As filed with the Securities and Exchange Commission on March 7, 2008 --------------------------- OMB APPROVAL --------------------------- File No. 333-148748 --------------------------- OMB Number: 3235-0336 Expires March 31, 2008 Estimated average burden hours per response 1312.9 --------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] PRE-EFFECTIVE AMENDMENT NO. 1 [ X ] POST-EFFECTIVE AMENDMENT NO. __ [ ] OPPENHEIMER VARIABLE ACCOUNT FUNDS [GRAPHIC OMITTED][GRAPHIC OMITTED] (Exact Name of Registrant as Specified in Charter) 6803 South Tucson Way, Centennial, Colorado 80112-3924 [GRAPHIC OMITTED][GRAPHIC OMITTED] (Address of Principal Executive Offices) 303-768-3200 [GRAPHIC OMITTED][GRAPHIC OMITTED] (Registrant's Area Code and Telephone Number) Robert G. Zack, Esq. Executive Vice President & General Counsel OppenheimerFunds, Inc. Two World Financial Center 225 Liberty Street New York, New York 10148 (212) 323-0250 [GRAPHIC OMITTED][GRAPHIC OMITTED] (Name and Address of Agent for Service) As soon as practicable after the Registration Statement becomes effective. [GRAPHIC OMITTED][GRAPHIC OMITTED] (Approximate Date of Proposed Public Offering) Title of Securities Being Registered: Non-Service shares of Oppenheimer Core Bond Fund/VA. No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of 1940, as amended. The Registrant hereby amends this Registration Statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PANORAMA SERIES FUND, INC. Government Securities Portfolio 6803 South Tucson Way, Centennial, Colorado 80112 1.800.399.7181 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 25, 2008 Notice is hereby given that a Special Meeting of the shareholders of Government Securities Portfolio, a series of Panorama Series Fund, Inc. ("Panorama Fund"), a registered open-end management investment company, will be held at 6803 South Tucson Way, Centennial, Colorado 80112 at 1:00 p.m., Mountain time, on April 25, 2008, or any adjournments thereof (the "Meeting"), for the following purposes: 1. To approve an Agreement and Plan of Reorganization between Panorama Fund and Oppenheimer Core Bond Fund/VA ("Core Bond Fund/VA"), a series of Oppenheimer Variable Account Funds, and the transactions contemplated thereby, including: (a) the transfer of substantially all the assets of Panorama Fund to Core Bond Fund/VA in exchange for Non-Service shares of Core Bond Fund/VA; (b) the distribution of Non-Service shares of Core Bond Fund/VA to shareholders of Panorama Fund in complete liquidation of Panorama Fund; and (c) the cancellation of the outstanding shares of Panorama Fund (all of the foregoing being referred to as the "Reorganization"); and 2. To act upon such other matters as may properly come before the Meeting. As an owner of a variable life insurance, annuity or other contract and a beneficial owner of shares of Panorama Fund (a "shareholder"), you are being asked for instructions as to how to vote the shares of the Panorama Fund that are attributable to your variable contract. Accordingly, we ask that you indicate whether you approve or disapprove of the Reorganization. If you are a shareholder of Panorama Fund at the close of business on January 29, 2008, you are entitled to notice of, and to vote at, the Meeting. The Reorganization is more fully discussed in the combined Prospectus and Proxy Statement. Please read it carefully before telling us, through your proxy or in person, how you wish to vote. The Board of Directors of Panorama Series Fund, Inc., on behalf of Panorama Fund, recommends a vote in favor of the Reorganization. WE URGE YOU TO VOTE PROMPTLY. YOUR VOTE IS IMPORTANT. By Order of the Board of Directors, Robert G. Zack, Secretary March 7, 2008 ________________________________________________________________________________ PLEASE VOTE THE ENCLOSED PROXY TODAY. YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. OPPENHEIMER CORE BOND FUND/VA a Series of Oppenheimer Variable Account Funds 6803 South Tucson Way, Centennial, Colorado 80112 1.800.399.7181 COMBINED PROSPECTUS AND PROXY STATEMENT Dated March 7, 2008 SPECIAL MEETING OF SHAREHOLDERS OF GOVERNMENT SECURITIES PORTFOLIO a series of Panorama Series Fund, Inc to be held on April 25, 2008 Acquisition of the Assets of GOVERNMENT SECURITIES PORTFOLIO 6803 South Tucson Way, Centennial, Colorado 80112 1.800.399.7181 By and in exchange for Non-Service Shares of OPPENHEIMER CORE BOND FUND/VA This combined Prospectus and Proxy Statement solicits proxies from the shareholders of Panorama Government Securities Portfolio ("Panorama Fund"), a series of Panorama Series Fund, Inc., an open-end management investment company, to be voted at a Special Meeting of Shareholders (the "Meeting") to approve the Agreement and Plan of Reorganization (the "Reorganization Agreement") and the transactions contemplated thereby (together with the Reorganization Agreement, the "Reorganization") between Panorama Fund and Oppenheimer Core Bond Fund/VA ("Core Bond Fund/VA"), a series of Oppenheimer Variable Account Funds, an open-end management investment company (Panorama Fund and Core Bond Fund/VA are each a "Fund" and collectively the "Funds"). This combined Prospectus and Proxy Statement constitutes the Prospectus of Core Bond Fund/VA and the Proxy Statement of Panorama Fund filed on Form N-14 with the Securities and Exchange Commission ("SEC"). Shares of Panorama Fund have been purchased at your direction by certain insurance companies ("Participating Insurance Companies") for allocation to certain of their separate accounts established for the purpose of funding variable annuity contracts, variable life insurance contracts, and other products. The Participating Insurance Companies as the shareholders of record