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Panorama Series Fund, Inc.
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0000 X. Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
0.000.000.0000
Statement of Additional Information dated April 30, 2002, revised as of July 25, 2002
Panorama Series Fund, Inc. is an investment company with four series, referred to as "Portfolios" in this
document. Each portfolio is a separate mutual fund having its own objective, investments, strategies and risks.
The Portfolios are:
|_| Government Securities Portfolio
|_| Growth Portfolio
|_| Xxxxxxxxxxx International Growth Fund/VA
|_| Total Return Portfolio
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Shares of the Portfolios are sold only as the underlying investments for variable life insurance policies,
variable annuity contracts and other products for insurance company separate accounts. Shares are not available
for sale directly to investors.
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This Statement of Additional Information is not a Prospectus. This document contains additional information
about the Portfolios, and supplements information in the Prospectuses dated April 30, 2002, of the Portfolios.
This document should be read together with the Prospectuses. You can obtain a Prospectus by writing to the
Portfolios' Transfer Agent, OppenheimerFunds Services, at X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000, or by calling
the Transfer Agent at the toll-free number shown above.
Contents
Page
About the Portfolios
Additional Information About Investment Policies and Risks.............................................. 3
Investment Policies................................................................................ 3
Other Investment Techniques and Strategies......................................................... 13
Investment Restrictions............................................................................ 30
How the Portfolios are Managed ......................................................................... 34
Organization and History........................................................................... 34
Directors and Officers of the Company.............................................................. 36
The Manager........................................................................................ 42
Brokerage Policies of the Portfolios.................................................................... 44
Distribution and Service Plans (Service Shares Only).................................................... 47
Performance of the Portfolios........................................................................... 48
Investing In the Portfolios
How To Buy and Sell Shares.............................................................................. 53
Dividends, Capital Gains and Taxes...................................................................... 55
Additional Information About the Portfolios............................................................. 58
Financial Information About the Portfolios
Independent Auditors' Report............................................................................ 59
Financial Statements.................................................................................... 60
Appendix A: Ratings Definitions......................................................................... A-1
Appendix B: Industry Classifications.................................................................... B-1
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A B O U T T H E P O R T F O L I O S
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Additional Information About Investment Policies and Risks
The investment objectives, the principal investment policies and the main risks of each Portfolio are
described in the Prospectus for that Portfolio. This Statement of Additional Information contains supplemental
information about those policies and risks and the types of securities that the Portfolios' investment Manager,
OppenheimerFunds, Inc., can select for the Portfolios. Additional information is also provided about the
strategies that each Portfolio may use to try to achieve its objective.
Investment Policies. The composition of the investment portfolio of each Portfolio and the techniques and
strategies that the Manager uses in selecting investment securities will vary over time. The Portfolios are not
required to use all of the investment techniques and strategies described below at all times in seeking their
goal. They may use some of the special investment techniques and strategies at some times or not at all.
In the discussion of the investment strategies of the Portfolios below, the Portfolios are categorized
according to the types of investments they primarily make. Total Return Portfolio, Growth Portfolio and
Xxxxxxxxxxx International Growth Fund/VA are referred to as "Equity Portfolios," because they invest mainly or
substantially in common stocks and other equity securities. Government Securities Portfolio is referred to as a
"Fixed Income Portfolio," because the main emphasis of its investment program is debt securities. However a
Portfolio is referred to in general, the discussion below of particular investments and strategies indicates
which Portfolios can use that investment or technique as part of their investment program. For example, some
investments can be held by only some of the Portfolios and some can be held by all. Please refer to the
Prospectus of a particular Portfolio for an explanation of its principal investment policies and risks.
|X| Equity Securities. The Equity Portfolios invest in equity securities, which include common stocks,
preferred stocks, rights and warrants, and securities convertible into common stock. Certain equity securities
may be selected for some of the Portfolios not only for their appreciation possibilities but because they may
provide dividend income.
The capitalization ranges of the issuers of equity securities that particular Portfolios invest in are
discussed in the Prospectuses. Some of the Portfolios may emphasize securities of issuers in one or more
capitalization ranges, such as mid-cap and large-cap issuers. "Capitalization" refers to the market
capitalization of a company, which, in general terms, is the value of a company determined by the total market
value of its issued and outstanding common stock. There are no fixed dollar amounts for particular
capitalization ranges, and the ranges currently used by the Portfolios may change over time as investors change
their views as to what, for example, a "small-cap" company is in relation to "mid-cap" and "large-cap" as the
stock market changes. Different Portfolios may also have different definitions of what constitutes a small-,
mid- or large-cap issuer.
Small-cap growth companies may offer greater opportunities for capital appreciation than securities of
large, more established companies. However, these securities also involve greater risks than securities of
larger companies. Securities of small capitalization issuers may be subject to greater price volatility in
general than securities of large-cap and mid-cap companies. Therefore, to
the degree that a Portfolio has investments in smaller capitalization companies at times of market volatility,
that Portfolio's share price may fluctuate more. Those investments may be limited to the extent the Manager
believes that such investments would be inconsistent with the Portfolio's investment objective.
|_| Growth Companies (All Equity Portfolios). The Equity Portfolios can invest in securities of
"growth" companies. Growth companies are those companies that the Manager believes are entering into a growth
cycle in their business, with the expectation that their stock will increase in value. They may be established
companies as well as newer companies in the development stage. Growth companies may have a variety of
characteristics that in the view of the portfolio manager of a Portfolio defines them as "growth" issuers.
Growth companies may include companies that are generating or applying new technologies, new or improved
distribution techniques or new services. They may own or develop natural resources. They may be companies that
can benefit from changing consumer demands or lifestyles, or companies that have projected earnings in excess of
the average for their sector or industry. In each case, they have prospects that the portfolio manager believes
are favorable for the long term.
|_| Preferred Stocks (All Equity Portfolios). Preferred stock, unlike common stock, has a stated
dividend rate payable from the corporation's earnings. Preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. "Cumulative" dividend provisions require all or a portion of
prior unpaid dividends to be paid before dividends can be paid on the issuer's common stock. Preferred stock may
be "participating" stock, which means that it may be entitled to a dividend exceeding the stated dividend in
certain cases.
If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price
of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as
provisions allowing calls or redemptions prior to maturity, which also have a negative impact on prices when
interest rates decline. The rights of preferred stock on distribution of a corporation's assets in the event of
a liquidation are generally subordinate to the rights associated with a corporation's debt securities. Preferred
stock generally has a preference over common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation.
|_| Convertible Securities (All Equity Portfolios). While some convertible securities are a form
of debt security, in some cases their conversion feature (allowing conversion into the issuer's common stock) may
cause a portfolio manager to regard them as "equity equivalents." In those cases, the rating assigned to the
security has less impact on the portfolio manager's investment decision with respect to convertible securities
than in the case of non-convertible fixed income securities. Convertible debt securities are subject to the
credit risks and interest rate risks described below in "Debt Securities."
The value of a convertible security is a function of its "investment value" and its "conversion value."
If the investment value exceeds the conversion value, the security will behave more like a debt security and the
security's price will likely increase when interest rates fall and decrease when interest rates rise. If the
conversion value exceeds the investment value, the security will behave more like an equity security. In that
case, it will likely sell at a premium over its conversion value and its price will tend to fluctuate directly
with the price of the underlying security.
To determine whether convertible securities should be regarded as "equity equivalents," the portfolio
managers typically examine the following factors:
(1) whether, at the option of the investor, the convertible security can be exchanged for a fixed number of
shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its earnings per share of common stock on
a fully diluted basis (considering the effect of conversion of the convertible securities), and
(3) the extent to which the convertible security may be a defensive "equity substitute," providing the
ability to participate in any appreciation in the price of the issuer's common stock.
|_| Rights and Warrants (All Equity Portfolios). Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices do not necessarily move parallel
to the prices of the underlying securities. Rights are similar to warrants, but normally have a short duration
and are distributed directly by the issuer to its shareholders. Rights and warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the issuer. A Portfolio may invest up to
5% of its total assets in warrants or rights. That 5% limitation does not apply to warrants a Portfolio has
acquired as part of units with other securities or that are attached to other securities. No more than 2% of a
Portfolio's total assets may be invested in warrants that are not listed on either The New York Stock Exchange or
The American Stock Exchange.
|X| Foreign Securities (All Equity Portfolios). Each Equity Portfolio can invest in foreign
securities, consistent with any limitations a Portfolio may have on foreign investing set forth in its Prospectus
or this Statement of Additional Information. These may include debt and equity securities issued by companies or
governmental issuers in developed countries or emerging market countries. Growth Portfolio and Total Return
Portfolio have non-fundamental policies, described in "Investment Restrictions," below, that limit the percentage
of their assets that can be invested in foreign securities.
The Portfolios can invest in obligations of foreign branches of U.S. banks and U.S. branches of foreign
banks. These investments are subject to some of the risks of foreign securities and do not offer the protection
of Federal Deposit Insurance Corporation insurance.
Investing in foreign securities offers potential benefits not available from investing solely in
securities of domestic issuers. They include the opportunity to invest in foreign issuers that appear to offer
growth or income potential, or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking advantage of foreign stock or bond
markets that do not move in a manner parallel to U.S. markets. In buying foreign securities, a Portfolio may
convert U.S. dollars into foreign currency, but only to effect securities transactions on foreign securities
exchanges and not to use currency for speculative purposes or to hold it as an investment. Notwithstanding the
foregoing, International Growth Fund/VA may invest up to 10% of its net assets in the euro for investment
purposes.
With respect to each of the Portfolios except Xxxxxxxxxxx International Growth Fund/VA, securities of
foreign issuers that are represented by American Depository Receipts (ADRs), or that are listed on a U.S.
securities exchange or traded in the U.S. over-the-counter markets are not considered "foreign securities" for
the purposes of a Portfolio's investment allocations. That is because they are not subject to many of the
special considerations and risks, discussed below, that apply to foreign securities traded and held abroad.
Because the Portfolios can purchase securities denominated in foreign currencies, a change in the value
of a foreign currency against the U.S. dollar could result in a change in the amount of income a Portfolio has
available for distribution. Because a portion of the Portfolio's investment income may be received in foreign
currencies, the Portfolio will be required to compute its income in U.S. dollars for distribution to
shareholders, and therefore will absorb the cost of currency fluctuations. After the Portfolio has distributed
income, subsequent foreign currency losses may result in the Portfolios having distributed more income in a
particular fiscal period than was available from investment income, which could result in a return of capital to
shareholders.
|_| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities
for investing but also present special additional risks and considerations not typically associated with
investments in domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency rates, currency devaluation or
currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in foreign countries comparable
to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, securities exchanges and brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of certificates for portfolio
securities;
o possibilities in some countries of expropriation, confiscatory taxation, political, financial or social
instability or adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments abroad by U.S. investors,
through taxation or other restrictions, and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing markets abroad may also offer
special opportunities for investing but have greater risks than more developed foreign markets, such as those in
Europe, Canada, Australia, New Zealand and Japan. There may be even less liquidity in their securities markets,
and settlements of purchases and sales of securities may be subject to additional delays. They are subject to
greater risks of limitations on the repatriation of income and profits because of currency restrictions imposed
by local governments. Those countries may also be subject to the risk of greater political and economic
instability, which can greatly affect the volatility of prices of securities in those countries. The portfolio
managers will consider these factors when evaluating securities in these markets, and the Portfolios currently do
not expect to invest a substantial portion of their assets in emerging markets.
|X| Debt Securities. The Portfolios can invest in debt securities to seek their objectives. Foreign
debt securities are subject to the risks of foreign securities described above. In general, debt securities are
also subject to two additional types of risk: credit risk and interest rate risk.
|_| Credit Risk. Credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they become due. In general, lower-grade, higher-yield bonds are subject to credit risk to a
greater extent than lower-yield, higher-quality bonds.
The portfolios can buy rated and unrated debt securities. In making investments in debt securities, the
portfolio managers may rely to some extent on the ratings of ratings organizations or it may use their own
research to evaluate a security's credit-worthiness. If a Portfolio buys unrated debt securities, to consider
them part of the Portfolio's holdings of investment-grade securities, they must be judged by the Manager to be of
a quality comparable to securities rated as investment grade by a rating organization.
U.S. government securities, although unrated, are generally considered to be equivalent to securities in
the highest rating categories. Investment-grade securities are securities that are rated at least "Baa" by
Xxxxx'x Investors Service, Inc. ("Moody's") or at least "BBB" by Standard & Poor's Ratings Service ("Standard &
Poor's") or that have comparable ratings by another nationally-recognized rating organization. The Portfolios
other than Government Securities Portfolio can also buy non-investment-grade debt securities (commonly referred
to as "junk bonds").
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in value of debt securities
resulting from the inverse relationship between price and yield. For example, an increase in general interest
rates will tend to reduce the market value of already-issued debt securities, and a decline in general interest
rates will tend to increase their value. In addition, debt securities having longer maturities tend to offer
higher yields, but are subject to potentially greater fluctuations in value from changes in interest rates than
obligations having shorter maturities.
Fluctuations in the market value of debt securities after a Portfolio buys them will not affect the
interest income payable on those securities (unless the security pays interest at a variable rate pegged to
interest rate changes). However, those price fluctuations will be reflected in the valuations of the securities,
and therefore the Portfolio's net asset values will be affected by those fluctuations.
|_| Lower-Grade Securities (All Equity Portfolios). Because lower-grade securities tend to offer higher
yields than investment-grade securities, a Portfolio might invest in lower-grade securities to seek higher
income.
"Lower-grade" debt securities are those rated below "investment grade," which means they have a rating
lower than "Baa" by Moody's or lower than "BBB" by Standard & Poor's or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of comparable quality to debt
securities rated below investment grade, they are considered part of the Portfolio's holdings of lower-grade
securities.
Some of the special credit risks of lower-grade securities are discussed below. There is a greater risk
that the issuer may default on its obligation to pay interest or to repay principal than in the case of
investment-grade securities. The issuer's low creditworthiness may increase the potential for its insolvency.
An overall decline in values in the high yield bond market is also more likely during a period of a general
economic downturn. An economic downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as the ability of issuers to pay
interest or repay principal. In the case of foreign high yield bonds, these risks are in addition to the special
risks of foreign investing discussed above.
To the extent they can be converted into stock, convertible securities may be less subject to some of
the risks of volatility than non-convertible high yield bonds, since stock may be more liquid and less affected
by some of these risk factors.
While securities rated "Baa" by Xxxxx'x or "BBB" by Standard & Poor's are investment grade and are not
regarded as junk bonds, those securities may be subject to special risks and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's, Standard & Poor's, and Fitch,
Inc. are included in Appendix A to this Statement of Additional Information.
|_| Mortgage-Related Securities (Government Securities Portfolio and Total Return Portfolio).
Mortgage-related securities are a form of derivative investment collateralized by pools of commercial or
residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors by government
agencies or entities or by private issuers. These securities include collateralized mortgage obligations
("CMOs"), mortgage pass-through securities, stripped mortgage pass-through securities, interests in real estate
mortgage investment conduits ("REMICs") and other real estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or instrumentalities of the U.S.
government, discussed below under "U.S. Government Securities," have relatively little credit risk (depending on
the nature of the issuer) but are subject to interest rate risks and prepayment risks.
As with other debt securities, the prices of mortgage-related securities tend to move inversely to
changes in interest rates. Some mortgage-related securities pay interest at rates that move inversely to changes
in general interest rates, based on a multiple of a specific index. Although the value of a mortgage-related
security may decline when interest rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be prepaid. Therefore, a
mortgage-related security's maturity can be shortened by unscheduled prepayments on the underlying mortgages.
Therefore, it is not possible to predict accurately the security's yield. The principal that is returned earlier
than expected may have to be reinvested in other investments having a lower yield than the prepaid security.
Therefore, these securities may be less effective as a means of "locking in" attractive long-term interest rates,
and they may have less potential for appreciation during periods of declining interest rates, than conventional
bonds with comparable stated maturities.
Prepayment risks can lead to substantial fluctuations in the value of a mortgage-related security. In
turn, this can affect the value of a Portfolio's shares. If a mortgage-related security has been purchased at a
premium, all or part of the premium the Portfolio paid may be lost if there is a decline in the market value of
the security, whether that results from interest rate changes or prepayments on the underlying mortgages. In the
case of stripped mortgage-related securities, if they experience greater rates of prepayment than were
anticipated, the Portfolio may fail to recoup its initial investment on the security.
During periods of rapidly rising interest rates, prepayments of mortgage-related securities may occur at
slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate more widely in responses to changes
in interest rates. If the prepayments on a Portfolio's mortgage-related securities were to decrease broadly, the
sensitivity of the Portfolio's share price to interest rate changes would increase.
As with other debt securities, the values of mortgage-related securities may be affected by changes in
the market's perception of the creditworthiness of the entity issuing the securities or guaranteeing them. Their
values may also be affected by changes in government regulations and tax policies.
o Collateralized Mortgage Obligations. Collateralized mortgage obligations or "CMOs," are
multi-class bonds that are backed by pools of mortgage loans or mortgage pass-through certificates. They may be
collateralized by:
(1) pass-through certificates issued or guaranteed by Government National Mortgage Association (Xxxxxx Xxx),
Federal National Mortgage Association (Xxxxxx Mae), or Federal Home Loan Mortgage Corporation
(Xxxxxxx Mac),
(2) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the
Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or
(5) any combination of the securities mentioned above.
Each class of CMO, referred to as a "tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the underlying mortgages may cause the CMO to be
retired much earlier than the stated maturity or final distribution date. The principal and interest on the
underlying mortgages may be allocated among the several classes of a series of a CMO in different ways. One or
more tranches may have coupon rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse floating rate CMOs have a coupon rate
that moves in the reverse direction to an applicable index. The coupon rate on these CMOs will increase as
general interest rates decrease. These are usually much more volatile than fixed rate CMOs or floating rate CMOs.
The prices and yields of CMOs are determined, in part, by assumptions about the cash flows from the rate
of payments of the underlying mortgages. Changes in interest rates may cause the rate of expected prepayments of
those mortgages to change. In general, prepayments increase when general interest rates fall and decrease when
interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected when interest rates fall, the
market value and yield of the CMO will be reduced. Additionally, a Portfolio might have to reinvest the
prepayment proceeds in other securities paying interest at lower rates, which could reduce the Portfolio's
income.
When interest rates rise rapidly, if prepayments occur more slowly than expected, a short- or
medium-term CMO can in effect become a long-term security, subject to greater fluctuations in value. These are
the prepayment risks described above and can make the prices of CMOs very volatile when interest rates change.
The prices of longer-term debt securities tend to fluctuate more than those of shorter-term debt securities.
That volatility will affect the Portfolio's share prices.
o Mortgage-Related U.S. Government Securities. These include interests in pools of
residential or commercial mortgages, in the form of collateralized mortgage obligations and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral to secure payment of interest and
principal. They may be issued in different series with different interest rates and maturities. The collateral
is either in the form of mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency.
o Commercial (Privately-Issued) Mortgage Related Securities. Some mortgage-related securities
are issued by private entities. Generally these are multi-class debt or pass-through certificates secured by
mortgage loans on commercial properties. They are subject to the credit risk of the issuer. These securities
typically are structured to provide protection to investors in senior classes from possible losses on the
underlying loans. They do so by having holders of subordinated classes take the first loss if there are defaults
on the underlying loans. They may also be protected to some extent by guarantees, reserve funds or additional
collateralization mechanisms.
o "Stripped" Mortgage-Related Securities. These are mortgage-related securities that are
created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more
new securities. Each has a specified percentage of the underlying security's principal or interest payments.
They are a form of derivative investment.
Mortgage securities may be partially stripped so that each class receives some interest and some
principal. However, they may be completely stripped. In that case all of the interest is distributed to holders
of one type of security, known as an "interest-only" security, or "I/O," and all of the principal is distributed
to holders of another type of security, known as a "principal-only" security or "P/O." Strips can be created for
pass through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal repayments (including
prepayments) on the underlying mortgages. If the underlying mortgages experience greater than anticipated
prepayments of principal, a Portfolio might not fully recoup its investment in an I/O based on those assets. If
underlying mortgages experience less than anticipated prepayments of principal, the yield on the P/Os based on
them could decline substantially.
|_| U.S. Government Securities (All Portfolios). These are securities issued or guaranteed by the
U.S. Treasury or other U.S. government agencies or federally-chartered corporate entities referred to as
"instrumentalities." The obligations of U.S. government agencies or instrumentalities in which the Company can
invest may or may not be guaranteed or supported by the "full faith and credit" of the United States. "Full
faith and credit" means generally that the taxing power of the U.S. government is pledged to the payment of
interest and repayment of principal on a security. If a security is not backed by the full faith and credit of
the United States, the owner of the security must look principally to the agency issuing the obligation for
repayment. The owner might not be able to assert a claim against the United States if the issuing agency or
instrumentality does not meet its commitment.
o U.S. Treasury Obligations. These include Treasury bills (which have maturities of one year
or less when issued), Treasury notes (which have maturities of from one to ten years when issued), and Treasury
bonds (which have maturities of more than ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and repayments of principal. Other U.S.
Treasury obligations the Portfolios can buy include U. S. Treasury securities that have been "stripped" by a
Federal Reserve Bank, zero-coupon U.S. Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
o Obligations of U.S. Government Agencies or Instrumentalities. These include direct
obligations and mortgage-related securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as Government National Mortgage
Association pass-through mortgage certificates (called "Xxxxxx Xxxx"). Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as Federal National Mortgage
Association bonds. Others are supported only by the credit of the entity that issued them, such as Federal Home
Loan Mortgage Corporation obligations.
|X| Money Market Instruments (All Portfolios). The following is a brief description of the types of
the money market securities the Portfolios can invest in. Money market securities are high-quality, short-term
debt instruments that may be issued by the U.S. government, corporations, banks or other entities. They may have
fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, described above.
|_| Bank Obligations. "Banks" include commercial banks, savings banks and savings and loan
associations, which may or may not be members of the Federal Deposit Insurance Corporation. The Portfolios can
buy time deposits, certificates of deposit and bankers' acceptances. They must be:
o obligations issued or guaranteed by a domestic bank (including a foreign branch of a
domestic bank) having total assets of at least U.S. $1 billion, or
o obligations of a foreign bank with total assets of at least U.S. $1 billion.
|_| Commercial Paper. The Portfolios can invest in commercial paper if it is rated within the top
three rating categories of Standard & Poor's and Moody's or other rating organizations. If the paper is not
rated, it may be purchased if the Manager determines that it is comparable to rated commercial paper in the top
three rating categories of national rating organizations.
The Portfolios can buy commercial paper, including U.S. dollar-denominated securities of foreign
branches of U.S. banks, issued by other entities if the commercial paper is guaranteed as to principal and
interest by a bank, government or corporation whose certificates of deposit or commercial paper may otherwise be
purchased by the Portfolios.
|_| Variable Amount Master Demand Notes. Master demand notes are corporate obligations that permit
the investment of fluctuating amounts at varying rates of interest under direct arrangements between a Portfolio,
as lender, and the borrower. They permit daily changes in the amounts borrowed. The Portfolio has the right to
increase the amount under the note at any time up to the full amount provided by the note agreement, or to
decrease the amount. The borrower may prepay up to the full amount of the note without penalty. These notes may
or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and borrower, it is not expected
that there will be a trading market for them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal amount, plus accrued interest, at
any time. Accordingly, a Portfolio's right to redeem such notes is dependent upon the ability of the borrower to
pay principal and interest on demand.
The Portfolios have no limitations on the type of issuer from whom these notes will be purchased.
However, in connection with such purchases and on an ongoing basis, the portfolio manager will consider the
earning power, cash flow and other liquidity ratios of the issuer, and its ability to pay principal and interest
on demand, including a situation in which all holders of such notes made demand simultaneously. Investments in
master demand notes are subject to the limitation on investments by the Portfolios in illiquid securities.
Currently, the Portfolios do not intend that their investments in variable amount master demand notes will exceed
5% of a Portfolio's total assets.
Other Investment Techniques and Strategies. In seeking their respective objectives, each Portfolio may from time
to time use the types of investment strategies and investments described below. A Portfolio is not required to
use all of these strategies at all times, and at times may not use them.
|X| Forward Rolls (Total Return Portfolio and Government Securities Portfolio). In a "forward roll"
transaction with respect to mortgage-related securities, a Portfolio sells a mortgage-related security to a buyer
and simultaneously agrees to repurchase a similar security (the same type of security, and having the same coupon
and maturity) at a later date at a set price. The securities that are repurchased will have the same interest
rate as the securities that are sold, but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold. Proceeds from the sale are invested in
short-term instruments, such as repurchase agreements. The income from those investments, plus the fees from the
forward roll transaction, are expected to generate income to the Portfolio in excess of the yield on the
securities that have been sold.
A Portfolio will only enter into "covered" rolls. To assure its future payment of the purchase price,
the Portfolio will identify on its books liquid assets in an amount equal to the payment obligation under the
roll.
These transactions have risks. During the period between the sale and the repurchase, the Portfolio
will not be entitled to receive interest and principal payments on the securities that have been sold. It is
possible that the market value of the securities the Portfolio sells might decline below the price at which the
Portfolio is obligated to repurchase securities.
|X| Asset-Backed Securities (Government Securities Portfolio and Total Return Portfolio). Asset-backed
securities are fractional interests in pools of assets, typically accounts receivable or consumer loans. They
are issued by trusts or special-purpose corporations. They are similar to mortgage-backed securities, described
above, and are backed by a pool of assets that consist of obligations of individual borrowers. The income from
the pool is passed through to the holders of participation interest in the pools. The pools may offer a credit
enhancement, such as a bank letter of credit, to try to reduce the risks that the underlying debtors will not pay
their obligations when due.
The value of an asset-backed security is affected by changes in the market's perception of the asset
backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans,
or the financial institution providing any credit enhancement, and is also affected if any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are ultimately related to payment of consumer
loans by the individual borrowers. As a purchaser of an asset-backed security, a Portfolio would generally have
no recourse to the entity that originated the loans in the event of default by a borrower. The underlying loans
are subject
to prepayments, which may shorten the weighted average life of asset-backed securities and may lower their
return, in the same manner as in the case of mortgage-backed securities and CMOs, described above.
|X| Zero-Coupon Securities (All Portfolios). The Portfolios can buy zero-coupon and delayed-interest
securities, and "stripped" securities. Stripped securities are debt securities whose interest coupons are
separated from the security and sold separately. They can include, among others, foreign debt securities and
U.S. Treasury notes or bonds that have been stripped of their interest coupons, U.S. Treasury bills issued
without interest coupons, and certificates representing interests in stripped securities.
Zero-coupon securities do not make periodic interest payments and are sold at a deep discount from their
face value. The buyer recognizes a rate of return determined by the gradual appreciation of the security, which
is redeemed at face value on a specified maturity date. This discount depends on the time remaining until
maturity, as well as prevailing interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount typically decreases as the
maturity date approaches. Some zero-coupon securities are convertible, in that they are zero-coupon securities
until a predetermined date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually at the rate fixed at the time
of their issuance, their value is generally more volatile than the value of other debt securities. Their value
may fall more dramatically than the value of interest-bearing securities when interest rates rise. When
prevailing interest rates fall, zero-coupon securities tend to rise more rapidly in value because they have a
fixed rate of return.
A Portfolio's investment in zero-coupon securities may cause the Portfolio to recognize income and make
distributions to shareholders before it receives any cash payments on the zero-coupon investment. To generate
cash to satisfy those distribution requirements, the Portfolio might have to sell portfolio securities that it
otherwise might have continued to hold or to use cash flows from other sources such as the sale of Portfolio
shares.
|X| "When-Issued" and "Delayed-Delivery" Transactions (All Portfolios). The Portfolios can invest in
securities on a "when-issued" basis and can purchase or sell securities on a "delayed-delivery" basis.
When-issued and delayed-delivery are terms that refer to securities whose terms and indenture are available and
for which a market exists, but which are not available for immediate delivery.
When these transactions are negotiated, the price (which is generally expressed in yield terms) is fixed
at the time the commitment is made. Delivery and payment for the securities take place at a later date. The
securities are subject to change in value from market fluctuations during the period until settlement. The value
at delivery may be less than the purchase price. For example, changes in interest rates in a direction other
than that expected by the portfolio manager of a Portfolio before settlement will affect the value of such
securities and may cause a loss to the Portfolio. During the period between purchase and settlement, no payment
is made by the Portfolio to the issuer and no interest accrues to the Portfolio from the investment until it
receives the security at settlement.
A Portfolio might engage in when-issued transactions to secure what the portfolio manager considers to
be an advantageous price and yield at the time the obligation is entered into. When a Portfolio enters into a
when-issued or delayed-delivery transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Portfolio to lose the opportunity to obtain the security at a price and yield the
portfolio manager considers to be advantageous.
When a Portfolio engages in when-issued and delayed-delivery transactions, it does so for the purpose of
acquiring or selling securities consistent with its investment objective and policies or for delivery pursuant to
options contracts it has entered into, and not for the purpose of investment leverage. Although a Portfolio
enters into delayed-delivery or when-issued purchase transactions to acquire securities, it may dispose of a
commitment prior to settlement. If a Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or to dispose of its right to delivery or receive against a forward commitment, it may
incur a gain or loss.
At the time a Portfolio makes the commitment to purchase or sell a security on a when-issued or
delayed-delivery basis, it records the transaction on its books and reflects the value of the security purchased
in determining the Portfolio's net asset value. In a sale transaction, it records the proceeds to be received.
The Portfolio will identify on its books liquid assets at least equal in value to the value of the Portfolio's
purchase commitments until it pays for the investment. The Portfolios anticipate that a Portfolio's commitments
to purchase when-issued securities and forward commitments will not exceed 33% of that Portfolio's total assets
under normal market conditions.
When-issued and delayed-delivery transactions can be used by a Portfolio as a defensive technique to
hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest
rates and falling prices, a Portfolio might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of falling interest rates and rising
prices, a Portfolio might sell portfolio securities and purchase the same or similar securities on a when-issued
or delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements (All Portfolios). A Portfolio can acquire securities subject to repurchase
agreements. It might do so for liquidity purposes to meet anticipated redemptions of shares, or pending the
investment of the proceeds from sales of shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes.
In a repurchase transaction, a Portfolio buys a security from, and simultaneously resells it to, an
approved vendor for delivery on an agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement
is in effect. Approved vendors include U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers
that have been designated as primary dealers in government securities. They must meet credit requirements set by
the Manager from time to time.
The majority of these transactions run from day to day, and delivery pursuant to the resale typically
occurs within one to five days of the purchase. Repurchase agreements having a maturity beyond seven days are
subject to a Portfolio's limits on holding illiquid investments. A Portfolio will not enter into a repurchase
agreement that causes more than 15% of its net assets to be subject to repurchase agreements having a maturity
beyond seven days. There is no limit on the amount of a Portfolio's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company Act, are collateralized by the
underlying security. The Portfolios' repurchase agreements require that at all times while the repurchase
agreement is in effect, the value of the collateral must equal or exceed the repurchase price to fully
collateralize the repayment obligation. However, if the vendor fails to pay the resale price on the delivery
date, a Portfolio may incur costs in disposing of the collateral and may experience losses if there is any delay
in its ability to do so. The Manager will monitor the vendor's creditworthiness to confirm that the vendor is
financially sound and will continuously monitor the collateral's value.
|X| Illiquid and Restricted Securities (All Portfolios). Under the policies and procedures established
by the Board of Directors, the Manager determines the liquidity of certain of a Portfolio's investments. To
enable a Portfolio to sell its holdings of a restricted security not registered under the Securities Act of 1933,
the Portfolio may have to cause those securities to be registered. The expenses of registering restricted
securities may be negotiated by the Portfolio with the issuer at the time the Portfolio buys the securities.
When the Portfolio must arrange registration because it wishes to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the time the security is registered so that
the Portfolio could sell it. The Portfolio would bear the risks of any downward price fluctuation during that
period.
The Portfolios may also acquire restricted securities through private placements. Those securities have
contractual restrictions on their public resale. Those restrictions may make it more difficult to value them, and
might limit a Portfolio's ability to dispose of the securities and might lower the amount the Portfolio could
realize upon the sale.
Each Portfolio has limitations that apply to purchases of restricted securities, as stated in its
Prospectus. Those percentage restrictions do not limit purchases of restricted securities that are eligible for
sale to qualified institutional purchasers under Rule 144A of the Securities Act of 1933, if those securities
have been determined to be liquid by the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in a particular Rule 144A security, a Portfolio's holdings
of that security may be considered to be illiquid. Illiquid securities include repurchase agreements maturing in
more than seven days and participation interests that do not have puts exercisable within seven days.
|X| Municipal Securities (Total Return Portfolio). These are debt obligations issued by the governments
of states and their agencies, instrumentalities and authorities, as well as their political subdivisions (cities
towns and counties, for example), that are used to finance a variety of public and private purposes. Those
purposes include financing state or local governments and financing specific public projects and facilities. The
Portfolio can invest in them because the portfolio managers believe they offer attractive yields relative to the
yields and risks of other debt securities, rather than to seek tax-exempt interest income for distribution to
shareholders.
|X| Floating Rate and Variable Rate Obligations (All Portfolios). The interest rate on a floating rate
note is adjusted automatically according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Xxxx rate, or some other standard. The instrument's rate is adjusted automatically each
time the base rate is adjusted. The interest rate on a variable rate note is also based on a stated prevailing
market rate but is adjusted automatically at specified intervals. Generally, the changes in the interest rate on
such securities reduce the fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation
is less than that for fixed-rate obligations of the same maturity. The portfolio manager of a Portfolio may
determine that an unrated floating rate or variable rate obligation meets the Portfolio's quality standards by
reason of being backed by a letter of credit or guarantee issued by a bank that meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity in excess of one year may have
features that permit the holder to recover the principal amount of the underlying security at specified intervals
not exceeding one year and upon no more than 30 days' notice. The tender may be at par value plus accrued
interest, according to the terms of the obligations. The issuer of that type of note normally has a
corresponding right in its discretion, after a given period, to prepay the outstanding principal amount of the
note plus accrued interest. Generally the issuer must provide a specified number of days' notice to the holder.
Step-coupon bonds have a coupon interest rate that changes periodically during the life of the security
on predetermined dates that are set when the security is issued.
|X| "Structured" Notes (Government Securities Portfolio and Total Return Portfolio). "Structured" notes
are specially-designed derivative debt investments with principal payments or interest payments that are linked
to the value of an index (such as a currency or securities index) or commodity. The terms of the instrument may
be "structured" by the purchaser (the Portfolio) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one or more other securities or
indices, and the values of these notes will therefore fall or rise in response to the changes in the values of
the underlying security or index. They are subject to both credit and interest rate risks and therefore a
Portfolio could receive more or less than it originally invested when the notes mature, or it might receive less
interest than the stated coupon payment if the underlying investment or index does not perform as anticipated.
