
Net unrealized gain (loss) on investments
and foreign currency translation ............. 5,418 9,410 (231) 282 (1,734) (392)
-------- -------- -------- -------- -------- --------
Change in net assets from operations ......... $ 13,396 $ 10,333 $ (150) $ 322 $ 177 $ 1,967
-------- -------- -------- -------- -------- --------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 1,473 $ 4,393 $ 96 $ 279 $ 478 $ 1,459
Net transfers between variable and fixed
accumulation accounts ........................ (5,373) (6,547) 100 (22) (917) (1,158)
Withdrawals, surrenders, annuitizations, and
contract charges ............................. (20,462) (48,533) (628) (1,676) (6,282) (16,396)
-------- -------- -------- -------- -------- --------
Net accumulation activity .................... $(24,362) $(50,687) $ (432) $ (1,419) $ (6,721) $(16,095)
-------- -------- -------- -------- -------- --------
Annuitization activity:
Annuitizations ................................... $ 18 $ 293 $ 4 $ -- $ 182 $ 309
Annuity payments and contract charges ............ (206) (449) (3) (7) (149) (234)
Net transfers among accounts for
annuity reserves ................................ (168) -- -- -- -- --
Adjustments to annuity reserves .................. 26 (39) (5) 5 (4) (24)
-------- -------- -------- -------- -------- --------
Net annuitization activity ..................... $ (330) $ (195) $ (4) $ (2) $ 29 $ 51
-------- -------- -------- -------- -------- --------
Change in net assets from participations
transactions ................................... $(24,692) $(50,882) $ (436) $ (1,421) $ (6,692) $(16,044)
-------- -------- -------- -------- -------- --------
Total change in net assets ..................... $(11,296) $(40,549) $ (586) $ (1,099) $ (6,515) $(14,077)
Net assets:
At beginning of period ........................... 218,408 258,957 9,127 10,226 78,595 92,672
-------- -------- -------- -------- -------- --------
At end of period ................................. $207,112 $218,408 $ 8,541 $ 9,127 $ 72,080 $ 78,595
======== ======== ======== ======== ======== ========
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS -- continued
(000 Omitted)
High Yield Money Market Total Return
Variable Account Variable Account Variable Account
-------------------- ---------------------- --------------------
Six Months Six Months Six Months
Ended Ended Ended
6/30/07 Year Ended 6/30/07 Year Ended 6/30/07 Year Ended
(Unaudited) 12/31/06 (Unaudited) 12/31/06 (Unaudited) 12/31/06
-------- -------- -------- -------- -------- --------
Change in net assets:
From operations:
Net investment income .......................... $ 1,721 $ 3,577 $ 806 $ 1,655 $ 1,157 $ 2,660
Net realized gain (loss) on investments
and foreign currency transactions ............ 890 (1,046) -- -- 8,990 10,962
Net unrealized gain (loss) on investments
and foreign currency translation ............. (1,254) 2,730 -- -- (898) 4,841
-------- -------- -------- -------- -------- --------
Change in net assets from operations ......... $ 1,357 $ 5,261 $ 806 $ 1,655 $ 9,249 $ 18,463
-------- -------- -------- -------- -------- --------
Participant transactions:
Accumulation activity:
Purchase payments received ..................... $ 360 $ 761 $ 562 $ 1,321 $ 1,961 $ 4,300
Net transfers between variable and fixed
accumulation accounts ........................ (1,520) (749) 5,190 (342) 1,809 2,227
Withdrawals, surrenders, annuitizations, and
contract charges ............................. (4,579) (10,582) (6,218) (11,845) (16,263) (36,753)
-------- -------- -------- -------- -------- --------
Net accumulation activity .................... $ (5,739) $(10,570) $ (466) $(10,866) $(12,493) $(30,226)
-------- -------- -------- -------- -------- --------
Annuitization activity:
Annuitizations ................................... $ 9 $ 69 $ (60) $ 15 $ 32 $ 35
Annuity payments and contract charges ............ (82) (172) (67) (161) (178) (341)
Net transfers among accounts for annuity
reserves ....................................... -- -- -- -- 168 --
Adjustments to annuity reserves .................. (31) 30 70 (75) (12) 6
-------- -------- -------- -------- -------- --------
Net annuitization activity ..................... $ (104) $ (73) $ (57) $ (221) $ 10 $ (300)
-------- -------- -------- -------- -------- --------
Change in net assets from participations
transactions ................................... $ (5,843) $(10,643) $ (523) $(11,087) $(12,483) $(30,526)
-------- -------- -------- -------- -------- --------
Total change in net assets ..................... $ (4,486) $ (5,382) $ 283 $ (9,432) $ (3,234) $(12,063)
Net assets:
At beginning of period ........................... 59,274 64,656 47,591 57,023 182,033 194,096
-------- -------- -------- -------- -------- --------
At end of period ................................. $ 54,788 $ 59,274 $ 47,874 $ 47,591 $178,799 $182,033
======== ======== ======== ======== ======== ========
See notes to financial statements.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 years. Certain information reflects financial results for a single unit value. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the variable account held for the
entire period.
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 58.101 $ 55.446 $ 55.625 $ 50.814 $ 39.859 $ 59.446
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.466 $ 0.560 $ 0.580 $ 0.744 $ 0.402 $ 0.369
Expenses ......................................... (0.756) (1.198) (1.179) (1.109) (0.951) (1.002)
-------- -------- -------- -------- -------- --------
Net investment loss .......................... $ (0.290) $ (0.638) $ (0.599) $ (0.365) $ (0.549) $ (0.633)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... 4.060 3.293 0.420 5.176 11.504 (18.954)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 3.770 $ 2.655 $ (0.179) $ 4.811 $ 10.955 $(19.587)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 61.871 $ 58.101 $ 55.446 $ 55.625 $ 50.814 $ 39.859
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 6.49(n) 4.79 (0.32) 9.47(b) 27.48(j) (32.95)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.15(a) 2.15 2.16 2.14 2.12 2.12
Net investment loss .............................. (0.81)(a) (1.11) (1.108) (0.70) (1.20) (1.36)
Portfolio turnover (%) ............................. 27 61 130 65 104 80
Number of units outstanding at end of period
(000 Omitted) .................................... 2,138 2,419 3,018 3,544 4,040 4,521
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 38.235 $ 36.524 $ 36.678 $ 33.539 $ 26.334 $ 39.314
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.309 $ 0.355 $ 0.370 $ 0.458 $ 0.260 $ 0.240
Expenses ......................................... (0.532) (0.807) (0.795) (0.753) (0.648) (0.688)
-------- -------- -------- -------- -------- --------
Net investment loss .......................... $ (0.223) $ (0.452) $ (0.425) $ (0.295) $ (0.388) $ (0.448)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... 2.685 2.163 0.271 3.434 7.593 (12.532)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 2.462 $ 1.711 $ (0.154) $ 3.139 $ 7.205 $(12.980)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 40.697 $ 38.235 $ 36.524 $ 36.678 $ 33.539 $ 26.334
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 6.44(n) 4.69 (0.42) 9.36(b) 27.36(j) (33.02)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.25(a) 2.25 2.26 2.24 2.22 2.22
Net investment loss .............................. (0.97)(a) (1.30) (1.20) (0.87) (1.31) (1.42)
Portfolio turnover (%) ............................. 27 61 130 65 104 80
Number of units outstanding at end of period
(000 Omitted) ................................... 98 128 237 413 621 812
Capital Appreciation Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 15.963 $ 15.226 $ 15.267 $ 13.940 $ 10.929 $ 16.292
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.126 $ 0.152 $ 0.158 $ 0.205 $ 0.109 $ 0.100
Expenses ......................................... (0.201) (0.320) (0.316) (0.297) (0.254) (0.260)
-------- -------- -------- -------- -------- --------
Net investment loss .......................... $ (0.075) $ (0.168) $ (0.158) $ (0.092) $ (0.145) $ (0.160)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... 1.115 0.905 0.117 1.419 3.156 (5.203)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 1.040 $ 0.737 $ (0.041) $ 1.327 $ 3.011 $ (5.363)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 17.003 $ 15.963 $ 15.226 $ 15.267 $ 13.940 $ 10.929
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 6.52(n) 4.84 (0.27) 9.52(b) 27.55(j) (32.92)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.10(a) 2.10 2.11 2.09 2.07 2.07
Net investment loss .............................. (0.78)(a) (1.13) (1.05) (0.65) (1.17) (1.32)
Portfolio turnover (%) ............................. 27 61 130 65 104 80
Number of units outstanding at end of period
(000 Omitted) .................................... 3,994 4,378 5,248 5,798 6,086 6,148
(a) Annualized.