and legal owners of those separate accounts have been asked to approve the Reorganization. The Participating Insurance Companies are asking you, as an owner of a variable contract and a beneficial owner of shares of Panorama Fund, for instructions as to how to vote the shares of the Panorama Fund that are attributable to your variable contract. Accordingly, we ask that you indicate whether you approve or disapprove of the Reorganization. For clarity of presentation, shares of beneficial interest of the Funds may be referenced in this document as "shares," and references to "shareholder" may include holders of variable annuity contracts, variable life insurance policies and other insurance company products. If shareholders of Panorama Fund vote to approve the Reorganization, substantially all of the assets of Panorama Fund will be transferred to Core Bond Fund/VA in exchange for Non-Service shares of Core Bond Fund/VA and the assumption of certain liabilities, if any, by Core Bond Fund/VA. The Meeting will be held at the offices of OppenheimerFunds, Inc., the investment manager for each Fund (the "Manager"), at 6803 South Tucson Way, Centennial, Colorado 80112 on April 25, 2008 at 1:00 p.m., Mountain Time. The Board of Directors of Panorama Series Fund, Inc., on behalf of Panorama Fund, is soliciting these proxies. This Prospectus and Proxy Statement may first be sent to shareholders on or about March 7, 2008. If the shareholders of Panorama Fund vote to approve the Reorganization, shareholders will receive Non-Service shares of Core Bond Fund/VA equal in value to the value as of the "Valuation Date," which is expected to be the business day preceding the date on which the Reorganization is completed ("Closing Date"), of their shares of Panorama Fund. Panorama Fund will subsequently be dissolved. The parties may change the Closing Date. This combined Prospectus and Proxy Statement gives information about the Non-Service shares of Core Bond Fund/VA. You should retain it for future reference. A Statement of Additional Information, dated March 7, 2008, relating to the Reorganization has been filed with the SEC as part of the Registration Statement on Form N-14 of Oppenheimer Variable Account Funds (SEC File No. 333-148748) (the "Registration Statement") and is incorporated herein by reference. This Statement of Additional Information contains the audited financial statements of each Fund for the fiscal year ended December 31, 2007. You may receive a free copy by writing to OppenheimerFunds Services (the "Transfer Agent") at P.O. Box 5270, Denver, Colorado 80217, by visiting the website at www.oppenheimerfunds.com or by calling toll-free 1.800.225.5677. The Prospectus of Core Bond Fund/VA (SEC File No. 2-93177), dated April 30, 2007, is enclosed herewith and considered a part of this combined Prospectus and Proxy Statement. It is intended to provide you with information about Core Bond Fund/VA. For more information regarding Core Bond Fund/VA, in addition to its Prospectus, see the Statement of Additional Information (SEC File No. 2-93177) dated April 30, 2007, revised as of August 31, 2007 and as supplemented October 12, 2007. This Statement of Additional Information has been filed with the SEC and is incorporated herein by reference. The annual report of Core Bond Fund/VA dated December 31, 2007, which will include audited financial statements of Core Bond Fund/VA and management's discussion of Fund performance for the 12-month period ended December 31, 2007, will be made available no later than 60 days thereafter. You may receive a free copy of these documents by writing to the Transfer Agent at P.O. Box 5270, Denver, Colorado 80217, by visiting the website at www.oppenheimerfunds.com or by calling toll-free 1.800.225.5677. For more information regarding Panorama Fund, see the Prospectus of Panorama Fund (SEC No. 2-73969) dated April 30, 2007, as supplemented December 3, 2007. In addition to its Prospectus, see the Statement of Additional Information of Panorama Fund (SEC File No. 2-73969) dated April 30, 2007, revised as of May 25, 2007 and as supplemented December 3, 2007. These documents have been filed with the SEC and are incorporated herein by reference. The annual report of Panorama Fund, dated December 31, 2007, which will include audited financial statements of Panorama Fund and management's discussion of Fund performance for the 12-month period ended December 31, 2007, will be made available no later than 60 days thereafter. You may receive a free copy of these documents by writing to the Transfer Agent at P.O. Box 5270, Denver, Colorado 80217, by visiting the website at www.oppenheimerfunds.com or by calling toll-free 1.800.225.5677. Mutual fund shares are not deposits or obligations of any bank, and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other U.S. government agency. Mutual fund shares involve investment risks, including the possible loss of principal. As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus and Proxy Statement. Any representation to the contrary is a criminal offense. This combined Prospectus and Proxy Statement is dated March 7, 2008. TABLE OF CONTENTS COMBINED PROSPECTUS AND PROXY STATEMENT Page Synopsis......................................................................1 What am I being asked to vote on?........................................1 What are the general tax consequences of the Reorganization?.............2 How do the investment objectives and policies of the Funds compare?......3 How do the Principal Risks of Investing in the Funds differ?.............6 What are the fees and expenses of each Fund and what are they expected to be after the Reorganization?.............................................15 