Their values may be very volatile and they may have a limited trading market, making it difficult for a Portfolio
to sell its investment at an acceptable price.
|X| Inverse Floaters (Government Securities Portfolio and Total Return Portfolio). "Inverse floaters"
are debt obligations on which the interest rates typically fall as market rates increase and increase as market
rates fall. Changes in market interest rates or the floating rate of the security inversely affect the residual
interest rate of an inverse floater. As a result, the price of an inverse floater will be considerably more
volatile than that of a fixed-rate obligation when interest rates change.
To provide investment leverage, an issuer might decide to issue two variable rate obligations instead of
a single long-term, fixed-rate bond. The interest rate on one obligation reflects short-term interest rates.
The interest rate on the other instrument, the inverse floater, reflects the approximate rate the issuer would
have paid on a fixed-rate bond, multiplied by a factor of two, minus the rate paid on the short-term instrument.
The two portions may be recombined to create a fixed-rate bond. A Portfolio might acquire both portions of that
type of offering, to reduce the effect of the volatility of the individual securities. This provides a flexible
portfolio management tool to vary the degree of investment leverage efficiently under different market
conditions.
Inverse floaters may offer relatively high current income, reflecting the spread between short-term and
long-term tax-exempt interest rates. As long as the yield curve remains relatively steep and short term rates
remain relatively low, owners of inverse floaters will have the opportunity to earn interest at above-market
rates because they receive interest at the higher long-term rates but have paid for bonds with lower short-term
rates. If the yield curve flattens and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. A Portfolio might invest in inverse floaters to seek higher yields than are
available from fixed-rate bonds that have comparable maturities and credit ratings. In some cases, the holder of
an inverse floater may have an option to convert the floater to a fixed-rate bond, pursuant to a "rate-lock"
option.
Some inverse floaters have a feature known as an interest rate "cap" as part of the terms of the
investment. Investing in inverse floaters that have interest rate caps might be part of a portfolio strategy to
try to maintain a high current yield for a Portfolio when the Portfolio has invested in inverse floaters that
expose the Portfolio to the risk of short-term interest rate fluctuations. "Embedded" caps might be used to hedge
a portion of a Portfolio's exposure to rising interest rates. When interest rates exceed a pre-determined rate,
the cap generates additional cash flows that offset the decline in interest rates on the inverse floater, and the
hedge is successful. However, the Portfolio bears the risk that if interest rates do not rise above the
pre-determined rate, the cap (which is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives, can be used to increase or
decrease a Portfolio's exposure to changing security prices, interest rates or other factors that affect the
value of securities. However, these techniques could result in losses to a Portfolio if the portfolio manager
judges market conditions incorrectly or employs a strategy that does not correlate well with the Portfolio's
other investments. These techniques can cause losses if the counterparty does not perform its promises. An
additional risk of investing in securities that are derivative investments is that their market value could be
expected to vary to a much greater extent than the market value of securities that are not derivative
investments but have similar credit quality, redemption provisions and maturities.
|X| Loans of Portfolio Securities (All Portfolios). Besides using repurchase transactions, each Portfolio
can lend its portfolio securities in amounts up to 10% of the Portfolio's total assets. Loans can be made to
brokers, dealers and other types of financial institutions approved by the Board of Directors. The Portfolios
currently do not use this strategy, but if they do so they expect to limit such loans to not more than 5% of
their total assets.
There are some risks in connection with securities lending. A Portfolio might experience a delay in
receiving additional collateral to secure a loan, or a delay in recovery of the loaned securities if the borrower
defaults. A Portfolio must receive collateral for a loan. Under current applicable regulatory requirements
(which are subject to change), on each business day the loan collateral must be at least equal to the value of
the loaned securities. It must consist of cash, bank letters of credit or securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the Portfolio is permitted to invest. To
be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Portfolio if
the demand meets the terms of the letter. The terms of the letter of credit and the issuing bank both must be
satisfactory to the Portfolio.
When it lends securities, a Portfolio receives amounts equal to the dividends or interest on loaned
securities. It also receives one or more of (a) negotiated loan fees, (b) interest on securities used as
collateral, and (c) interest on any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. A Portfolio may also pay reasonable finder's, custodian and
administrative fees in connection with these loans. The terms of these loans must meet applicable tests under
the Internal Revenue Code and must permit a Portfolio to reacquire loaned securities on five days' notice or in
time to vote on any important matter.
|X| Hedging (All Portfolios). Although the Portfolios can use certain hedging instruments and
techniques, they are not obligated to use them in seeking their objectives. A Portfolio's strategy of hedging
with futures and options on futures will be incidental to the Portfolio's activities in the underlying cash
market. The particular hedging instruments each Portfolios can use are described below.
|_| Call and Put Options. The Portfolios have different policies and restrictions regarding the
purchase and sale of call and put options.
o All Portfolios can write (sell) exchange-traded covered call options on securities, currencies and
securities indices.
x Xxxxxxxxxxx International Growth Fund/VA and Government Securities Portfolio can buy exchange-traded
call options on securities, currencies and securities indices.
x Xxxxxxxxxxx International Growth Fund/VA can purchase options on currency in the over-the-counter
markets.
Call options can be used as a hedge against possible decreases in the prices of investment securities
held by a Portfolio or against an increase in price of a security the Portfolio contemplates buying. Covered
call options can be used to generate income.
|_| Writing Covered Call Options (All Portfolios). The Portfolios can write (that is, sell) covered calls.
If a Portfolio sells a call option, it must be covered. That means the Portfolio must own the security subject
to the call while the call is outstanding, or, for certain calls on indices and currencies, the call may be
covered by segregating liquid assets to enable that Portfolio to satisfy its obligations if the call is
exercised. Up to 20% of each Portfolio's total assets may be subject to calls the Portfolio writes.
When a Portfolio writes a call on a security, it receives cash (a premium). That Portfolio agrees to
sell the underlying security to a purchaser of a corresponding call on the same security during the call period
at a fixed exercise price regardless of market price changes during the call period. The call period is usually
not more than nine months. The exercise price may differ from the market price of the underlying security. The
Portfolio shares the risk of loss that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Portfolio receives. If the value of the investment
does not rise above the call price, it is likely that the call will lapse without being exercised. In that case
the Portfolio would keep the cash premium and the investment.
When a Portfolio writes a call on an index, it receives cash (a premium). If the buyer of the call
exercises it, the Portfolio will pay an amount of cash equal to the difference between the closing price of the
call and the exercise price, multiplied by a specified multiple that determines the total value of the call for
each point of difference. If the value of the underlying investment does not rise above the call price, it is
likely that the call will lapse without being exercised. In that case the Portfolio would keep the cash premium.
The Portfolios' custodian bank, or a securities depository acting for the Custodian, will act as the
Portfolios' escrow agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the
investments on which a Portfolio has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC will release the securities on
the expiration of the option or when the Portfolios enter into a closing transaction.
When the Company writes an over-the-counter ("OTC") option, it will enter into an arrangement with a
primary U.S. government securities dealer which will establish a formula price at which the Company will have the
absolute right to repurchase that OTC option. The formula price will generally be based on a multiple of the
premium received for the option, plus the amount by which the option is exercisable below the market price of the
underlying security (that is, the option is "in the money"). When the Company writes an OTC option, it will treat
as illiquid (for purposes of its restriction on holding illiquid securities) the xxxx-to-market value of any OTC
option it holds, unless the option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, a Portfolio may purchase a corresponding call in a
"closing purchase transaction." The Portfolio will then realize a profit or loss, depending upon whether the net
of the amount of the option transaction costs and the premium received on the call the Portfolio wrote is more or
less than the price of the call the Portfolio purchases to close out the transaction. The Portfolio may realize
a profit if the call expires unexercised, because the Portfolio will retain the underlying security and the
premium it received when it wrote the call. Any such profits are considered short-term capital gains for federal
income tax purposes, as are the premiums on lapsed calls. If a Portfolio cannot effect a closing purchase
transaction due to the lack of a market, it will have to hold the callable securities until the call expires or
is exercised.
The Portfolios may also write calls on a futures contract without owning the futures contract or
securities deliverable under the contract. The Portfolios may use call options on futures contracts solely for
bona fide hedging purposes. To do so, at the time the call is written, the Portfolios must cover the call by
segregating on its books an equivalent dollar amount of liquid assets. A Portfolio will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the current value of the future. Because
of this segregation requirement, in no circumstances would a Portfolio's receipt of an exercise notice as to that
future require the Portfolios to deliver a futures contract. It would simply put the Portfolio in a short
futures position, which is permitted by the Portfolios' hedging policies.
|_| Writing Put Options. Xxxxxxxxxxx International Growth Fund/VA can also sell put options
on futures. A put option on securities gives the purchaser the right to sell, and the writer the obligation to
buy, the underlying investment at the exercise price during the option period.
The premium the Portfolio receives from writing a put represents a profit, as long as the price of the
underlying investment remains equal to or above the exercise price of the put. However, the Portfolio also
assumes the obligation during the option period to buy the underlying investment from the buyer of the put at the
exercise price, even if the value of the investment falls below the exercise price.
If a put a Portfolio has written expires unexercised, the Portfolio realizes a gain in the amount of the
premium less the transaction costs incurred. If the put is exercised, the Portfolio must fulfill its obligation
to purchase the underlying investment at the exercise price. That price will usually exceed the market value of
the investment at that time. In that case, the Portfolio may incur a loss if it sells the underlying
investment. That loss will be equal to the sum of the sale price of the underlying investment and the premium
received minus the sum of the exercise price and any transaction costs the Portfolio incurred.
When writing a put option on a security, to secure its obligation to pay for the underlying security a
Portfolio will identify on its books liquid assets with a value equal to or greater than the exercise price of
the underlying securities. The Portfolio therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as a Portfolio's obligation as the put writer continues, it may be assigned an exercise notice
by the broker-dealer through which the put was sold. That notice will require the Portfolio to take delivery of
the underlying security and pay the exercise price. The Portfolio has no control over when it may be required to
purchase the underlying security, since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. That obligation terminates upon expiration of the put.
It may also terminate if, before it receives an exercise notice, the Portfolio effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Portfolio has been assigned an exercise
notice, it cannot effect a closing purchase transaction.
A Portfolio may decide to effect a closing purchase transaction to realize a profit on an outstanding
put option it has written or to prevent the underlying security from being put. Effecting a closing purchase
transaction will also permit the Portfolio to write another put option on the security, or to sell the security
and use the proceeds from the sale for other investments. The Portfolio will realize a profit or loss from a
closing purchase transaction depending on whether the cost of the transaction is less or more than the premium
received from writing the put option. Any profits from writing puts are considered short-term capital gains for
federal tax purposes.
|_| Purchasing Calls and Puts. The Xxxxxxxxxxx International Growth Fund/VA and Government Securities
Portfolio can purchase calls on securities, securities indices, and foreign currencies. Xxxxxxxxxxx
International Growth Fund/VA can also buy put and call options on futures. A Portfolio might do so to protect
against the possibility that its investment portfolio will not participate in an anticipated rise in the
securities market. When a Portfolio buys a call (other than in a closing purchase transaction), it pays a
premium. The Portfolio then has the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price.
The Portfolio benefits only if it sells the call at a profit or if, during the call period, the market
price of the underlying investment is above the sum of the call price plus the transaction costs and the premium
paid for the call and the Portfolio exercises the call. If the Portfolio does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration date. In that case the Portfolio
will have paid the premium but lost the right to purchase the underlying investment.
When a Portfolio purchases a put, it pays a premium and, except as to puts on indices, has the right to
sell the underlying investment to a seller of a put on a corresponding investment during the put period at a
fixed exercise price.
Buying a put on securities or futures a Portfolio owns enables the Portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying investment below the exercise price
by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market
price of the underlying investment is equal to or above the exercise price and, as a result, the put is not
exercised or resold, the put will become worthless at its expiration date. In that case the Portfolio will have
paid the premium but lost the right to sell the underlying investment. However, the Portfolio may sell the put
prior to its expiration. That sale may or may not be at a profit.
Buying a put on an investment a Portfolio does not own (such as an index or future) permits the
Portfolio either to resell the put or to buy the underlying investment and sell it at the exercise price. The
resale price will vary inversely to the price of the underlying investment. If the market price of the underlying
investment is above the exercise price and, as a result, the put is not exercised, the put will become worthless
on its expiration date.
When a Portfolio purchases a call or put on an index or future, it pays a premium, but settlement is in
cash rather than by delivery of the underlying investment to the Portfolio. Gain or loss depends on changes in
the index in question (and thus on price movements in the securities market generally) rather than on price
movements in individual securities or futures contracts.
|_| Buying and Selling Options on Foreign Currencies. All Portfolios can sell exchange-traded
call options on foreign currencies. Government Securities Portfolio and Xxxxxxxxxxx International Growth Fund/VA
can also buy exchange-traded calls on foreign currencies. Xxxxxxxxxxx International Growth Fund/VA can buy call
options on currencies in the OTC markets. A Portfolio could use these calls to try to protect against declines
in the dollar value of foreign securities and increases in the dollar cost of foreign securities the Portfolio
wants to acquire.
If a portfolio manager anticipates a rise in the dollar value of a foreign currency in which securities
to be acquired are denominated, the increased cost of those securities may be partially offset by purchasing
calls on that foreign currency. If the portfolio manager anticipates a decline in the dollar value of a foreign
currency, the decline in the dollar value of portfolio securities denominated in that currency might be partially
offset by writing calls on that foreign currency. However, the currency rates could fluctuate in a direction
adverse to the Portfolios' position. The Portfolio will then have incurred option premium payments and
transaction costs without a corresponding benefit.
A call written on a foreign currency is "covered" if the Portfolio owns the underlying foreign currency
covered by the call or has an absolute and immediate right to acquire that foreign currency without additional
cash consideration (or it can do so for additional cash consideration held in a segregated account by its
custodian bank) upon conversion or exchange of other foreign currency held in its portfolio.
A Portfolio could write a call on a foreign currency to provide a hedge against a decline in the U.S.
dollar value of a security which the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option. That decline might be one that occurs due to an expected adverse change in the
exchange rate. This is known as a "cross-hedging" strategy. In those circumstances, the Portfolio covers the
option by identifying liquid assets on its books in an amount equal to the exercise price of the option.
|_| Futures. The Portfolios have different policies and limitations on the purchase and sale of
futures contracts:
o Each Portfolio can buy and sell future contracts on stock indices.
o Total Return Portfolio, Xxxxxxxxxxx International Growth Fund/VA and Government Securities Portfolio may
buy and sell interest rate futures contracts.
o Each portfolio that can invest in securities denominated in foreign currency can purchase and sell
futures on foreign currencies.
o Total Return Portfolio, Xxxxxxxxxxx International Growth Fund/VA and Government Securities Portfolio can
buy and sell futures contracts related to financial indices.
A broadly-based stock index is used as the basis for trading stock index futures. In some cases, these
futures may be based on stocks of issuers in a particular industry or group of industries. A stock index assigns
relative values to the common stocks included in the index and its value fluctuates in response to the changes in
value of the underlying stocks. A stock index cannot be purchased or sold directly. Bond index futures are
similar contracts based on the future value of the basket of securities that comprise the index. These contracts
obligate the seller to deliver, and the purchaser to take, cash to settle the futures transaction. There is no
delivery made of the underlying securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specified
type of debt security to settle the futures transaction. Either party could also enter into an offsetting
contract to close out the position.
No money is paid or received by a Portfolio on the purchase or sale of a future. Upon entering into a
futures transaction, the Portfolio will be required to deposit an initial margin payment with the futures
commission merchant (the "futures broker"). Initial margin payments will be deposited with the Portfolio's
custodian bank in an account registered in the futures broker's name. However, the futures broker can gain access
to that account only under specified conditions. As the future is marked to market (that is, its value on that
Portfolio's books is changed) to reflect changes in its market value, subsequent margin payments, called
variation margin, will be paid to or by the futures broker daily.
At any time prior to expiration of the future, a Portfolio may elect to close out its position by taking
an opposite position, at which time a final determination of variation margin is made and any additional cash
must be paid by or released to that Portfolio. Any loss or gain on the future is then realized by that Portfolio
for tax purposes. All futures transactions are effected through a clearinghouse associated with the exchange on
which the contracts are traded.
|_| Forward Contracts (All Equity Portfolios). Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at a fixed price. A Portfolio can
use them to "lock in" the U.S. dollar price of a security denominated in a foreign currency that the Portfolio
has bought or sold, or to protect against possible losses from changes in the relative values of the U.S. dollar
and a foreign currency. A Portfolio may also use "cross-hedging" where the Portfolio xxxxxx against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party agrees to sell, a specific
currency at a future date. That date may be any fixed number of days from the date of the contract agreed upon
by the parties. The transaction price is set at the time the contract is entered into. These contracts are
traded in the inter-bank market conducted directly among currency traders (usually large commercial banks) and
their customers.
A Portfolio may use forward contracts to protect against uncertainty in the level of future exchange
rates. The use of forward contracts does not eliminate the risk of fluctuations in the prices of the underlying
securities the Portfolio owns or intends to acquire, but it does fix a rate of exchange in advance. Although
forward contracts may reduce the risk of loss from a decline in the value of the hedged currency, at the same
time they limit any potential gain if the value of the hedged currency increases.
When a Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign
currency, or when it anticipates receiving dividend payments in a foreign currency, the Portfolio might desire
to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of the dividend payments. To do
so, the Portfolio could enter into a forward contract for the purchase or sale of the amount of foreign currency
involved in the underlying transaction, in a fixed amount of U.S. dollars per unit of the foreign currency. This
is called a "transaction hedge." The transaction hedge will protect the Portfolio against a loss from an adverse
change in the currency exchange rates during the period between the date on which the security is purchased or
sold or on which the payment is declared, and the date on which the payments are made or received.
A Portfolio could also use forward contracts to lock in the U.S. dollar value of portfolio positions.
This is called a "position hedge." When a portfolio manager believes that foreign currency might suffer a
substantial decline against the U.S. dollar, the Portfolio could enter into a forward contract to sell an amount
of that foreign currency approximating the value of some or all of the Portfolio's investment securities
denominated in that foreign currency. When a portfolio manager believes that the U.S. dollar might suffer a
substantial decline against a foreign currency, the Portfolio could enter into a forward contract to buy that
foreign currency for a fixed dollar amount. Alternatively, a Portfolio could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the portfolio manager believes that the U.S.
dollar value of the foreign currency to be sold pursuant to its forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which securities of the Portfolio are denominated. That is
referred to as a "cross hedge."
A Portfolio will cover its short positions in these cases by identifying on its books liquid assets
having a value equal to the aggregate amount of the Portfolio's commitment under forward contracts. A Portfolio
will not enter into forward contracts or maintain a net exposure to such contracts if the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, a Portfolio may maintain a net exposure to
forward contracts in excess of the value of its portfolio securities or other assets denominated in foreign
currencies if the excess amount is "covered" by liquid securities denominated in any currency. The cover must be
at least equal at all times to the amount of that excess. As one alternative, the Portfolio may purchase a call
option permitting it to purchase the amount of foreign currency being hedged by a forward sale contract at a
price no higher than the forward contract price. As another alternative, the Portfolio may purchase a put option
permitting it to sell the amount of foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price.
The precise matching of the amounts under forward contracts and the value of the securities involved
generally will not be possible because the future value of securities denominated in foreign currencies will
change as a consequence of market movements between the date the forward contract is entered into and the date it
is sold. In some cases the portfolio manager might decide to sell the security and deliver foreign currency to
settle the original purchase obligation. If the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver, the Portfolio might have to purchase additional foreign currency
on the "spot" (that is, cash) market to settle the security trade. If the market value of the security instead
exceeds the amount of foreign currency the Portfolio is obligated to deliver to settle the trade, the Portfolio
might have to sell on the spot market some of the foreign currency received upon the sale of the security. There
will be additional transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing a Portfolio to sustain losses on these
contracts and to pay additional transactions costs. The use of forward contracts in this manner might reduce a
Portfolio's performance if there are unanticipated changes in currency prices to a greater degree than if the
Portfolio had not entered into such contracts.
At or before the maturity of a forward contract requiring a Portfolio to sell a currency, the Portfolio
might sell a portfolio security and use the sale proceeds to make delivery of the currency. In the alternative it
might retain the security and offset its contractual obligation to deliver the currency by purchasing a second
contract. Under that contract the Portfolio will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. Similarly, the Portfolio might close out a forward contract requiring
it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of
the same currency on the maturity date of the first contract. The Portfolio would realize a gain or loss as a
result of entering into such an offsetting forward contract under either circumstance. The gain or loss will
depend on the extent to which the exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and offsetting contract.
The costs to a Portfolio of engaging in forward contracts varies with factors such as the currencies
involved, the length of the contract period and the market conditions then prevailing. Because forward contracts
are usually entered into on a principal basis, no brokerage fees or commissions are involved. Because these
contracts are not traded on an exchange, the Company must evaluate the credit and performance risk of the
counterparty under each forward contract.
Although each Portfolio values its assets daily in terms of U.S. dollars, it does not intend to convert
its holdings of foreign currencies into U.S. dollars on a daily basis. A Portfolio may convert foreign currency
from time to time, and will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between the prices at which they buy and
sell various currencies. Thus, a dealer might offer to sell a foreign currency to a Portfolio at one rate, while
offering a lesser rate of exchange if the Portfolio desires to resell that currency to the dealer.
|_| Interest Rate Swap Transactions (Government Securities Portfolio). In an interest rate swap,
a Portfolio and another party exchange their right to receive or their obligation to pay interest on a security.
For example, they might swap the right to receive floating rate payments for fixed rate payments. A Portfolio
can enter into swaps only on securities that it owns and will not enter into swaps with respect to more than 25%
of its total assets. Also, a Portfolio will identify on its books liquid assets (such as cash or U.S. government
securities) to cover any amounts it could owe under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by a Portfolio under a swap agreement will be
greater than the payments it received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Portfolio's loss will consist of the net amount of contractual
interest payments that the Portfolio has not yet received. The Manager will monitor the creditworthiness of
counterparties to a Portfolio's interest rate swap transactions on an ongoing basis.
A Portfolio can enter into swap transactions with certain counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done between the Portfolio and that counterparty
shall be regarded as parts of an integral agreement. If amounts are payable on a particular date in the same
currency in respect of one or more swap transactions, the amount payable on that date in that currency shall be
the net amount. In addition, the master netting agreement may provide that if one party defaults generally or on
one swap, the counterparty may terminate all of the swaps with that party. Under these agreements, if a default
results in a loss to one party, the measure of that party's damages is calculated by reference to the average
cost of a replacement swap for each swap. It is measured by the xxxx-to-market value at the time of the
termination of each swap. The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special
skills and knowledge of investment techniques that are different than what is required for normal portfolio
management. If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce a Portfolio's return. A Portfolio could also experience losses if the prices of
its futures and options positions were not correlated with its other investments.
A Portfolio's option activities could affect its portfolio turnover rate, brokerage commissions and
transaction costs. The exercise of calls written by a Portfolio might cause the Portfolio to sell related
portfolio securities, thus increasing its turnover rate. The exercise by a Portfolio of puts on securities will
cause the sale of underlying investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Portfolio's control, holding a put might cause that Portfolio to sell the
related investments for reasons that would not exist in the absence of the put.
A Portfolio could pay a brokerage commission each time they buy a call or put, sell a call or put, or
buy or sell an underlying investment in connection with the exercise of a call or put. Those commissions could
be higher on a relative basis than the commissions for direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of the underlying investments. Consequently,
put and call options offer large amounts of leverage. The leverage offered by trading in options could result in
a Portfolio's net asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by a Portfolio is exercised on an investment that has increased in value, that
Portfolio will be required to sell the investment at the call price. It will not be able to realize any profit if
the investment has increased in value above the call price.
An option position may be closed out only on a market that provides secondary trading for options of the
same series, and there is no assurance that a liquid secondary market will exist for any particular option. A
Portfolio might experience losses if it could not close out a position because of an illiquid market for the
future or option.
There is a risk in using short hedging by selling futures or purchasing puts on broadly-based indices or
futures to attempt to protect against declines in the value of a Portfolio's investment securities. The risk is
that the prices of the futures or the applicable index will correlate imperfectly with the behavior of the cash
prices of the Portfolio's securities. For example, it is possible that while the Portfolio has used hedging
instruments in a short hedge, the market might advance and the value of the securities held by the Portfolio
might decline. If that occurred, the Portfolio would lose money on the hedging instruments and also experience a
decline in the value of its investment securities. However, while this could occur for a very brief period or to
a very small degree, over time the value of a diversified portfolio of securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of a Portfolio's investments diverges
from the securities included in the applicable index. To compensate for the imperfect correlation of movements
in the price of the investments being hedged and movements in the price of the hedging instruments, a Portfolio
might use hedging instruments in a greater dollar amount than the dollar amount of portfolio securities being
hedged. It might do so if the historical volatility of the prices of the portfolio securities being hedged is
more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to
differences in the nature of those markets. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the futures market may cause
temporary price distortions.
A Portfolio can use hedging instruments to establish a position in the securities markets as a temporary
substitute for the purchase of individual securities (long hedging) by buying futures and/or calls on such
futures, broadly-based indices or on securities. It is possible that when the Portfolio does so the market might
decline. If the Portfolio then concludes not to invest in securities because of concerns that the market might
decline further or for other reasons, the Portfolio will realize a loss on the hedging instruments that is not
offset by a reduction in the price of the securities purchased.
|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the
Portfolios are required to operate within certain guidelines and restrictions with respect to the use of futures
as established by the Commodities Futures Trading Commission (the "CFTC"). In particular, each Portfolio is
exempted from registration with the CFTC as a "commodity pool operator" if the Portfolio complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the percentage of the Portfolio's assets
that may be used for futures margin and related options premiums for a bona fide hedging position. However,
under the Rule, a Portfolio must limit their aggregate initial futures margin and related options premiums to not
more than 5% of the Portfolio's net assets for hedging strategies that are not considered bona fide hedging
strategies under the Rule. Under the Rule, the Portfolio must also use short futures and options on futures
solely for bona fide hedging purposes within the meaning and intent of the applicable provisions of the Commodity
Exchange Act.
Transactions in options by the Portfolios are subject to limitations established by the option
exchanges. The exchanges limit the maximum number of options that may be written or held by a single investor or
group of investors acting in concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts or through one or more different
exchanges or through one or more brokers. Thus, the number of options that a Portfolio may write or hold may be
affected by options written or held by other entities, including other investment companies having the same
adviser as the Portfolio (or an adviser that is an affiliate of the Portfolio's investment advisor). The
exchanges also impose position limits on futures transactions. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when a Portfolio purchases a future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of the securities underlying the
future, less the margin deposit applicable to it.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in
which the Portfolios may invest are treated as "Section 1256 contracts" under the Internal Revenue Code. In
general, gains or losses relating to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or losses arising from Section 1256
contracts that are forward contracts generally are treated as ordinary income or loss. In addition, Section 1256
contracts held by the Portfolios at the end of each taxable year are "marked-to-market," and unrealized gains or
losses are treated as though they were realized. An election can be made by the Portfolios to exempt those
transactions from this marked-to-market treatment.
Certain forward contracts the Portfolios enter into may result in "straddles" for Federal income tax
purposes. The straddle rules may affect the character and timing of gains (or losses) recognized by a Portfolio
on straddle positions. Generally, a loss sustained on the disposition of a position making up a straddle is
allowed only to the extent that the loss exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, the following gains or losses are treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that occur between the time a Portfolio
accrues interest or other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables or pay such
liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign currency between the date of
acquisition of a debt security denominated in a foreign currency or foreign currency forward
contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on each trade before determining a
net "Section 988" gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the
amount of a Portfolio's investment income available for distribution to its shareholders.
|X| Temporary Defensive Investments. When market conditions are unstable, or the Manager believes it
is otherwise appropriate to reduce holdings in stocks, the Portfolios can invest in a variety of debt securities
for defensive purposes. The Portfolios can also purchase these securities for liquidity purposes to meet cash
needs due to the redemption of Portfolio shares, or to hold while waiting to reinvest cash received from the sale
of other portfolio securities. The Portfolios can buy:
|_| obligations issued or guaranteed by the U. S. government or its instrumentalities or agencies,
|_| commercial paper (short-term, unsecured, promissory notes of domestic or foreign companies) rated in the
three top rating categories of a nationally recognized rating organization,
|_| short-term debt obligations of corporate issuers, rated investment grade (rated at least Baa by Xxxxx'x
or at least BBB by Standard & Poor's, or a comparable rating by another rating organization), or
unrated securities judged by the Manager to have a comparable quality to rated securities in those
categories,
|_| certificates of deposit and bankers' acceptances of domestic and foreign banks having total assets in
excess of U.S. $1 billion, and
|_| repurchase agreements.
Short-term debt securities would normally be selected for defensive or cash management purposes because
they can normally be disposed of quickly, are not generally subject to significant fluctuations in principal
value and their value will be less subject to interest rate risk than longer-term debt securities.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those policies that each Portfolio has
adopted to govern its investments that can be changed only by the vote of a "majority" of the Portfolio's
outstanding voting securities. Under the Investment Company Act, a "majority" vote is defined as the vote of the
holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders
of more than 50% of the outstanding shares are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Portfolios' investment objectives are not fundamental policies, but will not be changed by the Board
of Directors without advance notice to shareholders. Other policies described in the Prospectus or this Statement
of Additional Information are "fundamental" only if they are identified as such. The Board of Directors can
change non-fundamental policies without shareholder approval. However, significant changes to investment policies
will be described in supplements or updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Portfolios' most significant investment policies are described in the Prospectus.
|X| Do the Portfolios Have Additional Fundamental Policies? The following investment restrictions are
fundamental policies of Total Return Portfolio, Growth Portfolio, Government Securities Portfolio and Xxxxxxxxxxx
International Growth Fund/VA.
|_| A Portfolio cannot invest in "senior securities", except to the extent permitted under the 1940 Act, the
rules or regulations thereunder or any exemption therefrom that is applicable to the Company, as
such statute, rules or regulations may be amended or interpreted from time to time.
|_| Total Return Portfolio and Growth Portfolio cannot concentrate investments. That means these portfolios
cannot invest 25% or more of their total assets in companies in any one industry. That limit does
not apply to securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities or securities issued by investment companies.
|_| A Portfolio cannot invest in physical commodities or commodities contracts. However, a Portfolio can
invest in hedging instruments permitted by any of its other investment policies, and can buy or
sell options, futures, securities or other instruments backed by, or the investment return from
which is linked to, changes in the price of physical commodities, commodity contracts or currencies.
|_| A Portfolio cannot invest in real estate or in interests in real estate. However, a Portfolio can
purchase securities of issuers holding real estate or interests in real estate (including
securities of real estate investment trusts) if permitted by its other investment policies.
|_| The Portfolio may not borrow money, except to the extent permitted under the 1940 Act, the rules or
regulations thereunder or any exemption therefrom that is applicable to the Company, as such
statute, rules or regulations may be amended or interpreted from time to time.
|_| The Portfolio cannot make loans, except to the extent permitted under the 1940 Act, the rules or
regulations thereunder or any exemption therefrom that is applicable to the Portfolio, as such
statute, rules or regulations may be amended or interpreted from time to time.
|_| Total Return Portfolio, Growth Portfolio and Xxxxxxxxxxx International Growth Fund/VA cannot buy
securities or other instruments issued or guaranteed by any one issuer if more than 5% of its total
assets would be invested in securities or other instruments of that issuer or if it would then own
more than 10% of that issuer's voting securities. This limitation applies to 75% of the
Portfolio's total assets. The limit does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or securities of other investment companies.
|_| A Portfolio cannot underwrite securities of other issuers. A permitted exception is if the Portfolio is
deemed to be an underwriter under the 1933 Act in selling its investment securities.
Do the Portfolios Have Other Restrictions that are Not Fundamental Policies?
The Portfolios have an additional restriction on their investment policies that is not fundamental,
which means that it can be changed by the Board of Directors, without obtaining approval from the Portfolio's
outstanding voting securities.
|_| Total Return Portfolio and Growth Portfolio cannot invest in securities of foreign issuers if at the
time of acquisition more than 10% of its total assets, taken at market value, would be invested in
those securities. However, a Portfolio can invest up to 25% of its total assets in securities (i)
issued, assumed or guaranteed by foreign governments, or political subdivisions or
instrumentalities thereof, (ii) assumed or guaranteed by domestic issuers, including Eurodollar
securities, or (iii) issued, assumed or guaranteed by foreign issuers having a class of securities
listed for trading on The New York Stock Exchange.
How the Portfolios Are Managed
Organization and History. Panorama Series Fund, Inc., the investment company of which each Portfolio is a
series, was incorporated in Maryland on August 17, 1981. It is referred to as the "Company" in this Statement of
Additional Information. Prior to May 1, 1996, the Company was named Connecticut Mutual Financial Services Series
Fund I, Inc.
|X| Meetings of Shareholders. As series of a Maryland corporation, the Portfolios are not required to
hold, and do not plan to hold, regular annual meetings of shareholders. The Portfolios will hold meetings from
time to time on important matters and when required to do so by the Investment Company Act or other applicable
law. They will also do so when a shareholder meeting is called by the Directors or upon proper request of the
shareholders.
The Company will hold meetings when required to do so by the Investment Company Act or other applicable
law. The Company will hold a meeting when the Directors call a meeting or upon proper request of shareholders.
If the Company receives a written request of the record holders of at least 25% of the outstanding shares
eligible to be voted at a meeting to call a meeting for a specified purpose (which might include the removal of a
Director), the Directors will call a meeting of shareholders for that specified purpose. The Company has
undertaken that it will then either give the applicants access to the Company's shareholder list or mail the
applicants' communication to all other shareholders at the applicants' expense.
|X| Classes of Shares. The Directors are authorized, without shareholder approval, to create new series
and classes of shares. The Directors may reclassify unissued shares of a Portfolio into additional series or
classes of shares. The Directors also may divide or combine the shares of a class into a greater or lesser
number of shares without changing the proportionate beneficial interest of a shareholder in a Portfolio. Shares
do not have cumulative voting rights or preemptive or subscription rights. Shares may be voted by proxy at
shareholder meetings.
Each Portfolio currently has two classes of shares authorized. All the Portfolios offer a class with no
name designation and the Service Share Class. All classes invest in the same investment portfolio. Each class
of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are different from interests
of another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote at shareholder meetings, with
fractional shares voting proportionally on matters submitted to the vote of shareholders. Each share of a
Portfolio represents an interest in that Portfolio proportionately equal to the interest of each other share of
the same class.