(b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual resulted in an increase in the asset value of $0.039, $0.026, and $0.010 per unit for Compass 2,
Compass 3, and Compass 3 - Level 2, respectively, based on units outstanding on the day the proceeds were recorded.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(j) The account's net asset value and total return calculation includes proceeds received on March 26, 2003 for the partial
payment of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment
transactions. The proceeds resulted in an increase in the net asset value of $0.900, $0.594, and $0.247 per unit for Compass
2, Compass 3, and Compass 3 - Level 2, res pectively, based on units outstanding on the day the proceeds were received.
Excluding the effect of this payment from the ending net as set value per unit, the Compass 2, Compass 3, and Compass 3 -
Level 2 total return per unit value for the year ended December 31, 2003 would have been lower by approximately 2.24%, 2.24%,
and 2.25%, respectively.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account unit class
(assuming reinvestment of all distributions) held for the entire period.
Global Governments Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 25.732 $ 24.865 $ 27.240 $ 25.169 $ 22.125 $ 18.653
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.620 $ 1.003 $ 0.925 $ 0.872 $ 0.877 $ 0.861
Expenses ......................................... (0.375) (0.629) (0.651) (0.633) (0.584) (0.486)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.245 $ 0.374 $ 0.274 $ 0.239 $ 0.293 $ 0.375
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... (0.679) 0.493 (2.649) 1.832 2.751 3.097
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ (0.434) $ 0.867 $ (2.375) $ 2.071 $ 3.044 $ 3.472
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 25.298 $ 25.732 $ 24.865 $ 27.240 $ 25.169 $ 22.125
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r) .......................... (1.69)(n) 3.49 (8.72) 8.23 13.76 18.61
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 3.27(a) 3.39 2.95 2.67 2.47 2.44
Expenses after expense reductions (f) ............ 2.50(a) 2.50 2.50 2.50 N/A 2.50(e)
Net investment income ............................ 1.63(a) 1.48 1.04 0.94 1.23 1.73
Portfolio turnover (%) ............................. 49 118 144 128 130 126
Number of units outstanding at end of period
(000 Omitted) ................................... 93 104 116 128 161 160
Global Governments Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 25.017 $ 24.209 $ 26.561 $ 24.578 $ 21.638 $ 18.269
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.615 $ 1.025 $ 0.949 $ 0.883 $ 0.869 $ 0.846
Expenses ......................................... (0.384) (0.659) (0.688) (0.662) (0.600) (0.511)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.231 $ 0.366 $ 0.261 $ 0.221 $ 0.269 $ 0.335
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... (0.672) 0.442 (2.613) 1.762 2.671 3.034
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ (0.441) $ 0.808 $ (2.352) $ 1.983 $ 2.940 $ 3.369
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 24.576 $ 25.017 $ 24.209 $ 26.561 $ 24.578 $ 21.638
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r) .......................... (1.76)(n) 3.34 (8.85) 8.07 13.59 18.44
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 3.42(a) 3.54 3.10 2.82 2.62 2.56
Expenses after expense reductions (f) ............ 2.65(a) 2.65 2.65 2.65 N/A 2.65(e)
Net investment income ............................ 1.62(a) 1.41 0.97 0.85 1.15 1.77
Portfolio turnover (%) ............................. 49 118 144 128 130 126
Number of units outstanding at end of perio
(000 Omitted) ................................... 19 18 26 28 41 58
Global Governments Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 14.718 $ 14.221 $ 15.580 $ 14.396 $ 12.655 $ 10.669
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.354 $ 0.574 $ 0.526 $ 0.497 $ 0.494 $ 0.499
Expenses ......................................... (0.213) (0.361) (0.371) (0.361) (0.331) (0.281)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.141 $ 0.213 $ 0.155 $ 0.136 $ 0.163 $ 0.218
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... (0.390) 0.284 (1.514) 1.048 1.578 1.768
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ (0.249) $ 0.497 $ (1.359) $ 1.184 $ 1.741 $ 1.986
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 14.469 $ 14.718 $ 14.221 $ 15.580 $ 14.396 $ 12.655
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r) .......................... (1.69)(n) 3.49 (8.72) 8.23 13.76 18.61
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 3.27(a) 3.39 2.95 2.67 2.47 2.42
Expenses after expense reductions (f) ............ 2.50(a) 2.50 2.50 2.50 N/A 2.50(e)
Net investment income ............................ 1.64(a) 1.47 1.04 0.94 1.21 1.70
Portfolio turnover (%) ............................. 49 118 144 128 130 126
Number of units outstanding at end of period
(000 Omitted) .................................... 391 403 468 500 559 568
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense reimbursement
agreement.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single variable account share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account
share class (assuming reinvestment of all distributions) held for the entire period.