What are the capitalizations of the Funds and what would the capitalization be after the Reorganization?..............................17 How have the Funds performed?............................................17 How do the Account Features and Shareholder Services for the Funds Compare?...19 Purchases and Redemptions............................................19 Dividends and Distributions..........................................20 Information About the Reorganization..........................................21 How will the Reorganization be carried out? .............................21 Who will pay the expenses of the Reorganization? ........................21 What are the tax consequences of the Reorganization? ....................22 Reasons for the Reorganization................................................23 Board Considerations ....................................................23 Receipt of Non-Service shares of Core Bond Fund/VA.......................24 What are the Fundamental Investment Restrictions of the Funds?................24 Other Comparisons Between the Funds...........................................25 Management of the Funds..............................................25 Investment Management and Fees.......................................25 Payments to Financial Intermediaries and Service Providers...........26 Transfer Agency and Custody Services.................................28 Shareholder Rights...................................................28 Voting Information ...........................................................30 How do I vote? ..........................................................30 Who is Entitled to Vote and How are Votes Counted?.......................31 Quorum and Required Vote.................................................31 Solicitation of Proxies..................................................32 Revoking a Proxy.........................................................32 What other matters will be voted upon at the Meeting?....................32 Additional Information About the Funds........................................33 Householding of Reports to Shareholders and Other Fund Documents.........33 Principal Shareholders...................................................33 Exhibit A: Principal Shareholders...........................................A-1 Enclosures: Prospectus of Oppenheimer Core Bond Fund/VA dated April 30, 2007. SYNOPSIS This is only a summary and is qualified in its entirety by the more detailed information contained in or incorporated by reference in this combined Prospectus and Proxy Statement. Shareholders should carefully review this Prospectus and Proxy Statement in its entirety and, in particular, the Prospectus of Core Bond Fund/VA (SEC File No. 2-93177), which accompanies this Prospectus and Proxy Statement and is incorporated herein by reference. What am I being asked to vote on? You are being asked to approve the reorganization of your Fund, Panorama Fund, with and into Core Bond Fund/VA. If shareholders of Panorama Fund approve the Reorganization, substantially all of the assets of Panorama Fund will be transferred to Core Bond Fund/VA, in exchange for an equal value of Non-Service shares of Core Bond Fund/VA and the assumption of certain liabilities, if any, by Core Bond Fund/VA. The Non-Service shares of Core Bond Fund/VA will then be distributed to Panorama Fund shareholders, and Panorama Fund will subsequently be liquidated. If the Reorganization is approved by shareholders of Panorama Fund, you will no longer be a shareholder of Panorama Fund, and, instead, will become a shareholder of Core Bond Fund/VA. This exchange will occur on the Closing Date of the Reorganization. Approval of the Reorganization means that as a shareholder in Panorama Fund, you will receive Non-Service shares of Core Bond Fund/VA, equal in value to the value of the net assets of your Panorama Fund shares transferred to Core Bond Fund/VA on the Closing Date. The shares you receive will be issued at net asset value ("NAV") without a sales charge or other transaction fee imposed by a Fund. In considering whether to approve the Reorganization, you should consider, among other things: (i) The number of similarities (as well as any differences) between the Funds (as discussed herein) and the relative advantages and disadvantages of each Fund. (ii) That the Reorganization would allow you the ability to continue your investment in a fund that closely resembles the investment style you were seeking when you invested in Panorama Fund. Core Bond Fund/VA is a series of Oppenheimer Variable Account Funds, an open-end, diversified management investment company organized as a Massachusetts business trust in 1983. Panorama Fund is a series of Panorama Series Fund, Inc., an open-end, diversified management investment company organized as a Maryland corporation in 1981. Core Bond Fund/VA commenced operations on April 3, 1985 and Panorama Fund commenced operations on May 13, 1992. As of December 31, 2007, Panorama Fund had approximately $17.0 million in net assets and Non-Service shares of Core Bond Fund/VA had approximately $325.7 million in net assets. Shareholders of Panorama Fund are expected to realize a number of benefits from the proposed Reorganization. o Panorama Fund (with approximately $17.0 million in net assets as of December 31, 2007) has a much smaller asset base than Core Bond Fund/VA (Non-Service shares had net assets of approximately $325.7 million as of December 31, 2007). As a result, Panorama Fund's "other expenses" as a percentage of net assets, are significantly higher than those of Core Bond Fund/VA. Although the management fee rate as of December 31, 2007 of Core Bond Fund/VA (0.60%) is higher than that of Panorama Fund (0.525%), following the Reorganization, shareholders of Panorama Fund would benefit significantly because Core Bond Fund VA's Non-Service shares' total expense ratio of (0.64%)(1) is substantially lower than that of Panorama Fund (1.020%), as of December 31, 2007. If the Reorganization is approved, Panorama Fund shareholders would get the benefit of a larger fund with lower total operating expenses, resulting in the payment of significantly lower expenses as shareholders of Core Bond Fund/VA. o If the Reorganization is approved, shareholders would continue to have exposure to high-quality fixed income securities. Also, because Core Bond Fund/VA may invest in a broader array of fixed income securities, shareholders would benefit from a portfolio that is more diversified across the various segments of the fixed income market. Because Core Bond Fund/VA may invest up to 20% of its total assets in lower-grade securities ("junk bonds") and may invest in securities of issuers located in non-U.S. markets, Core Bond Fund/VA at times may present greater investment risk than Panorama Fund. The Board of Directors of Panorama Fund reviewed and discussed with the Manager and the Board's independent legal counsel the proposed Reorganization. Panorama Fund's Board of Directors also considered each Fund's investment objectives and policies, management fees, distribution fees and other operating expenses, historical performance and asset size. Based on the considerations discussed above and the reasons more fully described under "Reasons for the Reorganization" (beginning on page 22), together with other relevant factors and information, at a meeting held on November 30, 2007, the Board of Panorama Fund concluded that the Reorganization would be in the best interests of shareholders of Panorama Fund and that Panorama Fund would not experience any dilution as a result of the Reorganization. The Board of Panorama Fund voted to approve the proposed Reorganization and to recommend that shareholders approve the proposed Reorganization. The proposed Reorganization was also approved by the Board of Trustees of Core Bond Fund/VA at a meeting held on November 30, 2007. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION What are the general tax consequences of the Reorganization? It is expected that shareholders of Panorama Fund will not recognize any gain or loss for federal income tax purposes as a result of the exchange of their shares for shares of Core Bond Fund/VA. You should, however, consult your tax adviser regarding the effect, if any, of the Reorganization in light of your individual circumstances as a variable contract owner. You should also consult your tax adviser about state and local tax consequences. For federal income tax purposes, the holding period of your Panorama Fund shares will be carried over to the holding period for Core Bond Fund/VA shares you receive in connection with the Reorganization. This exchange will occur on the Closing Date. One of the requirements to qualify as a tax-free reorganization under the Internal Revenue Code is that a significant portion of the assets of Panorama Fund continue to be used by Core Bond Fund/VA after the Reorganization. Due to common holdings in both Funds, it is expected that the assets of Panorama Fund will satisfy this requirement. As a result, prior to the Reorganization, it is not expected to be necessary for Panorama Fund to sell portfolio securities that do not conform to the portfolio securities of Core Bond Fund/VA for purposes of the Reorganization. However, Panorama Fund may sell securities prior to the Reorganization in the ordinary course of its business as an open-end investment company. For further information about the tax consequences of the Reorganization, please see the section "Information About the Reorganization--What are the Tax Consequences of the Reorganization?" How do the investment objectives and policies of the Funds compare? The chart below compares the Funds' overall investment objectives, investment strategies and other policies. For more detailed information about Core Bond Fund/VA's investment objective and strategies, please refer to the enclosed prospectus for Core Bond Fund/VA. ---------------------------------------------------------- ----------------------------------------------------------- Panorama Fund Core Bond Fund/VA ---------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Investment Objectives ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- The Fund seeks a high level of current income with a The Fund's main objective is to seek a high level of high degree of safety of principal. current income. As a secondary objective, the Fund seeks capital appreciation when consistent with its primary objective. ---------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Investment Strategies ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- Under normal market conditions, the Fund invests at Under normal market conditions, the Fund invests at least least 80% of its net assets (plus borrowings for 80% of its net assets (plus borrowings for investment investment purposes, under normal market conditions) in purposes) in investment grade bonds. U.S. government securities and U.S. government-related securities. U.S. government securities include debt securities that The investment-grade debt bonds the Fund invests in may are issued or guaranteed by the United States Treasury, be issued by U.S. or non-U.S. issuers and may include the such as Treasury bills, bonds or notes, and securities following types of obligations: issued or guaranteed by agencies or federally-chartered o short-, medium- and long-term foreign and