Board of Directors
The Company is governed by a Board of Directors, which is responsible for protecting the interests of
shareholders under Maryland law. The Directors meet periodically throughout the year to oversee the Portfolio's
activities, review its performance, and review the actions of the Manager. Although the Portfolios will not
normally hold annual meetings of shareholders, they may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to remove a Director or to take other action described
in the Company's Articles of Incorporation.
The Board of Directors has an Audit Committee and a Review Committee. The members of the Audit
Committee are Xxxxxx X. Xxxxxxx (Chairman), Xxxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxx and Xxxxxx Xxxxxx. The Audit
Committee held six meetings during the fiscal year ended December 31, 2001. The Audit Committee acts under a
charter adopted by the Board of Directors and performs a number of oversight functions. Among other functions,
the Audit Committee provides the Board with recommendations regarding the selection of the independent auditor.
The Audit Committee also reviews the scope and results of audits and the audit fees charged, reviews reports from
the independent audit concerning each Portfolio's internal accounting procedures and controls.
The Audit Committee's functions include selecting and nominating to the full Board, Independent nominees
for election as Independent Directors. The Audit Committee may, but need not consider the advice and
recommendation of the Manager and its affiliates in selecting nominees. The full Board elects new Directors
except for those instances when a shareholder vote is required. To date, the Audit Committee has been able to
identify from its own resources an ample number of qualified candidates. Nonetheless, shareholders may submit
names of individuals, accompanied by complete and properly supported resumes, for the Audit Committee's
consideration by mailing such information to the Committee in care of the Company. The Committee may consider
such persons at such time as it meets to consider possible nominees. The Committee, however, reserves sole
discretion to determine the candidates to present to the Board and/or shareholders and when it meets for the
purpose of considering potential nominees.
The members of the Review Committee are Xxx X. Xxxxxx (Chairman), Xxx Xxxxxxxx, Xxxxxx X. Xxxx, Xxxxxxx
Xxxxxxxx and F. Xxxxxxx Xxxxxxxx, Jr. The Review Committee held six meetings during the fiscal year ended
December 31, 2001. The Review Committee acts under a charter adopted by the Board of Directors and performs a
number of oversight functions. Among other functions, the Review Committee reviews reports and makes
recommendations to the Board concerning the fees paid to the Portfolios' Transfer Agent and the services provided
to each Portfolio by the Transfer Agent. The Review Committee also reviews policies and procedures adopted by
the Portfolio to comply with the Investment Company Act of 1940 and other applicable law.
Directors and Officers of the Company. The Directors and officers of the Company and their positions held,
length of service in such position(s) and their principal occupations and business affiliations during the past
five years are listed below. Each of the Directors except Xx. Xxxxxx, is an "Independent Director," (a person
who is neither an "affiliated person" or an "interested person" as defined in the Investment Company Act). Xx.
Xxxxxx is an "Interested Director," because he is affiliated with the Manager by virtue of his positions as an
officer and director of the Manager, and as a shareholder of its parent company. Xx. Xxxxxx was elected as a
Director with the understanding that in the event he ceases to be the chief executive officer of the Manager, he
will resign as a Director of the Board II Funds for which he is a trustee or director. The information for the
Directors also indicates that no Director owns any shares of any of the Portfolios as well as the aggregate
dollar range of shares of the Board II Funds beneficially owned by the Director. All information is as of
December 31, 2001. All of the Directors are also trustees, directors or managing general partners of the
following Xxxxxxxxxxx funds (hereinafter referred to as "Board II funds")1:
Xxxxxxxxxxx Cash Reserves Xxxxxxxxxxx Select Managers
Xxxxxxxxxxx Champion Income Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Capital Income Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx International Bond Fund Xxxxxxxxxxx Variable Account Funds
Xxxxxxxxxxx Integrity Funds Panorama Series Fund, Inc.
Xxxxxxxxxxx Limited-Term Government Fund Centennial America Fund, X. X.
Xxxxxxxxxxx Main Street Funds, Inc. Centennial California Tax Exempt Trust
Xxxxxxxxxxx Main Street Opportunity Fund Centennial Government Trust
Xxxxxxxxxxx Main Street Small Cap Fund Centennial Money Market Trust
Xxxxxxxxxxx Municipal Fund Centennial New York Tax Exempt Trust
Xxxxxxxxxxx Real Asset Fund Centennial Tax Exempt Trust
Messrs. Swain, Murphy, Xxxxxxx, Xxxxxx and Zack, Xxxxxxx Xxxxxx, Xxxxxxxx Xxxxxxxx, Xxxxxxx Xxxxxx,
Xxxxx Xxxxxx, Xxxxxx Xxxxxxxxxxx, Xxxxxx Xxxxx and Mses. Xxxx and Ives who are officers of the Company,
respectively hold the same offices with one or more of the other Board II Funds as with the Company. As of March
31, 2002, the Directors and officers of the Company as a group owned less than 1% of the outstanding shares of
the Portfolio. The foregoing statement does not reflect ownership of shares held of record by an employee benefit
plan for employees of the Manager, other than the shares beneficially owned under that plan by the officers of
the Portfolios listed above. In addition, each Independent Director, and his family members, do not own
securities of either the Manager or Distributor of the Board II Funds or any person directly or indirectly
controlling, controlled by or under common control with the Manager or Distributor.
Xx. Xxxxx has reported that he sold a residential property to Xx. Xxxxxxxx on October 23, 2001 for $1.2
million. An independent appraisal of the property supported the sale price.
Independent Trustees and Officer
-------------------------- ------------------------------------------------------- -------------- --------------
Aggregate
Dollar Range
Name, Address, 2 Age, Dollar Range of Shares
Position(s) Held with Principal Occupation(s) During Past 5 Years / Other of Shares Owned in any
Company and Length of Trusteeships Held by Trustee / Number of Portfolios Owned in the of the Board
Time Served3 in Fund Complex Overseen by Trustee Portfolios II Funds
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxx X. Xxxxx, Formerly (until January 2, 2002) Vice Chairman of the $0 Over $100,000
Chairman, Chief Manager and (until 1997) President and a director of
Executive Officer and Centennial Asset Management Corporation, an
Director, since 1996 investment advisory subsidiary of the Manager.
Age: 68 Director/trustee of 41 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxxx X. Xxxxxxxxx, Chairman of the following private mortgage banking
Director since 1999 companies: Cherry Creek Mortgage Company (since
Age: 64 1991), Centennial State Mortgage Company (since
1994), The El Paso Mortgage Company (since 0000),
Xxxxxxxxx Financial Services, Inc. (since 1997);
Chairman of the following private companies: Great
Frontier Insurance (insurance agency) (since 1995)
and Ambassador Media Corporation (since 1984);
Director of the following public companies: Storage
Technology Corporation (computer equipment company)
(since 1991), Helmerich & Xxxxx, Inc. (oil and gas $50,001-
drilling/production company) (since 1992), $0 $100,000
UNUMProvident (insurance company) (since 1991);
formerly Director of International Family
Entertainment (television channel) (1992 - 1997) and
Natec Resources, Inc. (air pollution control
equipment and services company) (1991-1995), Frontier
Real Estate, Inc. (residential real estate brokerage)
(1994-1999), and Frontier Title (title insurance
agency) (1995-June 1999); formerly U.S. Senator
(January 1979-January 1991). Director/ trustee of 40
investment companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxx X. Xxxx, Director Formerly (until February 2001), Director and
since 1996 President of X.X. Xxxxxxx Capital, Inc. (General
Age: 70 Partner of private equity funds); formerly (until
March 2000), Chairman, President and Chief Executive
Officer of X.X. Xxxxxxx Capital, Inc.; formerly
(until March 1999), Vice Chairman and Director of
X.X. Xxxxxxx, Inc. and Vice Chairman of X.X. Xxxxxxx Over
& Sons, Inc. (its brokerage company subsidiary); $0 $100,000
(until March 1999), Chairman of X.X. Xxxxxxx Trust
Company and A.G.E. Asset Management (investment
advisor); (until March 2000), a Director of X.X.
Xxxxxxx & Sons and X.X. Xxxxxxx Trust Company.
Director/trustee of 41 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxx X. Xxxxx, Formerly (until April 1999) Xx. Xxxxx held the
Director since 2002 following positions: Senior Vice President (from
Age: 65 September 1987) and Treasurer (from March 1985) of
the Manager; Vice President (from June 1983) and
Treasurer (since March 1985) of OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager;
Senior Vice President (since February 1992),
Treasurer (since July 1991) Assistant Secretary and a
Director (since December 1991) of Centennial Asset
Management Corporation; Vice President (since October
1989) and Treasurer (since April 1986) of HarbourView
Asset Management Corporation, an investment advisory
subsidiary of the Manager; President, Treasurer and a
Director of Centennial Capital Corporation (since
June 1989), a prior investment advisory subsidiary of
the Manager; Vice President and Treasurer (since
August 1978) and Secretary (since April 1981) of $0 Over $100,000
Shareholder Services, Inc., and Vice President,
Treasurer and Secretary of Shareholder Financial
Services, Inc. (since November 1989), both are
transfer agent subsidiaries of the Manager; Assistant
Treasurer of Xxxxxxxxxxx Acquisition Corp. (since
March 1998), the Manager's parent holding company;
Treasurer of Oppenheimer Partnership Holdings, Inc.
(since November 1989), a holding company subsidiary
of the Manager; Vice President and Treasurer of
Xxxxxxxxxxx Real Asset Management, Inc. (since July
1996), an investment advisory subsidiary of the
Manager; Treasurer of OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since
October 1997), offshore fund management subsidiaries
of the Manager. Director/Trustee of 36 portfolios in
the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxx X. Xxxxxxx, Formerly (from 1974-1999) a partner with
Director since 2002 PricewaterhouseCoopers LLP (an accounting firm) and
Age: 63 Chairman, Price Waterhouse LLP Global Investment
Management Industry Services Group (from 1994-1998). $0 Over $100,000
Director/Trustee of 36 portfolios in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxx X. Xxxxxx, Chairman and Director of Rocky Mountain Elk
Director since 1990 Foundation, a not-for-profit foundation (since 1998);
Age: 60 and a director of P.R. Pharmaceuticals, a privately
held company (since October 1999) and UNUM Provident
(insurance company) (since June 1, 2002). Formerly
Xx. Xxxxxx held the following positions: Chairman and
a director (until October 1996) and President and $0 Over $100,000
Chief Executive Officer (until October 1995) of the
Manager; President, Chief Executive Officer and a
director of Xxxxxxxxxxx Acquisition Corp.,
Shareholder Services, Inc. and Shareholder Financial
Services, Inc. (until October 1995). Oversees 41
portfolios in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxx Xxxxxxxx, Formerly (until October 1994) Xx. Xxxxxxxx held the
Director since 1996 following positions: Chairman and Chief Executive
Age: 61 Officer of OppenheimerFunds Services; Chairman, Chief
Executive Officer and a director of Shareholder
Services, Inc., Chairman, Chief Executive Officer and
director of Shareholder Financial Services, Inc., $0 Over $100,000
Vice President and director of Xxxxxxxxxxx
Acquisition Corp. and a director of OppenheimerFunds,
Inc. Director/trustee of 41 investment companies in
the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxxx X. Xxxxxxxx, Trustee (since 1996) of MassMutual Institutional
Director since 2002 Funds and of MML Series Investment Fund (open-end
Age: 55 investment companies); Director of MML Services, an
investment company (since April 1987), America Funds
Emerging Markets Growth Fund, an investment company
(since October 1991), The California Endowment, a
philanthropy organization (since April 2002), and
Community Hospital of Monterey Peninsula, (since
February 2002), a Trustee of Monterey International
Studies, an educational organization (since February
2000), and an advisor to Unilever (Holland)'s pension $0 $0*
fund and to Credit Suisse First Boston's Sprout
venture capital unit. Xxx. Xxxxxxxx also is a member
of the investment committees of the Rockefeller
Foundation, the University of Michigan and Hartford
Hospital. Formerly, Xxx. Xxxxxxxx held the following
position: President ARCO Investment Management
Company, (from February 1991 until April 2000).
Oversees 40 portfolios in the OppenheimerFunds
complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
Xxxxxx Xxxxxx, Director of Xxxxx Knowledge, Inc., a privately held
Director since 2002 company (since 2001), director of U.S. Exploration,
Age: 57 Inc., (since 1997), director of Colorado UpLIFT, a
non-profit organization (since 1986) and a Trustee of
the Xxxxxxxxx Family Foundation, (since 2000). $0 $0*
Formerly, Xx. Xxxxxx held the following positions:
Chairman of U.S. Bank (formerly Colorado National Bank)
a subsidiary of U.S. BanCorp (from July 1, 1996 until
April 1, 1999); Chairman of the Board and
Chairman Executive Officer of Colorado National Bank
(from December 18, 1992 until July 1, 1996); director
of Commercial Assets, Inc. (from 1993 to 2000); oversees
40 portfolios in the Xxxxxxxxxxx funds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
-------------------------- ------------------------------------------------------- -------------- --------------
F. Xxxxxxx Xxxxxxxx, Director (since 1996) of MassMutual Institutional $0 Over $100,000
Jr., Director Funds and of MML Series Investment Fund (open-end
since 2002 investment companies). Formerly (until 1999) Chairman
Age: 59 of SIS & Family Bank, F.S.B. (formerly SIS Bank);
President, Chief Executive Officer and Director of
SIS Bankcorp., Inc. and SIS Bank (formerly
Springfield Institution for Savings) (1993-1999);
Executive Vice President (until 1999) of Peoples
Heritage Financial Group, Inc.; Chairman and Chief
Executive Office of Bank of Ireland First Holdings,
Inc. and First New Hampshire Banks (1990-1993).
Director/Trustee of 36 portfolios in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- -------------- --------------
Nominee for Interested Director
-------------------------- ------------------------------------------------------- ------------ ----------------
Name, Address Age, Principal Occupation(s) During Past 5 Years Dollar Aggregate
Dollar Range
of Shares
Range of Owned in any
Shares of the
Position(s) Held with Owned in Xxxxxxxxxxx
Company and Length of /Directorships Held/Number of Portfolios in Fund the Funds5 (as of
Time Served Complex Overseen Portfolios 12/31/01)
-------------------------- ------------------------------------------------------- ------------ ----------------
-------------------------- ------------------------------------------------------- ------------ ----------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and Director (since
President June 2001) and President (since September 2000) of
since October 2001 the Manager; President and a Director of other $0 Over $100,000
Age: 52 Xxxxxxxxxxx funds; President and a Director (since
July 2001) of Xxxxxxxxxxx Acquisition Corp. and of
Oppenheimer Partnership Holdings, Inc.; a Director
(since November 2001) of OppenheimerFunds
Distributor, Inc.; Chairman and a Director (since
July 2001) of Shareholder Services, Inc. and of
Shareholder Financial Services, Inc.; President and a
Director (since July 2001) of OppenheimerFunds Legacy
Program, a charitable trust program established by
the Manager; a Director of the following investment
advisory subsidiaries of OFI: OAM Institutional, Inc.
and Centennial Asset Management Corporation (since
November 2001), HarbourView Asset Management
Corporation and OFI Private Investments, Inc. (since
July 2002); President (since November 1, 2001) and a
Director (since July 2001) of Xxxxxxxxxxx Real Asset
Management, Inc.; a Director (since November 2001) of
Trinity Investment Management Corp. and Tremont
Advisers, Inc., investment advisory affiliates of the
Manager; Executive Vice President (since February
1997) of Massachusetts Mutual Life Insurance Company,
the Manager's parent company; a Director (since June
1995) of DBL Acquisition Corporation; formerly, Chief
Operating Officer (from September 2000 to June 2001)
of the Manager; President and Director (from November
1999 to November 2001) of MML Series Investment Fund
and MassMutual Institutional Funds, open-end
investment companies; a Director (from September 1999
to August 2000) of C.M. Life Insurance Company;
President, Chief Executive Officer and Director (from
September 1999 to August 2000) of MML Bay State Life
Insurance Company; a Director (from June 1989 to June
1998) of Emerald Isle Bancorp and Hibernia Savings
Bank, wholly-owned subsidiary of Emerald Isle
Bancorp. Director/Trustee of 63 investment companies
in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- ------------ ----------------
Officers of the Company
------------------------------------------ ---------------------------------------------------------------------
Name, Address4 Age, Position(s) Held Principal Occupation(s) During Past 5 Years
with Company and Length of Time Served5
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxxx Xxxxxx, Vice President and Senior Vice President (since April 1998) of the Manager; a
Portfolio Manager
Since April 1998 Certified Financial Analyst; an officer and portfolio manager of
Age: 61 other Xxxxxxxxxxx funds; formerly a Vice President and portfolio
manager for Guardian Investor Services, the investment management
subsidiary of The Guardian Life Insurance Company (1972 - April
1998).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxxxx X. Xxxxxxxx, Vice President and Vice President of the Manager (since April 1998); an officer and
Portfolio Manager portfolio manager of other Xxxxxxxxxxx funds; a Certified Financial
Since April 1998 Analyst; formerly a Vice President and portfolio manager for
Age: 52. Guardian Investor Services, the investment management subsidiary of
The Guardian Life Insurance Company (1979 - March 1998).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxxx X. Xxxxxx, Portfolio Manager Vice President (since November 1990), Managing Director (since June
Since November 1998 1992), Manager of Trading and Portfolio Operations (since January,
Age: 43 1984) and Director (since November 2001) of Trinity Investment
Management Corporation, a wholly-owned subsidiary of
OppenheimerFunds, Inc.'s immediate parent, Xxxxxxxxxxx Acquisition
Corp.; a portfolio manager of another Xxxxxxxxxxx fund.
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxx X. Xxxxxxxxxxx, Senior Vice President of the Manager (since April 2002); an officer
Vice President and Portfolio Manager, and portfolio manager of other Xxxxxxxxxxx funds; formerly
Since April 2002 Executive Director and Portfolio Manager for Xxxxxx, Xxxxxxxx &
Age: 35 Xxxxxxxx, a division of Xxxxxx Xxxxxxx Investment Management
(August 1993).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxx X. Xxxxx Senior Vice President of the Manager (since May 1998) and of
Portfolio Manager HarbourView Asset Management Corporation (since April 1999); an
Since January 1996 officer and portfolio manager of other Xxxxxxxxxxx funds; formerly
Age: 48 Vice President of the Manager (July 1988 - May 1998).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxx Xxxxx, Vice President and Vice President of the Manager (since October 1993) and of
Portfolio Manager
Since October 1993 HarbourView Asset Management Corporation (since July 1994); an
Age: 42. officer and portfolio manager of other Xxxxxxxxxxx funds.
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxx X. Xxxxxx, Treasurer, Principal Senior Vice President and Treasurer (since March 1999) of the
Financial and Accounting Officer Manager; Treasurer (since March 1999) of HarbourView Asset
Since April 1999 Management Corporation, Shareholder Services, Inc., Oppenheimer
Age: 42 Real Asset Management Corporation, Shareholder Financial Services,
Inc., Oppenheimer Partnership Holdings, Inc., OFI Private
Investments, Inc. (since March 2000), OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since May
2000), offshore fund management subsidiaries of the Manager, and
OAM Institutional, Inc. (since November 2000), an investment
advisory subsidiary of the Manager; Treasurer and Chief Financial
Officer (since May 2000) of Xxxxxxxxxxx Trust Company, a trust
company subsidiary of the Manager; Assistant Treasurer (since March
1999) of Xxxxxxxxxxx Acquisition Corp. and OppenheimerFunds Legacy
Program (since April 2000); an officer of other Xxxxxxxxxxx funds;
formerly Principal and Chief Operating Officer, Bankers Trust
Company - Mutual Fund Services Division (March 1995 - March 1999).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxx X. Xxxx, Senior Vice President (since May 1985) and General Counsel (since
Vice President and Secretary February 2002) of the Manager; Assistant Secretary of Shareholder
Since November 2001 Services, Inc. (since May 1985), Shareholder Financial Services,
Age: 53 Inc. (since November 1989); OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Xxxxxxxxxxx funds; formerly, Acting General Counsel
(November 2001-February 2002) and Associate General Counsel (1984 -
October 2001)
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxx X. Xxxxxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
Since November 2001 an officer of other Xxxxxxxxxxx funds; formerly a Vice President
Age: 44 and Associate Counsel of the Manager (September 1995 - July 1999).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxxxxx X. Xxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
Since November 2001 an officer of other Xxxxxxxxxxx funds; formerly a Vice President
Age: 43 and Associate Counsel of the Manager (June 1990 - July 1999).
------------------------------------------ ---------------------------------------------------------------------
------------------------------------------ ---------------------------------------------------------------------
Xxxxxxxx X. Xxxx, Assistant Secretary Vice President and Assistant Counsel of the Manager (since June
Since November 2001 1998); an officer of other Xxxxxxxxxxx funds; formerly an Assistant
Age: 36 Vice President and Assistant Counsel of the Manager (August 1997 -
June 1998); and Assistant Counsel of the Manager (August
1994-August 1997).
------------------------------------------ ---------------------------------------------------------------------
|X| Remuneration of Directors. The officers of the Company are affiliated with the Manager and receive no
salary or fee from the Company. The Directors of the Company received the compensation shown below. The
compensation from the Portfolios was paid during their fiscal year ended December 31, 2001. The compensation
from all of the Board II Xxxxxxxxxxx funds includes the compensation from the Portfolios and represents
compensation received as a director, trustee, managing general partner or member of a committee of the Board
during the calendar year 2001. Xx. Xxxxx was affiliated with the Manager until January 2, 2002.
------------------------ -------------------------------------------------------------- ---------------- -------------
Director's Name and Aggregate Compensation from Portfolio1 Number of Total
Position Funds which Compensation
Director or from all
Nominee Board II
Oversees as of Funds (41)2
12/31/01
------------------------ -------------------------------------------------------------- -------------
------------------------ ------------- ----------- -------------------- --------------- -------------
Total Growth Oppenheimer Government
Return Portfolio International Securities
Portfolio Growth Fund/VA Portfolio
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxxx X. Xxxxxxxxx
Audit Committee Member $833 $696 $264 $370 40 $78,865
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxx X. Xxxx
Review Committee Member $839 $701 $266 $373 41 $79,452
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxx Xxxxx 3,4
Audit Committee Member N/A N/A N/A N/A 36 $75,936
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxx X. Cameron3,4
Audit Committee N/A N/A N/A N/A 36 $75,794
Chairman
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxx X. Xxxxxx
Review Committee $889 $742 $282 $395 40 $84,177
Chairman
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxx Xxxxxxxx
Review Committee Member $881 $736 $279 $392 41 $83,402
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxxx Hamilton5
Review Committee Member X/X X/X X/X X/X X/X X/X
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Xxxxxx Malone5
Audit Committee Member X/X X/X X/X X/X X/X X/X
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
F. Xxxxxxx Xxxxxxxx,
Jr. 4 N/A N/A N/A N/A 36 $69,922
Review Committee Member
------------------------ ------------- ----------- -------------------- --------------- ---------------- -------------
Effective July 1, 2000, Xxxxxxx X. Xxxxx resigned as a Director of the Company and subsequently
became a Director Emeritus of the Company. For the fiscal year ended December 31, 2001, Xx. Xxxxx received $1,646
aggregate compensation from the Company and for the calendar year ended December 31, 2001,
he received $60,000 total compensation from all Board II Funds. Effective April 5, 2001, Xxxxxxx
Xxxxxxxxxx resigned as a Director of the Company. For the fiscal year ended December 31, 2001, Xx. Xxxxxxxxxx
received $452 aggregate compensation from the Company and for the calendar year ended December 31, 2001, he
received $16,468 total compensation from all Board II Funds. Effective July 1, 2002, Messrs. Xxxx and Xxxxxxxx
resigned as Directors of the Company. For the fiscal year ended December 31, 2001, Messrs. Xxxx and Xxxxxxxx
received $2,399 and $2,179, respectively, in aggregate compensation from the Company and for the calendar year
ended December 31, 2001, they received $87,452 and $79,452, respectively, in total compensation from all Board II
Funds.
1. For the Company's fiscal year ended December 31, 2001.
2. For the 2001 calendar year.
3. Messrs. Xxxxx and Cameron are members of the Review and Audit Committees, respectively, of other
Xxxxxxxxxxx funds.
4. Messrs. Bowen, Cameron, and Xxxxxxxx were elected as directors of the fund on June 10, 2002. They did not hold shares of the
Portfolios during the calendar year ended December 3l 2001.
5. Xx. Xxxxxxxx and Xx. Xxxxxx were elected to the Board II Funds effective June 10, 2002. They did
not hold shares of any Board II Funds during the calendar year ended December 31, 2001.
|X| Deferred Compensation Plan for Directors. The Board of Directors has adopted a Deferred
Compensation Plan for Independent Directors that enables them to elect to defer receipt of all or a portion of
the annual fees they are entitled to receive from the Portfolios. Under the plan, the compensation deferred by a
Director is periodically adjusted as though an equivalent amount had been invested in shares of one or more
Xxxxxxxxxxx funds selected by the Director. The amount paid to the Director under the plan will be determined
based upon the performance of the selected funds. No Director has elected to participate as of December 31, 2001.
Deferral of Director's fees under the plan will not materially affect the Portfolios' assets, liabilities
and net income per share. The plan will not obligate the Portfolios to retain the services of any Director or to
pay any particular level of compensation to any Director. Pursuant to an Order issued by the Securities and
Exchange Commission, the Portfolios may invest in the funds selected by the Director under the plan without
shareholder approval for the limited purpose of determining the value of the Director's deferred fee account.
|X| Major Shareholders. As of March 31, 2002 all of the outstanding shares of Government Securities
Portfolio and Xxxxxxxxxxx International Growth Fund/VA were held by separate investment accounts of Massachusetts
Mutual Life Insurance Company, 0000 Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000, for variable annuity contracts, variable
life insurance policies and other investment products owned by its customers. The holders of 5% or more of the
outstanding shares of Xxxxxxxxxxx International Growth Fund/VA Service shares, Growth Portfolio and Total Return
Portfolio were Lincoln Benefit Life Company, 0000 Xxxxx 00xx Xxxxxx, Xxxxxxx, XX 00000-0000 and Massachusetts
Life Insurance Company.
The Manager. OppenheimerFunds, Inc., the Manager, is wholly-owned by Xxxxxxxxxxx Acquisition Corporation, a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Company, the Manager and the Distributor have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that
would compete with or take advantage of a Portfolio's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of a Portfolio and other funds advised by the
Manager. The Code of Ethics does permit personnel subject to the Code to invest in securities, including
securities that may be purchased or held by the Portfolio, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the Manager.
Each Company's Code of Ethics is an exhibit to the Companys' registration statement filed with the
Securities and Exchange Commission and can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. You can obtain information about the hours of operation of the Public Reference Room by calling
the SEC at 0-000-000-0000. The Code of Ethics can also be viewed as part of the Company's registration statement
on the SEC's XXXXX database at the SEC's Internet web site at xxxx://xxx.xxx.xxx. Copies may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail address: xxxxxxxxxx@xxx.xxx., or by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment management services to each
Portfolio under an investment advisory agreement between the Manager and the respective Portfolio. The
investment advisory agreements require the Manager, at its expense, to provide each Portfolio with adequate
office space, facilities and equipment. The agreements also require the Manager to provide and supervise the
activities of all administrative and clerical personnel necessary to provide effective corporate administration
for each Portfolio. Those responsibilities include the compilation and maintenance of records with respect to its
operations, the preparation and filing of specified reports, and composition of proxy materials and registration
statements for the continuous public sale of shares of the Portfolio.
Expenses not expressly assumed by the Manager under an advisory agreement or by the Distributor under
the General Distributor's Agreement for Service shares are paid by the relevant Portfolio. The advisory
agreements list examples of expenses to be paid by a Portfolio. The major categories relate to interest, taxes,
brokerage commissions, fees to certain Directors, legal, and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and non-recurring expenses, including
litigation costs. The management fees paid by a Portfolio to the Manager are calculated at the rates listed in
the Portfolio's Prospectus, which are applied to the assets of the Portfolio as a whole. Whenever more than one
class of shares is issued, the fees are allocated to each class of shares based upon the relative proportion of a
Company's net assets represented by that class.
---------------------------------- -----------------------------------------------------------------------------------
Portfolio Management Fees Paid to OppenheimerFunds, Inc. in the Fiscal Years Ended:
---------------------------------- -----------------------------------------------------------------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
12/31/99 12/31/00 12/31/01
---------------------------------- ----------------------------- ---------------------------- ------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
Total Return Portfolio $6,587,018 $ 4,613,663 $3,181,642
---------------------------------- ----------------------------- ---------------------------- ------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
Growth Portfolio $4,214,611 $ 2,645,079 $1,708,136
---------------------------------- ----------------------------- ---------------------------- ------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
Xxxxxxxxxxx International Growth
Fund/VA $1,072,824 $1,620,304 $1,179,660
---------------------------------- ----------------------------- ---------------------------- ------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
Government Securities Portfolio $119,156 $ 98,206 $ 98,727
---------------------------------- ----------------------------- ---------------------------- ------------------------
---------------------------------- ----------------------------- ---------------------------- ------------------------
Total (All Portfolios) $13,689,139 $ 8,977,252 $6,168,165
---------------------------------- ----------------------------- ---------------------------- ------------------------
The investment advisory agreements state that in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties, or reckless disregard of its obligations and duties under the
advisory agreement, the Manager is not liable for any loss resulting from any good faith errors or omissions in
connection with any matters to which the agreement relates. Each advisory agreement permits the Manager to act
as investment adviser for any other person, firm or corporation.
|X| Annual Approval of Investment Advisory Agreement. Each year, the Board of Directors, including
a majority of the Independent Directors, is required to approve the renewal of the investment advisory agreement
for each Portfolio. The Investment Company Act requires that the Board request and evaluate and the Manager
provide such information as may be reasonably necessary to evaluate the terms of the investment advisory
agreement. The Board employs an independent consultant to prepare a report that provides such information as the
Board requests for this purpose.
The Board also receives information about the 12b-1 distribution fees the Portfolio pays with respect to
Service shares. These distribution fees are reviewed and approved at a different time of the year.
The Board reviewed the foregoing information in arriving at its decision to renew the investment
advisory agreement. Among other factors, the Board considered:
o The nature, cost, and quality of the services provided to the Portfolio and its shareholders;
o The profitability of the Portfolio to the Manager;
o The investment performance of the Portfolio in comparison to regular market indices
o Economies of scale that may be available to the Portfolio from the Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the Portfolio from its relationship
with the Manager, and
o The direct and indirect benefits the Manager received from its relationship with the Portfolio. These
included services provided by the General Distributor and the Transfer Agent, and brokerage and
soft dollar arrangements permissible under Section 28(e) of the Securities Exchange Act.
The Board considered that the Manager must be able to pay and retain high quality personnel at
competitive rates to provide services to the Portfolio. The Board also considered that maintaining the financial
viability of the Manager is important so that the Manager will be able to continue to provide quality services to
the Portfolio and its shareholders in adverse times. The Board also considered the investment performance of
other mutual funds advised by the Manager. The Board is aware that there are alternatives to the use of the
Manager.
These matters were also considered by the Independent Directors, meeting separately from the full Board
with experienced Counsel to the Company who assisted the Board in its deliberations. The Company's Counsel is
independent of the Manager within the meaning and intent of the SEC Rules regarding the independence of counsel.
In arriving at a decision, the Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board judged the terms and conditions of
the Agreement, including the investment advisory fee, in light of all of the surrounding circumstances.
Brokerage Policies of the Portfolios
Brokerage Provisions of the Investment Advisory Agreements. One of the duties of the Manager under each
investment advisory agreement is to arrange the investment securities transactions for each Portfolio. Each
advisory agreement contains provisions relating to the employment of broker-dealers ("brokers") to effect a
Portfolio's portfolio transactions. The Manager is authorized by the advisory agreements to employ
broker-dealers, including "affiliated" brokers, as that term is defined in the Investment Company Act. The
Manager may employ broker-dealers that it thinks, in its best judgment based on all relevant factors, will
implement the policy of each Portfolio to obtain, at reasonable expense, the "best execution" of a Portfolio's
transactions. "Best execution" means prompt and reliable execution at the most favorable price obtainable. The
Manager need not seek competitive commission bidding. However, it is expected to be aware of the current rates
of eligible brokers and to minimize the commissions paid to the extent consistent with the interest and policies
of a Portfolio as established by the Board of Directors.
Under each advisory agreement, the Manager may select brokers (other than affiliates) that provide
brokerage and/or research services for a Portfolio and/or the other accounts over which the Manager or its
affiliates have investment discretion. The commissions paid to such brokers may be higher than another qualified
broker would charge, if the Manager makes a good faith determination that the commission is fair and reasonable
in relation to the services provided. Subject to the those considerations, as a factor in the selection of
brokers for a Portfolio's portfolio transactions, the Manager may also consider sales of shares of a Portfolio
and other investment companies for which the Manager or an affiliate serves as investment advisor.
Subject to any policy established by the Board of Directors, the Manager is primarily responsible for
the investment decisions of each Portfolio and for placing its portfolio transactions. While the Manager
generally seeks reasonably competitive spreads or commissions, the Portfolios will not necessarily pay the lowest
spread or commission available.
Description of Brokerage Practices Followed by the Manager. Subject to the provisions of the advisory agreements
and the procedures and rules described above, generally the Manager's portfolio traders allocate brokerage based
upon recommendations from the portfolio managers. In certain instances, portfolio managers may directly place
trades and allocate brokerage. In either case, the Manager's executive officers supervise the allocation of
brokerage.
Transactions in securities other than those for which an exchange is the primary market are generally
done with principals or market makers. In transactions on foreign exchanges, a Portfolio may be required to pay
fixed brokerage commissions and would not have the benefit of negotiated commissions available in U.S. markets.
Brokerage commissions are paid primarily for effecting transactions in listed securities or for certain fixed
income agency transactions in the secondary market. Otherwise brokerage commissions are paid only if it appears
likely that a better price or execution can be obtained by doing so. In an option transaction, ordinarily a
Portfolio uses the same broker for the purchase or sale of the option and any transaction in the securities to
which the option relates.
Most purchases of debt securities, commercial paper, and money market instruments made by the Portfolios
are principal transactions at net prices, and the Portfolios incur little or no brokerage costs for these
transactions. Purchases of securities from underwriters include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers include a spread between the bid and asked price.
Other funds advised by the Manager have investment policies similar to those of the Portfolios. Those
other funds may purchase or sell the same securities as the Portfolios at the same time as the Portfolios, which
could affect the supply and price of the securities. If two or more funds advised by the Manager purchase the
same security on the same day from the same dealer, the transactions under those combined orders are averaged as
to price and allocated in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreements permit the Manager to allocate brokerage for research services. The
research services provided by a particular broker may be useful only to one or more of the advisory accounts of
the Manager and its affiliates. Investment research received for the commissions of those other accounts may be
useful both to the Portfolios and one or more of the other accounts. Investment research may be supplied by a
third party at the instance of a broker through which trades are placed.