Government Securities Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 38.619 $ 37.679 $ 37.338 $ 36.470 $ 36.124 $ 33.448
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 1.243 $ 2.024 $ 1.936 $ 1.834 $ 1.482 $ 1.862
Expenses ......................................... (0.459) (0.757) (0.752) (0.726) (0.711) (0.677)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.784 $ 1.267 $ 1.184 $ 1.108 $ 0.771 $ 1.185
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .................................... (0.719) (0.327) (0.843) (0.240) (0.425) 1.491
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.065 $ 0.940 $ 0.341 $ 0.868 $ 0.346 $ 2.676
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 38.684 $ 38.619 $ 37.679 $ 37.338 $ 36.470 $ 36.124
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 0.17(n) 2.50 0.91 2.38 0.96 8.00
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.01(a) 2.01 2.01 1.97 1.95 1.94
Net investment income ............................ 3.37(a) 3.28 3.09 2.96 2.08 3.19
Portfolio turnover (%) ............................. 18 17 69 89 138 139
Number of units outstanding at end of period
(000 Omitted) .................................... 1,407 1,538 1,852 2,125 2,447 2,759
Government Securities Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 26.924 $ 26.295 $ 26.082 $ 25.501 $ 25.284 $ 23.434
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.881 $ 1.352 $ 1.316 $ 1.244 $ 1.045 $ 1.300
Expenses ......................................... (0.336) (0.538) (0.543) (0.525) (0.514) (0.495)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.545 $ 0.814 $ 0.773 $ 0.719 $ 0.531 $ 0.805
Net realized and unrealized gain (loss)
on investments and foreign currency transactions (0.513) (0.185) (0.560) (0.138) (0.314) 1.045
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.032 $ 0.629 $ 0.213 $ 0.581 $ 0.217 $ 1.850
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 26.956 $ 26.924 $ 26.295 $ 26.082 $ 25.501 $ 25.284
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 0.12(n) 2.40 0.82 2.28 0.86 7.89
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.11(a) 2.11 2.11 2.07 2.05 2.04
Net investment income ............................ 3.46(a) 3.15 2.96 2.82 2.08 3.36
Portfolio turnover (%) ............................. 18 17 69 89 138 139
Number of units outstanding at end of period
(000 Omitted) .................................... 36 40 69 100 147 205
Government Securities Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 15.814 $ 15.421 $ 15.274 $ 14.912 $ 14.763 $ 13.663
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.499 $ 0.813 $ 0.781 $ 0.742 $ 0.597 $ 0.732
Expenses ......................................... (0.182) (0.300) (0.299) (0.289) (0.282) (0.267)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.317 $ 0.513 $ 0.482 $ 0.453 $ 0.315 $ 0.465
Net realized and unrealized gain (loss)
on investments and foreign currency transactions (0.287) (0.120) (0.335) (0.091) (0.166) 0.635
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.030 $ 0.393 $ 0.147 $ 0.362 $ 0.149 $ 1.100
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 15.844 $ 15.814 $ 15.421 $ 15.274 $ 14.912 $ 14.763
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 0.19(n) 2.55 0.96 2.43 1.01 8.05
Ratios (%) (to average net assets):
Expenses (f) ..................................... 1.96(a) 1.96 1.96 1.92 1.90 1.89
Net investment income ............................ 3.41(a) 3.30 3.12 2.99 2.10 3.17
Portfolio turnover (%) ............................. 18 17 69 89 138 139
Number of units outstanding at end of period
(000 Omitted) ................................... 958 1,054 1,280 1,377 1,562 1,692
(a) Anualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single variable account share. The total
returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account
share class (assuming reinvestment of all distributions) held for the entire period.
High Yield Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 40.172 $ 36.840 $ 36.669 $ 34.056 $ 28.505 $ 28.969
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 1.985 $ 3.121 $ 2.959 $ 2.857 $ 2.769 $ 3.015
Expenses ......................................... (0.527) (0.847) (0.820) (0.770) (0.689) (0.617)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 1.458 $ 2.274 $ 2.139 $ 2.087 $ 2.080 $ 2.398
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. (0.544) 1.058 (1.968) 0.526 3.471 (2.862)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.914 $ 3.332 $ 0.171 $ 2.613 $ 5.551 $ (0.464)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 41.086 $ 40.172 $ 36.840 $ 36.669 $ 34.056 $ 28.505
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r)(s) ....................... 2.28(n) 9.04 0.47 7.67 19.47 (1.60)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 2.23(a) 2.32 2.28 2.21 2.20 2.18
Expenses after expense reductions (f) ............ 2.18(a) 2.22 2.25 N/A N/A N/A
Net investment income ............................ 5.94(a) 5.84 5.76 5.91 6.53 7.84
Portfolio turnover (%) ............................. 39 88 53 81 164 172
Number of units outstanding at end of period
(000 Omitted) .................................... 1,032 1,119 1,323 1,601 1,827 2,069
High Yield Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 29.459 $ 27.043 $ 26.943 $ 25.048 $ 20.986 $ 21.349
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 1.449 $ 2.212 $ 2.118 $ 2.021 $ 1.964 $ 2.141
Expenses ......................................... (0.401) (0.635) (0.620) (0.576) (0.514) (0.469)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 1.048 $ 1.577 $ 1.498 $ 1.445 $ 1.450 $ 1.672
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. (0.392) 0.839 (1.398) 0.450 2.612 (2.035)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.656 $ 2.416 $ 0.100 $ 1.895 $ 4.062 $ (0.363)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 30.115 $ 29.459 $ 27.043 $ 26.943 $ 25.048 $ 20.986
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r)(s) ....................... 2.23(n) 8.94 0.37 7.57 19.35 (1.70)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 2.33(a) 2.42 2.38 2.31 2.30 2.28
Expenses after expense reductions (f) ............ 2.28(a) 2.32 2.35 N/A N/A N/A
Net investment income ............................ 5.99(a) 5.71 5.64 5.75 6.41 8.45
Portfolio turnover (%) ............................. 39 88 53 81 164 172
Number of units outstanding at end of period
(000 Omitted) ................................... 30 34 47 67 115 178
High Yield Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 15.814 $ 14.495 $ 14.421 $ 13.386 $ 11.199 $ 11.376
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.770 $ 1.202 $ 1.142 $ 1.019 $ 1.161 $ 1.220
Expenses ......................................... (0.202) (0.323) (0.312) (0.275) (0.286) (0.257)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.568 $ 0.879 $ 0.830 $ 0.744 $ 0.875 $ 0.963
Net realized and unrealized gain (loss) on
investments and foreign currency transactions . (0.204) 0.440 (0.756) 0.291 1.312 (1.140)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.364 $ 1.319 $ 0.074 $ 1.035 $ 2.187 $ (0.177)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 16.178 $ 15.814 $ 14.495 $ 14.421 $ 13.386 $ 11.199
======== ======== ======== ======== ======== ========
Total Return (%) (k)(r)(s) ....................... 2.30(n) 9.10 0.52 7.73 19.53 (1.55)
Ratios (%) (to average net assets):
Expenses before expense reductions (f) ........... 2.18(a) 2.27 2.23 2.16 2.15 2.13
Expenses after expense reductions (f) ............ 2.13(a) 2.17 2.20 N/A N/A N/A
Net investment income ............................ 5.95(a) 5.86 5.81 5.77 6.57 6.08
Portfolio turnover (%) ............................. 39 88 53 81 164 172
Number of units outstanding at end of period
(000 Omitted) ................................... 647 774 937 971 2,631 2,684
(a) Annualized.
(d) Per share data are based on average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 fiscal years. Certain information reflects financial results for a single unit value. The total returns in
the table represent the rate by which an investor would have earned (or lost) on an investment in the variable account unit class
(assuming reinvestment of all distributions) held for the entire period.