U.S. corporate entities that are referred to as government bonds and notes, "instrumentalities" of the U.S. government. "U.S. o domestic and foreign corporate debt obligations, government-related securities" are debt obligations that o collateralized mortgage obligations (CMOs), and are fully collateralized or secured by U.S. government other mortgage-related securities and asset-backed securities to back the payments of interest and securities, repayments of principal. The Fund invests significant o participation interests in loans, and amounts of its assets in U.S. government-related o "structured" notes. mortgage-backed securities, such as collateralized mortgage obligations (called "CMO's") and mortgage participation certificates. The Fund does not have a target portfolio duration or overall average portfolio credit quality target. The Fund seeks to maintain an average effective portfolio duration of three to six years (measured on a dollar-weighted basis) to try to reduce the volatility of the value of its securities portfolio. The Fund however has no limitations on the range of maturities of the debt securities in which it can invest and therefore may hold securities with short, medium or long-term maturities. Because of market events and interest rate changes, the duration of the portfolio might not meet that target at all times. The Fund will attempt to maintain (on a dollar-weighted basis) an overall average portfolio credit quality of "A-" or higher as rated by Moody's Investor Services, Inc. (or equivalent rating of any nationally recognized credit rating organization). The Fund can also invest up to 20% of its net assets (plus borrowings for investment purposes) in The Fund can invest up to 20% of its total assets in high investment-grade debt obligations issued by private yield debt securities and other debt securities that are issuers, which do not have any credit support from the below investment grade (commonly referred to as "junk U.S. government. bonds"). The Fund can use hedging instruments and other derivative investments to try to enhance income and to The Fund can also use hedging instruments and other manage investment risks. derivative investments to try to enhance income and to manage investment risks. In selecting securities for the Fund, the portfolio managers research the universe of U.S. government and In selecting securities for the Fund, the Fund's U.S. government-related securities and private-issuer portfolio managers analyze the overall investment mortgage-related securities and weigh yields and opportunities and risks in different sectors of the debt relative values against investment risks. While this security markets by focusing on business cycle analysis process and the inter-relationship of the factors used and relative values between the corporate and government may change over time and may vary in particular cases, sectors. The portfolio managers' overall strategy is to in general, they look for: build a broadly diversified portfolio of debt securities. o Sectors of the U.S. government debt market that The portfolio managers currently focus on the factors they believe offer high relative value, below (which may vary in particular cases and may change o Securities that have high income potential to over time), looking for: help cushion the Fund's share price against o High current income from different types of volatility, and corporate and government debt securities, o Different types of U.S. government and o Investment-grade securities, primarily to help private-issuer securities. reduce credit risk, o Broad portfolio diversification to help reduce the volatility of the Fund's share prices, and o Relative values among the debt securities market sectors. ---------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Consistent with its investment objective, each Fund may invest a significant portion of its assets in U.S. government-related and private issuer mortgage-backed securities. U.S government-related securities include pools of residential or commercial mortgages, in the form of CMOs 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. Private-issuer mortgage-backed securities are issued by private issuers, which do not offer the credit backing of U.S. government securities. ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Who is the Fund Designed For? ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- Panorama Fund is designed for investors seeking current Core Bond Fund/VA is designed for investors seeking high income from a fund that also has the goal of preserving current income from a fund that invests mainly in capital and invests mainly in U.S. government and investment-grade debt securities, but which can also hold government-related securities. However, the Fund's below-investment-grade securities to seek higher income. share price and income levels will fluctuate. The Those investors should be willing to assume the credit Fund's share price and distributions are not backed or risks of a fund that typically invests a significant guaranteed by the U.S. government. The Fund is intended amount of its assets in debt securities and the changes to be a long-term investment, not a short-term trading in share prices that can occur when interest rates rise. vehicle. The Fund is not a complete investment program. Since the Fund's income level will fluctuate, it is not designed for investors needing an assured level of current income. The Fund is not a complete investment program. ---------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Manager ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- OppenheimerFunds, Inc. OppenheimerFunds, Inc. ---------------------------------------------------------- ----------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Portfolio