Investment research services include information and analyses on particular companies and industries as
well as market or economic trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a research service also assists the
Manager in a non-research capacity (such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager in the investment decision-making process may be
paid in commission dollars.
The Board of Directors permits the Manager to use stated commissions on secondary fixed-income trades to
obtain research if the broker represents to the Manager that: (i) the trade is not from the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the stated commission, and (iii) the
trade is not a riskless principal transaction. The Board of Directors permits the Manager to use commissions on
fixed price offerings to obtain research, in the same manner as is permitted for agency transactions.
The research services provided by brokers broadens the scope and supplements the research activities of
the Manager. That research provides additional views and comparisons, and helps the Manager obtain market
information for the valuation of securities held in a Portfolio's investment portfolio or are being considered
for purchase. The Manager provides information to the Board about the commissions paid to brokers for furnishing
these services, together with the Manager's representation that the amount of those commissions was reasonably
related to the value or benefit of those services.
No principal transactions and, except under unusual circumstances, no agency transactions for Government
Securities Portfolio will be handled by any affiliated securities dealer. In the unusual circumstance when that
Portfolio pays brokerage commissions, the above-described brokerage practices and policies are followed.
---------------------------------------------------------------------------------------------------------------------
Total Brokerage Commissions Paid by the Portfolios1 During the Fiscal Years Ended:
---------------------------------------------------------------------------------------------------------------------
--------------------------------------- ---------------------------- ----------------------- ------------------------
Portfolio 12/31/99 12/31/00 12/31/012
--------------------------------------- ---------------------------- ----------------------- ------------------------
--------------------------------------- ---------------------------- ----------------------- ------------------------
Growth Portfolio $315,183,251 $1,315,460 $458,880
--------------------------------------- ---------------------------- ----------------------- ------------------------
--------------------------------------- ---------------------------- ----------------------- ------------------------
Total Return Portfolio $130,981,333 $1,542,128 $698,919
--------------------------------------- ---------------------------- ----------------------- ------------------------
--------------------------------------- ---------------------------- ----------------------- ------------------------
Xxxxxxxxxxx International Growth
Fund/VA $ 40,955,623 $ 467,909 $190,252
--------------------------------------- ---------------------------- ----------------------- ------------------------
--------------------------------------- ---------------------------- ----------------------- ------------------------
Government Securities Portfolio $ 0 $ 480 $480
--------------------------------------- ---------------------------- ----------------------- ------------------------
1. Amounts do not include spreads or concessions on principal transactions on a net trade basis.
2. In the fiscal year ended 12/31/01, the amount of transactions directed to brokers for research services
and the amount of the commissions paid to broker-dealers for those serves were as follows:
----------------------------------------- --------------------------------------- -----------------------------------
Portfolio Amount of Transactions Amount of Commissions
----------------------------------------- --------------------------------------- -----------------------------------
----------------------------------------- --------------------------------------- -----------------------------------
Growth Portfolio $114,691,399 $147,403
----------------------------------------- --------------------------------------- -----------------------------------
----------------------------------------- --------------------------------------- -----------------------------------
Total Return Portfolio $ 65,864,514 $ 60,588
----------------------------------------- --------------------------------------- -----------------------------------
----------------------------------------- --------------------------------------- -----------------------------------
Xxxxxxxxxxx International Growth Fund/VA $ 5,192,214 $ 10,616
----------------------------------------- --------------------------------------- -----------------------------------
----------------------------------------- --------------------------------------- -----------------------------------
Government Securities Portfolio $ 0 $ 0
----------------------------------------- --------------------------------------- -----------------------------------
Distribution and Service Plans (Service Shares Only)
Under its General Distributor's Agreements with the Portfolios, OppenheimerFunds Distributor, Inc. will
only act as the principal underwriter of the Portfolios' Service shares.
Each Portfolio has adopted a Distribution and Service Plan (the "Plan") for its Service shares under
Rule 12b-1 of the Investment Company Act, pursuant to which each Portfolio will make payments to the Distributor
in connection with the distribution and/or servicing of Service shares. The Distributor will pay insurance
company separate account sponsors and other entities that offer and/or provide services to Service shares, as
described in the Prospectus. Each Plan has been approved by a vote of (i) the Board of Directors of the Company,
including a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting
on that Plan, and (ii) the Manager as the then-sole initial holder of such shares.
Under the Plans, no payment will be made to any insurance company separate account sponsor or affiliate
thereof under a Portfolio's Plan (each is referred to as a "Recipient") in any quarter if the aggregate net
assets of a Portfolio's Service shares held by the Recipient for itself and its customers did not exceed a
minimum amount, if any, that may be determined from time to time by a majority of the Company's Independent
Directors. The Board of Directors has set the fee at 0.25% of average annual net assets and set no minimum
amount.
Under the Plans, the Manager and the Distributor may make payments to affiliates and, in their sole
discretion, from time to time, may use their own resources at no direct cost to the Portfolio to make payments to
brokers, dealers or other financial institutions for distribution and administrative services they perform.
Unless terminated as described below, each Plan continues in effect from year to year but only as long
as such continuance is specifically approved at least annually by the Company's Board of Directors and its
Independent Directors by a vote cast in person at a meeting called for the purpose of voting on such
continuance. Any Plan may be terminated at any time by the vote of a majority of the Independent Directors or by
the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding Service
shares. For purposes of voting with respect to the Plans, Account owners are considered to be shareholders of a
Portfolio's shares. No Plan may be amended to increase materially the amount of payments to be made unless such
amendment is approved by Account owners of the class affected by the amendment. All material amendments must be
approved by the Board and a majority of the Independent Directors.
While the plans are in effect and Service shares are outstanding, the Treasurer of the Company must
provide separate written reports to the Company's Board of Directors at least quarterly describing the amount of
payments made pursuant to each Plan. These reports are subject to the review and approval of the Independent
Directors.
During calendar year 2001, the Xxxxxxxxxxx International Growth Fund/VA paid to the Distributor a total
of $42 under its 12b-1 Plan for Service shares. The Distributor retained no portion of that amount. Service
shares were not issued during calendar year 2001 for Growth Portfolio, Total Return Portfolio and Government
Securities Portfolio.
Performance of the Portfolios
Explanation of Performance Terminology. The Portfolios use a variety of terms to illustrate their performance.
These terms include "standardized yield" and "dividend yield" for the Government Securities Portfolio and
"average annual total return" and "cumulative total return" for all Portfolios. An explanation of how yields and
total returns are calculated is set forth below. The charts below show the performance of the Portfolios as of
the most recent fiscal year end. You can obtain current performance information by calling the Transfer Agent at
0.000.000.0000.
The illustrations of performance data in advertisements must comply with rules of the Securities and
Exchange Commission. Those rules describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by a Portfolio of its performance data must include the average annual
total returns for the Portfolio. Those returns must be shown for the 1- 5 and 10-year periods (or the life of
the class, if less) ending as of the most recently ended calendar quarter prior to the publication of the
advertisement (or its submission for publication). Certain types of yields may also be shown, provided that they
are accompanied by standardized average annual total returns.
Performance information for Service shares is not shown for the following Portfolios since they were
not offered prior to December 31, 2001: Total Return Portfolio, Growth Portfolio and Government Securities
Portfolio. Because Service shares are subject to an additional fee, the performance is expected to be lower for
any given period.
The Portfolios are not sold directly to members of the public but are available only as the underlying
investments for variable annuities, variable life insurance policies and other investment products through
separate investment accounts of different insurance companies that may impose charges and fees. A Portfolio's
investment results, when shown alone, do not deduct those charges and fees. If those fees and charges were
included, the Portfolio's performance results would be less.
Use of standardized performance calculations enables an investor to compare a Portfolio's performance to
the performance of other funds for the same periods. However, a number of factors should be considered before
using a Portfolio's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical account in the Portfolio over
various periods and do not show the performance of each investor's account under their respective annuity
contract, variable life insurance policy or other product. Your account's performance will vary from the model
performance data also if you bought or sold shares during the period, or you bought your shares at a different
time and price than the shares used in the model.
|_| An investment in a Portfolio is not insured by the FDIC or any other government agency.
|_| The principal value of a Portfolio's shares, and its yields and/or total returns are not guaranteed
and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less than their original cost.
|_| Yields and total returns for any given past period represent historical performance information and
are not, and should not be considered, a prediction of future yields or returns.
|X| Yields. The Government Securities Portfolio uses a variety of different yields to illustrate its
current returns.
|_| Standardized Yield. The "standardized yield" (sometimes referred to just as "yield") is shown
for a stated 30-day period. It is not based on actual distributions paid by the Portfolio in the 30-day period,
but is a hypothetical yield based upon the net investment income from the Portfolio's investments for that
period. It may therefore differ from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in rules adopted by the
Securities and Exchange Commission, designed to assure uniformity in the way that all funds calculate their
yields:
-------------------------------------------------------------------------------------------------------------------
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
-------------------------------------------------------------------------------------------------------------------
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares outstanding during the 30-day period that were entitled to
receive dividends.
d = the maximum offering price per share on the last day of the period, adjusted for undistributed net
investment income.
The standardized yield for a particular 30-day period may differ from the yield for other periods. The
SEC formula assumes that the standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period.
|_| Dividend Yield. The Government Securities Portfolio may quote a "dividend yield" for its
shares. Dividend yield is based on the dividends paid during the actual dividend period. To calculate dividend
yield, the dividends declared during a stated period are added together, and the sum is multiplied by 12 (to
annualize the yield) and divided by the maximum offering price on the last day of the dividend period. The
formula is shown below:
Dividend Yield = Distribution Paid / No. of Days in the Period x No. of Days in the Calendar Year
-------------------------------------------------------------------------------------------------
Maximum Offering Price (payment date)
-----------------------------------------------------------------------------------------------------------------
Yields for the 30-Day Period Ended 12/31/01
-----------------------------------------------------------------------------------------------------------------
-------------------------------------- ------------------------------------ -------------------------------------
Portfolio Standardized Yield Dividend Yield
-------------------------------------- ------------------------------------ -------------------------------------
-------------------------------------- ------------------------------------ -------------------------------------
Government Securities Portfolio 3.83% 6.26%
-------------------------------------- ------------------------------------ -------------------------------------
|X| Total Return Information. There are different types of "total returns" to measure a Portfolio's
performance. Total return is the change in value of a hypothetical investment in the Portfolio over a given
period, assuming that all dividends and capital gains distributions are reinvested in additional shares and that
the investment is redeemed at the end of the period. The cumulative total return measures the change in value
over the entire period (for example, ten years). An average annual total return shows the average rate of return
for each year in a period that would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. A Portfolio uses standardized
calculations for its total returns as prescribed by the SEC. The methodology is discussed below.
-------------------------------------------------------------------------------------------------------------------
1/n
(ERV)
----- -1 = Average Annual Total Return
( P )
-------------------------------------------------------------------------------------------------------------------
|_| Average Annual Total Return. The "average annual total return" is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n"
in the formula) to achieve an Ending Redeemable Value ("ERV" in the formula) of that investment, according to the
following formula:
|_| Cumulative Total Return. The "cumulative total return" calculation measures the change in value of
a hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the same
factors as average annual total return, but it does not average the rate of return on an annual basis.
Cumulative total return is determined as follows:
-------------------------------------------------------------------------------------------------------------------
ERV - P
------- = Total Return
P
-------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Total Returns for the Periods Ended 12/31/01
---------------------------------------------------------------------------------------------------------------------
-------------------------------------- ------------------ -----------------------------------------------------------
Portfolio Cumulative Total Average Annual Total Returns
Returns (10
years or Life of
Class)
-------------------------------------- ------------------ -----------------------------------------------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
1-Year 5-Year 10-Year
(or life-of-class) (or life-of-class)
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
Growth Portfolio1 128.98% -10.61% 0.58% 8.64%
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
Total Return Portfolio2 103.01% -6.94% 3.31% 7.34%
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
Xxxxxxxxxxx International Growth 96.50% -24.31% 5.88% 7.26%
Fund/VA3
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
Xxxxxxxxxxx International Growth -11.48% N/A N/A N/A
Fund/VA Service Shares4
-------------------------------------- ------------------ ------------------- ------------------- -------------------
-------------------------------------- ------------------ ------------------- ------------------- -------------------
Government Securities Portfolio3 90.05% 7.23% 6.86% 6.89%
-------------------------------------- ------------------ ------------------- ------------------- -------------------
1. Inception: 1/21/82.
2. Inception: 9/30/82.
3. Inception: 5/13/92.
4. Inception: 3/19/01.
Other Performance Comparisons. Each Portfolio compares its performance annually to that of an appropriate
broadly-based market index in its Annual Report to shareholders. You can obtain that information by contacting
the Transfer Agent at the addresses or telephone numbers shown on the cover of this Statement of Additional
Information. A Portfolio may also compare its performance to that of other investments, including other mutual
funds, or use rankings of its performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time a Portfolio may publish the ranking of the performance of its
shares by Lipper, Inc. ("Lipper"). Lipper is a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the Portfolios, and ranks their
performance for various periods in categories based on investment styles. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gain distributions and income dividends but do
not take sales charges or taxes into consideration. Lipper also publishes "peer-group" indices of the
performance of all mutual funds in a category that it monitors and averages of the performance of the funds in
particular categories.
|X| Morningstar Ratings and Rankings. From time to time a Portfolio may publish the star ranking
and/or star rating of the performance of its shares by Morningstar, Inc. ("Morningstar"), an independent mutual
fund monitoring service. Morningstar rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
Morningstar proprietary star rankings reflect historical risk-adjusted total investment return. For
each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM metric each month by
subtracting the return on a 90-day U.S. Treasury Xxxx from the fund's load-adjusted return for the same period,
and then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars,
the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10%
receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance
figures associated with its three-, five- and ten-year (if applicable) Morningstar Ratings metrics.
A Portfolio may also compare its total return ranking to that of other funds in its Morningstar
category, in addition to its star ratings. Those total return rankings are percentages from one percent to one
hundred percent and are not risk-adjusted. For example, if a fund is in the 94th percentile, that means that 94%
of the funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and Publications. From time to time a
Portfolio may include in its advertisements and sales literature performance information about the Portfolio
cited in newspapers and other periodicals such as The New York Times, The Wall Street Journal, Xxxxxx'x, or
similar publications. That information may include performance quotations from other sources, including Lipper
and Morningstar. The performance of the Portfolio's shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.
Investors may also wish to compare the returns on a Portfolio's shares to the return on fixed-income
investments available from banks and thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and various
other instruments such as Treasury bills. However, a Portfolio's returns and share price are not guaranteed or
insured by the FDIC or any other agency
and will fluctuate daily, while bank depository obligations may be insured by the FDIC and may provide fixed
rates of return. Repayment of principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, a portfolio may publish rankings or ratings of the Manager or Transfer Agent, and of
the investor services provided by them to shareholders of the Xxxxxxxxxxx funds, other than performance rankings
of the Xxxxxxxxxxx funds themselves. Those ratings or rankings of shareholder and investor services by third
parties may include comparisons of their services to those provided by other mutual fund families selected by the
rating or ranking services. They may be based upon the opinions of the rating or ranking service itself, using
its research or judgment, or based upon surveys of investors, brokers, shareholders or others.
I N V E S T I N G I N T H E P O R T F O L I O S
How To Buy and Sell Shares
Insurance companies that hold shares of the Portfolios in their separate accounts for the benefit of
their customers' variable annuities, variable life insurance policies and other investment products are the
record holders and the owners of shares of beneficial interest in the Portfolios. The right of those customers
of the insurance companies to give directions to the insurance company for the purchase or redemption of shares
is determined under the contract between the customer and the insurance company. Those customers are not
"shareholders" of the Portfolios. The rights of those insurance companies as record holders and owners of shares
of a Portfolio are different from the rights of their customers. The term "shareholder" in this Statement of
Additional Information refers only to the insurance companies whose separate accounts hold shares of the
Portfolios, and not to contract holders.
The sale of shares of the Portfolios is currently limited to Accounts as explained on the cover page of
this Statement of Additional Information and the Prospectus. Such shares are sold at their respective offering
prices (net asset values without sales charges) and redeemed at their respective net asset values as described in
the Prospectus. The Company reserves the right to limit the types of separate accounts that may invest in any
Portfolio.
Determination of Net Asset Values Per Share. The net asset value per share of each Portfolio is determined as of
the close of business of The New York Stock Exchange on each day the Exchange is open. The calculation is done
by dividing the value of a Portfolio's net assets by the number of shares outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some days (for example, in case of weather
emergencies or on days falling before or after a holiday). The Exchange's most recent annual holiday schedule
(which is subject to change) states that it will close New Year's Day, Xxxxxx Xxxxxx Xxxx, Xx. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may close on
other days.
Dealers other than Exchange members may conduct trading in certain securities on days on which the
Exchange is closed (including weekends and U.S. holidays) or after 4:00 P.M., on a regular business day. Because
the Portfolio's net asset values will not be calculated on those days, the Portfolio's net asset values per share
may be significantly affected on such days when shareholders may not purchase or redeem shares. Additionally,
trading on European and Asian stock exchanges and over-the-counter markets normally is completed before the close
of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets as a result of events that
occur after the prices of those securities are determined, but before the close of The New York Stock Exchange,
will not be reflected in a Portfolio's calculation of its net asset values that day unless the Manager determines
that the event is likely to effect a material change in the value of the security. If such determination is
made, the Manager, acting through an internal valuation committee, will establish a valuation for such security.
Some of the securities the Portfolios buy may not have readily available market quotations. For these
securities, the Board of Directors has authorized the Manager's valuation committee to establish values for
them. All valuation determinations by the valuation committee are subject to the approval, ratification and
confirmation by the Board at its next ensuing meeting.
|X| Securities Valuation. The Board of Directors has established procedures for the valuation of each
Portfolio's securities. In general those procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on Nasdaq are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last reported sale price on the
principal exchange on which they are traded or on Nasdaq, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale
price preceding the valuation date if it is within the spread of the closing "bid" and
"asked" prices on the valuation date or, if not, at the closing "bid" price on the
valuation date.
|_| Equity securities traded on a foreign securities exchange generally are valued in one of the
following ways:
(1) at the last sale price available to the pricing service approved by the Board of Directors, or
(2) at the last sale price obtained by the Manager from the report of the principal exchange on which the
security is traded at its last trading session on or immediately before the valuation date,
or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the
security is traded or, on the basis of reasonable inquiry, from two market makers in the
security.
|_| Long-term debt securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Board of
Directors or obtained by the Manager from two active market makers in the security on the basis of reasonable
inquiry.
|_| The following securities are valued at the mean between the "bid" and "asked" prices
determined by a pricing service approved by the Board of Directors or obtained by the Manager from two active
market makers in the security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of
more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a
remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for amortization of premiums and
accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
|_| Securities (including restricted securities) not having readily-available market quotations are
valued at fair value determined under the Board's procedures. If the Manager is unable to locate two market
makers willing to give quotes, a security may be priced at the mean between the "bid" and "asked" prices provided
by a single active market maker (which in certain cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities, corporate bonds and foreign
government securities, when last sale information is not generally available, the Manager may use pricing
services approved by the Board of Directors. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special factors may be involved (such as
the tax-exempt status of the interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual sales
prices of selected securities.
The closing prices in the London foreign exchange market on a particular business day that are provided
to the Manager by a bank, dealer or pricing service that the Manager has determined to be reliable are used to
value foreign currency, including forward contracts, and to convert to U.S. dollars securities that are
denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the principal exchange on which they are
traded or on Nasdaq, as applicable, as determined by a pricing service approved by the Board of Directors or by
the Manager. If there were no sales that day, they shall be valued at the last sale price on the preceding
trading day if it is within the spread of the closing "bid" and "asked" prices on the principal exchange or on
Nasdaq on the valuation date. If not, the value shall be the closing bid price on the principal exchange or on
Nasdaq on the valuation date. If the put, call or future is not traded on an exchange or on Nasdaq, it shall be
valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In
certain cases that may be at the "bid" price if no "asked" price is available.
When a Portfolio writes an option, an amount equal to the premium received is included in the
Portfolio's Statement of Assets and Liabilities as an asset. An equivalent credit is included in the liability
section. The credit is adjusted ("marked-to-market") to reflect the current market value of the option. In
determining the Portfolio's gain on investments, if a call or put written by the Portfolio is exercised, the
proceeds are increased by the premium received. If a call or put written by the Portfolio expires, the Portfolio
has a gain in the amount of the premium. If the Portfolio enters into a closing purchase transaction, it will
have a gain or loss, depending on whether the premium received was more or less than the cost of the closing
transaction. If the Portfolio exercises a put it holds, the amount the Portfolio receives on its sale of the
underlying investment is reduced by the amount of premium paid by the Portfolio.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Portfolios have no fixed dividend and there can be no assurance as to the
payment of any dividends or the realization of any capital gains. The dividends and distributions paid by a
Portfolio will vary from time to time depending on market conditions, the composition of the Portfolio's
investment portfolio, and expenses borne by the Portfolio or borne separately by a class (if more than one class
of shares are outstanding). Dividends are calculated in the same manner, at the same time, and on the same day
for each class of shares. Dividends on Service shares are expected to be lower. That is because of the effect
of the additional fee on Service shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of the different classes of shares.
Tax Status of the Portfolios' Dividends and Distributions. The Company intends that each Portfolio shall qualify
and be treated as a "regulated investment company" under Subchapter M of the Internal Revenue Code for each
taxable year. By so qualifying, the Portfolios will not be subject to federal income taxes on amounts paid by
them as dividends and distributions, as described in the respective Prospectuses. Each Portfolio is treated as a
separate entity for purposes of determining federal tax treatment. The Company will endeavor to ensure that each
Portfolio's assets are invested so that all requirements of Subchapter M are satisfied, but there can be no
assurance that it will be successful in doing so.
To qualify as a regulated investment company under Subchapter M of the Code, a Portfolio must, among
other things, derive at least 90% of its gross income for the taxable year from dividends, interest, gains from
the sale or other disposition of stock, securities or foreign currencies, fees from certain securities loans or
other income (including gains from options, futures and forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (this is referred to as the "90% income test"). The
Portfolio must also satisfy certain annual distribution and quarterly diversification requirements. For purposes
of the 90% income test, income that a Portfolio earns from equity interests in certain entities that are not
treated as corporations (e.g., they are treated as partnerships or trusts) for U.S. tax purposes will generally
have the same character for the Portfolio as in the hands of such entities. Consequently, the Portfolio may be
required to limit its equity investments in such entities that earn fee income, rental income, or other
nonqualifying income.
As noted in the Prospectuses, each Portfolio must, and intends to, comply with the diversification
requirements imposed by Section 817(h) of the Code and the regulations under that section. Those requirements,
which are in addition to the diversification requirements imposed on a Portfolio by the Investment Company Act
and Subchapter M of the Code, place certain limitations on the assets of each separate account. Additionally,
because Section 817(h) and those regulations treat the assets of a Portfolio as assets of the related separate
account, there are restrictions on the amount of its assets a Portfolio may invest in securities of a single
issuer. Specifically, the regulations provide that, except as permitted by the "safe harbor" described below, as
of the end of each calendar quarter or within 30 days after a calendar quarter, no more than 55% of the total
assets of a Portfolio may be represented by any one investment, no more than 70% by any two investments, no more
than 80% by any three investments and no more than 90% by any four investments. For this purpose, all securities
of the same issuer are considered a single investment, and each U.S. Government agency and instrumentality is
considered a separate issuer.
Section 817(h) provides, as a safe harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied and no more than 55% of the
value of the account's total assets are cash and cash items (including receivables), U.S. Government securities
and securities of other regulated investment companies. Failure by a Portfolio to both qualify as a regulated
investment company and satisfy the Section 817(h) requirements would generally result in treatment of the
variable contract holders other than as described in the applicable variable contract prospectus, including
inclusion in ordinary income of income accrued under the contracts for the current and all prior taxable years.
Any such failure may also result in adverse tax consequences for the Portfolio and the insurance company issuing
the contracts.
Foreign exchange gains and losses realized by a Portfolio in connection with certain transactions
involving foreign currency denominated debt securities, certain options and futures contracts relating to foreign
currency, forward foreign currency contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be
treated as ordinary income and losses and may affect the amount, timing and character of distributions to
shareholders. If the net foreign exchange loss for a year were to exceed the Portfolio's investment company
taxable income (computed without regard to such loss) the resulting overall ordinary loss for such year would not
be deductible by the Portfolio or its shareholders in future years.
Limitations imposed by the Code on regulated investment companies like the Portfolios may restrict the
Portfolios' ability to enter into futures, options and currency forward transactions.
The Portfolios may be subject to withholding and other taxes imposed by foreign countries with respect
to their investments in foreign securities. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes.
The federal income tax rules applicable to mortgage dollar rolls and interest rate swaps, caps, floors
and collars are unclear in certain respects, and the Portfolios may be required to account for these instruments
under tax rules in a manner that, under certain circumstances, may limit their transactions in these instruments.
If a Portfolio acquires stock in certain non-U.S. corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at
least 50% of their assets in investments producing such passive income ("passive foreign investment companies"),
the Portfolio could be subject to Federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies, even if all income or gain
actually received by the Portfolio is timely distributed to its shareholders. The Portfolio would not be able to
pass through to its shareholders any credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election would require the Portfolio to recognize taxable
income or gain without the concurrent receipt of cash. Each Portfolio may limit and/or manage its stock holdings
in passive foreign investment companies to minimize its tax liability or maximize its return from these
investments.
Additional Information About the Portfolios
The Transfer Agent. OppenheimerFunds Services, the Company's Transfer Agent, is a division of the Manager. It
is responsible for maintaining the Company's shareholder registry and shareholder accounting records, and for
paying dividends and distributions to shareholders. It also handles shareholder servicing and administrative
functions. It serves as the Transfer Agent for an annual per account fee. It also acts as shareholder servicing
agent for the other Xxxxxxxxxxx funds. Shareholders should direct inquiries about their accounts to the Transfer
Agent at the address and toll-free numbers shown on the back cover.
-------------------------------------------------------------------------------------------------------------------
Investors under variable annuity contacts, variable life insurance policies and other investment products offered
by the insurance companies that offer shares of the Portfolios as investments for those products should direct
questions about their accounts to the servicing agent for their insurance company, because OppenheimerFunds
Services does not maintain the records for those annuities, policies or other products.
-------------------------------------------------------------------------------------------------------------------
The Custodian Bank. The Bank of New York is the custodian bank for the Portfolios' assets. The custodian bank's
responsibilities include safeguarding and controlling the Portfolios' portfolio securities, collecting income on
the portfolio securities and handling the delivery of such securities to and from the Portfolios.
It will be the practice of the Portfolios to deal with the custodian bank in a manner uninfluenced by
any banking relationship the custodian bank may have with the Manager and its affiliates. The Portfolios' cash
balances with the custodian bank in excess of $100,000 are not protected by federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. The independent auditors of the Portfolios are Deloitte & Touche LLP. They audit the
Portfolios' financial statements and perform other related audit services. They also act as auditors for certain
other funds advised by the Manager and its affiliates and they are the auditors for the Manager and its
affiliates.
A-138
Independent Auditors' Report
================================================================================
The Board of Directors and Shareholders of Government Securities Portfolio:
We have audited the accompanying statement of assets and liabilities of
Government Securities Portfolio (which is a series of Panorama Series Fund,
Inc.), including the statement of investments, as of December 31, 2001, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2001, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Government Securities Portfolio as of December 31, 2001, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Denver, Colorado
January 23, 2002
Statement of Investments December 31, 2001
Principal Market Value
Amount See Note 1
================================================================================================================================
Mortgage-Backed Obligations--19.4%
--------------------------------------------------------------------------------------------------------------------------------
Government Agency--19.4%
--------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored--12.3%
Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg.
Participation Certificates:
6.50%, 12/1/28 $
889,303 $ 893,573
10.50%, 10/1/20
42,308 47,915
--------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6.50%, 2/1/09-8/1/28
1,317,574 1,326,168
7.50%, 9/1/22
65,138 67,829
-----------
2,335,485
--------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--7.1%
Government National Mortgage Assn., 7%, 10/15/23-3/15/26
1,312,097 1,350,686
-----------
Total Mortgage-Backed Obligations (Cost
$3,577,490) 3,686,171
================================================================================================================================
U.S. Government Obligations--43.7%
--------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
7.50%, 11/15/16(1)
1,075,000 1,271,566
8.125%, 8/15/19
500,000 631,445
9.25%, 2/15/16
1,200,000 1,623,000
--------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.625%, 5/15/06
1,700,000 1,724,239
5.75%, 8/15/03
500,000 523,965
7.875%, 11/15/04
2,255,000 2,508,072
-----------
Total U.S. Government Obligations (Cost
$7,591,505) 8,282,287
================================================================================================================================
Corporate Bonds and Notes--27.8%
--------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Unsec. Bonds, Series S706, 5.375%, 5/15/06
1,500,000 1,538,511
--------------------------------------------------------------------------------------------------------------------------------
Financing Corp. Debs., FICO Strips, Series 13, Zero Coupon:
6.71%, 12/27/02(2)
1,200,000 1,168,680
6.77%, 12/27/06(2)
1,000,000 780,430
--------------------------------------------------------------------------------------------------------------------------------
Resolution Funding Corp., Zero Coupon Strip Bonds:
6.18%, 7/15/04(2)
1,500,000 1,366,357
6.23%, 7/15/05(2)
489,000 420,263
-----------
Total Corporate Bonds and Notes (Cost
$5,029,423) 5,274,241
================================================================================================================================
Short-Term Notes--4.2%
--------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 1.45%, 1/2/02 (Cost $799,968)
800,000 799,968
================================================================================================================================
Repurchase Agreements--4.1%
--------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 1.55%, dated 12/31/01,
to be repurchased at $781,067 on 1/2/02, collateralized by U.S. Treasury Nts.,
4.75%-7%, 7/15/06-11/15/08, with a value of $799,798 (Cost $781,000)
781,000 781,000
--------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $17,779,386)
99.2% 18,823,667
--------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities
0.8 160,111
---------- -----------
Net Assets
100.0% $18,983,778
========== ===========
1. Securities with an aggregate market value of $47,314 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
2. Zero-coupon bond reflects the effective yield on the date of purchase.
See accompanying Notes to Financial Statements.
4 Government Securities Portfolio
Statement of Assets and Liabilities December 31, 2001
================================================================================================================================
Assets
Investments, at value (cost $17,779,386)--see accompanying
statement $18,823,667
--------------------------------------------------------------------------------------------------------------------------------
Cash
853
--------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and principal
paydowns 144,442
Shares of capital stock
sold 21,081
Daily variation on futures
contracts 12,000
Other
820
-----------
Total
assets
19,002,863
================================================================================================================================
Liabilities
Payables and other liabilities:
Legal, auditing and other professional
fees 8,784
Shareholder
reports
6,578
Shares of capital stock
redeemed 2,478
Directors'
compensation
152
Other
1,093
-----------
Total
liabilities
19,085
================================================================================================================================
Net
Assets
$18,983,778
===========
================================================================================================================================
Composition of Net Assets
Par value of shares of capital
stock $ 17,120
--------------------------------------------------------------------------------------------------------------------------------
Additional paid-in
capital 17,832,754
--------------------------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income 933,612
--------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment
transactions (821,958)
--------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investments 1,022,250
-----------
Net assets--applicable to 17,119,800 shares of capital stock
outstanding $18,983,778
===========
================================================================================================================================
Net Asset Value, Redemption Price and Offering Price Per
Share $1.11
See accompanying Notes to Financial Statements.
Government Securities Portfolio 5
Statement of Operations For the Year Ended December 31, 2001
================================================================================================================================
Investment Income
Interest
$ 804,632
================================================================================================================================
Expenses
Management
fees
98,727
--------------------------------------------------------------------------------------------------------------------------------
Accounting service
fees 15,000
--------------------------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 11,720
--------------------------------------------------------------------------------------------------------------------------------
Shareholder
reports
9,112
--------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent
fees 7,362
--------------------------------------------------------------------------------------------------------------------------------
Directors'
compensation
2,954
--------------------------------------------------------------------------------------------------------------------------------
Other
3,478
----------
Total
expenses
148,353
Less reduction to custodian
expenses (129)
----------
Net
expenses
148,224
================================================================================================================================
Net Investment
Income 656,408
================================================================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments
289,208
Closing of futures
contracts 53,801
----------
Net realized gain
(loss) 343,009
--------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments 206,255
----------
Net realized and unrealized gain
(loss) 549,264
================================================================================================================================
Net Increase in Net Assets Resulting from
Operations $1,205,672
==========
See accompanying Notes to Financial Statements.
6 Government Securities Portfolio
Statements of Changes in Net Assets
Year Ended
December 31,
2001 2000
================================================================================================================================
Operations
Net investment income (loss) $
656,408 $ 1,134,707
--------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
343,009 40,667
--------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
206,255 1,140,510
----------- -----------
Net increase (decrease) in net assets resulting from operations
1,205,672 2,315,884
================================================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income
(1,112,769) (1,331,594)
================================================================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting from
capital stock transactions
(13,063) (2,230,791)
================================================================================================================================
Net Assets
Total increase (decrease)
79,840 (1,246,501)
--------------------------------------------------------------------------------------------------------------------------------
Beginning of period
18,903,938 20,150,439
----------- -----------
End of period [including undistributed (overdistributed) net investment
income of $933,612 and $1,104,567, respectively]
$18,983,778 $18,903,938
=========== ===========
See accompanying Notes to Financial Statements.
Government Securities Portfolio 7
Financial Highlights
Year Ended December 31,
2001 2000 1999 1998 1997
====================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $1.10 $1.05 $1.13 $1.11
$1.09
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04(1) .07 .07 .06
..07
Net realized and unrealized gain (loss) .04(1) .05 (.09) .03
..02
--------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations .08 .12 (.02) .09
..09
--------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.07) (.07) (.06) (.07)
(.07)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.11 $1.10 $1.05 $1.13
$1.11
===== ===== ===== =====
=====
====================================================================================================================
Total Return, at Net Asset Value(2) 7.23% 12.36% (1.73)% 8.14%
8.82%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $18,984 $18,904 $20,150 $24,923
$23,719
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $18,805 $18,702 $22,683 $24,044
$23,034
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.49%(1) 6.07% 5.80% 5.64%
5.96%
Expenses 0.79% 0.74% 0.70% 0.68%(4)
0.67%(4)
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 31% 14%
43% 0%
1. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $.005 per share
Net realized and unrealized gain (loss) Change less than $.005 per share
Net investment income ratio 3.85%
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Total
returns are not annualized for periods of less than one full year. Total return
information does not reflect expenses that apply at the separate account level
or to related insurance products. Inclusion of these charges would reduce
figures for all periods shown.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
8 Government Securities Portfolio
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies
Government Securities Portfolio (the Portfolio) is a series of Panorama Series
Fund, Inc. (the Company) which is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Portfolio's
investment objective is to seek a high level of current income with a high
degree of safety of principal, by investing primarily (at least 65% of its total
assets under normal market conditions) in U.S. Government securities and U.S.