Money Market Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 20.979 $ 20.331 $ 20.073 $ 20.188 $ 20.322 $ 20.341
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.599 $ 1.051 $ 0.661 $ 0.281 $ 0.247 $ 0.382
Expenses ......................................... (0.242) (0.403) (0.403) (0.396) (0.381) (0.401)
-------- -------- -------- -------- -------- --------
Net investment income (loss) ................. $ 0.357 $ 0.648 $ 0.258 $ (0.115) $ (0.134) $ (0.019)
Net realized and unrealized gain (loss) on
investments ..................................... -- -- (0.000)(w) -- -- --
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.357 $ 0.648 $ 0.258 $ (0.115) $ (0.134) $ (0.019)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 21.336 $ 20.979 $ 20.331 $ 20.073 $ 20.188 $ 20.322
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 1.70(n) 3.19 1.29 (0.57) (0.66) (0.09)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 1.96(a) 1.95 1.99 1.96 1.87 1.96
Net investment income (loss) ..................... 3.42(a) 3.15 1.38 (0.56) (0.63) (0.12)
Number of units outstanding at end of period
(000 Omitted) ................................... 940 928 1,128 1,009 1,172 1,626
Money Market Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 17.152 $ 16.638 $ 16.443 $ 16.553 $ 16.680 $ 16.712
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.490 $ 0.852 $ 0.539 $ 0.229 $ 0.198 $ 0.318
Expenses ......................................... (0.208) (0.338) (0.344) (0.339) (0.325) (0.350)
-------- -------- -------- -------- -------- --------
Net investment income (loss) ................. $ 0.282 $ 0.514 $ 0.195 $ (0.110) $ (0.127) $ (0.032)
Net realized and unrealized gain (loss) on
investments .................................... -- -- (0.000)(w) -- -- --
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.282 $ 0.514 $ 0.195 $ (0.110) $ (0.127) $ (0.032)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 17.434 $ 17.152 $ 16.638 $ 16.443 $ 16.553 $ 16.680
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 1.65(n) 3.09 1.19 (0.67) (0.76) (0.19)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.06(a) 2.05 2.09 2.06 1.97 2.06
Net investment income (loss) ..................... 3.30(a) 3.00 1.42 (0.71) (0.74) (0.14)
Number of units outstanding at end of period
(000 Omitted) ................................... 88 131 218 97 155 186
Money Market Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 12.895 $ 12.491 $ 12.326 $ 12.390 $ 12.466 $ 12.472
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.366 $ 0.644 $ 0.405 $ 0.181 $ 0.131 $ 0.223
Expenses ......................................... (0.144) (0.240) (0.240) (0.245) (0.207) (0.229)
-------- -------- -------- -------- -------- --------
Net investment income (loss) ................. $ 0.222 $ 0.404 $ 0.165 $ (0.064) $ (0.076) $ (0.006)
Net realized and unrealized gain (loss) on
investments ................................... -- -- (0.000)(w) -- -- --
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 0.222 $ 0.404 $ 0.165 $ (0.064) $ (0.076) $ (0.006)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 13.117 $ 12.895 $ 12.491 $ 12.326 $ 12.390 $ 12.466
======== ======== ======== ======== ======== ========
Total Return (%) (k) ............................. 1.72(n) 3.24 1.34 (0.52) (0.61) (0.04)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 1.91(a) 1.90 1.94 1.91 1.82 1.91
Net investment income (loss) ..................... 3.45(a) 3.18 1.39 (0.48) (0.61) (0.01)
Number of units outstanding at end of period
(000 Omitted) ................................... 1,971 1,969 2,384 2,259 896 1,113
(a) Annualized.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
(w) Per unit amount was less than $0.001.
See notes to financial statements.
FINANCIAL HIGHLIGHTS -- continued
The financial highlights table is intended to help you understand the variable accounts' financial performance for the semiannual
period and the past 5 years. Certain information reflects financial results for a single unit value. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the variable account held for the
entire period.
Total Return Variable Account
------------------------------------------------------------------------
Compass 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 51.373 $ 46.459 $ 45.729 $ 41.571 $ 35.950 $ 38.562
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 1.066 $ 1.749 $ 1.521 $ 1.450 $ 1.237 $ 1.407
Expenses ......................................... (0.655) (1.033) (0.970) (0.905) (0.800) (0.777)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.411 $ 0.716 $ 0.551 $ 0.545 $ 0.437 $ 0.630
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. 2.290 4.198 0.179 3.613 5.184 (3.242)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 2.701 $ 4.914 $ 0.730 $ 4.158 $ 5.621 $ (2.612)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 54.074 $ 51.373 $ 46.459 $ 45.729 $ 41.571 $ 35.950
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 5.26(n) 10.58 1.60 10.00(b) 15.64 (6.77)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.11(a) 2.14 2.12 2.11 2.10 2.08
Net investment income ............................ 1.31(a) 1.46 1.18 1.25 1.13 1.43
Portfolio turnover (%) ............................. 24 45 49 64 62 76
Number of units outstanding at end of period
(000 Omitted) .................................... 1,045 1,156 1,349 1,511 1,688 1,871
Total Return Variable Account
------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 49.947 $ 45.236 $ 44.592 $ 40.597 $ 35.160 $ 37.771
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 1.052 $ 1.645 $ 1.450 $ 1.375 $ 1.200 $ 1.360
Expenses ......................................... (0.683) (1.051) (1.019) (0.929) (0.823) (0.804)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.369 $ 0.594 $ 0.431 $ 0.446 $ 0.377 $ 0.556
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. 2.218 4.117 0.213 3.549 5.060 (3.167)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 2.587 $ 4.711 $ 0.644 $ 3.995 $ 5.437 $ (2.611)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 52.534 $ 49.947 $ 45.236 $ 44.592 $ 40.597 $ 35.160
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 5.18(n) 10.42 1.45 9.84(b) 15.46 (6.91)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.26(a) 2.29 2.27 2.26 2.25 2.23
Net investment income ............................ 1.24(a) 1.28 0.97 1.07 1.01 1.61
Portfolio turnover (%) ............................. 24 45 49 64 62 76
Number of units outstanding at end of period
(000 Omitted) .................................... 127 142 217 315 453 634
Total Return Variable Account
------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------------------
Six Months
Ended Years Ended 12/31,
6/30/07 ------------------------------------------------------------
(Unaudited) 2006 2005 2004 2003 2002
-------- -------- -------- -------- -------- --------
Per unit data: (d)
Net asset value -- beginning of period ........... $ 24.220 $ 21.903 $ 21.559 $ 19.599 $ 16.949 $ 18.180
-------- -------- -------- -------- -------- --------
Investment income ................................ $ 0.493 $ 0.812 $ 0.710 $ 0.676 $ 0.575 $ 0.658
Expenses ......................................... (0.306) (0.484) (0.457) (0.425) (0.376) (0.367)
-------- -------- -------- -------- -------- --------
Net investment income ........................ $ 0.187 $ 0.328 $ 0.253 $ 0.251 $ 0.199 $ 0.291
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. 1.086 1.989 0.091 1.709 2.451 (1.522)
-------- -------- -------- -------- -------- --------
Change in unit value ............................. $ 1.273 $ 2.317 $ 0.344 $ 1.960 $ 2.650 $ (1.231)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period ................. $ 25.493 $ 24.220 $ 21.903 $ 21.559 $ 19.599 $ 16.949
======== ======== ======== ======== ======== ========
Total Return (%) (k)(s) .......................... 5.26(n) 10.58 1.60 10.00(b) 15.64 (6.77)
Ratios (%) (to average net assets):
Expenses (f) ..................................... 2.11(a) 2.14 2.12 2.11 2.10 2.08
Net investment income ............................ 1.29(a) 1.44 1.17 1.24 1.11 1.55
Portfolio turnover (%) ............................. 24 45 49 64 62 76
Number of units outstanding at end of period
(000 Omitted) ................................... 4,459 4,695 5,462 5,646 5,946 6,236
(a) Annualized.
(b) The account's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual did not have a material impact on the net asset value per units based on the units outstanding on the
day the proceeds were recorded.
(d) Per unit data are based on the average number of units outstanding during each year.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total
return figures for all periods shown.
(n) Not annualized.
(s) From time to time the variable account may receive proceeds from litigation settlements, without which performance would be
lower.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) BUSINESS AND ORGANIZATION
Capital Appreciation Variable Account, Global Governments Variable Account,
Government Securities Variable Account, High Yield Variable Account, Money
Market Variable Account, and Total Return Variable Account (the variable
account(s)) are separate accounts established by Sun Life Assurance Company of
Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and
Compass 3 combination fixed/variable annuity contracts. The variable accounts
operate as open-end management investment companies as those terms are defined
in the Investment Company Act of 1940, as amended.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The High
Yield Variable Account can invest up to 100% of its portfolio in high- yield
securities rated below investment grade. Investments in high-yield securities
involve greater degrees of credit and market risk than investments in
higher-rated securities and tend to be more sensitive to economic conditions.