Managers ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------------- Angelo Manioudakis, Benjamin J. Gord, Geoffrey Caan, Angelo Manioudakis, Benjamin J. Gord, Geoffrey Caan, Antulio Bomfim and Thomas Swaney Antulio Bomfim and Thomas Swaney ---------------------------------------------------------- ----------------------------------------------------------- As shown in the chart above, each Fund has the primary investment objective of seeking high current income, with Panorama Fund seeking a high degree of safety of principal. Core Bond Fund/VA has a secondary objective of seeking capital appreciation when consistent with the Fund's primary objective. Each Fund emphasizes investment in high-quality, fixed income securities. Panorama Fund emphasizes investment in U.S. government securities and U.S. government-related securities, but may invest up to 20% of its assets in private issuer securities. Core Bond Fund/VA may invest in a broader array of high-quality fixed income securities, may invest up to 20% of its total assets in lower-grade debt ("junk bonds"), and may invest in issuers located in non-U.S. markets. As of December 31, 2007, 89.20% of Panorama Fund's net assets consisted of mortgage-backed obligations. As of December 31, 2007, 79.90% of Core Bond Fund/VA's net assets consisted of mortgage-backed obligations and 19.80% consisted of corporate bonds and notes. The tables below summarize each Fund's portfolio holdings, by type of investment and credit quality, as of December 31, 2007. Panorama Fund Core Bond Fund/VA Portfolio Composition Mortgage-Backed Obligations 89.20% 79.90% Asset-Backed Securities 4.80% 5.00% U.S. Government Obligations 2.60% - Joint Repurchase Agreements 1.60% - Other Assets Net of Liabilities 1.80% - Corporate Bonds and Notes - 19.80% Investment Company Shares - 1.00% Investments Purchased with Cash from Securities Loaned - 0.80% Liabilities in Excess of Other Assets - -6.50% -------------------------- ----------------------------- -------------------------- ----------------------------- 100.00% 100.00% ========================== ============================= Ratings Agency 76.40% 46.90% AAA 18.90% 30.80% AA - 3.10% A - 3.70% BBB - 7.80% BB - 4.60% B - 0.20% Not Rated 4.70% 2.00% Other Securities - 0.90% -------------------------- ----------------------------- -------------------------- ----------------------------- Total 100.00% 100.00% ========================== ============================= ========================== ============================= HOW DO THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS DIFFER? The Funds' Overall Risk. Both Funds are designed for investors seeking high current income from a fund, in the case of Panorama Fund, that also has the goal of preserving capital and invests mainly in U.S. government securities and, in the case of Core Bond Fund/VA, that invests mainly in investment-grade debt securities, but which can also hold below-investment-grade securities to seek higher income. Because both Funds emphasize investment in high-quality debt securities, the Funds are subject to many of the same risks associated with investment in debt securities. Core Bond Fund/VA, however, has greater investment risk because it may invest up to 20% of its total assets in lower-grade securities, may invest in private-issuer debt securities without limitation, and may invest in securities of issuers located in non-U.S. markets. Like all investments, an investment in either Fund involves risk. There is no assurance that either Fund will meet its investment objective. The achievement of the Funds' goals depends upon market conditions, generally, and on the portfolio manager's analytical and portfolio management skills. The risks described below collectively form the risk profiles of the Funds, and can affect the value of the Funds' investments, investment performance and prices per share. There is also the risk that poor securities selection by the Manager will cause a Fund to underperform other funds having a similar objective. These risks mean that you can lose money by investing in either Fund. When you redeem your shares, they may be worth more or less than what you paid for them. The allocation of each Fund's portfolio among different investments will vary over time based upon the Manager's evaluation of economic and market trends. For both Funds, the Manager tries to reduce risks by carefully researching securities before they are purchased and in some cases by using hedging techniques. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds are intended to be a long-term investment, not short-term trading vehicles. Neither Fund is a complete investment program. The table below summarizes the other important risks of investment in each Fund. These risks are described in more detail below. - ----------------------------------------------- ------------------------------ ------------------------------ Government Securities Risk Core Bond Fund/VA Portfolio - ----------------------------------------------- ------------------------------ ------------------------------ - ------------------------------------------------------------------------------------------------------------- Principal Risks - ------------------------------------------------------------------------------------------------------------- - ----------------------------------------------- ------------------------------ ------------------------------ Interest Rate Risk X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Credit Risk X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Private-Issuer Debt Securities X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Special