Government-related securities. The Portfolio's investment advisor is
OppenheimerFunds, Inc. (the Manager). Shares of the Portfolio are sold only to
separate accounts of life insurance companies, a majority of such shares are
held by separate accounts of Massachusetts Mutual Life Insurance Co., an
affiliate of the investment advisor. The following is a summary of significant
accounting policies consistently followed by the Portfolio.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Portfolio's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily available
are valued primarily using dealer-supplied valuations, a portfolio pricing
service authorized by the Board of Directors, or at their fair value. Fair value
is determined in good faith under consistently applied procedures under the
supervision of the Board of Directors. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Portfolio on a when-issued basis can take place
a month or more after the trade date. Normally the settlement date occurs within
six months after the trade date; however, the Portfolio may, from time to time,
purchase securities whose settlement date extends beyond six months or more
beyond trade date. During this period, such securities do not earn interest, are
subject to market fluctuation and may increase or decrease in value prior to
their delivery. The Portfolio maintains segregated assets with a market value
equal to or greater than the amount of its purchase commitments. The purchase of
securities on a when-issued basis may increase the volatility of the Portfolio's
net asset value to the extent the Portfolio makes such purchases while remaining
substantially fully invested.
In connection with its ability to purchase securities on a when-issued
basis, the Portfolio may enter into forward roll transactions with respect to
mortgage-related securities. Forward roll transactions require the sale of
securities for delivery in the current month, and a simultaneous agreement with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The forward roll may not
extend for a period of greater than one year. The Portfolio generally records
the incremental difference between the forward purchase and sell of each forward
roll as interest income.
Risks to the Portfolio of entering into forward roll transactions
include the potential inability of the counterparty to meet the terms of the
agreement; the potential of the Portfolio to receive inferior securities to what
was sold to the counterparty at redelivery; counterparty credit risk; and the
potential paydown speed variance between the mortgage-related pools.
--------------------------------------------------------------------------------
Repurchase Agreements. The Portfolio requires its custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System
or to have segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the underlying
securities is required to be at least 102% of the resale price at the time of
purchase. If the seller of the agreement defaults and the value of the
collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Portfolio may be delayed or
limited.
Government Securities Portfolio 9
Notes to Financial Statements (Continued)
================================================================================
1. Significant Accounting Policies (continued)
Federal Taxes. The Portfolio intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders.
As of December 31, 2001, the Portfolio had available for federal income tax
purposes unused capital loss carryovers as follows:
Expiring
----------------------------------
2002 $187,580
2003 120,749
2005 103,711
2006 62,129
2007 335,952
--------
Total $810,121
========
As of December 31, 2001, the Portfolio had approximately $24,000 of post-October
losses available to offset future capital gains, if any. Such losses, if
unutilized, will expire in 2010.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes primarily because paydown gains and losses are treated as
ordinary income (loss) for tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Portfolio.
The Portfolio adjusts the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the year ended December 31, 2001, amounts have been reclassified to
reflect an increase in undistributed net investment income of $285,406.
Accumulated net realized loss on investments was increased by the same amount.
Net assets of the Portfolio were unaffected by the reclassifications.
--------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
--------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
10 Government Securities Portfolio
Notes to Financial Statements (Continued)
================================================================================
1. Significant Accounting Policies (continued)
Other. The Portfolio adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies, as revised, effective for fiscal years beginning
after December 15, 2000. The Portfolio elected to begin amortizing premiums on
debt securities effective January 1, 2001. Prior to this date, the Portfolio did
not amortize premiums on debt securities. The cumulative effect of this
accounting change had no impact on the total net assets of the Portfolio, but
resulted in a $285,406 decrease to cost of securities and a corresponding
$285,406 increase in net unrealized appreciation, based on securities held as of
December 31, 2000. For the year ended December 31, 2001, interest income
decreased by $67,246, net realized gain on investments decreased by $18,646, and
the change in net unrealized appreciation on investments increased by $85,892.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 income and
expenses during the reporting period. Actual results could differ from those
estimates.
================================================================================
2. Shares of Capital Stock
The Portfolio has authorized 160 million shares of $0.001 par value capital
stock. Transactions in shares of capital stock were as follows:
Year Ended December 31, 2001 Year Ended December 31,
2000
--------------------------------
--------------------------------
Shares Amount Shares
Amount
-------------------------------------------------------------------------------------------------------------------
Sold 3,017,758 $ 3,326,540 2,061,609 $
2,162,940
Dividends and/or distributions reinvested 1,039,970 1,112,769 1,331,594
1,331,594
Redeemed (4,061,125) (4,452,372) (5,547,687)
(5,725,325)
---------- ----------- ----------
-----------
Net increase (decrease) (3,397) $ (13,063) (2,154,484)
$(2,230,791)
========== =========== ==========
===========
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2001, were
$3,345,211 and $3,368,744, respectively.
As of December 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $17,789,386 was:
Gross unrealized appreciation $1,044,281
Gross unrealized depreciation (10,000)
----------
Net unrealized appreciation (depreciation) $1,034,281
==========
Government Securities Portfolio 11
Notes to Financial Statements (Continued)
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Portfolio. The annual fees are 0.525% of
the first $300 million of average daily net assets of the Portfolio, 0.50% of
the next $100 million and 0.45% of average daily net assets over $400 million.
The Portfolio's management fee for the year ended December 31, 2001, was an
annualized rate of 0.525%.
--------------------------------------------------------------------------------
Accounting Fees. The Manager acts as the accounting agent for the Portfolio at
an annual fee of $15,000, plus out-of-pocket costs and expenses reasonably
incurred.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Portfolio. The
Portfolio pays OFS an agreed-upon per account fee. Additionally, funds offered
in variable annuity separate accounts are subject to minimum fees of $5,000 for
assets of less than $10 million and $10,000 for assets of $10 million or more.
The Portfolio is subject to the minimum fee in the event that the per account
fee does not equal or exceed the applicable minimum fee.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees to 0.25% per annum of funds offered in variable annuity separate
accounts, effective January 1, 2001. This undertaking may be amended or
withdrawn at any time.
================================================================================
5. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Portfolio may buy and sell futures contracts that relate to
broadly based securities indices "financial futures" or debt securities
"interest rate futures" in order to gain exposure to or to seek to protect
against changes in market value of stock and bonds or interest rates. The
Portfolio may also buy or write put or call options on these futures contracts.
The Portfolio generally sells futures contracts to hedge against
increases in interest rates and decreases in market value of portfolio
securities. The Portfolio may also purchase futures contracts to gain exposure
to market changes as it may be more efficient or cost effective than actually
buying fixed income securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Portfolio each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Portfolio recognizes a realized gain or loss
when the contract is closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily xxxx to market for variation margin. Realized gains
and losses are reported on the Statement of Operations as closing and expiration
of futures contracts.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
As of December 31, 2001, the Portfolio had outstanding futures contracts as
follows:
Unrealized
Expiration Number of Valuation as of Appreciation
Contract Description Date Contracts December 31, 2001 (Depreciation)
----------------------------------------------------------------------------------------------------------------
Contracts to Purchase
---------------------
U.S. Long Bond 3/19/02 12 $1,218,375 $(22,031)
========
12 Government Securities Portfolio
Independent Auditors' Report
===============================================================================
The Board of Directors and Shareholders of Growth Portfolio:
We have audited the accompanying statement of assets and liabilities of Growth
Portfolio (which is a series of Panorama Series Fund, Inc.), including the
statement of investments, as of December 31, 2001, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2001, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Growth Portfolio as of December 31, 2001, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Denver, Colorado
January 23, 2002
Statement of Investments December 31, 2001
Market Value
Shares See Note 1
===================================================================================
Common Stocks--97.5%
-----------------------------------------------------------------------------------
Basic Materials--1.2%
-----------------------------------------------------------------------------------
Chemicals--0.7%
Air Products & Chemicals, Inc. 7,000 $ 328,370
-----------------------------------------------------------------------------------
Cabot Corp. 800 28,560
-----------------------------------------------------------------------------------
Cabot Microelectronics Corp.(1) 6,800 538,900
-----------------------------------------------------------------------------------
Du Pont (E.I.) de Nemours & Co. 12,500 531,375
-----------------------------------------------------------------------------------
Xxxxxxx Chemical Co. 500 19,510
-----------------------------------------------------------------------------------
Xxxxxxxx Corp. 6,700 178,354
-----------------------------------------------------------------------------------
International Flavors & Fragrances, Inc. 3,200 95,072
-----------------------------------------------------------------------------------
Praxair, Inc. 1,200 66,300
----------
1,786,441
-----------------------------------------------------------------------------------
Gold & Precious Minerals--0.0%
Xxxxxxx Gold Corp. 5,500 87,725
-----------------------------------------------------------------------------------
Metals--0.3%
Alcan, Inc. 16,700 600,031
-----------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Cl. A(1) 500 6,450
-----------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Cl. B(1) 6,900 92,391
-----------------------------------------------------------------------------------
Inco Ltd.(1) 3,100 52,514
----------
751,386
-----------------------------------------------------------------------------------
Paper--0.2%
Georgia-Pacific Corp. 3,800 104,918
-----------------------------------------------------------------------------------
Xxxx Corp. 900 27,801
-----------------------------------------------------------------------------------
Smurfit-Stone Container Corp.(1) 2,500 39,925
-----------------------------------------------------------------------------------
Weyerhaeuser Co. 6,300 340,704
----------
513,348
-----------------------------------------------------------------------------------
Capital Goods--5.9%
-----------------------------------------------------------------------------------
Aerospace/Defense--0.6%
DRS Technologies, Inc.(1) 1,000 35,650
-----------------------------------------------------------------------------------
General Dynamics Corp. 2,700 215,028
-----------------------------------------------------------------------------------
Lockheed Xxxxxx Corp. 14,400 672,048
-----------------------------------------------------------------------------------
Precision Castparts Corp. 1,800 50,850
-----------------------------------------------------------------------------------
Raytheon Co. 4,500 146,115
-----------------------------------------------------------------------------------
Rockwell Xxxxxxx, Inc. 11,200 218,400
----------
1,338,091
-----------------------------------------------------------------------------------
Electrical Equipment--2.8%
Amphenol Corp., Cl. A(1) 300 14,415
-----------------------------------------------------------------------------------
AVX Corp. 5,700 134,463
-----------------------------------------------------------------------------------
General Electric Co. 156,500 6,272,520
-----------------------------------------------------------------------------------
Integrated Device Technology, Inc.(1) 5,500 146,245
-----------------------------------------------------------------------------------
Kemet Corp.(1) 2,400 42,600
-----------------------------------------------------------------------------------
Molex, Inc., Cl. A 5,300 143,365
-----------------------------------------------------------------------------------
Rockwell International Corp. 6,200 110,732
----------
6,864,340
Growth Portfolio 5
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Industrial Services--0.6%
Administaff, Inc.(1) 600 $ 16,446
-----------------------------------------------------------------------------------
Allied Waste Industries, Inc.(1) 6,000 84,360
-----------------------------------------------------------------------------------
CONSOL Energy, Inc. 1,500 37,260
-----------------------------------------------------------------------------------
Manpower, Inc. 1,700 57,307
-----------------------------------------------------------------------------------
Xxxxxx (Xxxxxx), Inc. 2,000 47,320
-----------------------------------------------------------------------------------
NDCHealth Corp. 300 10,365
-----------------------------------------------------------------------------------
Peabody Energy Corp. 2,900 81,751
-----------------------------------------------------------------------------------
Right Management Consultants, Inc.(1) 450 7,785
-----------------------------------------------------------------------------------
Xxxxxx Half International, Inc.(1) 1,600 42,720
-----------------------------------------------------------------------------------
Teekay Shipping Corp. 2,100 73,185
-----------------------------------------------------------------------------------
Viad Corp. 1,100 26,048
-----------------------------------------------------------------------------------
Waste Management, Inc. 27,000 861,570
----------
1,346,117
-----------------------------------------------------------------------------------
Manufacturing--1.9%
Ball Corp. 1,000 70,700
-----------------------------------------------------------------------------------
Caterpillar, Inc. 8,100 423,225
-----------------------------------------------------------------------------------
Xxxxxx Industries, Inc. 7,000 244,440
-----------------------------------------------------------------------------------
Dover Corp. 2,200 81,554
-----------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 5,800 685,618
-----------------------------------------------------------------------------------
Oakley, Inc.(1) 800 13,008
-----------------------------------------------------------------------------------
Packaging Corp. of America(1) 400 7,260
-----------------------------------------------------------------------------------
Pactiv Corp.(1) 7,800 138,450
-----------------------------------------------------------------------------------
Plexus Corp.(1) 600 15,936
-----------------------------------------------------------------------------------
Ryder Systems, Inc. 300 6,645
-----------------------------------------------------------------------------------
Sanmina-SCI Corp.(1) 6,000 119,400
-----------------------------------------------------------------------------------
Tektronix, Inc.(1) 1,600 41,248
-----------------------------------------------------------------------------------
Textron, Inc. 3,800 157,548
-----------------------------------------------------------------------------------
Tyco International Ltd. 44,900 2,644,610
----------
4,649,642
-----------------------------------------------------------------------------------
Communication Services--4.2%
-----------------------------------------------------------------------------------
Telecommunications: Long Distance--2.5%
ALLTEL Corp. 4,100 253,093
-----------------------------------------------------------------------------------
AT&T Corp. 111,700 2,026,238
-----------------------------------------------------------------------------------
BroadWing, Inc.(1) 2,800 26,600
-----------------------------------------------------------------------------------
Corvis Corp.(1) 7,500 24,225
-----------------------------------------------------------------------------------
Sprint Corp. (Fon Group) 42,700 857,416
-----------------------------------------------------------------------------------
Verizon Communications, Inc. 58,100 2,757,426
-----------------------------------------------------------------------------------
WorldCom, Inc./MCI Group 1,200 15,240
----------
5,960,238
-----------------------------------------------------------------------------------
Telephone Utilities--1.1%
BellSouth Corp. 30,200 1,152,130
-----------------------------------------------------------------------------------
SBC Communications, Inc. 38,800 1,519,796
----------
2,671,926
6 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Telecommunications: Wireless--0.6%
Amdocs Ltd.(1) 15,300 $ 519,741
-----------------------------------------------------------------------------------
AT&T Wireless Services, Inc.(1) 17,340 249,176
-----------------------------------------------------------------------------------
Metro One Telecommunication, Inc.(1) 2,850 86,212
-----------------------------------------------------------------------------------
Sprint Corp. (PCS Group)(1) 20,200 493,082
-----------------------------------------------------------------------------------
Xxxxxxxx Communications Group, Inc.(1) 27,600 64,860
----------
1,413,071
-----------------------------------------------------------------------------------
Consumer Cyclicals--11.3%
-----------------------------------------------------------------------------------
Autos & Housing--1.9%
Beazer Homes USA, Inc.(1) 300 21,951
-----------------------------------------------------------------------------------
Centex Corp. 6,000 342,540
-----------------------------------------------------------------------------------
Delphi Automotive Systems Corp. 7,000 95,620
-----------------------------------------------------------------------------------
Direct Focus, Inc.(1) 1,400 43,680
-----------------------------------------------------------------------------------
Ford Motor Co. 65,911 1,036,121
-----------------------------------------------------------------------------------
Fortune Brands, Inc. 3,500 138,565
-----------------------------------------------------------------------------------
General Motors Corp. 20,200 981,720
-----------------------------------------------------------------------------------
Group 1 Automotive, Inc.(1) 200 5,702
-----------------------------------------------------------------------------------
Xxxxxx International Industries, Inc. 400 18,040
-----------------------------------------------------------------------------------
KB Home 8,200 328,820
-----------------------------------------------------------------------------------
Kennametal, Inc. 200 8,054
-----------------------------------------------------------------------------------
Xxxx Corp.(1) 3,900 148,746
-----------------------------------------------------------------------------------
Lennar Corp. 1,600 74,912
-----------------------------------------------------------------------------------
Masco Corp. 8,400 205,800
-----------------------------------------------------------------------------------
Pep Boys-Manny, Moe & Xxxx 800 13,720
-----------------------------------------------------------------------------------
Polaris Industries, Inc. 300 17,325
-----------------------------------------------------------------------------------
Xxxxxx Group, Inc. (The) 4,400 322,080
-----------------------------------------------------------------------------------
St. Xxx Co. (The) 3,100 86,025
-----------------------------------------------------------------------------------
Toll Brothers, Inc.(1) 7,300 320,470
-----------------------------------------------------------------------------------
Visteon Corp. 2,000 30,080
-----------------------------------------------------------------------------------
Whirlpool Corp. 5,300 388,649
-----------------------------------------------------------------------------------
York International Corp. 1,200 45,756
----------
4,674,376
-----------------------------------------------------------------------------------
Consumer Services--0.9%
Boron, XxXxxx & Associates, Inc.(1) 500 6,895
-----------------------------------------------------------------------------------
Cendant Corp.(1) 36,300 711,843
-----------------------------------------------------------------------------------
H&R Block, Inc. 15,200 679,440
-----------------------------------------------------------------------------------
IMS Health, Inc. 27,500 536,525
-----------------------------------------------------------------------------------
Omnicom Group, Inc. 1,600 142,960
-----------------------------------------------------------------------------------
Xxxxxxxxxxx.xxx, Inc.(1) 800 22,968
----------
2,100,631
Growth Portfolio 7
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Leisure & Entertainment--0.8%
Action Performance Cos., Inc.(1) 400 $ 12,244
-----------------------------------------------------------------------------------
Argosy Gaming Co.(1) 300 9,756
-----------------------------------------------------------------------------------
Brunswick Corp. 2,700 58,752
-----------------------------------------------------------------------------------
Callaway Golf Co. 700 13,405
-----------------------------------------------------------------------------------
GTech Holdings Corp.(1) 2,300 104,167
-----------------------------------------------------------------------------------
Harley-Davidson, Inc. 14,200 771,202
-----------------------------------------------------------------------------------
Hasbro, Inc. 7,000 113,610
-----------------------------------------------------------------------------------
Hilton Hotels Corp. 6,800 74,256
-----------------------------------------------------------------------------------
Mandalay Resort Group(1) 2,200 47,080
-----------------------------------------------------------------------------------
Marriott International, Inc., Cl. A 12,800 520,320
-----------------------------------------------------------------------------------
MGM Mirage, Inc.(1) 2,600 75,062
-----------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 7,100 211,935
-----------------------------------------------------------------------------------
WMS Industries, Inc.(1) 1,800 36,000
----------
2,047,789
-----------------------------------------------------------------------------------
Media--1.0%
AOL Time Warner, Inc.(1) 57,000 1,829,700
-----------------------------------------------------------------------------------
Deluxe Corp. 3,800 158,004
-----------------------------------------------------------------------------------
Donnelley (R.R.) & Sons Co. 400 11,876
-----------------------------------------------------------------------------------
Dow Xxxxx & Co., Inc. 400 21,892
-----------------------------------------------------------------------------------
Imagistics International, Inc. 280 3,458
-----------------------------------------------------------------------------------
XxXxxx-Xxxx Cos., Inc. (The) 1,000 60,980
-----------------------------------------------------------------------------------
X.X. Xxxxxxxxx Corp.(1) 3,200 92,960
-----------------------------------------------------------------------------------
Readers Digest Assn., Inc. (The), Cl. A 4,400 101,552
-----------------------------------------------------------------------------------
USA Networks, Inc.(1) 4,500 122,895
----------
2,403,317
-----------------------------------------------------------------------------------
Retail: General--3.3%
Costco Wholesale Corp.(1) 11,500 510,370
-----------------------------------------------------------------------------------
Xxxxxxx'x, Inc., Cl. A 1,800 28,800
-----------------------------------------------------------------------------------
Dollar General Corp. 1,300 19,370
-----------------------------------------------------------------------------------
Federated Department Stores, Inc.(1) 7,200 294,480
-----------------------------------------------------------------------------------
Foot Locker, Inc.(1) 10,900 170,585
-----------------------------------------------------------------------------------
Xxxx'x Corp.(1) 7,900 556,476
-----------------------------------------------------------------------------------
May Department Stores Co. 14,100 521,418
-----------------------------------------------------------------------------------
Sears Xxxxxxx & Co. 24,600 1,171,944
-----------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 82,800 4,765,140
----------
8,038,583
-----------------------------------------------------------------------------------
Retail: Specialty--3.0%
American Eagle Outfitters, Inc.(1) 5,300 138,701
-----------------------------------------------------------------------------------
AutoNation, Inc.(1) 4,900 60,417
-----------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.(1) 7,500 254,250
-----------------------------------------------------------------------------------
BJ's Wholesale Club, Inc.(1) 3,400 149,940
-----------------------------------------------------------------------------------
Borders Group, Inc.(1) 1,500 29,760
-----------------------------------------------------------------------------------
Circuit City Stores, Inc./CarMax Group(1) 600 13,644
8 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Retail: Specialty (continued)
Electronics Boutique Holdings Corp.(1) 1,600 $ 63,904
-----------------------------------------------------------------------------------
Gap, Inc. 44,500 620,330
-----------------------------------------------------------------------------------
Genesco, Inc.(1) 500 10,380
-----------------------------------------------------------------------------------
Home Depot, Inc. 48,500 2,473,985
-----------------------------------------------------------------------------------
Hot Topic, Inc.(1) 4,800 150,672
-----------------------------------------------------------------------------------
Lands'End, Inc.(1) 300 15,048
-----------------------------------------------------------------------------------
Michaels Stores, Inc.(1) 2,300 75,785
-----------------------------------------------------------------------------------
Nike, Inc., Cl. B 11,000 618,640
-----------------------------------------------------------------------------------
Office Depot, Inc.(1) 12,500 231,750
-----------------------------------------------------------------------------------
Payless ShoeSource, Inc.(1) 300 16,845
-----------------------------------------------------------------------------------
Pier 1 Imports, Inc. 500 8,670
-----------------------------------------------------------------------------------
Reebok International Ltd.(1) 1,200 31,800
-----------------------------------------------------------------------------------
Rite Aid Corp.(1) 15,400 77,924
-----------------------------------------------------------------------------------
Xxxx Stores, Inc. 11,900 381,752
-----------------------------------------------------------------------------------
Talbots, Inc. (The) 8,400 304,500
-----------------------------------------------------------------------------------
Target Corp. 13,300 545,965
-----------------------------------------------------------------------------------
Timberland Co., Cl. A(1) 300 11,124
-----------------------------------------------------------------------------------
TJX Cos., Inc. (The) 23,700 944,682
----------
7,230,468
-----------------------------------------------------------------------------------
Textile, Apparel & Home Furnishings--0.4%
Abercrombie & Fitch Co., Cl. A(1) 7,700 204,281
-----------------------------------------------------------------------------------
bebe stores, inc.(1) 400 7,464
-----------------------------------------------------------------------------------
Xxx Shops, Inc. 100 2,425
-----------------------------------------------------------------------------------
Xxxxx Apparel Group, Inc.(1) 3,600 119,412
-----------------------------------------------------------------------------------
Liz Claiborne, Inc. 5,900 293,525
-----------------------------------------------------------------------------------
Mohawk Industries, Inc.(1) 1,800 98,784
-----------------------------------------------------------------------------------
Xxxxx Xxxxxxxx Corp.(1) 1,700 23,375
-----------------------------------------------------------------------------------
Too, Inc.(1) 3,200 88,000
----------
837,266
-----------------------------------------------------------------------------------
Consumer Staples--9.3%
-----------------------------------------------------------------------------------
Beverages--1.6%
Anheuser-Xxxxx Cos., Inc. 24,900 1,125,729
-----------------------------------------------------------------------------------
Coca-Cola Co. (The) 43,900 2,069,885
-----------------------------------------------------------------------------------
PepsiCo, Inc. 15,420 750,800
----------
3,946,414
-----------------------------------------------------------------------------------
Broadcasting--0.4%
Comcast Corp., Cl. A Special 8,100 291,600
-----------------------------------------------------------------------------------
EchoStar Communications Corp., Cl. A(1) 1,100 30,217
-----------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A Shares(1) 900 23,877
-----------------------------------------------------------------------------------
Gemstar-TV Guide International, Inc.(1) 11,000 304,700
-----------------------------------------------------------------------------------
Hispanic Broadcasting Corp.(1) 1,100 28,050
-----------------------------------------------------------------------------------
Univision Communications, Inc., Cl. A(1) 5,600 226,576
----------
905,020
Growth Portfolio 9
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Education--0.0%
Corinthian Colleges, Inc.(1) 600 $ 24,534
-----------------------------------------------------------------------------------
Education Management Corp.(1) 400 14,500
-----------------------------------------------------------------------------------
ITT Educational Services, Inc.(1) 1,200 44,244
----------
83,278
-----------------------------------------------------------------------------------
Entertainment--1.2%
-----------------------------------------------------------------------------------
Xxxxxxxx'x International, Inc. 1,850 63,270
-----------------------------------------------------------------------------------
CBRL Group, Inc. 600 17,664
-----------------------------------------------------------------------------------
Xxxxxx Restaurants, Inc. 6,800 240,720
-----------------------------------------------------------------------------------
Disney (Xxxx) Co. 28,200 584,304
-----------------------------------------------------------------------------------
Xxxxxx'x Restaurants, Inc. 300 5,595
-----------------------------------------------------------------------------------
Liberty Media Corp., Cl. A(1) 17,200 240,800
-----------------------------------------------------------------------------------
XxXxxxxx'x Corp. 28,900 764,983
-----------------------------------------------------------------------------------
X.X. Xxxxx'x China Bistro, Inc.(1) 400 18,920
-----------------------------------------------------------------------------------
Papa John's International, Inc.(1) 300 8,244
-----------------------------------------------------------------------------------
Pixar, Inc.(1) 100 3,596
-----------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 4,400 71,280
-----------------------------------------------------------------------------------
Ruby Tuesday, Inc. 10,600 218,678
-----------------------------------------------------------------------------------
Ryan's Family Steak Houses, Inc.(1) 1,900 41,135
-----------------------------------------------------------------------------------
Sonic Corp.(1) 400 14,400
-----------------------------------------------------------------------------------
THQ, Inc.(1) 4,500 218,115
-----------------------------------------------------------------------------------
Tricon Global Restaurants, Inc.(1) 1,600 78,720
-----------------------------------------------------------------------------------
Viacom, Inc., Cl. B(1) 9,525 420,529
----------
3,010,953
-----------------------------------------------------------------------------------
Food--2.1%
Xxxxxx-Xxxxxxx-Midland Co. 4,305 61,777
-----------------------------------------------------------------------------------
Xxxxxxxx Soup Co. 21,300 636,231
-----------------------------------------------------------------------------------
ConAgra Foods, Inc. 25,700 610,889
-----------------------------------------------------------------------------------
Interstate Bakeries Corp. 400 9,672
-----------------------------------------------------------------------------------
Xxxxxxx Co. 3,700 111,370
-----------------------------------------------------------------------------------
Kraft Foods, Inc., Cl. A 31,700 1,078,751
-----------------------------------------------------------------------------------
Performance Food Group Co.(1) 800 28,136
-----------------------------------------------------------------------------------
Xxxx Xxx Corp. 34,948 776,894
-----------------------------------------------------------------------------------
Sysco Corp. 4,800 125,856
-----------------------------------------------------------------------------------
Tyson Foods, Inc., Cl. A 3,900 45,045
-----------------------------------------------------------------------------------
Unilever NV, NY Shares 17,700 1,019,697
-----------------------------------------------------------------------------------
Wrigley Xxxxxxx Xx. Co. 12,100 621,577
----------
5,125,895
-----------------------------------------------------------------------------------
Food & Drug Retailers--1.2%
Xxxxxxxxx'x, Inc. 15,100 475,499
-----------------------------------------------------------------------------------
CVS Corp. 21,700 642,320
-----------------------------------------------------------------------------------
Xxxxx Xxxxx, Inc.(1) 700 21,245
-----------------------------------------------------------------------------------
Xxxxxxx Cos., Inc. 7,900 146,150
-----------------------------------------------------------------------------------
Kroger Co. (The)(1) 16,200 338,094
10 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Food & Drug Retailers (continued)
Safeway, Inc.(1) 15,800 $ 659,650
-----------------------------------------------------------------------------------
Walgreen Co. 16,000 538,560
----------
2,821,518
-----------------------------------------------------------------------------------
Household Goods--1.4%
Avon Products, Inc. 5,900 274,350
-----------------------------------------------------------------------------------
Colgate-Palmolive Co. 9,200 531,300
-----------------------------------------------------------------------------------
Dial Corp. (The) 1,100 18,865
-----------------------------------------------------------------------------------
Xxxxxxxx Co. 20,000 668,000
-----------------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 8,100 229,635
-----------------------------------------------------------------------------------
Procter & Xxxxxx Co. 19,600 1,550,948
----------
3,273,098
-----------------------------------------------------------------------------------
Tobacco--1.4%
Xxxxxx Xxxxxx Cos., Inc. 55,800 2,558,430
-----------------------------------------------------------------------------------
X.X. Xxxxxxxx Tobacco Holdings, Inc. 16,000 900,800
----------
3,459,230
-----------------------------------------------------------------------------------
Energy--9.6%
-----------------------------------------------------------------------------------
Energy Services--0.6%
Xxxxx Xxxxxx, Inc. 6,000 218,820
-----------------------------------------------------------------------------------
ENSCO International, Inc. 10,700 265,895
-----------------------------------------------------------------------------------
Halliburton Co. 19,700 258,070
-----------------------------------------------------------------------------------
Headwaters, Inc.(1) 700 8,022
-----------------------------------------------------------------------------------
Helmerich & Xxxxx, Inc. 1,700 56,746
-----------------------------------------------------------------------------------
Xxxxxx Energy Co. 2,700 55,971
-----------------------------------------------------------------------------------
Xxxxxx Industries, Inc.(1) 4,100 140,753
-----------------------------------------------------------------------------------
PanCanadian Energy Corp. 2,000 51,745
-----------------------------------------------------------------------------------
Precision Drilling Corp.(1) 900 23,238
-----------------------------------------------------------------------------------
Schlumberger Ltd. 4,700 258,265
----------
1,337,525
-----------------------------------------------------------------------------------
Oil: Domestic--7.0%
Amerada Xxxx Corp. 7,500 468,750
-----------------------------------------------------------------------------------
Anadarko Petroleum Corp. 9,800 557,130
-----------------------------------------------------------------------------------
Ashland, Inc. 3,500 161,280
-----------------------------------------------------------------------------------
Burlington Resources, Inc. 5,200 195,208
-----------------------------------------------------------------------------------
Chesapeake Energy Corp.(1) 2,500 16,525
-----------------------------------------------------------------------------------
ChevronTexaco Corp. 32,794 2,938,670
-----------------------------------------------------------------------------------
Conoco, Inc. 40,400 1,143,320
-----------------------------------------------------------------------------------
EOG Resources, Inc. 12,100 473,231
-----------------------------------------------------------------------------------
Exxon Mobil Corp. 131,376 5,163,077
-----------------------------------------------------------------------------------
Frontier Oil Corp. 44,200 735,488
-----------------------------------------------------------------------------------
GlobalSantaFe Corp. 17,610 502,237
-----------------------------------------------------------------------------------
Xxxxxx Oil Corp. 11,400 958,056
----------------------------------------------------------------------------------
Newfield Exploration Co.(1) 2,400 85,224
-----------------------------------------------------------------------------------
Occidental Petroleum Corp. 25,500 676,515
-----------------------------------------------------------------------------------
Ocean Energy, Inc. 1,300 24,960
Growth Portfolio 11
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Oil: Domestic (continued)
Xxxxxxxx Petroleum Co. 20,360 $ 1,226,894
-----------------------------------------------------------------------------------
Stone Energy Corp.(1) 3,700 146,150
-----------------------------------------------------------------------------------
Sunoco, Inc. 7,500 280,050
-----------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp. 1,400 69,272
-----------------------------------------------------------------------------------
Unocal Corp. 12,200 440,054
-----------------------------------------------------------------------------------
USX-Marathon Group, Inc. 19,700 591,000
-----------
16,853,091
-----------------------------------------------------------------------------------
Oil: International--2.0%
Baytex Energy Ltd.(1) 25,100 68,713
-----------------------------------------------------------------------------------
Canadian 88 Energy Corp.(1) 177,300 199,925
-----------------------------------------------------------------------------------
Canadian Natural Resources Ltd. 31,700 760,776
-----------------------------------------------------------------------------------
Paramount Resources Ltd.(1) 30,000 264,988
-----------------------------------------------------------------------------------
Rio Alto Exploration Ltd.(1) 15,600 182,747
-----------------------------------------------------------------------------------
Royal Dutch Petroleum Co., NY Shares 49,200 2,411,784
-----------------------------------------------------------------------------------
Talisman Energy, Inc. 23,800 902,023
-----------
4,790,956
-----------------------------------------------------------------------------------
Financial--24.3%
-----------------------------------------------------------------------------------
Banks--5.4%
American Home Mortgage Holdings, Inc. 300 3,630
-----------------------------------------------------------------------------------
AmSouth Bancorp 1,400 26,460
-----------------------------------------------------------------------------------
Astoria Financial Corp. 7,700 203,742
-----------------------------------------------------------------------------------
Bank of America Corp. 46,500 2,927,175
-----------------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 14,800 603,840
-----------------------------------------------------------------------------------
Bank One Corp. 27,800 1,085,590
-----------------------------------------------------------------------------------
Banknorth Group, Inc. 300 6,756
-----------------------------------------------------------------------------------
BB&T Corp. 13,900 501,929
-----------------------------------------------------------------------------------
Charter One Financial, Inc. 10,645 289,012
-----------------------------------------------------------------------------------
City National Corp. 400 18,740
-----------------------------------------------------------------------------------
Comerica, Inc. 9,600 550,080
-----------------------------------------------------------------------------------
Compass Bancshares, Inc. 400 11,320
-----------------------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 100 3,088
-----------------------------------------------------------------------------------
Xxxxxx Financial Corp. 400 16,500
-----------------------------------------------------------------------------------
FleetBoston Financial Corp. 2,800 102,200
-----------------------------------------------------------------------------------
Hibernia Corp., Cl. A 2,100 37,359
-----------------------------------------------------------------------------------
Independence Community Bank Corp. 1,900 43,244
-----------------------------------------------------------------------------------
X.X. Xxxxxx Xxxxx & Co. 47,700 1,733,895
-----------------------------------------------------------------------------------
KeyCorp 13,000 316,420
-----------------------------------------------------------------------------------
Knight Trading Group, Inc.(1) 2,900 31,958
-----------------------------------------------------------------------------------
Mellon Financial Corp. 16,700 628,254
-----------------------------------------------------------------------------------
National City Corp. 25,400 742,696
-----------------------------------------------------------------------------------
New York Community Bancorp, Inc. 1,300 29,731
-----------------------------------------------------------------------------------
Northern Trust Corp. 2,400 144,528
-----------------------------------------------------------------------------------
Pacific Century Financial Corp. 1,700 44,013
-----------------------------------------------------------------------------------
PNC Financial Services Group 13,700 769,940