The Capital Appreciation Variable Account, Global Governments Variable Account,
High Yield Variable Account and Total Return Variable Account can invest in
foreign securities, including securities of emerging market issuers. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing in
foreign securities previously described are heightened when investing in
emerging markets countries.
Investment Valuations - Money market instruments are valued at amortized cost,
which approximates market value. Amortized cost involves valuing an instrument
at its cost as adjusted for amortization of premium or accretion of discount
rather than its current market value. Each money market fund's use of
amortized cost is subject to the fund's compliance with Rule 2a-7 under the
Investment Company Act of 1940. The amortized cost value of an instrument can
be different from the market value of an instrument. Equity securities,
including restricted equity securities, are generally valued at the last sale
or official closing price as reported by an independent pricing service on the
market or exchange on which they are primarily traded. For securities for
which there were no sales reported that day, equity securities are generally
valued at the last quoted daily bid quotation as reported by an independent
pricing service on the market or exchange on which they are primarily traded.
For securities held short for which there were no sales reported for the day,
the position is generally valued at the last quoted daily ask quotation as
reported by an independent pricing service on the market or exchange on which
such securities are primarily traded. Debt instruments (other than short-term
instruments), including restricted debt instruments, are generally valued at
an evaluated or composite bid as reported by an independent pricing service.
Short-term instruments with a maturity at issuance of 60 days or less may be
valued at amortized cost, which approximates market value. Exchange-traded
options are generally valued at the last sale or official closing price as
reported by an independent pricing service on the exchange on which such
options are primarily traded. Exchange-traded options for which there were no
sales reported that day are generally valued at the last daily bid quotation
as reported by an independent pricing service on the exchange on which such
options are primarily traded. Options not traded on an exchange are generally
valued at a broker-dealer bid quotation. Foreign currency options are
generally valued using an external pricing model that uses market data from an
independent source. Futures contracts are generally valued at last posted
settlement price as reported by an independent pricing service on the market
on which they are primarily traded. Futures contracts for which there were no
trades that day for a particular position are generally valued at the closing
bid quotation as reported by an independent pricing service on the market on
which such futures contracts are primarily traded. Forward foreign currency
contracts are generally valued at the mean of bid and asked prices for the
time period interpolated from rates reported by an independent pricing service
for proximate time periods. Swaps are generally valued at an evaluated bid as
reported by an independent pricing service. Securities and other assets
generally valued on the basis of information from an independent pricing
service may also be valued at a broker-dealer bid quotation. Values obtained
from pricing services can utilize both dealer-supplied valuations and
electronic data processing techniques, which take into account factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data. The values of foreign securities and other assets and liabilities
expressed in foreign currencies are converted to U.S. dollars using the mean
of bid and asked prices for rates reported by an independent pricing service.
The Board of Managers has delegated primary responsibility for determining or
causing to be determined the value of the variable accounts' investments
(including any fair valuation) to the adviser pursuant to valuation policies
and procedures approved by the Board. If the adviser determines that reliable
market quotations are not readily available, investments are valued at fair
value as determined in good faith by the adviser in accordance with such
procedures under the oversight of the Board of Managers. Under the variable
accounts' valuation policies and procedures, market quotations are not
considered to be readily available for many types of debt instruments and
certain types of derivatives. These investments are generally valued at fair
value based on information from independent pricing services. In addition,
investments may be valued at fair value if the adviser determines that an
investment's value has been materially affected by events occurring after the
close of the exchange or market on which the investment is principally traded
(such as foreign exchange or market) and prior to the determination of the
variable accounts' net asset value, or after the halting of trading of a
specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. Events that
occur on a frequent basis after foreign markets close (such as developments in
foreign markets and significant movements in the U.S. markets) and prior to
the determination of the variable accounts' net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the variable accounts' foreign equity securities may often be
valued at fair value. The adviser may rely on independent pricing services or
other information (such as the correlation with price movements of similar
securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the variable accounts' net asset value
can differ depending on the source and method used to determine value. When
fair valuation is used, the value of investments used to determine the
variable accounts' net asset value may differ from quoted or published prices
for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for
measuring fair value and expanded disclosures about fair value measurements.
Management is evaluating the application of the Statement to the variable
accounts, and believes the impact will be limited to expanded disclosures
resulting from the adoption of this Statement in the variable accounts'
financial statements.
Repurchase Agreements - Each variable account may enter into repurchase
agreements with institutions that the variable accounts' investment adviser
has determined are creditworthy. Each repurchase agreement is recorded at
cost. The variable accounts require that the securities collateral in a
repurchase transaction be transferred to the custodian in a manner sufficient
to enable the variable account to obtain those securities in the event of a
default under the repurchase agreement. The variable accounts monitor, on a
daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the variable accounts under
each such repurchase agreement. The variable accounts and other funds managed
by Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Inflation-Adjusted Debt Securities - Certain variable accounts invest in
inflation-adjusted debt securities issued by the U.S. Treasury. The variable
accounts may also invest in inflation-adjusted debt securities issued by U.S.
Government agencies and instrumentalities other than the U.S. Treasury and by
other entities such as U.S. and foreign corporations and foreign governments.
The principal value of these debt securities is adjusted by references to
changes in the Consumer Price Index or another general price or wage index.
These debt securities typically pay a fixed rate of interest, but this fixed
rate is applied to the inflation-adjusted principal amount. The principal paid
at maturity of the debt security is typically equal to the inflation-adjusted
principal amount, or the security's original par value, whichever is greater.
Other types of inflation-adjusted securities may use other methods to adjust
for other measures of inflation.
Foreign Currency Translation - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
Derivative Risk - Certain variable accounts may invest in derivatives for
hedging or non-hedging purposes. While hedging can reduce or eliminate losses,
it can also reduce or eliminate gains. When the variable accounts use
derivatives as an investment to gain market exposure, or for hedging purposes,
gains and losses from derivative instruments may be substantially greater than
the derivative's original cost. Derivative instruments include purchased
options, futures contracts and forward foreign currency exchange contracts for
the Global Governments Variable Account, futures contracts for the Government
Securities Variable Account and swap agreements for the High Yield Variable
Account.
Purchased Options - Certain variable accounts may purchase call or put options
for a premium. Purchasing call options may be a hedge against an anticipated
increase in the dollar cost of securities to be acquired or to increase the
variable account's exposure to the underlying instrument. Purchasing put
options may hedge against a decline in the value of portfolio securities. The
premium paid is included as an investment in the Statement of Assets and
Liabilities and is subsequently adjusted to the current value of the option.
Premiums paid for purchased options which have expired are treated as realized
losses on investments in the Statement of Operations. Premiums paid for
purchased options which are exercised or closed are added to the amount paid
or offset against the proceeds on the underlying security or financial
instrument to determine the realized gain or loss. The risk of loss associated
with purchased options is limited to the premium paid.
Futures Contracts - Certain variable accounts may enter into futures contracts
for the delayed delivery of securities or currency, or contracts based on
financial indices at a fixed price on a future date. In entering such
contracts, the variable accounts are required to deposit with the broker
either in cash or securities an amount equal to a certain percentage of the
contract amount. Subsequent payments are made or received by the variable
account each day, depending on the daily fluctuations in the value of the
contract, and are recorded for financial statement purposes as unrealized
gains or losses by the variable accounts. Upon entering into such contracts,
the variable accounts bears the risk of interest or exchange rates or
securities prices moving unexpectedly, in which case, the variable accounts
may not achieve the anticipated benefits of the futures contracts and may
realize a loss.