Risks of Lower-Grade Securities X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Risks of Foreign Investing X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Asset-Backed Securities X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Prepayment Risk X X - ----------------------------------------------- ------------------------------ ------------------------------ - ------------------------------------------------------------------------------------------------------------- Other Risks - ------------------------------------------------------------------------------------------------------------- - ----------------------------------------------- ------------------------------ ------------------------------ Derivative Investments and Hedging Techniques X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Zero-Coupon and "Stripped" Securities X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Repurchase Agreements X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Illiquid and Restricted Securities X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Credit Default Swaps X X - ----------------------------------------------- ------------------------------ ------------------------------ - ----------------------------------------------- ------------------------------ ------------------------------ Structured Notes X - ----------------------------------------------- ------------------------------ ------------------------------ Interest Rate Risks. Debt securities are subject to changes in value when prevailing interest rates change. When interest rates fall, the values of outstanding debt securities generally rise, and the securities may sell for more than the Fund paid for them. When interest rates rise, the values of outstanding debt securities generally fall, and the securities may sell below the purchase price paid by the Fund. The magnitude of these price changes is generally greater for longer-term debt securities than for short-term debt securities. However, interest rate changes may have different effects on the values of mortgage-related securities because of prepayment risks, discussed below. A Fund's share price can go up or down when interest rates change because of the effect of the changes on the value of the Fund's investments in debt securities. At times, a Fund may buy longer-term debt securities to seek higher income. When the average maturity of the Portfolio is longer, its share price may fluctuate more when interest rates change. The Funds may buy zero-coupon or "stripped" securities, which are particularly sensitive to interest rate changes and the rate of principal payments (and prepayments), and have prices that may go up or down more than other types of debt securities in response to those changes. A Fund's share prices can go up or down when interest rates change because of the effect of interest rate changes on the value of the Fund's investments in debt securities. Credit Risk. Debt securities are also subject to credit risk. Credit risk relates to the ability of the issuer of a security to make interest and principal payments on the security as they become due. While securities directly issued by the U.S. Treasury and certain agencies that are backed by the full faith and credit of the U.S. government have little credit risk and securities issued by other agencies or instrumentalities of the U.S. government generally have low credit risks, securities issued by private issuers may have greater credit risks. If the issuer fails to pay interest, a Fund's income might be reduced and, if the issuer fails to repay principal, the value of that security and of the Fund's shares might be reduced. o Private-Issuer Debt Securities. Core Bond Fund/VA can invest without limitation in private-issuer debt securities, and Panorama Fund can invest up to 20% of its assets in debt securities issued by private issuers, under normal market conditions. For Panorama Fund, these debt obligations must be "investment-grade", which means that if they are rated, they must be rated within the four highest rating categories of Moody's Investors Service, Inc. or Standard & Poor's Rating Service or that have a comparable rating by another rating organization, except that investments in privately-issued mortgage-related securities are limited to those rated in the two highest rating categories of a national rating organization. If private-issuer debt securities are unrated, Panorama Fund can buy them only if they are assigned a rating comparable to investment-grade by the Manager. A reduction in the rating of a security after its purchase by a Fund will not automatically require the Fund to dispose of that security. However, the Manager will evaluate those securities to determine whether to keep them in the Fund. o Special Risks of Lower-Grade Securities. Core Bond Fund/VA can invest up to 20% of its total assets in securities (including convertible securities) that are rated below investment grade. Lower-grade debt securities are those rated below "Baa" by Moody's Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service or that have similar ratings by other nationally-recognized rating organizations. Core Bond Fund/VA can invest in securities rated as low as "C" or "D", in unrated bonds or bonds which are in default at the time Core Bond Fund/VA buys them. While securities rated "Baa" by Moody's or "BBB" by S&P are considered "investment grade," they have some speculative characteristics. Core Bond Fund/VA can purchase a variety of lower-grade, high-yield debt securities of U.S. and foreign issuers, including bonds, debentures, notes, preferred stocks, loan participation interests, structured notes, asset-backed securities, among