12 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Banks (continued)
Regions Financial Corp. 400 $ 11,976
-----------------------------------------------------------------------------------
SunTrust Banks, Inc. 14,300 896,610
-----------------------------------------------------------------------------------
U.S. Bancorp 7,325 153,312
-----------------------------------------------------------------------------------
Union Planters Corp. 1,800 81,234
-----------------------------------------------------------------------------------
UnionBanCal Corp. 2,100 79,800
-----------------------------------------------------------------------------------
Wachovia Corp. 10,000 313,600
-----------------------------------------------------------------------------------
Wachovia Corp.(1) 2,000 -
-----------------------------------------------------------------------------------
Xxxxx Fargo Co. 15,700 682,165
-----------
13,090,797
-----------------------------------------------------------------------------------
Diversified Financial--12.0%
Affiliated Managers Group, Inc.(1) 2,900 204,392
-----------------------------------------------------------------------------------
American Express Co. 30,500 1,088,545
-----------------------------------------------------------------------------------
AmeriCredit Corp.(1) 9,000 283,950
-----------------------------------------------------------------------------------
Bear Xxxxxxx Cos., Inc. (The) 10,300 603,992
-----------------------------------------------------------------------------------
Capital One Financial Corp. 16,100 868,595
-----------------------------------------------------------------------------------
Certegy, Inc.(1) 350 11,977
-----------------------------------------------------------------------------------
Citigroup, Inc 54,433 2,747,778
-----------------------------------------------------------------------------------
Concord EFS, Inc.(1) 3,000 98,340
-----------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. . . 13,100 . 536,707
-----------------------------------------------------------------------------------
Doral Financial Corp. 300 9,363
-----------------------------------------------------------------------------------
eFunds Corp.(1) 2,071 28,476
-----------------------------------------------------------------------------------
Xxxxxx Xxx 27,000 2,146,500
-----------------------------------------------------------------------------------
First American Corp. (The) 800 14,992
-----------------------------------------------------------------------------------
Xxxxxxx Mac 21,900 1,432,260
-----------------------------------------------------------------------------------
Xxxxxxx Xxxxx Group, Inc. (The) 15,300 1,419,075
-----------------------------------------------------------------------------------
Household International, Inc. 20,600 1,193,564
-----------------------------------------------------------------------------------
Instinet Group, Inc.(1) 4,900 49,245
-----------------------------------------------------------------------------------
iShares Xxxxxxx 2000 Index Fund 91,500 8,816,025
-----------------------------------------------------------------------------------
iShares Xxxxxxx 2000 Value Index Fund 6,000 768,000
-----------------------------------------------------------------------------------
iShares S&P SmallCap 600 Index Fund 6,500 743,600
-----------------------------------------------------------------------------------
Xxxx Xxxxxxx Financial Services, Inc. 18,000 743,400
-----------------------------------------------------------------------------------
Xxxxxx Brothers Holdings, Inc. 16,000 1,068,800
-----------------------------------------------------------------------------------
Xxxxxxx Xxxxx & Co., Inc. 2,400 125,088
-----------------------------------------------------------------------------------
Metris Cos., Inc. 6,700 172,257
-----------------------------------------------------------------------------------
MGIC Investment Corp. 10,800 666,576
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxxx Xxxxxx & Co. 22,500 1,258,650
-----------------------------------------------------------------------------------
PMI Group, Inc. (The) 8,600 576,286
-----------------------------------------------------------------------------------
Providian Financial Corp. 15,900 56,445
-----------------------------------------------------------------------------------
Prudential Financial, Inc.(1) 5,000 165,950
-----------------------------------------------------------------------------------
Simon Property Group, Inc. 2,600 76,258
-----------------------------------------------------------------------------------
Xxxxxxxx Financial, Inc. 16,600 451,852
-----------------------------------------------------------------------------------
X. Xxxx Price Group, Inc. 500 17,365
-----------------------------------------------------------------------------------
USA Education, Inc. 8,900 747,778
-----------
29,192,081
Growth Portfolio 13
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Insurance--5.5%
AFLAC, Inc. 34,800 $ 854,688
-----------------------------------------------------------------------------------
Allmerica Financial Corp. 900 40,095
-----------------------------------------------------------------------------------
Allstate Corp. 35,500 1,196,350
-----------------------------------------------------------------------------------
American International Group, Inc. 43,337 3,440,958
-----------------------------------------------------------------------------------
Cigna Corp. 14,900 1,380,485
-----------------------------------------------------------------------------------
Cincinnati Financial Corp. 2,000 76,300
-----------------------------------------------------------------------------------
Fidelity National Financial, Inc. 14,560 361,088
-----------------------------------------------------------------------------------
First Health Group Corp.(1) 2,700 66,798
-----------------------------------------------------------------------------------
Hilb, Xxxxx & Xxxxxxxx Co. 800 44,840
-----------------------------------------------------------------------------------
Jefferson-Pilot Corp. 2,800 129,556
-----------------------------------------------------------------------------------
Lincoln National Corp. 14,600 709,122
-----------------------------------------------------------------------------------
Loews Corp. 3,900 215,982
-----------------------------------------------------------------------------------
Xxxxx & XxXxxxxx Cos., Inc. 4,700 505,015
-----------------------------------------------------------------------------------
MBIA, Inc. 9,050 485,351
-----------------------------------------------------------------------------------
MetLife, Inc. 44,600 1,412,928
-----------------------------------------------------------------------------------
Ohio Casualty Corp.(1) 600 9,630
-----------------------------------------------------------------------------------
Phoenix Cos., Inc. (The)(1) 6,300 116,550
-----------------------------------------------------------------------------------
Principal Financial Group, Inc. (The)(1) 5,600 134,400
-----------------------------------------------------------------------------------
Progressive Corp. 6,300 940,590
-----------------------------------------------------------------------------------
Radian Group, Inc. 6,900 296,355
-----------------------------------------------------------------------------------
RenaissanceRe Holdings Ltd. 300 28,620
-----------------------------------------------------------------------------------
St. Xxxx Cos., Inc 12,700 558,419
-----------------------------------------------------------------------------------
UnumProvident Corp. 5,000 132,550
-----------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 3,400 310,624
-----------
13,447,294
-----------------------------------------------------------------------------------
Real Estate Investment Trusts--0.2%
Equity Office Properties Trust 13,900 418,112
-----------------------------------------------------------------------------------
Equity Residential Properties Trust 800 22,968
-----------------------------------------------------------------------------------
Indymac Mortgage Holdings, Inc.(1) 3,400 79,492
-----------
520,572
-----------------------------------------------------------------------------------
Savings & Loans--1.2%
Dime Bancorp, Inc. 2,800 101,024
-----------------------------------------------------------------------------------
Golden State Bancorp, Inc. 21,900 572,685
-----------------------------------------------------------------------------------
Golden West Financial Corp. 12,600 741,510
-----------------------------------------------------------------------------------
Greenpoint Financial Corp. 8,000 286,000
-----------------------------------------------------------------------------------
Washington Mutual, Inc. 34,750 1,136,325
-----------------------------------------------------------------------------------
Xxxxxxx Financial Corp. 200 6,306
-----------
2,843,850
14 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Healthcare--11.7%
-----------------------------------------------------------------------------------
Healthcare/Drugs--9.2%
Xxxxxx Laboratories 12,300 $ 685,725
-----------------------------------------------------------------------------------
American Home Products Corp. 10,400 638,144
-----------------------------------------------------------------------------------
Amgen, Inc.(1) 19,800 1,117,512
-----------------------------------------------------------------------------------
Applera Corp./Celera Genomics Group(1) 800 21,352
-----------------------------------------------------------------------------------
Biogen, Inc.(1) 3,000 172,050
-----------------------------------------------------------------------------------
Xxxxxxx-Xxxxx Squibb Co. 21,400 1,091,400
-----------------------------------------------------------------------------------
Chiron Corp.(1) 11,900 521,696
-----------------------------------------------------------------------------------
CIMA Labs, Inc.(1) 1,200 43,380
-----------------------------------------------------------------------------------
COR Therapeutics, Inc.(1) 900 21,537
-----------------------------------------------------------------------------------
Xxxxxxx Lifesciences Corp.(1) 400 11,052
-----------------------------------------------------------------------------------
Forest Laboratories, Inc.(1) 10,800 885,060
-----------------------------------------------------------------------------------
Genentech, Inc.(1) 17,100 927,675
-----------------------------------------------------------------------------------
Genta, Inc.(1) 2,500 35,575
-----------------------------------------------------------------------------------
HCA, Inc. 27,600 1,063,704
-----------------------------------------------------------------------------------
Humana, Inc.(1) 1,200 14,148
-----------------------------------------------------------------------------------
Incyte Pharmaceuticals, Inc.(1) 2,200 42,768
-----------------------------------------------------------------------------------
Isis Pharmaceuticals, Inc.(1) 300 6,657
-----------------------------------------------------------------------------------
IVAX Corp.(1) 9,050 182,267
-----------------------------------------------------------------------------------
Xxxxxxx & Xxxxxxx 49,518 2,926,514
-----------------------------------------------------------------------------------
Lilly (Xxx) & Co. 23,900 1,877,106
-----------------------------------------------------------------------------------
Merck & Co., Inc. 45,100 2,651,880
-----------------------------------------------------------------------------------
Myriad Genetics, Inc.(1) 2,000 105,280
-----------------------------------------------------------------------------------
Pfizer, Inc. 109,125 4,348,631
-----------------------------------------------------------------------------------
Pharmaceutical Resources, Inc.(1) 400 13,520
-----------------------------------------------------------------------------------
Schering-Plough Corp. 28,200 1,009,842
-----------------------------------------------------------------------------------
Sepracor, Inc.(1) 3,200 182,592
-----------------------------------------------------------------------------------
Sicor, Inc.(1) 4,600 72,128
-----------------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.(1) 4,800 191,760
-----------------------------------------------------------------------------------
UnitedHealth Group, Inc. 18,500 1,309,245
-----------------------------------------------------------------------------------
Vertex Pharmaceuticals, Inc.(1) 1,800 44,262
-----------------------------------------------------------------------------------
XOMA Ltd.(1) 100 985
-----------------------------------------------------------------------------------
Xxxxxx Holdings, Inc.(1) 6,750 206,145
-----------
22,421,592
Growth Portfolio 15
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Healthcare/Supplies & Services--2.5%
Accredo Health, Inc.(1) 600 $ 23,820
-----------------------------------------------------------------------------------
Allergan, Inc. 6,000 450,300
-----------------------------------------------------------------------------------
Apria Healthcare Group, Inc.(1) 1,900 47,481
-----------------------------------------------------------------------------------
Xxxxxx International, Inc. 8,000 429,040
-----------------------------------------------------------------------------------
Becton, Xxxxxxxxx & Co. 12,000 397,800
-----------------------------------------------------------------------------------
Biosite, Inc.(1) 100 1,837
-----------------------------------------------------------------------------------
Caremark Rx, Inc.(1) 27,400 446,894
-----------------------------------------------------------------------------------
Xxxxxx Cos., Inc. (The) 500 24,990
-----------------------------------------------------------------------------------
Covance, Inc.(1) 1,500 34,050
-----------------------------------------------------------------------------------
DaVita, Inc.(1) 1,800 44,010
-----------------------------------------------------------------------------------
Health Net, Inc.(1) 4,600 100,188
-----------------------------------------------------------------------------------
HEALTHSOUTH Corp.(1) 1,700 25,194
-----------------------------------------------------------------------------------
Lincare Holdings, Inc.(1) 5,200 148,980
-----------------------------------------------------------------------------------
Manor Care, Inc.(1) 14,500 343,795
-----------------------------------------------------------------------------------
Medtronic, Inc. 2,500 128,025
-----------------------------------------------------------------------------------
Mid Atlantic Medical Services, Inc.(1) 500 11,350
-----------------------------------------------------------------------------------
Orthodontic Centers of America, Inc.(1) 400 12,200
-----------------------------------------------------------------------------------
Oxford Health Plans, Inc.(1) 18,800 566,632
-----------------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(1) 1,300 44,096
-----------------------------------------------------------------------------------
Quest Diagnostics, Inc.(1) 2,000 143,420
-----------------------------------------------------------------------------------
RehabCare Group, Inc.(1) 700 20,720
-----------------------------------------------------------------------------------
Schein (Xxxxx), Inc.(1) 2,200 81,466
-----------------------------------------------------------------------------------
Stryker Corp.(1) 4,100 239,317
-----------------------------------------------------------------------------------
SurModics, Inc.(1) 300 10,938
-----------------------------------------------------------------------------------
Techne Corp.(1) 1,900 70,015
-----------------------------------------------------------------------------------
Xxxxx Healthcare Corp.(1) 20,600 1,209,632
-----------------------------------------------------------------------------------
Trigon Healthcare, Inc.(1) 4,900 340,305
-----------------------------------------------------------------------------------
Universal Health Services, Inc., Cl. B(1) 3,700 158,286
-----------------------------------------------------------------------------------
WellPoint Health Networks, Inc.(1) 5,100 595,935
----------
6,150,716
-----------------------------------------------------------------------------------
Technology--12.9%
-----------------------------------------------------------------------------------
Computer Hardware--3.2%
Adaptec, Inc.(1) 4,100 59,450
-----------------------------------------------------------------------------------
Agilent Technologies, Inc.(1) 1,900 54,169
-----------------------------------------------------------------------------------
Compaq Computer Corp. 90,300 881,328
-----------------------------------------------------------------------------------
Dell Computer Corp.(1) 51,700 1,405,206
-----------------------------------------------------------------------------------
Handspring, Inc.(1) 5,900 39,766
-----------------------------------------------------------------------------------
Hewlett-Packard Co. 7,000 143,780
-----------------------------------------------------------------------------------
Xxxxxx Micro, Inc., Cl. A(1) 800 13,856
-----------------------------------------------------------------------------------
International Business Machines Corp. 33,300 4,027,968
-----------------------------------------------------------------------------------
Juniper Networks, Inc.(1) 21,100 399,845
-----------------------------------------------------------------------------------
Lexmark International, Inc., Cl. A(1) 5,100 300,900
16 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Computer Hardware (continued)
Mentor Graphics Corp.(1) 800 $ 18,856
-----------------------------------------------------------------------------------
Mercury Computer Systems, Inc.(1) 400 15,644
-----------------------------------------------------------------------------------
Microtune, Inc.(1) 6,400 150,144
-----------------------------------------------------------------------------------
Network Appliance, Inc.(1) 6,400 139,968
-----------------------------------------------------------------------------------
Storage Technology Corp.(1) 2,100 43,407
-----------------------------------------------------------------------------------
Stratos Lightwave, Inc.(1) 2,000 12,300
-----------------------------------------------------------------------------------
Western Digital Corp.(1) 2,100 13,167
-----------
7,719,754
-----------------------------------------------------------------------------------
Computer Services--0.7%
Emulex Corp.(1) 4,000 158,040
-----------------------------------------------------------------------------------
First Data Corp. 12,900 1,012,005
-----------------------------------------------------------------------------------
Foundry Networks, Inc.(1) 7,700 62,755
-----------------------------------------------------------------------------------
Kronos, Inc.(1) 450 21,771
-----------------------------------------------------------------------------------
Openwave Systems, Inc.(1) 12,000 117,480
-----------------------------------------------------------------------------------
Overture Services, Inc.(1) 2,900 102,747
-----------------------------------------------------------------------------------
Paychex, Inc. 5,000 174,250
-----------------------------------------------------------------------------------
Sonus Networks, Inc.(1) 8,700 40,194
-----------------------------------------------------------------------------------
Unisys Corp.(1) 5,100 63,954
-----------------------------------------------------------------------------------
Websense, Inc.(1) 1,100 35,277
-----------
1,788,473
-----------------------------------------------------------------------------------
Computer Software--4.8%
-----------------------------------------------------------------------------------
Acclaim Entertainment, Inc.(1) 5,200 27,560
-----------------------------------------------------------------------------------
Adobe Systems, Inc. 14,800 459,540
-----------------------------------------------------------------------------------
Cadence Design Systems, Inc.(1) 9,500 208,240
-----------------------------------------------------------------------------------
Citrix Systems, Inc.(1) 18,000 407,880
-----------------------------------------------------------------------------------
CSG Systems International, Inc.(1) 1,000 40,450
-----------------------------------------------------------------------------------
Electronic Arts, Inc.(1) 4,900 293,755
-----------------------------------------------------------------------------------
Fair, Xxxxx & Co., Inc. 400 25,208
-----------------------------------------------------------------------------------
Interwoven, Inc.(1) 1,600 15,584
-----------------------------------------------------------------------------------
Liberate Technologies, Inc.(1) 1,100 12,628
-----------------------------------------------------------------------------------
McDATA Corp., Cl. A(1) 1,534 37,583
-----------------------------------------------------------------------------------
McDATA Corp., Cl. B(1) 4,200 105,462
-----------------------------------------------------------------------------------
Mercury Interactive Corp.(1) 8,300 282,034
-----------------------------------------------------------------------------------
Micromuse, Inc.(1) 7,800 117,000
-----------------------------------------------------------------------------------
Microsoft Corp.(1) 102,000 6,757,500
-----------------------------------------------------------------------------------
Oracle Corp.(1) 131,700 1,818,777
-----------------------------------------------------------------------------------
Retek, Inc.(1) 2,800 83,636
-----------------------------------------------------------------------------------
RSA Security, Inc.(1) 3,900 68,094
-----------------------------------------------------------------------------------
Sabre Holdings Corp.(1) 4,200 177,870
-----------------------------------------------------------------------------------
StorageNetworks, Inc.(1) 7,600 46,968
-----------------------------------------------------------------------------------
VeriSign, Inc.(1) 9,600 365,184
-----------------------------------------------------------------------------------
Veritas Software Corp.(1) 8,500 381,055
-----------
11,732,008
Growth Portfolio 17
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Communications Equipment--0.7%
Agere Systems, Inc.(1) 6,000 $ 34,140
-----------------------------------------------------------------------------------
Cisco Systems, Inc.(1) 75,600 1,369,116
-----------------------------------------------------------------------------------
Enterasys Networks, Inc.(1) 5,000 44,250
-----------------------------------------------------------------------------------
Scientific-Atlanta, Inc. 5,600 134,064
-----------------------------------------------------------------------------------
Tellium, Inc.(1) 9,300 57,939
----------
1,639,509
-----------------------------------------------------------------------------------
Electronics--3.2%
Advanced Micro Devices, Inc.(1) 24,800 393,328
-----------------------------------------------------------------------------------
Altera Corp.(1) 8,900 188,858
-----------------------------------------------------------------------------------
Analog Devices, Inc.(1) 19,900 883,361
-----------------------------------------------------------------------------------
Arrow Electronics, Inc.(1) 1,700 50,830
-----------------------------------------------------------------------------------
Cree, Inc.(1) 800 23,568
-----------------------------------------------------------------------------------
Elantec Semiconductor, Inc.(1) 400 15,360
-----------------------------------------------------------------------------------
Engineered Support Systems, Inc. 2,100 71,841
-----------------------------------------------------------------------------------
Xxxxxxxxx Semiconductor International, Inc., Cl. A(1) 4,000 112,800
-----------------------------------------------------------------------------------
FEI Co.(1) 400 12,604
-----------------------------------------------------------------------------------
FLIR Systems, Inc.(1) 700 26,544
-----------------------------------------------------------------------------------
General Motors Corp., Cl. H(1) 5,500 84,975
-----------------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(1) 3,300 74,547
-----------------------------------------------------------------------------------
Intel Corp. 96,700 3,041,215
-----------------------------------------------------------------------------------
KLA-Tencor Corp.(1) 16,500 817,740
-----------------------------------------------------------------------------------
Xxx Research Corp.(1) 5,600 130,032
-----------------------------------------------------------------------------------
Linear Technology Corp. 15,100 589,504
-----------------------------------------------------------------------------------
Maxim Integrated Products, Inc.(1) 2,700 141,777
-----------------------------------------------------------------------------------
Rambus, Inc.(1) 5,700 45,543
-----------------------------------------------------------------------------------
Semtech Corp.(1) 3,300 117,777
-----------------------------------------------------------------------------------
Silicon Laboratories, Inc.(1) 400 13,484
-----------------------------------------------------------------------------------
TriQuint Semiconductor, Inc.(1) 8,200 100,532
-----------------------------------------------------------------------------------
Xilinx, Inc.(1) 18,600 726,330
----------
7,662,550
-----------------------------------------------------------------------------------
Photography--0.3%
Xxxxxxx Kodak Co. 23,900 703,377
-----------------------------------------------------------------------------------
Transportation--1.5%
-----------------------------------------------------------------------------------
Air Transportation--0.5%
Continental Airlines, Inc., Cl. B(1) 12,000 314,520
-----------------------------------------------------------------------------------
Southwest Airlines Co. 48,100 888,888
-----------------------------------------------------------------------------------
UAL Corp. 3,000 40,500
-----------------------------------------------------------------------------------
US Airways Group, Inc.(1) 1,800 11,412
----------
1,255,320
18 Growth Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Railroads & Truckers--0.5%
Burlington Northern Santa Fe Corp. 20,500 $ 584,865
-----------------------------------------------------------------------------------
CSX Corp. 400 14,020
-----------------------------------------------------------------------------------
GATX Corp. 400 13,008
-----------------------------------------------------------------------------------
Union Pacific Corp. 11,900 678,300
-----------
1,290,193
-----------------------------------------------------------------------------------
Shipping--0.5%
United Parcel Service, Inc., Cl. B 20,700 1,128,150
-----------------------------------------------------------------------------------
Utilities--5.6%
-----------------------------------------------------------------------------------
Electric Utilities--4.8%
ALLETE, Inc. 1,100 27,720
-----------------------------------------------------------------------------------
Alliant Energy Corp. 600 18,216
-----------------------------------------------------------------------------------
American Electric Power Co., Inc. 23,700 1,031,661
-----------------------------------------------------------------------------------
Cinergy Corp. 1,500 50,145
-----------------------------------------------------------------------------------
CMS Energy Corp. 2,400 57,672
-----------------------------------------------------------------------------------
Conectiv, Inc. 11,500 281,635
-----------------------------------------------------------------------------------
Consolidated Edison Co. of New York, Inc. 7,100 286,556
-----------------------------------------------------------------------------------
Dominion Resources, Inc. 18,700 1,123,870
-----------------------------------------------------------------------------------
DPL, Inc. 200 4,816
-----------------------------------------------------------------------------------
DTE Energy Co. 13,300 557,802
-----------------------------------------------------------------------------------
Duke Energy Corp. 29,400 1,154,244
-----------------------------------------------------------------------------------
Entergy Corp. 13,600 531,896
-----------------------------------------------------------------------------------
Exelon Corp. 23,675 1,133,559
-----------------------------------------------------------------------------------
FirstEnergy Corp. 27,300 954,954
-----------------------------------------------------------------------------------
FPL Group, Inc. 10,100 569,640
-----------------------------------------------------------------------------------
KeySpan Corp. 600 20,790
-----------------------------------------------------------------------------------
Mirant Corp.(1) 28,788 461,184
-----------------------------------------------------------------------------------
NRG Energy, Inc.(1) 1,000 15,500
-----------------------------------------------------------------------------------
PPL Corp. 13,400 466,990
-----------------------------------------------------------------------------------
Public Service Enterprise Group, Inc. 15,100 637,069
-----------------------------------------------------------------------------------
Reliant Energy, Inc. 700 18,564
-----------------------------------------------------------------------------------
Southern Co. 33,500 849,225
-----------------------------------------------------------------------------------
Teco Energy, Inc. 800 20,992
-----------------------------------------------------------------------------------
TXU Corp. 21,600 1,018,440
-----------------------------------------------------------------------------------
Xcel Energy, Inc. 11,100 307,914
-----------
11,601,054
Growth Portfolio 19
Statement of Investments (Continued)
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Gas Utilities--0.8%
Dynegy, Inc. 16,100 $ 410,550
-----------------------------------------------------------------------------------
El Paso Corp. 8,411 375,215
-----------------------------------------------------------------------------------
Enron Corp. 17,300 10,380
-----------------------------------------------------------------------------------
Xxxxxx Xxxxxx, Inc. 11,400 634,866
-----------------------------------------------------------------------------------
NICOR, Inc. 1,800 74,952
-----------------------------------------------------------------------------------
Western Gas Resources, Inc. 1,100 35,552
-----------------------------------------------------------------------------------
Xxxxxxxx Cos., Inc. (The) 18,100 461,912
------------
2,003,427
------------
Total Common Stocks (Cost $246,895,786) 236,512,450
Principal
Amount
===================================================================================
Repurchase Agreements--1.3%
-----------------------------------------------------------------------------------
Repurchase agreement with Zion First National
Bank, 1.55%, dated 12/31/01, to be repurchased
at $3,146,271 on 1/2/02, collateralized by U.S.
Treasury Nts., 4.75%-7%, 7/15/06-11/15/08, with
a value of $3,221,722 (Cost $3,146,000) $3,146,000 3,146,000
-----------------------------------------------------------------------------------
Total Investments, at Value (Cost $250,041,786) 98.8% 239,658,450
-----------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.2 2,916,155
----------- ------------
Net Assets 100.0% $242,574,605
=========== ============
1. Non-income-producing security.
See accompanying Notes to Financial Statements.
20 Growth Portfolio
Statement of Assets and Liabilities December 31, 2001
===============================================================================================================
Assets
Investments, at value (cost $250,041,786)--see accompanying statement $239,658,450
---------------------------------------------------------------------------------------------------------------
Cash 4,412
---------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 4,405,065
Interest and dividends 247,619
Shares of capital stock sold 11,266
Other 3,403
------------
Total assets 244,330,215
===============================================================================================================
Liabilities
Payables and other liabilities:
Investments purchased 1,402,793
Shares of capital stock redeemed 316,941
Shareholder reports 13,594
Directors' compensation 238
Other 22,044
------------
Total liabilities 1,755,610
===============================================================================================================
Net Assets $242,574,605
============
===============================================================================================================
Composition of Net Assets
Par value of shares of capital stock $ 140,017
---------------------------------------------------------------------------------------------------------------
Additional paid-in capital 323,228,877
---------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 2,018,034
---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions (72,428,955)
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies (10,383,368)
------------
Net assets--applicable to 140,016,719 shares of capital stock outstanding $242,574,605
============
===============================================================================================================
Net Asset Value, Redemption Price Per Share and Offering Price Per Share $1.73
See accompanying Notes to Financial Statements.
Growth Portfolio 21
Statement of Operations For the Year Ended December 31, 2001
================================================================================================================
Investment Income
Dividends (net of foreign withholding taxes of $25,790) $ 3,484,263
----------------------------------------------------------------------------------------------------------------
Interest 349,083
------------
Total income 3,833,346
================================================================================================================
Expenses
Management fees 1,708,136
----------------------------------------------------------------------------------------------------------------
Accounting service fees 15,000
----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 7,381
----------------------------------------------------------------------------------------------------------------
Shareholder reports 6,096
----------------------------------------------------------------------------------------------------------------
Directors' compensation 5,550
----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 1,048
----------------------------------------------------------------------------------------------------------------
Other 23,955
------------
Total expenses 1,767,166
Less reduction to custodian expenses (1,048)
------------
Net expenses 1,766,118
================================================================================================================
Net Investment Income 2,067,228
================================================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (38,340,661)
Foreign currency transactions (379,479)
------------
Net realized gain (loss) (38,720,140)
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 3,960,864
Translation of assets and liabilities denominated in foreign currencies 45,805
------------
Net change 4,006,669
------------
Net realized and unrealized gain (loss) (34,713,471)
================================================================================================================
Net Decrease in Net Assets Resulting from Operations $(32,646,243)
============
See accompanying Notes to Financial Statements.
22 Growth Portfolio
Statements of Changes in Net Assets
Year Ended December 31,
2001 2000
================================================================================================================
Operations
Net investment income (loss) $ 2,067,228 $ 3,589,257
----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (38,720,140) (27,057,758)
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 4,006,669 (38,839,353)
------------ -------------
Net increase (decrease) in net assets resulting from operations (32,646,243) (62,307,854)
================================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income (3,553,353) (10,380,186)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain - (124,242,402)
================================================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting from
capital stock transactions (54,436,409) (137,997,773)
================================================================================================================
Net Assets
Total decrease (90,636,005) (334,928,215)
----------------------------------------------------------------------------------------------------------------
Beginning of period 333,210,610 668,138,825
------------ -------------
End of period [including undistributed (overdistributed) net investment
income of $2,018,034 and $3,528,418, respectively] $242,574,605 $ 333,210,610
============ =============
See accompanying Notes to Financial Statements.
Growth Portfolio 23
Financial Highlights
Year Ended December 31,
2001 2000 1999 1998 1997
===================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $1.96 $2.99 $3.27 $3.45
$2.98
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .02 .03 .05 .04
..04
Net realized and unrealized gain (loss) (.23) (.35) (.17) .26
..69
-------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (.21) (.32) (.12) .30
..73
-------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.02) (.05) (.04) (.04)
(.03)
Distributions from net realized gain - (.66) (.12) (.44)
(.23)
-------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.02) (.71) (.16) (.48)
(.26)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.73 $1.96 $2.99 $3.27
$3.45
===== ===== ===== =====
=====
===================================================================================================================
Total Return, at Net Asset Value(1) (10.61)% (12.66)% (3.76)% 8.43%
26.37%
===================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $242,575 $333,211 $668,139 $918,871
$831,371
-------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $273,890 $460,272 $808,715 $877,874
$721,555
-------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 0.75% 0.78% 1.28% 1.16%
1.38%
Expenses 0.64% 0.59% 0.53% 0.53%(3)
0.54%(3)
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 118% 132% 98%
92%
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Total
returns are not annualized for periods less than one full year. Total return
information does not reflect expenses that apply at the separate account level
or to related insurance products. Inclusion of these charges would reduce the
total return figures for all periods shown.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
24 Growth Portfolio
Notes to Financial Statements
===============================================================================
1. Significant Accounting Policies
Growth Portfolio (the Portfolio) is a series of Panorama Series Fund, Inc. (the
Company) which is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Portfolio's
investment objective is to seek long-term growth of capital by investing
primarily in common stocks with low price-earnings ratios and
better-than-anticipated earnings. The Portfolio's investment advisor is
OppenheimerFunds, Inc. (the Manager). Shares of the Portfolio are sold only to
separate accounts of life insurance companies, a majority of such shares are
held by separate accounts of Massachusetts Mutual Life Insurance Co., an
affiliate of the investment advisor. The following is a summary of significant
accounting policies consistently followed by the Portfolio.
-------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Portfolio's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily
available are valued primarily using dealer-supplied valuations, a portfolio
pricing service authorized by the Board of Directors, or at their fair value.
Fair value is determined in good faith under consistently applied procedures
under the supervision of the Board of Directors. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
-------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Portfolio are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of foreign securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Portfolio's Statement of Operations.
-------------------------------------------------------------------------------
Repurchase Agreements. The Portfolio requires its custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System
or to have segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the underlying
securities is required to be at least 102% of the resale price at the time of
purchase. If the seller of the agreement defaults and the value of the
collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Portfolio may be delayed or
limited.
-------------------------------------------------------------------------------
Federal Taxes. The Portfolio intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders.
As of December 31, 2001, the Portfolio had available for federal income tax
purposes unused capital loss carryovers as follows:
Expiring
--------------------------------
2008 $32,898,936
2009 38,285,188
-----------
Total $71,184,124
===========
As of December 31, 2001, the Portfolio had approximately $5,000 of post-October
foreign currency losses which were deferred. If unutilized by the Portfolio in
the following fiscal year, such losses will expire.
Growth Portfolio 25
Notes to Financial Statements (Continued)
===============================================================================
1. Significant Accounting Policies (continued)
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
-------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized
gain was recorded by the Portfolio.
The Portfolio adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, during the year ended December 31, 2001, amounts have been
reclassified to reflect a decrease in undistributed net investment income of
$24,259. Accumulated net realized loss on investments was decreased by the same
amount. Net assets of the Portfolio were unaffected by the reclassifications.
-------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
-------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
-------------------------------------------------------------------------------
Other. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 income and
expenses during the reporting period. Actual results could differ from those
estimates.
===============================================================================
2. Shares of Capital Stock
The Portfolio has authorized 510 million shares of $0.001 par value capital
stock. Transactions in shares of capital stock were as follows:
Year Ended December 31, 2001 Year Ended December 31, 2000
------------------------------ --------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------
Sold 5,192,716 $ 9,276,909 10,225,962 $ 23,395,805
Dividends and/or distributions reinvested 2,042,156 3,553,353 62,907,751 134,622,588
Redeemed (37,333,091) (67,266,671) (126,534,028) (296,016,166)
----------- ------------ ------------ -------------
Net increase (decrease) (30,098,219) $(54,436,409) (53,400,315) $(137,997,773)
=========== ============ ============ =============
26 Growth Portfolio
Notes to Financial Statements (Continued)
===============================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2001, were
$200,776,515 and $246,200,793, respectively.
As of December 31, 2001, unrealized appreciation (depreciation) based on cost
of securities for federal income tax purposes of $251,281,379 was:
Gross unrealized appreciation $ 14,662,844
Gross unrealized depreciation (26,285,773)
------------
Net unrealized appreciation (depreciation) $(11,622,929)
============
===============================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Portfolio which provides for a fee
of 0.625% of the first $300 million of average daily net assets of the
Portfolio, 0.50% of the next $100 million and 0.45% of average daily net assets
over $400 million. The Portfolio's management fee for the year ended December
31, 2001, was an annualized rate of 0.62%.
-------------------------------------------------------------------------------
Accounting Fees. The Manager acts as the accounting agent for the Portfolio at
an annual fee of $15,000, plus out-of-pocket costs and expenses reasonably
incurred.
-------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the
Portfolio. The Portfolio pays OFS an agreed-upon per account fee. Additionally,
funds offered in variable annuity separate accounts are subject to minimum fees
of $5,000 for assets of less than $10 million and $10,000 for assets of $10
million or more. The Portfolio is subject to the minimum fee in the event that
the per account fee does not equal or exceed the applicable minimum fee.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees to 0.25% per annum of funds offered in variable annuity separate
accounts, effective January 1, 2001. This undertaking may be amended or
withdrawn at any time.