Forward Foreign Currency Exchange Contracts - Certain variable accounts may
enter into forward foreign currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the contract. The variable accounts may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the variable accounts may enter
into contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The variable accounts may also
use contracts in a manner intended to protect foreign currency denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the variable accounts may enter into contracts with
the intent of changing the relative exposure of the variable accounts portfolio
of securities to different currencies to take advantage of anticipated changes.
The forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
as unrealized until the contract settlement date. On contract settlement date,
the gains or losses are recorded as realized gains or losses on foreign
currency transactions.
Swap Agreements - Certain variable accounts may enter into swap agreements. A
swap is an exchange of cash payments between the variable accounts and another
party. Net cash payments are exchanged at specified intervals and are recorded
as a realized gain or loss in the Statement of Operations. The value of the
swap is adjusted daily and the change in value, including accruals of periodic
amounts of interest to be paid or received, is recorded as unrealized
appreciation or depreciation in the Statement of Operations. A liquidation
payment received or made upon early termination is recorded as a realized gain
or loss in the Statement of Operations. Collateral, in the form of cash or
securities, may be required to be held in segregated accounts with the
variable accounts custodian in connection with these agreements. Risk of loss
may exceed amounts recognized on the Statement of Assets and Liabilities.
These risks include the possible lack of a liquid market, failure of the
counterparty to perform under the terms of the agreements, and unfavorable
market movement of the underlying instrument. All swap agreements entered into
by the variable accounts with the same counterparty are generally governed by
a single master agreement, which provides for the netting of all amounts owed
by the parties under the agreement upon the occurrence of an event of default,
thereby reducing the credit risk to which such party is exposed. The High
Yield Variable Account holds credit default swaps in which one party makes a
stream of payments based on a fixed percentage applied to the notional amount
to another party in exchange for the right to receive a specified return in
the event of a default by a third party, such as a corporate issuer or foreign
issuer, on its obligation. The variable accounts may enter into credit default
swaps to limit or to reduce its risk exposure to defaults of corporate and
sovereign issuers or to create direct or synthetic short or long exposure to
corporate debt securities or certain sovereign debt securities to which it is
not otherwise exposed.
Loans and Other Direct Debt Instruments - Certain variable accounts may invest
in loans and loan participations or other receivables. These investments may
include standby financing commitments, including revolving credit facilities,
which obligate the variable account to supply additional cash to the borrower
on demand. Loan participations involve a risk of insolvency of the lending
bank or other financial intermediary.
Indemnifications - Under the variable account's organizational documents, its
officers and trustees may be indemnified against certain liabilities and
expenses arising out of the performance of their duties to the variable
account. Additionally, in the normal course of business, each variable account
enters into agreements with service providers that may contain indemnification
clauses. The variable account's maximum exposure under these agreements is
unknown as this would involve future claims that may be made against the
variable account that have not yet occurred.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. For the
Money Market Variable Account all premium and discount is amortized and
accreted for financial statement purposes and tax reporting purposes in
accordance with generally accepted accounting principles and federal tax
regulations, respectively. For all other variable accounts, all premium and
discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles and all discount
is accreted for tax reporting purposes as required by federal income tax
regulations. Certain variable accounts earn certain fees in connection with
its floating rate loan purchasing activities. These fees are in addition to
interest payments earned and may include amendment fees, commitment fees,
facility fees, consent fees, and prepayment fees. These fees are recorded on
an accrual basis as income in the accompanying financial statements. Dividends
received in cash are recorded on the ex-dividend date. Certain dividends from
foreign securities will be recorded when the variable account is informed of
the dividend if such information is obtained subsequent to the ex-dividend
date. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date.
The variable accounts may receive proceeds from litigation settlements. Any
proceeds received from litigation involving portfolio holdings are reflected
in the Statement of Operations in realized gain/loss if the security has been
disposed of by the variable accounts or in unrealized gain/loss if the
security is still held by the variable accounts. Any other proceeds from
litigation not related to portfolio holdings are reflected as other income in
the Statement of Operations.
Fees Paid Indirectly - The variable accounts' custody fee is reduced according
to an arrangement that measures the value of cash deposited with the custodian
by the variable accounts. This amount, for the six months ended June 30, 2007
is shown as a reduction of total expenses on the Statement of Operations.
Federal Income Taxes - The variable accounts are funding vehicles for
individual variable annuities. The operations of the variable accounts are
part of the operations of Sun Life Assurance Company of Canada (U.S.), the
Sponsor, and are not taxed separately; the variable accounts are not taxed as
regulated investment companies. The Sponsor qualifies for the federal income
tax treatment granted to life insurance companies under Subchapter L of the
Internal Revenue Code. Accordingly, no provision for federal income or excise
tax is necessary. Foreign taxes have been provided for on interest and
dividend income earned on foreign investments in accordance with the
applicable country's tax rates and to the extent unrecoverable are recorded as
a reduction of investment income.
(3) CONTRACT CHARGES
The Sponsor makes a deduction from the variable accounts at the end of each
valuation period, during both the accumulation period and after annuity
payments begin, for assuming the mortality and expense risks under the
contracts. The rate of the deduction may be changed annually but in no event
may it exceed 1.25% of the average net assets of each variable account
attributable to Compass 3 contracts, or, with respect to Compass 2 contracts,
1.30% of the assets of Capital Appreciation Variable Account, Government
Securities Variable Account, High Yield Variable Account, and Money Market
Variable Account, or 1.25% of the assets of Global Governments Variable
Account and Total Return Variable Account attributable to such contracts.
For assuming the distribution expense risk under Compass 3 contracts, the
Sponsor makes a deduction from the variable accounts at the end of each
valuation period for the first seven contract years at an effective annual
rate of 0.15% of the net assets of the variable accounts attributable to such
contracts. Contracts are transferred from Compass 3 to Compass 3 -- Level 2 in
the month following the seventh contract anniversary. No deduction is made
after the seventh contract anniversary. No deduction is made with respect to
assets attributable to Compass 2 contracts.
Each year, on the contract anniversary, a contract maintenance charge of $25
with respect to Compass 2 contracts and $30 with respect to Compass 3 contracts
is deducted from each contract's accumulation account and paid to the Sponsor
to cover administrative expenses relating to the contract. After the annuity
commencement date, the annual contract maintenance charge is deducted pro rata
from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges (including the distribution expense charge
described above applicable to Compass 3 contracts) exceed 5% of the purchase
payments made under a Compass 2 contract or 9% of the purchase payments made
under a Compass 3 contract.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to
February 1, 1987 have been calculated using the 1971 Individual Annuitant
Mortality Table. Annuity reserves for contracts with annuity commencement
dates between February 1, 1987 and December 31, 1998 have been calculated
using the 1983 Individual Annuitant Mortality Table. Annuity reserves for
contracts with annuity commencement dates on or after January 1, 1999 have
been calculated using the Annuity Mortality 2000 table. Annuity reserves for
contracts in payment period are calculated using an assumed interest rate of
4%. Required adjustments are accomplished by transfers to or from the Sponsor.
(5) TRANSACTIONS WITH AFFILIATES
Investment Adviser - Each variable account has an investment advisory
agreement with MFS to provide overall investment management and related
administrative services and facilities to the variable accounts. The
management fee is computed daily and paid monthly at the following annual
rates based on a percentage of each variable account's average daily net
assets:
Annual Rate of
Management Fee Annual Rate of
Based on Average Management Fee
Daily Net Assets Based on Average Effective
Not Exceeding $300 Daily Net Assets Management
Million In Excess of $300 Million Fees
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Variable Account ...................... 0.75% 0.675% 0.75%
Global Governments Variable Account ........................ 0.75% 0.675% 0.75%
Government Securities Variable Account ..................... 0.55% 0.495% 0.55%
High Yield Variable Account ................................ 0.75%(a) 0.675% 0.70%
Money Market Variable Account .............................. 0.50%(b) 0.500%(b) 0.50%
Total Return Variable Account .............................. 0.75% 0.675% 0.75%
(a) The investment adviser has agreed in writing to reduce its management fee
to 0.70% for the first $300 million of average daily net assets. This
written agreement will continue through August 31, 2007, unless changed or
rescinded by the variable accounts' Board of Managers. This management fee
reduction amounted to $14,465, which is shown as a reduction of total
expenses in the Statement of Operations.
(b) The investment adviser has agreed in writing to reduce its management fee
to 0.45% of average daily net assets in excess of $500 million. This
written agreement may be rescinded only upon consent of the variable
accounts' Board of Managers. For the six months ended June 30, 2007, the
Money Market Variable Account's average daily net assets did not exceed
$500 million, and therefore, the management fee was not reduced.
The investment adviser has agreed in writing to pay each variable accounts'
operating expenses, exclusive of taxes, extraordinary expenses, brokerage and
transaction costs, mortality and expense risk and distribution expense risk
charges, and contract maintenance charges, such that operating expenses do not
exceed 1.25% annually of the average daily net assets of each variable
account. This agreement is contained in the investment advisory agreement
between MFS and the variable accounts and may not be rescinded without
shareholder approval. In addition, the investment adviser has agreed in
writing to pay the High Yield Variable Account's operating expenses, exclusive
of taxes, extraordinary expenses, brokerage and transaction costs, mortality
and expense risk charges, distribution expense risk charges, and contract
maintenance charges, such that operating expenses do not exceed 0.90% annually
of the average daily net assets of the High Yield Variable Account. This
written agreement will continue through August 31, 2007 unless changed or
rescinded by the variable account's Board of Managers. For the six months
ended June 30, 2007, this reduction amounted to $33,704 for the Global
Governments Variable Account and is reflected as a reduction of total expenses
in the Statement of Operations. For the six months ended June 30, 2007, the
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, Money Market Variable Account, and Total Return
Variable Account did not exceed the limit and therefore, the investment
adviser did not pay any portion of the variable accounts' expenses.
Administrator - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to each variable
account. Under an administrative services agreement, each variable account
partially reimburses MFS the costs incurred to provide these services. Each
variable account is charged an annual fixed amount of $10,000 plus a fee based
on calendar year average net assets. The administrative services fee incurred
for the six months ended June 30, 2007 was equivalent to the following annual
effective rate of the variable accounts' average daily net assets:
Capital
Apprecia- Global Government High Money Total
tion Governments Securities Yield Market Return
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
- -------------------------------------------------------------------------------------------------------------------
Percent of average daily net assets ......... 0.0285% 0.1129% 0.0285% 0.0285% 0.0286% 0.0285%
====== ====== ====== ====== ====== ======
Managers' and Officers' Compensation - Each variable account pays compensation
to managers in the form of a retainer, attendance fees, and additional
compensation to the Board chairperson. Each variable account does not pay
compensation directly to officers who are affiliated with the Investment
Adviser or the Sponsor. Certain officers of the variable accounts are officers
or directors of MFS, MFD, and MFSC.
Other - These variable accounts and certain other MFS funds (the funds) have
entered into a services agreement (the Agreement) which provides for payment
of fees by the funds to Tarantino LLC in return for the provision of services
of an Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is
an officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. MFS has agreed to bear all expenses associated with office space,
other administrative support, and supplies provided to the ICCO. For the six
months ended June 30, 2007, the fees paid to Tarantino LLC were as follows:
Expense
--------------------------------------------------------------
Capital Appreciation Variable Account ....... $549
Global Governments Variable Account ......... $ 23
Government Securities Variable Account ...... $197
High Yield Variable Account ................. $149
Money Market Variable Account ............... $119
Total Return Variable Account ............... $459
(6) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
Purchases Sales
- -----------------------------------------------------------------------------
Capital Appreciation Variable Account .... $56,228,703 $87,432,035
Global Governments Variable Account ...... $ 2,844,069 $ 3,057,247
Government Securities Variable Account ... $ -- $ 6,634,155
High Yield Variable Account .............. $22,057,025 $26,324,525
Total Return Variable Account ............ $33,286,271 $45,685,971
Purchases and sales of investments for the Money Market Variable Account,
exclusive of securities subject to repurchase agreements, aggregated
$373,740,544 and $374,185,000 respectively.
Purchases and sales of U.S. government securities, other than purchased option
transactions and short-term obligations, were as follows:
Purchases Sales
- ----------------------------------------------------------------------------
Global Governments Variable Account ...... $ 1,021,346 $ 1,370,818
Government Securities Variable Account ... $13,026,945 $14,956,434
Total Return Variable Account ............ $10,037,421 $10,430,948
(7) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as follows:
Six Months Ended 6/30/07 (000 Omitted)
---------------------------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuitiza- Net
Payments Accumulation and Contract Accumulation tion Increase
Received Account Charges Activity Activity (Decrease)
-------------- ----------------- -------------------- -------------------- ------- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- -------- -------- -------- -------- -------- -------- --------
Capital Appreciation
Variable Account
Compass 2 Contracts ... 5 $ 272 (58) $ (3,461) (228) $(13,652) (281) $(16,841) $ (312) $(17,153)
Compass 3 Contracts ... 7 272 (31) (1,210) (6) (269) (30) (1,207) 0* (1,207)
Compass 3 - Level 2
Contracts 57 929 (43) (702) (398) (6,541) (384) (6,314) (18) (6,332)
-------- -------- -------- -------- --------
$ 1,473 $ (5,373) $(20,462) $(24,362) $ (330) $(24,692)
======== ======== ======== ======== ====== ========
Global Governments
Variable Account
Compass 2 Contracts ... 1 $ 18 (3) $ (74) (8) $ (210) (10) $ (266) $ (2) $ (268)
Compass 3 Contracts ... 1 30 (1) (12) 0* (9) 0* 9 0* 9
Compass 3 - Level 2
Contracts 3 48 13 186 (28) (409) (12) (175) (2) (177)
-------- -------- -------- -------- --------
$ 96 $ 100 $ (628) $ (432) $ (4) $ (436)
======== ======== ======== ======== ====== ========
Government Securities
Variable Account
Compass 2 Contracts ... 4 $ 170 (18) $ (720) (117) $ (4,535) (131) $ (5,085) $ 31 $ (5,054)
Compass 3 Contracts ... 3 87 (4) (114) (3) (81) (4) (108) -- (108)
Compass 3 - Level 2
Contracts 14 221 (5) (83) (105) (1,666) (96) (1,528) (2) (1,530)
-------- -------- -------- -------- --------
$ 478 $ (917) $ (6,282) $ (6,721) $ 29 $ (6,692)
======== ======== ======== ======== ====== ========
High Yield Variable
Account
Compass 2 Contracts ... 3 $ 122 (5) $ (184) (85) $ (3,515) (87) $ (3,577) $ (101) $ (3,678)
Compass 3 Contracts ... 2 64 (4) (107) (2) (67) (4) (110) -- (110)
Compass 3 - Level 2
Contracts 10 174 (76) (1,229) (61) (997) (127) (2,052) (3) (2,055)
-------- -------- -------- -------- --------
$ 360 $ (1,520) $ (4,579) $ (5,739) $ (104) $ (5,843)
======== ======== ======== ======== ====== ========
Money Market Variable
Account
Compass 2 Contracts ... 4 $ 85 151 $ 3,196 (144) $ (3,044) 11 $ 237 $ (35) $ 202
Compass 3 Contracts ... 6 106 (38) (665) (11) (181) (43) (740) (6) (746)
Compass 3 - Level 2
Contracts 29 371 204 2,659 (230) (2,993) 3 37 (16) 21
-------- -------- -------- -------- --------
$ 562 $ 5,190 $ (6,218) $ (466) $ (57) $ (523)
======== ======== ======== ======== ====== ========
Total Return Variable
Account
Compass 2 Contracts ... 7 $ 342 12 $ 605 (129) $ (6,799) (110) $ (5,852) $ 94 $ (5,758)
Compass 3 Contracts ... 7 371 (17) (875) (6) (284) (16) (788) 0* (788)
Compass 3 - Level 2
Contracts 50 1,248 83 2,079 (369) (9,180) (236) (5,853) (84) (5,937)
-------- -------- -------- -------- --------
$ 1,961 $ 1,809 $(16,263) $(12,493) $ 10 $(12,483)
======== ======== ======== ======== ====== ========
* Amount less than 500.