Growth Portfolio
Independent Auditors' Report
================================================================================
The Board of Directors and Shareholders of Xxxxxxxxxxx International Growth
Fund/VA:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx International Growth Fund/VA (which is a series of Panorama Series
Fund, Inc.), including the statement of investments, as of December 31, 2001,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods indicated. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2001, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Xxxxxxxxxxx International Growth Fund/VA as of December 31, 2001,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Denver, Colorado
January 23, 2002
Xxxxxxxxxxx International Growth Fund/VA
Statement of Investments December 31, 2001
Market Value
Shares See Note 1
=========================================================================================================
Common Stocks--99.1%
---------------------------------------------------------------------------------------------------------
Capital Goods--22.3%
---------------------------------------------------------------------------------------------------------
Aerospace/Defense--3.3%
Empresa Brasileira de Aeronautica SA (Embraer), Preference 575,000 $ 3,285,003
---------------------------------------------------------------------------------------------------------
Electrical Equipment--3.6%
Halma plc 1,027,000 2,301,831
---------------------------------------------------------------------------------------------------------
Toshiba Corp. 372,000 1,277,278
------------
3,579,109
---------------------------------------------------------------------------------------------------------
Industrial Services--10.3%
3i Group plc 75,700 946,944
---------------------------------------------------------------------------------------------------------
BTG plc(1) 108,500 1,187,490
---------------------------------------------------------------------------------------------------------
Xxxx plc 216,649 655,847
---------------------------------------------------------------------------------------------------------
Hyundai Heavy Industries Co. Ltd. 58,712 1,130,882
---------------------------------------------------------------------------------------------------------
ICTS International NV 40,100 281,502
---------------------------------------------------------------------------------------------------------
Koninklijke Boskalis Westminster NV 149,600 4,009,436
---------------------------------------------------------------------------------------------------------
Technip-Coflexip SA, Sponsored ADR(1) 61,875 2,079,000
------------
10,291,101
---------------------------------------------------------------------------------------------------------
Manufacturing--5.1%
FKI plc 232,613 626,308
---------------------------------------------------------------------------------------------------------
GSI Lumonics, Inc.(1) 88,000 745,360
---------------------------------------------------------------------------------------------------------
Jenoptik AG 156,051 2,973,483
---------------------------------------------------------------------------------------------------------
Shire Pharmaceuticals Group plc(1) 62,800 786,032
------------
5,131,183
---------------------------------------------------------------------------------------------------------
Communication Services--2.6%
---------------------------------------------------------------------------------------------------------
Telecommunications: Long Distance--1.5%
Matsushita Communication Industrial Co.(1) 9,283 251,447
---------------------------------------------------------------------------------------------------------
Videsh Xxxxxxx Xxxxx Ltd., Sponsored ADR 126,901 1,218,250
------------
1,469,697
---------------------------------------------------------------------------------------------------------
Telephone Utilities--1.1%
---------------------------------------------------------------------------------------------------------
Cable & Wireless plc(1) 65,100 313,137
---------------------------------------------------------------------------------------------------------
Tele Norte Leste Participacoes SA (Telemar) 58,433,327 771,355
------------
1,084,492
---------------------------------------------------------------------------------------------------------
Consumer Cyclicals--14.7%
---------------------------------------------------------------------------------------------------------
Autos & Housing--2.1%
Aucnet, Inc. 26,500 263,868
---------------------------------------------------------------------------------------------------------
Ducati Motor Holding SpA(1) 400,000 644,650
---------------------------------------------------------------------------------------------------------
Porsche AG, Preferred 2,054 780,750
---------------------------------------------------------------------------------------------------------
Solidere, GDR(1)(2) 100,000 437,500
------------
2,126,768
---------------------------------------------------------------------------------------------------------
Consumer Services--2.0%
Prosegur Compania de Seguridad SA 83,200 1,121,591
---------------------------------------------------------------------------------------------------------
Randstad Holding NV(1) 64,500 858,016
------------
1,979,607
Xxxxxxxxxxx International Growth Fund/VA 5
Statement of Investments (Continued)
Market Value
Shares See Note 1
---------------------------------------------------------------------------------------------------------
Media--4.9%
Xxxx International plc 285,000 $ 2,364,297
---------------------------------------------------------------------------------------------------------
Wolters Kluwer NV 110,721 2,523,801
------------
4,888,098
---------------------------------------------------------------------------------------------------------
Retail: General--0.3%
Compagnie Financiere Richemont AG, A Units(1) 18,500 343,748
---------------------------------------------------------------------------------------------------------
Retail: Specialty--4.9%
Boots Co. plc 229,100 1,948,911
---------------------------------------------------------------------------------------------------------
UBI Soft Entertainment SA(1) 89,590 2,991,410
------------
4,940,321
---------------------------------------------------------------------------------------------------------
Textile, Apparel & Home Furnishings--0.5%
Bulgari SpA(1) 60,300 468,187
---------------------------------------------------------------------------------------------------------
Consumer Staples--18.3%
---------------------------------------------------------------------------------------------------------
Beverages--0.9%
Aalberts Industries NV(1) 45,200 887,426
---------------------------------------------------------------------------------------------------------
Broadcasting--4.4%
Grupo Televisa SA, Sponsored GDR(1) 36,000 1,554,480
---------------------------------------------------------------------------------------------------------
LG Home Shopping, Inc. 38,849 2,324,729
---------------------------------------------------------------------------------------------------------
Sogecable SA(1) 23,900 553,295
------------
4,432,504
---------------------------------------------------------------------------------------------------------
Entertainment--10.7%
Infogrames Entertainment SA(1) 225,140 2,726,319
---------------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 27,300 4,780,520
---------------------------------------------------------------------------------------------------------
Sega Corp.(1) 126,700 2,528,006
---------------------------------------------------------------------------------------------------------
Zee Telefilms Ltd. 271,300 628,176
------------
10,663,021
---------------------------------------------------------------------------------------------------------
Household Goods--2.3%
Wella AG, Preference, Non-Vtg. 45,000 2,319,937
---------------------------------------------------------------------------------------------------------
Energy--1.7%
---------------------------------------------------------------------------------------------------------
Energy Services--1.7%
Expro International Group plc 167,500 958,663
---------------------------------------------------------------------------------------------------------
Innogy Holdings plc 264,400 738,831
------------
1,697,494
---------------------------------------------------------------------------------------------------------
Financial--9.7%
---------------------------------------------------------------------------------------------------------
Banks--2.1%
Xxxxxx Xxxx Holding AG, Cl. B 4,000 1,349,154
---------------------------------------------------------------------------------------------------------
Uniao de Bancos Brasileiros SA (Unibanco), Sponsored ADR 33,200 740,360
------------
2,089,514
---------------------------------------------------------------------------------------------------------
Diversified Financial--6.3%
Xxxxxxx Xxxxxxx Ltd. 216,400 1,228,299
---------------------------------------------------------------------------------------------------------
Espirito Santo Financial Group, ADR 70,000 1,225,700
---------------------------------------------------------------------------------------------------------
ICICI Ltd., Sponsored ADR 134,500 804,310
---------------------------------------------------------------------------------------------------------
Van der Moolen Holding NV 105,300 3,023,732
------------
6,282,041
6 Xxxxxxxxxxx International Growth Fund/VA
Statement of Investments (Continued)
Market Value
Shares See Note 1
---------------------------------------------------------------------------------------------------------
Insurance--1.3%
Axa SA(1) 51,440 $ 1,074,977
---------------------------------------------------------------------------------------------------------
Scor SA 5,800 182,869
------------
1,257,846
---------------------------------------------------------------------------------------------------------
Healthcare--15.1%
---------------------------------------------------------------------------------------------------------
Healthcare/Drugs--8.3%
---------------------------------------------------------------------------------------------------------
Biocompatibles International plc(1) 334,000 520,131
---------------------------------------------------------------------------------------------------------
Cambridge Antibody Technology Group plc(1) 26,600 746,399
---------------------------------------------------------------------------------------------------------
Xx. Xxxxx'x Laboratories Ltd., Sponsored ADR 62,100 1,176,795
---------------------------------------------------------------------------------------------------------
Elan Corp. plc, ADR(1) 40,000 1,802,400
---------------------------------------------------------------------------------------------------------
NeuroSearch AS(1) 34,000 521,173
---------------------------------------------------------------------------------------------------------
Nicox SA(1) 29,550 1,286,097
---------------------------------------------------------------------------------------------------------
Oxford GlycoSciences plc(1) 56,294 532,547
---------------------------------------------------------------------------------------------------------
Pliva d.d., GDR(2) 164,700 1,704,645
------------
8,290,187
---------------------------------------------------------------------------------------------------------
Healthcare/Supplies & Services--6.8%
Fresenius AG, Preference(1) 14,000 1,138,109
---------------------------------------------------------------------------------------------------------
Novogen Ltd.(1) 962,000 1,580,757
---------------------------------------------------------------------------------------------------------
Xxxxxxx XX, X Shares(1) 306,500 613,602
---------------------------------------------------------------------------------------------------------
PowderJect Pharmaceuticals plc(1) 216,600 1,796,866
---------------------------------------------------------------------------------------------------------
SkyePharma plc(1) 1,906,200 1,699,249
------------
6,828,583
---------------------------------------------------------------------------------------------------------
Technology--14.2%
---------------------------------------------------------------------------------------------------------
Computer Hardware--0.6%
Oberthur Card Systems SA(1) 75,410 600,948
---------------------------------------------------------------------------------------------------------
Computer Services--2.7%
Xxxxx XX(1) 35,080 481,023
---------------------------------------------------------------------------------------------------------
Computer Services Solutions Holding NV 85,401 509,475
---------------------------------------------------------------------------------------------------------
Magnus Holding NV 172,158 222,270
---------------------------------------------------------------------------------------------------------
Redbus Interhouse plc(1) 210,900 33,457
---------------------------------------------------------------------------------------------------------
Ushio, Inc. 126,000 1,423,821
------------
2,670,046
---------------------------------------------------------------------------------------------------------
Computer Software--5.5%
Capcom Co. Ltd. 55,200 1,461,498
---------------------------------------------------------------------------------------------------------
Eidos plc(1) 282,600 740,333
---------------------------------------------------------------------------------------------------------
Koei Co. Ltd. 27,860 829,040
---------------------------------------------------------------------------------------------------------
Konami Co. Ltd. 23,500 697,505
---------------------------------------------------------------------------------------------------------
NIIT Ltd. 190,000 883,803
---------------------------------------------------------------------------------------------------------
Unit 4 Agresso NV(1) 106,300 913,368
------------
5,525,547
Xxxxxxxxxxx International Growth Fund/VA 7
Statement of Investments (Continued)
Market Value
Shares See Note 1
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Communications Equipment--0.1%
Pace Micro Technology plc(1) 24,400 $ 124,291
---------------------------------------------------------------------------------------------------------
Electronics--5.3%
ASM International NV(1) 67,900 1,324,729
---------------------------------------------------------------------------------------------------------
Electrocomponents plc 78,400 611,594
---------------------------------------------------------------------------------------------------------
Hamamatsu Photonics K.K. 68,000 1,556,539
---------------------------------------------------------------------------------------------------------
Hoya Corp. 11,700 699,000
---------------------------------------------------------------------------------------------------------
Keyence Corp. 3,900 648,413
---------------------------------------------------------------------------------------------------------
Sony Corp. 9,857 450,507
------------
5,290,782
---------------------------------------------------------------------------------------------------------
Utilities--0.5%
---------------------------------------------------------------------------------------------------------
Electric Utilities--0.5%
Nordex AG(1) 87,392 517,462
------------
Total Common Stocks (Cost $117,207,508) 99,064,943
=========================================================================================================
Preferred Stocks--1.0%
---------------------------------------------------------------------------------------------------------
Fresenius Medical Care AG, Preferred (Cost $1,058,370) 21,000 969,325
Principal
Amount
=========================================================================================================
Repurchase Agreements--1.5%
---------------------------------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 1.55%, dated 12/31/01,
to be repurchased at $1,536,132 on 1/2/02, collateralized by U.S.
Treasury Nts., 4.75%-7%, 7/15/06-11/15/08, with a value of
$1,572,970 (Cost $1,536,000) $1,536,000 1,536,000
---------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $119,801,878) 101.6% 101,570,268
---------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (1.6) (1,635,736)
---------- ------------
Net Assets 100.0% $ 99,934,532
========== ============
1. Non-income-producing security.
2. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Directors. These securities amount to $2,142,145 or 2.14% of the Fund's net
assets as of December 31, 2001.
8 Xxxxxxxxxxx International Growth Fund/VA
Statement of Investments (Continued)
--------------------------------------------------------------------------------
Distribution of investments representing geographic diversification, as a
percentage of total investments at value, is as follows:
Geographical Diversification Market Value Percent
--------------------------------------------------------------------------------
Great Britain $ 20,861,458 20.6%
Japan 16,867,443 16.7
The Netherlands 14,553,754 14.3
France 11,422,643 11.2
Germany 8,699,066 8.6
Brazil 4,796,719 4.7
India 4,711,334 4.6
Korea, Republic of (South) 3,455,611 3.4
Ireland 1,802,400 1.8
Croatia 1,704,645 1.7
Switzerland 1,692,902 1.7
Spain 1,674,885 1.6
Australia 1,580,757 1.6
Mexico 1,554,480 1.5
United States 1,536,000 1.5
Portugal 1,225,700 1.2
Italy 1,112,836 1.1
Canada 745,360 0.7
Sweden 613,602 0.6
Denmark 521,173 0.5
Lebanon 437,500 0.4
------------ -----
Total $101,570,268 100.0%
============ =====
See accompanying Notes to Financial Statements.
Xxxxxxxxxxx International Growth Fund/VA 9
Statement of Assets and Liabilities December 31, 2001
=====================================================================================================
Assets
Investments, at value (cost $119,801,878)--see accompanying statement $101,570,268
-----------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 158
-----------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 204,259
Investments sold 98,512
Shares of capital stock sold 18,011
Other 2,652
------------
Total assets 101,893,860
=====================================================================================================
Liabilities
Bank overdraft 461
-----------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 498
-----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of capital stock redeemed 1,830,166
Investments purchased 89,914
Shareholder reports 2,030
Directors' compensation 202
Distribution and service plan fees 41
Other 36,016
------------
Total liabilities 1,959,328
=====================================================================================================
Net Assets $ 99,934,532
============
=====================================================================================================
Composition of Net Assets
Par value of shares of capital stock $ 92,973
-----------------------------------------------------------------------------------------------------
Additional paid-in capital 136,092,023
-----------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 620,003
-----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign currency transactions (18,637,197)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies (18,233,270)
------------
Net Assets $ 99,934,532
============
=====================================================================================================
Net Asset Value Per Share
Non-Service shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $99,831,241 and 92,877,181 shares of capital stock outstanding) $1.07
-----------------------------------------------------------------------------------------------------
Service shares:
Net asset value, redemption price per share and offering price per share (based
on net assets of $103,291 and 95,818 shares of capital stock outstanding) $1.08
See accompanying Notes to Financial Statements.
10 Xxxxxxxxxxx International Growth Fund/VA
Statement of Operations For the Year Ended December 31, 2001
=====================================================================================================
Investment Income
Dividends (net of foreign withholding taxes of $174,400) $ 1,961,156
-----------------------------------------------------------------------------------------------------
Interest 92,953
------------
Total income 2,054,109
=====================================================================================================
Expenses
Management fees 1,179,660
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Service shares 42
-----------------------------------------------------------------------------------------------------
Custodian fees and expenses 21,253
-----------------------------------------------------------------------------------------------------
Shareholder reports 10,382
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 8,187
-----------------------------------------------------------------------------------------------------
Directors' compensation 2,108
-----------------------------------------------------------------------------------------------------
Other 20,914
------------
Total expenses 1,242,546
Less reduction to custodian expenses (604)
------------
Net expenses 1,241,942
=====================================================================================================
Net Investment Income 812,167
-----------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (10,606,200)
Foreign currency transactions (5,040,484)
------------
Net realized gain (loss) (15,646,684)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (13,826,593)
Translation of assets and liabilities denominated in foreign currencies (2,901,751)
------------
Net change (16,728,344)
------------
Net realized and unrealized gain (loss) (32,375,028)
=====================================================================================================
Net Decrease in Net Assets Resulting from Operations $(31,562,861)
============
See accompanying Notes to Financial Statements.
Xxxxxxxxxxx International Growth Fund/VA 11
Statements of Changes in Net Assets
Year Ended December 31,
2001 2000
=======================================================================================================================
Operations
Net investment income (loss) $ 812,167 $
388,805
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (15,646,684)
29,533,847
-----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (16,728,344)
(45,921,739)
------------
------------
Net increase (decrease) in net assets resulting from operations (31,562,861)
(15,999,087)
=======================================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Non-Service shares (2,436)
(1,797,509)
Service shares
-- --
-----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Non-Service shares (23,429,756)
(28,230,274)
Service shares
-- --
=======================================================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting from capital stock transactions:
Non-Service shares 9,925,269
43,582,904
Service shares
103,291 --
=======================================================================================================================
Net Assets
Total decrease (44,966,493)
(2,443,966)
-----------------------------------------------------------------------------------------------------------------------
Beginning of period 144,901,025
147,344,991
------------
------------
End of period [including undistributed (overdistributed) net investment
income of $620,003 and $(7,161), respectively] $ 99,934,532
$144,901,025
============
============
See accompanying Notes to Financial Statements.
12 Xxxxxxxxxxx International Growth Fund/VA
Financial Highlights
Year Ended December 31,
Non-Service shares 2001 2000 1999
1998 1997
==========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $1.74 $2.30 $1.57
$1.36 $1.29
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .01 --(1) --(1)
..01 .01
Net realized and unrealized gain (loss) (.39) (.11) .77
..25 .09
--------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (.38) (.11) .77
..26 .10
--------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income --(1) (.03) (.01)
(.01) (.01)
Distributions from net realized gain (.29) (.42) (.03)
(.04) (.02)
--------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.29) (.45) (.04)
(.05) (.03)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.07 $1.74 $2.30
$1.57 $1.36
===== ===== =====
===== =====
==========================================================================================================================
Total Return, at Net Asset Value(2) (24.31)% (9.43)% 50.37%
19.40% 8.11%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 99,831 $144,901 $147,345
$103,404 $82,257
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $117,814 $162,028 $107,403 $
94,651 $73,318
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 0.69% 0.24% 0.17%
0.68% 0.72%
Expenses 1.05% 1.17% 1.08%
1.09%(4) 1.12%(4)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 72% 127%
48% 49%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period.
Total returns are not annualized for periods less than one full year. Total
return information does not reflect expenses that apply at the separate account
level or to related insurance products. Inclusion of these charges would reduce
the total return figures for all periods shown.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
Xxxxxxxxxxx International Growth Fund/VA 13
Financial Highlights (Continued)
Period Ended
Service shares December 31, 2001(1)
================================================================================
Per Share Operating Data
Net asset value, beginning of period $1.22
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income --(2)
Net realized and unrealized gain (loss) (.14)
--------------------------------------------------------------------------------
Total income (loss) from investment operations (.14)
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income --
Distributions from net realized gain --
--------------------------------------------------------------------------------
Total dividends and/or distributions to shareholders --
--------------------------------------------------------------------------------
Net asset value, end of period $1.08
======
================================================================================
Total Return, at Net Asset Value(3) (11.48)%
================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $103
--------------------------------------------------------------------------------
Average net assets (in thousands) $ 36
--------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 0.28%
Expenses 1.20%
--------------------------------------------------------------------------------
Portfolio turnover rate 44%
1. For the period from March 19, 2001 (inception of offering) to
December 31, 2001.
2. Less than $0.005 per share.
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Total returns are not annualized for periods less than one
full year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of these
charges would reduce the total return figures for all periods shown.
4. Annualized for periods of less than one full year.
See accompanying Notes to Financial Statements.
14 Xxxxxxxxxxx International Growth Fund/VA
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx International Growth Fund/VA (the Fund) is a series of Panorama
Series Fund, Inc. (the Company) which is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Fund's investment objective is to seek long-term growth of capital by investing
under normal circumstances, at least 90% of its assets in equity securities of
companies wherever located, the primary stock market of which is outside the
United States. The Fund's investment advisor is OppenheimerFunds, Inc. (the
Manager). Shares of the Fund are sold only to separate accounts of life
insurance companies, a majority of such shares are held by separate accounts of
Massachusetts Mutual Life Insurance Co., an affiliate of the investment advisor.
The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Directors, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Directors. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments
is separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
--------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires its custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
Xxxxxxxxxxx International Growth Fund/VA 15
Notes to Financial Statements (Continued)
================================================================================
1. Significant Accounting Policies (continued)
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders.
As of December 31, 2001, the Fund had available for federal income tax purposes
an unused capital loss carryover as follows:
Expiring
-----------------------------
2009 $16,530,049
As of December 31, 2001, the Fund had approximately $2,098,000 of post-October
losses available to offset future capital gains, if any. Such losses, if
unutilized, will expire in 2010. Additionally, the Fund had approximately $9,000
of post-October foreign currency losses which were deferred. If unutilized by
the Fund in the following fiscal year, such losses will expire.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes primarily because of the recognition of certain foreign
currency gains (losses) as ordinary income (loss) for tax purposes. The
character of dividends and distributions made during the fiscal year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to timing of
dividends and distributions, the fiscal year in which amounts are distributed
may differ from the fiscal year in which the income or realized gain was
recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended December 31, 2001, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $182,567. Accumulated net
realized loss on investments was decreased by the same amount. Net assets of the
Fund were unaffected by the reclassifications.
--------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
--------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
Other. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 income and
expenses during the reporting period. Actual results could differ from those
estimates.
16 Xxxxxxxxxxx International Growth Fund/VA
Notes to Financial Statements (Continued)
================================================================================
2. Shares of Capital Stock
The Fund has authorized 160 million shares of $0.001 par value capital stock.
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2001(1) Year Ended
December 31, 2000
----------------------------------
--------------------------------
Shares Amount
Shares Amount
--------------------------------------------------------------------------------------------------------------------------------
Non-Service shares
Sold 190,493,161 $ 224,286,344
63,483,684 $ 129,978,876
Dividends and/or distributions reinvested 18,745,753 23,432,192
13,228,098 30,027,783
Redeemed (199,740,358) (237,793,267)
(57,285,689) (116,423,755)
------------ -------------
----------- -------------
Net increase (decrease) 9,498,556 $ 9,925,269
19,426,093 $ 43,582,904
============ =============
=========== =============
Service shares
Sold 96,467 $ 103,972
-- $ --
Dividends and/or distributions reinvested -- --
-- --
Redeemed (649) (681)
-- --
------------ -------------
----------- -------------
Net increase (decrease) 95,818 $ 103,291
-- $ --
============ =============
=========== =============
1. For the year ended December 31, 2001, for Non-Service shares and for the
period from March 19, 2001 (inception of offering) to December 31, 2001, for
Service shares.
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2001, were
$51,238,452 and $58,590,866, respectively.
As of December 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $119,801,878 was:
Gross unrealized appreciation $ 8,106,334
Gross unrealized depreciation (26,337,944)
-----------
Net unrealized appreciation (depreciation) $(18,231,610)
============
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund. The annual fees are 1.00% of the
first $250 million of average daily net assets of the Fund and 0.90% of average
daily net assets in excess of $250 million. The Fund's management fee for the
year ended December 31, 2001, was an annualized rate of 1.00%.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS an agreed-upon per account fee. Additionally, funds offered in variable
annuity separate accounts are subject to minimum fees of $5,000 for assets of
less than $10 million and $10,000 for assets of $10 million or more. The Fund is
subject to the minimum fee in the event that the per account fee does not equal
or exceed the applicable minimum fee.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees to 0.25% per annum of funds offered in variable annuity separate
accounts, effective January 1, 2001. This undertaking may be amended or
withdrawn at any time.
Xxxxxxxxxxx International Growth Fund/VA 17
Notes to Financial Statements (Continued)
================================================================================
4. Fees and Other Transactions with Affiliates (continued)
Distribution and Service Plan for Service Shares. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc., the Distributor, for distribution-related services for the
Fund's Service shares. Although the plan allows for payment to be made quarterly
at an annual rate of up to 0.25% of the average annual net assets of Service
shares of the Fund, that rate is currently reduced to 0.15%. The Board of
Directors may increase that rate to no more than 0.25% per annum, without
notification in advance. The Distributor currently uses all of those fees to
compensate sponsor(s) of the insurance product that offers Fund shares, for
providing personal service and maintenance of accounts of their variable
contract owners that hold Service shares. The impact of the service plan is to
increase operating expenses of the service shares, which results in lower
performance compared to the Fund's shares that are not subject to a service fee.
================================================================================
5. Foreign Currency Contracts
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates as provided by a reliable bank, dealer or pricing service. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities as a receivable or payable and in the
Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of
the foreign currency transactions. Such realized gains and losses are reported
with all other foreign currency gains and losses in the Statement of Operations.
Expiration Contract Valuation as of
Unrealized Unrealized
Contract Description Dates Amount (000s) December 31, 2001
Appreciation Depreciation
---------------------------------------------------------------------------------------------------------------------------------
Contracts to Purchase
---------------------
British Pound Sterling (GBP) 1/2/02 20 GBP $28,798
$15 $ --
---- ----
Contracts to Sell
-----------------
Euro (EUR) 1/2/02 51 EUR 45,259
-- 498
---- ----
Total Unrealized Appreciation and Depreciation
$158 $498
==== ====
Xxxxxxxxxxx International Growth Fund/VA
Independent Auditors' Report
===============================================================================
The Board of Directors and Shareholders of Total Return Portfolio:
We have audited the accompanying statement of assets and liabilities of
Total Return Portfolio (which is a series of Panorama Series Fund, Inc.),
including the statement of investments, as of December 31, 2001, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2001, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Total Return Portfolio as of December 31, 2001, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Denver, Colorado
January 23, 2002
Statement of Investments December 31, 2001
Market Value
Shares See Note 1
===============================================================================
Common Stocks--69.4%
-------------------------------------------------------------------------------
Basic Materials--1.4%
-------------------------------------------------------------------------------
Chemicals--0.9%
Dow Chemical Co. 26,900 $ 908,682
-------------------------------------------------------------------------------
Xxxxxxx Chemical Co. 24,200 944,284
-------------------------------------------------------------------------------
Xxxxxxxx Corp. 42,100 1,120,702
-------------------------------------------------------------------------------
PPG Industries, Inc. 23,200 1,199,904
-----------
4,173,572
-------------------------------------------------------------------------------
Metals--0.5%
Alcoa, Inc. 45,300 1,610,415
-------------------------------------------------------------------------------
USX-U.S. Steel Group, Inc. 43,400 785,974
-----------
2,396,389
-------------------------------------------------------------------------------
Capital Goods--6.0%
-------------------------------------------------------------------------------
Aerospace/Defense--1.9%
Boeing Co. 80,200 3,110,156
-------------------------------------------------------------------------------
General Dynamics Corp. 10,300 820,292
-------------------------------------------------------------------------------
Lockheed Xxxxxx Corp. 31,600 1,474,772
-------------------------------------------------------------------------------
Northrop Grumman Corp. 29,900 3,014,219
-----------
8,419,439
-------------------------------------------------------------------------------
Electrical Equipment--1.5%
General Electric Co. 169,700 6,801,576
-------------------------------------------------------------------------------
Industrial Services--0.6%
Waste Management, Inc. 89,000 2,839,990
-------------------------------------------------------------------------------
Manufacturing--2.0%
Corning, Inc. 95,000 847,400
-------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 25,100 2,967,071
-------------------------------------------------------------------------------
Tyco International Ltd. 88,500 5,212,650
-----------
9,027,121
-------------------------------------------------------------------------------
Communication Services--3.0%
-------------------------------------------------------------------------------
Telecommunications: Long Distance--2.6%
Avaya, Inc.(1) 41,300 501,795
-------------------------------------------------------------------------------
Sprint Corp. (Fon Group) 156,600 3,144,528
-------------------------------------------------------------------------------
Verizon Communications, Inc. 117,200 5,562,312
-------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group(1) 154,300 2,172,544
-----------
11,381,179
-------------------------------------------------------------------------------
Telephone Utilities--0.4%
BellSouth Corp. 20,900 797,335
-------------------------------------------------------------------------------
SBC Communications, Inc. 23,600 924,412
-----------
1,721,747
Total Return Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-------------------------------------------------------------------------------
Consumer Cyclicals--8.9%
-------------------------------------------------------------------------------
Autos & Housing--2.3%
Black & Xxxxxx Corp. 28,400 $ 1,071,532
-------------------------------------------------------------------------------
Ford Motor Co. 183,428 2,883,488
-------------------------------------------------------------------------------
General Motors Corp. 46,400 2,255,040
-------------------------------------------------------------------------------
Xxxxxxx Controls, Inc. 28,300 2,285,225
-------------------------------------------------------------------------------
Vulcan Materials Co. 38,600 1,850,484
-----------
10,345,769
-------------------------------------------------------------------------------
Leisure & Entertainment--1.1%
Harley-Davidson, Inc. 38,700 2,101,797
-------------------------------------------------------------------------------
Marriott International, Inc., Cl. A 63,900 2,597,535
-----------
4,699,332
-------------------------------------------------------------------------------
Media--1.5%
AOL Time Warner, Inc.(1) 132,900 4,266,090
-------------------------------------------------------------------------------
Donnelley (R.R.) & Sons Co. 34,300 1,018,367
-------------------------------------------------------------------------------
Xxxxxx-Xxxxxx, Inc. 23,800 1,545,334
-----------
6,829,791
-------------------------------------------------------------------------------
Retail: General--2.5%
Penney (X.X.) Co., Inc. 88,900 2,391,410
-------------------------------------------------------------------------------
Sears Xxxxxxx & Co. 80,100 3,815,964
-------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 86,500 4,978,075
-----------
11,185,449
-------------------------------------------------------------------------------
Retail: Specialty--1.3%
Home Depot, Inc. 99,100 5,055,091
-------------------------------------------------------------------------------
Lowe's Cos., Inc. 11,600 538,356
-----------
5,593,447
-------------------------------------------------------------------------------
Textile, Apparel & Home Furnishings--0.2%
Liz Claiborne, Inc. 17,700 880,575
-------------------------------------------------------------------------------
Consumer Staples--6.0%
-------------------------------------------------------------------------------
Beverages--1.7%
Anheuser-Xxxxx Cos., Inc. 39,000 1,763,190
-------------------------------------------------------------------------------
Coca-Cola Co. (The) 31,400 1,480,510
-------------------------------------------------------------------------------
PepsiCo, Inc. 86,500 4,211,685
-----------
7,455,385
-------------------------------------------------------------------------------
Broadcasting--1.6%
Clear Channel Communications, Inc.(1) 71,400 3,634,974
-------------------------------------------------------------------------------
Comcast Corp., Cl. A Special 102,700 3,697,200
-----------
7,332,174
-------------------------------------------------------------------------------
Entertainment--1.2%
Disney (Xxxx) Co. 217,900 4,514,888
-------------------------------------------------------------------------------
Viacom, Inc., Cl. B(1) 20,300 896,245
-----------
5,411,133
-------------------------------------------------------------------------------
Food--0.5%
Sysco Corp. 79,700 2,089,734
Total Return Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-------------------------------------------------------------------------------
Food & Drug Retailers--0.6%
Kroger Co. (The)(1) 39,700 $ 828,539
-------------------------------------------------------------------------------
Walgreen Co. 60,800 2,046,528
-----------
2,875,067
-------------------------------------------------------------------------------
Tobacco--0.4%
Xxxxxx Xxxxxx Cos., Inc. 43,400 1,989,890
-------------------------------------------------------------------------------
Energy--6.7%
-------------------------------------------------------------------------------
Energy Services--0.7%
Transocean Sedco Forex, Inc. 87,300 2,952,486
-------------------------------------------------------------------------------
Oil: Domestic--4.8%
Amerada Xxxx Corp. 15,800 987,500
-------------------------------------------------------------------------------
Anadarko Petroleum Corp. 10,900 619,665
-------------------------------------------------------------------------------
Apache Corp. 49,610 2,474,547
-------------------------------------------------------------------------------
ChevronTexaco Corp. 16,400 1,469,604
-------------------------------------------------------------------------------
Exxon Mobil Corp. 246,600 9,691,380
-------------------------------------------------------------------------------
Occidental Petroleum Corp. 131,200 3,480,736
-------------------------------------------------------------------------------
USX-Marathon Group, Inc. 89,000 2,670,000
-----------
21,393,432
-------------------------------------------------------------------------------
Oil: International--1.2%
Royal Dutch Petroleum Co., NY Shares 109,400 5,362,788
-------------------------------------------------------------------------------
Financial--16.9%
-------------------------------------------------------------------------------
Banks--6.5%
Bank of America Corp. 49,200 3,097,140
-------------------------------------------------------------------------------
BB&T Corp. 87,400 3,156,014
-------------------------------------------------------------------------------
Charter One Financial, Inc. 54,285 1,473,838
-------------------------------------------------------------------------------
Comerica, Inc. 44,500 2,549,850
-------------------------------------------------------------------------------
FleetBoston Financial Corp. 42,200 1,540,300
-----------------------------------------------------------------------------
X.X. Xxxxxx Xxxxx & Co. 92,950 3,378,732
-------------------------------------------------------------------------------
National City Corp. 36,800 1,076,032
-------------------------------------------------------------------------------
SouthTrust Corp. 55,300 1,364,251
-------------------------------------------------------------------------------
SunTrust Banks, Inc. 56,700 3,555,090
-------------------------------------------------------------------------------
Wachovia Corp. 128,400 4,026,624
-------------------------------------------------------------------------------
Xxxxx Fargo Co. 43,100 1,872,695
-------------------------------------------------------------------------------
Zions Bancorp 35,400 1,861,332
-----------
28,951,898
-------------------------------------------------------------------------------
Diversified Financial--6.0%
AMBAC Financial Group, Inc. 33,400 1,932,524
-------------------------------------------------------------------------------
Capital One Financial Corp. 29,000 1,564,550
-------------------------------------------------------------------------------
Citigroup, Inc. 170,000 8,581,600
-------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. 45,000 1,843,650
-------------------------------------------------------------------------------
Xxxxxx Xxx 56,800 4,515,600
-------------------------------------------------------------------------------
Household International, Inc. 49,100 2,844,854
-------------------------------------------------------------------------------
MBNA Corp. 97,500 3,432,000
-------------------------------------------------------------------------------
MGIC Investment Corp. 32,700 2,018,244
-----------
26,733,022
Total Return Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-------------------------------------------------------------------------------
Insurance--3.2%
AFLAC, Inc. 85,800 $ 2,107,248
-------------------------------------------------------------------------------
American International Group, Inc. 82,800 6,574,320
-------------------------------------------------------------------------------
Cigna Corp. 33,100 3,066,715
-------------------------------------------------------------------------------
MBIA, Inc. 44,800 2,402,624
-----------
14,150,907
-------------------------------------------------------------------------------
Real Estate Investment Trusts--0.3%
Equity Office Properties Trust 45,500 1,368,640
-------------------------------------------------------------------------------
Savings & Loans--0.9%
Golden West Financial Corp. 42,300 2,489,355
-------------------------------------------------------------------------------
Washington Mutual, Inc. 44,900 1,468,230
-----------
3,957,585
-------------------------------------------------------------------------------
Healthcare--5.1%
-------------------------------------------------------------------------------
Healthcare/Drugs--4.8%
Xxxxxxx-Xxxxx Squibb Co. 17,500 892,500
-------------------------------------------------------------------------------
Xxxxxxx & Xxxxxxx 33,800 1,997,580
-------------------------------------------------------------------------------
Merck & Co., Inc. 66,900 3,933,720
-------------------------------------------------------------------------------
Pfizer, Inc. 190,775 7,602,384
-------------------------------------------------------------------------------
Pharmacia Corp. 88,800 3,787,320
-------------------------------------------------------------------------------
UnitedHealth Group, Inc. 45,500 3,220,035
-----------
21,433,539
-------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.3%
Xxxxxxx-Xxxxxx Co., Cl. B 26,300 1,176,662
-------------------------------------------------------------------------------
Technology--11.1%
-------------------------------------------------------------------------------
Computer Hardware--2.1%
Hewlett-Packard Co. 101,300 2,080,702
-------------------------------------------------------------------------------
International Business Machines Corp. 33,100 4,003,776
-------------------------------------------------------------------------------
Lexmark International, Inc., Cl. A(1) 17,800 1,050,200
-------------------------------------------------------------------------------
NCR Corp.(1) 34,000 1,253,240
-------------------------------------------------------------------------------
Pitney Xxxxx, Inc. 30,100 1,132,061
-----------
9,519,979
-------------------------------------------------------------------------------
Computer Services--1.1%
First Data Corp. 39,500 3,098,775
-------------------------------------------------------------------------------
Unisys Corp.(1) 141,400 1,773,156
-----------
4,871,931
-------------------------------------------------------------------------------
Computer Software--4.4%
Computer Associates International, Inc. 123,300 4,252,617
-------------------------------------------------------------------------------
Computer Sciences Corp.(1) 40,800 1,998,384
-------------------------------------------------------------------------------
Electronic Data Systems Corp. 44,400 3,043,620
-------------------------------------------------------------------------------
Intuit, Inc.(1) 27,700 1,185,006
-------------------------------------------------------------------------------
Microsoft Corp.(1) 121,100 8,022,875
-------------------------------------------------------------------------------
Oracle Corp.(1) 88,000 1,215,280
-----------
19,717,782
Total Return Portfolio
Statement of Investments (Continued)
Market Value
Shares See Note 1
-------------------------------------------------------------------------------
Communications Equipment--1.2%
Cisco Systems, Inc.(1) 115,500 $ 2,091,705
-------------------------------------------------------------------------------
Nortel Networks Corp. 412,900 3,096,750
------------
5,188,455
-------------------------------------------------------------------------------
Electronics--2.3%
Intel Corp. 100,700 3,167,015
-------------------------------------------------------------------------------
JDS Uniphase Corp.(1) 139,700 1,212,596
-------------------------------------------------------------------------------
Linear Technology Corp. 46,900 1,830,976
-------------------------------------------------------------------------------
Maxim Integrated Products, Inc.(1) 38,400 2,016,384
-------------------------------------------------------------------------------
Motorola, Inc. 129,400 1,943,588
------------
10,170,559
-------------------------------------------------------------------------------
Transportation--0.5%
-------------------------------------------------------------------------------
Railroads & Truckers--0.5%
Norfolk Southern Corp. 65,500 1,200,615
-------------------------------------------------------------------------------
Union Pacific Corp. 19,600 1,117,200
------------
2,317,815
-------------------------------------------------------------------------------
Utilities--3.8%
-------------------------------------------------------------------------------
Electric Utilities--2.7%
Allegheny Energy, Inc. 34,200 1,238,724
-------------------------------------------------------------------------------
American Electric Power Co., Inc. 48,200 2,098,146
-------------------------------------------------------------------------------
Calpine Corp.(1) 31,300 525,527
-------------------------------------------------------------------------------
Cinergy Corp. 5,400 180,522
-------------------------------------------------------------------------------
CMS Energy Corp. 41,500 997,245
-------------------------------------------------------------------------------
Mirant Corp.(1) 87,900 1,408,158
-------------------------------------------------------------------------------
Reliant Energy, Inc. 62,500 1,657,500
-------------------------------------------------------------------------------
TXU Corp. 23,000 1,084,450
-------------------------------------------------------------------------------
Xcel Energy, Inc. 102,900 2,854,446
------------
12,044,718
-------------------------------------------------------------------------------
Gas Utilities--1.1%
Sempra Energy 81,900 2,010,645
-------------------------------------------------------------------------------
Xxxxxxxx Cos., Inc. (The) 108,700 2,774,024
------------
4,784,669
------------
Total Common Stocks (Cost $336,973,667) 309,545,626
Total Return Portfolio
Statement of Investments (Continued)
Principal Market Value
Amount See Note 1
===============================================================================
Asset-Backed Securities--0.4%
-------------------------------------------------------------------------------
Litigation Settlement Monetized Fee Trust,
Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31(2)
(Cost $1,886,198) $1,886,918 $ 1,941,168
===============================================================================
Mortgage-Backed Obligations--5.5%
-------------------------------------------------------------------------------
Asset Securitization Corp., Commercial Mtg.