Year ended 12/31/06 (000 Omitted)
---------------------------------------------------------------------------------------------------------
Transfers
Between
Variable Withdrawals,
Accounts Surrenders, Net
Purchase and Fixed Annuitizations, Net Annuitiza- Net
Payments Accumulation and Contract Accumulation tion Increase
Received Account Charges Activity Activity (Decrease)
-------------- ----------------- -------------------- -------------------- ------- --------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ----- -------- -------- -------- -------- -------- -------- --------
Capital Appreciation
Variable Account
Compass 2 Contracts . 28 $ 1,602 (78) $ (4,354) (549) $(30,610) (599) $(33,362) $ (159) $(33,521)
Compass 3 Contracts . 20 756 (99) (3,657) (30) (1,105) (109) (4,006) 0* (4,006)
Compass 3 - Level 2
Contracts ......... 133 2,035 93 1,464 (1,096) (16,818) (870) (13,319) (36) (13,355)
------- -------- -------- -------- ------ --------
$ 4,393 $ (6,547) $(48,533) $(50,687) $ (195) $(50,882)
======= ======== ======== ======== ====== ========
Global Governments
Variable Account
Compass 2 Contracts . 2 $ 41 9 $ 229 (23) $ (568) (12) $ (298) $ 1 $ (297)
Compass 3 Contracts . 4 109 (7) (177) (5) (127) (8) (195) (38) (233)
Compass 3 - Level 2
Contracts ......... 8 129 (5) (74) (68) (981) (65) (926) 35 (891)
------- -------- -------- -------- ------ --------
$ 279 $ (22) $ (1,676) $ (1,419) $ (2) $ (1,421)
======= ======== ======== ======== ====== ========
Government Securities
Variable Account
Compass 2 Contracts . 22 $ 834 (21) $ (771) (315) $(11,902) (314) $(11,839) $ 51 $(11,788)
Compass 3 Contracts . 8 204 (29) (763) (8) (205) (29) (764) -- (764)
Compass 3 - Level 2
Contracts ......... 27 421 25 376 (278) (4,289) (226) (3,492) 0* (3,492)
------- -------- -------- -------- ------ --------
$ 1,459 $ (1,158) $(16,396) $(16,095) $ 51 $(16,044)
======= ======== ======== ======== ====== ========
High Yield Variable
Account
Compass 2 Contracts . 9 $ 332 (13) $ (465) (200) $ (7,644) (204) $ (7,777) $ (72) $ (7,849)
Compass 3 Contracts . 6 163 (13) (374) (6) (158) (13) (369) 0* (369)
Compass 3 - Level 2
Contracts ......... 18 266 3 90 (184) (2,780) (163) (2,424) (1) (2,425)
------- -------- -------- -------- ------ --------
$ 761 $ (749) $(10,582) $(10,570) $ (73) $(10,643)
======= ======== ======== ======== ====== ========
Money Market Variable
Account
Compass 2 Contracts . 9 $ 188 2 $ 41 (211) $ (4,359) (200) $ (4,130) $ (178) $ (4,308)
Compass 3 Contracts . 21 356 (80) (1,346) (28) (473) (87) (1,463) (9) (1,472)
Compass 3 - Level 2
Contracts ......... 62 777 77 963 (554) (7,013) (415) (5,273) (34) (5,307)
------- -------- -------- -------- ------ --------
$ 1,321 $ (342) $(11,845) $(10,866) $ (221) $(11,087)
======= ======== ======== ======== ====== ========
Total Return Variable
Account
Compass 2 Contracts . 11 $ 492 27 $ 1,266 (231) $(11,129) (193) $ (9,371) $ (174) $ (9,545)
Compass 3 Contracts . 24 1,119 (74) (3,480) (25) (1,142) (75) (3,503) (48) (3,551)
Compass 3 - Level 2
Contracts ......... 119 2,689 193 4,441 (1,079) (24,482) (767) (17,352) (78) (17,430)
------- -------- -------- -------- ------ --------
$ 4,300 $ 2,227 $(36,753) $(30,226) $(300) $(30,526)
======= ======== ======== ======== ====== ========
* Amount less than 500.
(8) LINE OF CREDIT
The variable accounts and other funds managed by MFS participate in a $1
billion unsecured committed line of credit provided by a syndication of banks
under a credit agreement. In addition, the variable accounts and other funds
managed by MFS have established uncommitted borrowing arrangements with
certain banks. Borrowings may be made for temporary financing needs. Interest
is charged to each fund, based on its borrowings, generally at a rate equal to
the Federal Reserve funds rate plus 0.30%. In addition, a commitment fee,
based on the average daily, unused portion
of the committed line of credit, is allocated among the participating funds at
the end of each calendar quarter. For the six months ended
June 30, 2007, the variable accounts' commitment fee and interest expense are
included in miscellaneous expense on the Statement of Operations and were as
follows:
Commitment fee Interest expense
- -------------------------------------------------------------------------------
Capital Appreciation Variable Account .... $528 $--
Global Governments Variable Account ...... $ 22 $--
Government Securities Variable Account ... $187 $--
High Yield Variable Account .............. $149 $84
Money Market Variable Account ............ $130 $--
Total Return Variable Account ............ $452 $--
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
accounts' Investment Advisory Agreement with MFS will be available on or
before November 1, 2007 by clicking on "Sun Life Annuities" in the "Products
and Performance" section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the accounts' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's website at http:/
/www.sec.gov.
Information regarding how the accounts voted proxies relating to portfolio
securities during the most recent twelve month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The accounts will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The accounts' Form N-Q may be
reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549 0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The accounts' Form N-Q is available
on the EDGAR database on the Commission's Internet website at http://
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
publicinfor@sec.gov or by writing the Public Reference Section at the above
address.
Sun Life Financial Distributors Inc. COUS-SEM-8/07
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) of Schedule 14A), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this report on Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that
those disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules
and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) GOVERNMENT SECURITIES VARIABLE ACCOUNT
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: August 21, 2007
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: August 21, 2007
---------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: August 21, 2007
---------------
* Print name and title of each signing officer under his or her signature.