Pass-Through Certificates,
Series 1996-D2, Cl. A3, 7.38%, 2/14/29(3) 3,000,000 2,925,000
-------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6.50%, 4/1/24-3/1/26 1,433,463 1,440,979
7.50%, 5/1/07-12/1/08 483,591 509,798
8%, 3/1/17-6/1/17 106,618 113,341
-------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real
Estate Mtg. Investment Conduit
Pass-Through Certificates, Trust 1992-15,
Cl. KZ, 7%, 2/25/22 2,979,628 3,055,966
-------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real
Estate Mtg. Investment Conduit
Pass-Through Certificates, Interest-Only
Stripped Mtg.-Backed Security,
Trust 1993-223, Cl. PM, 7.01%, 10/25/23(2)(4) 2,210,618 262,942
-------------------------------------------------------------------------------
GE Capital Mortgage Services, Inc., Collateralized
Mtg. Obligations,
Series 1999-2, Cl. A3, 6.50%, 4/25/29 2,500,000 2,469,525
-------------------------------------------------------------------------------
Government National Mortgage Assn.:
7%, 11/15/08-1/15/24 960,395 997,119
7.50%, 1/15/09-6/15/24 2,274,882 2,382,559
8%, 5/15/17 374,290 398,912
-------------------------------------------------------------------------------
Norwest Asset Securities Corp., Multiclass Mtg.
Pass-Through Certificates:
Series 1999-16, Cl. A3, 6%, 6/25/29 2,000,000 2,039,360
Series 1999-18, Cl. A2, 6%, 7/25/29 4,000,000 4,066,240
-------------------------------------------------------------------------------
Residential Funding Mortgage Securities I, Inc.,
Mtg. Pass-Through Certificates,
Series 1998-S4, Cl. M1, 6.50%, 2/25/13 1,739,822 1,732,202
-------------------------------------------------------------------------------
Structured Asset Securities Corp., Sub.
Multiclass Pass-Through Certificates,
Series 1996-CFL, Cl. G, 7.75%, 2/25/28 2,000,000 2,007,813
-----------
Total Mortgage-Backed Obligations
(Cost $23,675,388) 24,401,756
===============================================================================
U.S. Government Obligations--1.9%
-------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 5/15/30 5,075,000 5,499,042
-------------------------------------------------------------------------------
U.S. Treasury Nts., 5%, 8/15/11 3,010,000 3,003,417
-----------
Total U.S. Government Obligations
(Cost $8,661,438) 8,502,459
===============================================================================
Non-Convertible Corporate Bonds and Notes--21.4%
-------------------------------------------------------------------------------
Basic Materials--0.6%
-------------------------------------------------------------------------------
Paper--0.6%
Xxxxxxx Forest Products, Inc., 7.625% Gtd.
Sr. Nts., 5/15/07 2,500,000 2,609,432
-------------------------------------------------------------------------------
Capital Goods--2.7%
-------------------------------------------------------------------------------
Industrial Services--1.3%
Interface, Inc., 7.30% Sr. Nts., 4/1/08 2,000,000 1,730,000
-------------------------------------------------------------------------------
Norse CBO Ltd., 6.515% Collateralized Bond
Obligations,
Series 1A, Cl. A3, 8/13/10(2) 4,000,000 4,000,000
-----------
5,730,000
-------------------------------------------------------------------------------
Manufacturing--1.4%
Xxxxx-Illinois, Inc., 7.15% Sr. Nts., 5/15/05 5,000,000 4,725,000
-------------------------------------------------------------------------------
Scotia Pacific Co. LLC, 7.71% Sec. Nts.,
Series B, Cl. A-3, 1/20/14 2,000,000 1,644,440
-----------
6,369,440
10 Total Return Portfolio
Statement of Investments (Continued)
Principal Market Value
Amount See Note 1
-------------------------------------------------------------------------------
Communication Services--2.4%
-------------------------------------------------------------------------------
Telecommunications: Long Distance--1.2%
Calpoint Receivable Strip Trust 2001, 7.44%
Bonds, 12/10/06(5) $4,000,000 $ 3,929,852
-------------------------------------------------------------------------------
Qwest Capital Funding, Inc., 7.625% Bonds,
8/3/21(5) 1,000,000 956,229
-------------------------------------------------------------------------------
WorldCom, Inc., 8.25% Bonds, 5/15/31 600,000 636,047
-----------
5,522,128
-------------------------------------------------------------------------------
Telephone Utilities--0.7%
Qwest Corp., 6.875% Unsec. Debs., 9/15/33 2,000,000 1,682,946
-------------------------------------------------------------------------------
Telefonica de Argentina SA, 9.125% Nts.,
Series 1, 5/7/08 2,000,000 1,360,000
-----------
3,042,946
-------------------------------------------------------------------------------
Telecommunications: Wireless--0.5%
VoiceStream Wireless Corp., 10.375% Sr. Unsec.
Nts., 11/15/09 1,928,000 2,197,920
-------------------------------------------------------------------------------
Consumer Cyclicals--3.9%
-------------------------------------------------------------------------------
Autos & Housing--2.6%
CPG Partners LP, 8.25% Unsec. Unsub. Nts., 2/1/11 1,500,000 1,520,879
-------------------------------------------------------------------------------
Xxxx Corp., 7.96% Sr. Unsec. Nts., Series B,
5/15/05 2,000,000 2,029,726
-------------------------------------------------------------------------------
Pulte Corp., 8.125% Sr. Unsec. Nts., 3/1/11 2,000,000 1,979,214
-------------------------------------------------------------------------------
Shurgard Storage Centers, Inc., 7.50% Sr.
Unsec. Nts., 4/25/04 2,000,000 2,103,334
-------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64% Bonds, 12/29/49(5) 4,000,000 4,129,556
-----------
11,762,709
-------------------------------------------------------------------------------
Consumer Services--0.9%
PHH Corp., 8.125% Nts., 2/3/03 4,000,000 4,000,064
-------------------------------------------------------------------------------
Leisure & Entertainment--0.4%
Felcor Suites LP, 7.375% Sr. Nts., 10/1/04(2) 2,000,000 1,990,000
-------------------------------------------------------------------------------
Consumer Staples--2.2%
-------------------------------------------------------------------------------
Entertainment--1.1%
Tricon Global Restaurants, Inc., 7.45% Sr.
Unsec. Nts., 5/15/05 4,650,000 4,743,000
-------------------------------------------------------------------------------
Household Goods--1.1%
Fort Xxxxx Corp., 6.875% Sr. Nts., 9/15/07 5,000,000 4,814,870
-------------------------------------------------------------------------------
Energy--2.3%
-------------------------------------------------------------------------------
Energy Services--1.2%
Colorado Interstate Gas Corp., 10% Sr.
Debs., 6/15/05 455,000 525,517
-------------------------------------------------------------------------------
Columbia Gas System, Inc., 6.80% Nts.,
Series C, 11/28/05 2,000,000 2,076,966
-------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875%
Debs., 1/1/21 2,250,000 2,775,364
-----------
5,377,847
-------------------------------------------------------------------------------
Oil: Domestic--1.1%
Devon Financing Corp., 7.875% Debs., 9/30/31(5) 2,000,000 2,030,098
-------------------------------------------------------------------------------
Xxxxxx Xxxxxx Energy Partners LP, 6.75% Sr.
Unsec. Nts., 3/15/11 3,000,000 3,004,746
-----------
5,034,844
-------------------------------------------------------------------------------
Financial--3.1%
-------------------------------------------------------------------------------
Banks--0.7%
Colonial Bank, 9.375% Sub. Nts., 6/1/11 1,000,000 1,053,838
-------------------------------------------------------------------------------
Credit Suisse First Boston (USA), Inc.,
6.125% Nts., 11/15/11 1,000,000 977,823
-------------------------------------------------------------------------------
Oversea-Chinese Banking Corp. Ltd., 7.75%
Unsec. Sub. Nts., 9/6/11 1,000,000 1,046,056
-----------
3,077,717
Total Return Portfolio
Statement of Investments (Continued)
Principal Market Value
Amount See Note 1
-------------------------------------------------------------------------------
Diversified Financial--1.9%
BT Institutional Cap Trust A, 8.09%
Bonds, 12/1/26(5) $2,000,000 $ 2,003,600
-------------------------------------------------------------------------------
Dime Capital Trust I, 9.33% Capital
Securities, Series A, 5/6/27 2,000,000 2,125,092
-------------------------------------------------------------------------------
Finova Group, Inc. (The), 7.50%
Nts., 11/15/09 969,000 411,825
-------------------------------------------------------------------------------
Osprey Trust/Osprey I, Inc., 8.31%
Sr. Sec. Nts., 1/15/03(5)(6) 4,000,000 820,000
-------------------------------------------------------------------------------
Xxxxxxxx Financial, Inc., 7% Nts., 11/1/06 3,000,000 2,939,604
------------
8,300,121
-------------------------------------------------------------------------------
Insurance--0.5%
Nationwide CSN Trust, 9.875% Sec. Nts., 2/15/25(5) 2,000,000 2,080,442
-------------------------------------------------------------------------------
Transportation--0.5%
-------------------------------------------------------------------------------
Railroads & Truckers--0.5%
Union Pacific Corp., 7.60% Unsec. Nts., 5/1/05 2,000,000 2,153,936
-------------------------------------------------------------------------------
Utilities--3.7%
-------------------------------------------------------------------------------
Electric Utilities--3.3%
Cleveland Electric Illumination, Inc., 6.86%
First Mtg. Nts., 10/1/08 4,000,000 4,025,672
-------------------------------------------------------------------------------
El Paso Electric Co., 8.25% First Mtg. Bonds,
Series C, 2/1/03 3,278,000 3,418,521
-------------------------------------------------------------------------------
PSEG Energy Holdings, Inc., 8.625% Sr. Unsec.
Nts., 2/15/08 1,000,000 1,017,561
-------------------------------------------------------------------------------
PSEG Power LLC, 8.625% Sr. Unsec. Nts., 4/15/31 2,000,000 2,227,296
-------------------------------------------------------------------------------
Teco Energy, Inc., 7.20% Unsec. Unsub. Nts.,
5/1/11 1,900,000 1,976,034
-------------------------------------------------------------------------------
Xcel Energy, Inc., 7% Sr. Unsec. Sub. Nts.,
12/1/10 2,000,000 2,023,378
------------
14,688,462
-------------------------------------------------------------------------------
Gas Utilities--0.4%
AGL Capital Corp., 7.125% Sr. Unsec. Nts., 1/14/11 2,000,000 1,978,900
------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $98,582,040) 95,474,778
===============================================================================
Repurchase Agreements--0.9%
-------------------------------------------------------------------------------
Repurchase agreement with Zion First National
Bank, 1.55%, dated 12/31/01, to be repurchased
at $4,252,366 on 1/2/02, collateralized by U.S.
Treasury Nts., 4.75%-7%, 7/15/06-11/15/08, with
a value of $4,354,342 (Cost $4,252,000) 4,252,000 4,252,000
-------------------------------------------------------------------------------
Total Investments, at Value (Cost $474,030,731) 99.5% 444,117,787
-------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.5 2,123,624
---------- ------------
Net Assets 100.0% $446,241,411
========== ============
1. Non-income-producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 5 of
Notes to Financial Statements.
3. Represents the current interest rate for a variable or increasing rate
security.
4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to
changes in prepayment rates than traditional mortgage-backed securities
(for example, GNMA pass-throughs). Interest rates disclosed represent current
yields based upon the current cost basis and estimated timing and amount of
future cash flows.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board
of Directors. These securities amount to $15,949,777 or 3.57% of the
Portfolio's net assets as of December 31, 2001.
6. Issuer is in default.
See accompanying Notes to Financial Statements.
12 Total Return Portfolio
Statement of Assets and Liabilities December 31, 2001
==============================================================================
Assets
Investments, at value (cost $474,030,731)--see
accompanying statement $444,117,787
------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 2,541,156
Investments sold 882,951
Shares of capital stock sold 66,477
Other 4,499
------------
Total assets 447,612,870
==============================================================================
Liabilities
Bank overdraft 153
------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 914,475
Shares of capital stock redeemed 396,282
Shareholder reports 16,872
Directors' compensation 721
Other 42,956
------------
Total liabilities 1,371,459
==============================================================================
Net Assets $446,241,411
============
==============================================================================
Composition of Net Assets
Par value of shares of capital stock $ 347,230
------------------------------------------------------------------------------
Additional paid-in capital 550,284,129
------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 13,131,027
------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment
transactions (87,608,031)
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (29,912,944)
------------
Net assets--applicable to 347,230,018 shares of capital
stock outstanding $446,241,411
============
==============================================================================
Net Asset Value, Redemption Price Per Share and Offering Price
Per Share $1.29
See accompanying Notes to Financial Statements.
Total Return Portfolio
Statement of Operations For the Year Ended December 31, 2001
==============================================================================
Investment Income
Interest $ 10,622,668
------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $32,992) 4,537,339
------------
Total income 15,160,007
==============================================================================
Expenses
Management fees 3,181,642
------------------------------------------------------------------------------
Custodian fees and expenses 42,553
------------------------------------------------------------------------------
Shareholder reports 16,525
------------------------------------------------------------------------------
Accounting service fees 15,000
------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 7,062
------------------------------------------------------------------------------
Directors' compensation 6,648
------------------------------------------------------------------------------
Other 51,626
------------
Total expenses 3,321,056
Less reduction to custodian expenses (10,659)
------------
Net expenses 3,310,397
==============================================================================
Net Investment Income 11,849,610
==============================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (49,223,145)
Closing of futures contracts (256,286)
------------
Net realized gain (loss) (49,479,431)
------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (5,070,834)
------------
Net realized and unrealized gain (loss) (54,550,265)
==============================================================================
Net Decrease in Net Assets Resulting from Operations $(42,700,655)
============
See accompanying Notes to Financial Statements.
Total Return Portfolio
Statements of Changes in Net Assets
Year Ended December 31,
2001 2000
==================================================================================
Operations
Net investment income (loss) $ 11,849,610 $ 23,479,629
----------------------------------------------------------------------------------
Net realized gain (loss) (49,479,431) (27,920,582)
----------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) (5,070,834) (15,244,818)
------------- --------------
Net increase (decrease) in net assets resulting
from operations (42,700,655) (19,685,771)
==================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income (23,459,957) (40,253,730)
----------------------------------------------------------------------------------
Distributions from net realized gain -- (98,059,927)
==================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting
from capital stock transactions (93,718,070) (309,917,342)
==================================================================================
Net Assets
Total decrease (159,878,682) (467,916,770)
----------------------------------------------------------------------------------
Beginning of period 606,120,093 1,074,036,863
------------- --------------
End of period [including undistributed
(overdistributed) net investment income
of $13,131,027 and $23,435,504, respectively] $ 446,241,411 $ 606,120,093
============= ==============
See accompanying Notes to Financial Statements.
Total Return Portfolio
Financial Highlights
Year Ended December 31,
2001 2000 1999
1998 1997
==========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $1.45 $1.75 $1.91
$2.00 $1.91
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04(1) .07 .07
..06 .07
Net realized and unrealized gain (loss) (.14)(1) (.10) (.10)
..14 .25
--------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (.10) (.03) (.03)
..20 .32
--------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.06) (.08) (.06)
(.07) (.07)
Distributions from net realized gain -- (.19) (.07)
(.22) (.16)
--------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.06) (.27) (.13)
(.29) (.23)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.29 $1.45 $1.75
$1.91 $2.00
===== ===== =====
===== =====
==========================================================================================================================
Total Return, at Net Asset Value(2) (6.94)% (2.51)% (1.54)%
10.90% 18.81%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $446 $606 $1,074
$1,344 $1,279
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $509 $791 $1,230
$1,299 $1,208
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.33%(1) 2.97% 3.27%
3.30% 3.57%
Expenses 0.65% 0.61% 0.55%
0.55%(4) 0.55%(4)
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 108% 123% 113%
93% 104%
1. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005
Net realized and unrealized gain (loss) Change less than $0.005
Net investment income ratio 2.38%
2. Assumes a $1,000 hypothetical initial investment on the business day
before the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Total
returns are not annualized for periods less than one full year. Total return
information does not reflect expenses that apply at the separate account level
or to related insurance products. Inclusion of these charges would reduce the
total return figures for all periods shown.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
Total Return Portfolio
Notes to Financial Statements
===============================================================================
1. Significant Accounting Policies
Total Return Portfolio (the Portfolio) is a series of Panorama Series
Fund, Inc. (the Company) which is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment
company. The Portfolio's investment objective is to seek to maximize total
investment return (including capital appreciation and income) principally by
allocating its assets among stocks, corporate bonds, U.S. Government securities
and money market instruments, according to changing market conditions. The
Portfolio's investment advisor is OppenheimerFunds, Inc. (the Manager). Shares
of thea Portfolio are sold only to separate accounts of life insurance
companies, a majority of such shares are held by separate accounts of
Massachusetts Mutual Life Insurance Co., an affiliate of the investment
advisor. The following is a summary of significant accounting policies
consistently followed by the Portfolio.
-------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock
Exchanges or other domestic or foreign exchanges are valued based on the last
sale price of the security traded on that exchange prior to the time when the
Portfolio's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Securities (including restricted securities) for which quotations are not
readily available are valued primarily using dealer-supplied valuations, a
portfolio pricing service authorized by the Board of Directors, or at their
fair value. Fair value is determined in good faith under consistently applied
procedures under the supervision of the Board of Directors. Short-term "money
market type" debt securities with remaining maturities of sixty days or less
are valued at amortized cost (which approximates market value).
-------------------------------------------------------------------------------
Security Credit Risk. The Portfolio invests in high yield securities,
which may be subject to a greater degree of credit risk, greater market
fluctuations and risk of loss of income and principal, and may be more
sensitive to economic conditions than lower yielding, higher rated fixed income
securities. The Portfolio may acquire securities in default, and is not
obligated to dispose of securities whose issuers subsequently default. As of
December 31, 2001, securities with an aggregate market value of $820,000,
representing 0.18% of the Portfolio's net assets, were in default.
-------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Portfolio are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of foreign securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Portfolio's Statement of Operations.
-------------------------------------------------------------------------------
Repurchase Agreements. The Portfolio requires its custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System
or to have segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the underlying
securities is required to be at least 102% of the resale price at the time of
purchase. If the seller of the agreement defaults and the value of the
collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Portfolio may be delayed or
limited.
-------------------------------------------------------------------------------
Federal Taxes. The Portfolio intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders.
Total Return Portfolio
Notes to Financial Statements (Continued)
===============================================================================
1. Significant Accounting Policies (continued)
As of December 31, 2001, the Portfolio had available for federal income
tax purposes unused capital loss carryovers as follows:
Expiring
------------------------------------
2008 $18,461,536
2009 62,949,621
-----------
Total $81,411,157
===========
As of December 31, 2001, the Portfolio had approximately $6,197,000 of
post-October losses available to offset future capital gains, if any. Such
losses, if unutilized, will expire in 2010.
-------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions
to shareholders, which are determined in accordance with income tax
regulations, are recorded on the ex-dividend date.
-------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net
investment income (loss) and net realized gain (loss) may differ for financial
statement and tax purposes primarily because of paydown gains and losses and
the recognition of certain foreign currency gains (losses) as ordinary income
(loss) for tax purposes. The character of dividends and distributions made
during the fiscal year from net investment income or net realized gains may
differ from their ultimate characterization for federal income tax purposes.
Also, due to timing of dividends and distributions, the fiscal year in which
amounts are distributed may differ from the fiscal year in which the income or
realized gain was recorded by the Portfolio.
The Portfolio adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, during the year ended December 31, 2001, amounts have been
reclassified to reflect an increase in undistributed net investment income of
$1,305,870. Accumulated net realized loss on investments was increased by the
same amount. Net assets of the Portfolio were unaffected by the
reclassifications.
-------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or
upon ex-dividend notification in the case of certain foreign dividends where
the ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
-------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
-------------------------------------------------------------------------------
Other. The Portfolio adopted the provisions of the AICPA Audit and
Accounting Guide for Investment Companies, as revised, effective for fiscal
years beginning after December 15, 2000. The Portfolio elected to begin
amortizing premiums on debt securities effective January 1, 2001. Prior to this
date, the Portfolio did not amortize premiums on debt securities. The
cumulative effect of this accounting change had no impact on the total net
assets of the Portfolio, but resulted in a $1,306,164 decrease to cost of
securities and a corresponding $1,306,164 decrease in net unrealized
depreciation, based on securities held as of December 31, 2000. For the year
ended December 31, 2001, interest income decreased by $267,177, net realized
loss on investments increased by $893,063, and the change in net unrealized
depreciation on investments decreased by $1,160,240.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 income and
expenses during the reporting period. Actual results could differ from those
estimates.
Total Return Portfolio
Notes to Financial Statements (Continued)
===============================================================================
2. Shares of Capital Stock
The Portfolio has authorized 1.51 billion shares of $0.001 par value
capital stock. Transactions in shares of capital stock were as follows:
Year Ended December 31, 2001 Year Ended December
31, 2000
---------------------------------
----------------------------------
Shares Amount Shares
Amount
-------------------------------------------------------------------------------------------------------------------------------
Sold 8,835,947 $ 11,692,900 19,462,896
$ 30,030,006
Dividends and/or distributions reinvested 18,186,012 23,459,957
93,455,174 138,313,657
Redeemed (96,915,489) (128,870,927)
(307,792,871) (478,261,005)
----------- ------------- ------------
-------------
Net increase (decrease) (69,893,530) $ (93,718,070) (194,874,801)
$(309,917,342)
=========== ============= ============
=============
===============================================================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities,
other than short-term obligations, for the year ended December 31, 2001, were
$538,047,288 and $629,715,465, respectively.
As of December 31, 2001, unrealized appreciation (depreciation) based on
cost of securities for federal income tax purposes of $474,030,731 was:
Gross unrealized appreciation $ 21,665,495
Gross unrealized depreciation (51,578,439)
------------
Net unrealized appreciation (depreciation) $(29,912,944)
============
===============================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance
with the investment advisory agreement with the Portfolio. The annual fees are
0.625% of the first $600 million of average daily net assets of the Portfolio
and 0.45% of average daily net assets in excess of $600 million. The
Portfolio's management fee for the year ended December 31, 2001, was an
annualized rate of 0.625%.
-------------------------------------------------------------------------------
Accounting Fees. The Manager acts as the accounting agent for the
Portfolio at an annual fee of $15,000 plus out-of-pocket costs and expenses
reasonably incurred.
-------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the
Portfolio. The Portfolio pays OFS an agreed-upon per account fee. Additionally,
funds offered in variable annuity separate accounts are subject to minimum fees
of $5,000 for assets of less than $10 million and $10,000 for assets of $10
million or more. The Portfolio is subject to the minimum fee in the event that
the per account fee does not equal or exceed the applicable minimum fee.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees to 0.25% per annum of funds offered in variable annuity separate
accounts, effective January 1, 2001. This undertaking may be amended or
withdrawn at any time.
Total Return Portfolio
Notes to Financial Statements (Unaudited)
===============================================================================
5. Futures Contract
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Portfolio may buy and sell futures contracts that relate to
broadly based securities indices "financial futures" or debt securities
"interest rate futures" in order to gain exposure to or to seek to protect
against changes in market value of stock and bonds or interest rates. The
Portfolio may also buy or write put or call options on these futures contracts.
The Portfolio generally sells futures contracts to hedge against increases
in interest rates and decreases in market value of portfolio securities. The
Portfolio may also purchase futures contracts to gain exposure to market
changes as it may be more efficient or cost effective than actually buying
fixed income securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Portfolio each day. The variation margin
payments are equal to the daily changes in the contract value and are recorded
as unrealized gains and losses. The Portfolio recognizes a realized gain or
loss when the contract is closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily xxxx to market for variation margin. Realized
gains and losses are reported on the Statement of Operations as closing and
expiration of futures contracts.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
===============================================================================
6. Illiquid Securities
As of December 31, 2001, investments in securities included issues that
are illiquid. A security may be considered illiquid if it lacks a readily
available market or if its valuation has not changed for a certain period of
time. The Portfolio intends to invest no more than 15% of its net assets
(determined at the time of purchase and reviewed periodically) in illiquid
securities. The aggregate value of illiquid securities subject to this
limitation as of December 31, 2001, was $8,194,110, which represents 1.84% of
the Portfolio's net assets.
Total Return Portfolio
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below.
Those ratings represent the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the rating organizations.
Xxxxx'x Investors Service, Inc.
-------------------------------------------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the smallest degree of investment risk.
Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, the changes that can be expected are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they
comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger
than that of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future cannot be considered well-assured.
Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act or the fulfillment of some condition
are rated conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. The parenthetical rating denotes probable credit
stature upon completion of construction or elimination of the basis of the condition.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa" through "Caa."
The modifier "1" indicates that the obligation ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a ranking in the lower end of that
generic rating category. Advanced refunded issues that are secured by certain assets are identified with a #
symbol.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not
exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while
appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
-------------------------------------------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation, and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to
adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative issues. However, these face major
ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated "BB", but the obligor currently has
the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the
obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to nonpayment. The
"C" rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A "C" also will be assigned to a preferred stock
issue in arrears on dividends or sinking fund payments, but that is currently paying.
D: Bonds rated "D" are in default. Payments on the obligation are not being made on the date due even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made
during such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. The "r" symbol is attached to the ratings of instruments with
significant noncredit risks.
Short-Term Issue Credit Ratings
A-1: Obligation is rated in the highest category. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, a plus (+) sign designation indicates the obligor's capacity to meet
its financial obligation is extremely strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3: Obligation exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation.
B: Obligation is regarded as having significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitment on the obligation. However, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C: Obligation is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment on the obligation.
D: Obligation is in payment default. Payments on the obligation have not been made on the due date even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made
during such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
Fitch, Inc.
-------------------------------------------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only
in the case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit risk. They indicate a very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity may, nevertheless,
be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the
result of adverse economic change over time. However, business or financial alternatives may be available to
allow financial commitments to be met. Securities rated in this category are not investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met. However, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is
solely reliant upon sustained, favorable business or economic developments. A "CC" rating indicates that default
of some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based on their prospects for achieving
partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest.
"DD" indicates potential recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e., below
50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the
highest prospect for resumption of performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal reorganization or liquidation process;
those rated "DD" are likely to satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote relative status within the major rating
categories. Plus and minus signs are not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment of financial commitments. May have an added
"+" to denote any exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is adequate. However, near-term
adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D: Default. Denotes actual or imminent payment default.
Appendix B
INDUSTRY CLASSIFICATIONS
Aerospace & Defense Household Durables
Air Freight & Couriers Household Products
Airlines Industrial Conglomerates
Auto Components Insurance
Automobiles Internet & Catalog Retail
Banks Internet Software & Services
Beverages Information Technology Consulting & Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Commercial Services & Supplies Media
Communications Equipment Metals & Mining
Computers & Peripherals Multiline Retail
Construction & Engineering Multi-Utilities
Construction Materials Office Electronics
Containers & Packaging Oil & Gas
Distributors Paper & Forest Products
Diversified Financials Personal Products
Diversified Telecommunication Services Pharmaceuticals
Electric Utilities Real Estate
Electrical Equipment Road & Rail
Electronic Equipment & Instruments Semiconductor Equipment & Products
Energy Equipment & Services Software
Food & Drug Retailing Specialty Retail
Food Products Textiles & Apparel
Gas Utilities Tobacco Health Care Equipment & Supplies Trading Companies & Distributors
Health Care Providers & Services Transportation Infrastructure
Hotels Restaurants & Leisure Water Utilities
Wireless Telecommunication Services
-------------------------------------------------------------------------------------------------------------------
Panorama Series Fund, Inc.
-------------------------------------------------------------------------------------------------------------------
Investment Advisor
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Distributor
OppenheimerFunds Distributor, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Transfer Agent
OppenheimerFunds Services
X.X. Xxx 0000
Xxxxxx, Xxxxxxxx 00000
0-000-000-0000
Custodian Bank
The Bank of New York
00 Xxxxxxxxxx Xxxxxx
Xxx Xxxx, XX
Independent Auditors
Deloitte & Touche LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Myer, Swanson, Xxxxx & Xxxx, P.C.
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000
PX.6/02
--------
1 Messrs. Xxxxxxxxx and Fossel are not Managing General Partners of Centennial America Fund, L.P.
2 The address of each Trustee is 0000 X. Xxxxxx Xxx, Xxxxxxxxx, XX 00000-0000.
3 Each Trustee serves for an indefinite term, until his resignation, death or removal.
* Xx. Xxxxxxxx and Xx. Xxxxxx were elected to the Board II Funds effective June 10, 2002. They did not
hold shares of any Board II Funds during the calendar year ended December 31, 2001.
* Xx. Xxxxxxxx and Xx. Xxxxxx were elected to the Board II Funds effective June 10, 2002 and therefore did not
hold shares of any of Board II Funds during the calendar year ended December 31, 2001.
4 The address of each Officer is 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000 except for Xx. Xxxxxx and Xx. Xxxx, whose
address is 0000 X. Xxxxxx Xxx, Xxxxxxxxx, XX 00000-0000.
5 Each Officer serves for an annual term or until his or her resignation, death or removal.