others, to seek high current income. These securities are sometimes called "junk bonds." Core Bond Fund/VA has no requirements as to the maturity of the debt securities it can buy, or as to the market capitalization range of the issuers of those securities. The Manager does not rely solely on ratings issued by rating organizations when selecting investments for Core Bond Fund/VA, which can buy unrated securities that offer high current income. The Manager assigns a rating to an unrated security that is equivalent to the rating of a rated security that the Manager believes offers comparable yields and risks. While investment-grade securities are subject to risks of non-payment of interest and principal, in general higher-yielding lower-grade ("junk") bonds, whether rated or unrated, have greater risks than investment-grade securities. They may be subject to greater market fluctuations and risk of loss of income and principal than investment-grade securities. There may be less of a market for them and therefore they may be harder to value and to sell at an acceptable price. There is a relatively greater possibility that the issuer's earnings may be insufficient to make the payments of interest and principal due on the bonds. These risks mean that Core Bond Fund/VA may not achieve the expected income from lower-grade securities, and that Core Bond Fund/VA's net asset value per share may be affected by declines in value of these securities. Risks of Foreign Investing. Core Bond Fund/VA can invest its assets without limit in foreign debt securities and can buy securities of governments and companies in both developed markets and emerging markets. While foreign securities offer special investment opportunities, there are also special risks that can reduce the Core Bond Fund/VA's share prices and returns. The change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency. Currency rate changes can also affect the distributions Core Bond Fund/VA makes from the income it receives from foreign securities as foreign currency values change against the U.S. dollar. Foreign investing can result in higher transaction and operating costs for the Core Bond Fund/VA. Foreign issuers are not subject to the same accounting and disclosure requirements that U.S. companies are subject to. The value of foreign investments may be affected by exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political and economic factors. These risks could cause the prices of foreign securities to fall and therefore could depress Core Bond Fund/VA's share prices. Additionally, if Core Bond Fund/VA invests a significant amount of its assets in foreign securities, it may be exposed to "time-zone arbitrage" attempts by investors seeking to take advantage of the differences in value of foreign securities that might result from events that occur after the close of the foreign securities market on which a foreign security is traded and before the close of the New York Stock Exchange (the "NYSE") that day, when the Core Bond Fund/VA's net asset value is calculated. If such time-zone arbitrage were successful, it might dilute the interests of other shareholders. However, the Core Bond Fund/VA's use of "fair value pricing" to adjust the closing market prices of foreign securities under certain circumstances, to reflect what the Manager and the Board of Trustees believe to be their fair value may help deter those activities. Asset-Backed Securities. Each Fund may invest in asset-backed securities. 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 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. However, the enhancement, if any, might not be for the full par value of the security. If the enhancement is exhausted and any required payments of interest or repayments of principal are not made, a Fund could suffer losses on its investment or delays in receiving payment. 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 Fund 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. Unlike mortgage-backed securities, asset-backed securities typically do not have the benefit of a security interest in the underlying collateral. Prepayment Risk. The Funds' investments in mortgage-related securities are subject to prepayment risk. Prepayment risk occurs when the mortgages underlying a mortgage-related security are prepaid at a rate faster than anticipated (usually when interest rates fall) and the issuer of the security can prepay the principal prior to the security's maturity. Mortgage-related securities that are subject to prepayment risk generally offer less potential for gains when prevailing interest rates decline, and have greater potential for loss when interest rates rise. The impact of prepayments on the price of a security may be difficult to predict and may increase the volatility of the price. Additionally, both Funds can buy mortgage-related securities at a premium. Accelerated prepayments on those securities could cause a Fund to lose a portion of its principal investment represented by the premiums the Fund paid. If interest rates rise rapidly, prepayments may occur at slower rates than expected, which could have the effect of lengthening the expected maturity of a short or medium-term security. That could cause its value to fluctuate more widely in response to changes in interest rates. In turn, this could cause the value of the Funds' shares to fluctuate more. Special Risks of Derivative Investments and Hedging Techniques. Both Funds can use derivatives to seek increased income or to try to hedge investment risks and preserve capital. In general terms, a derivative investment is an investment contract whose value depends on (or is derived from) the value of an underlying asset, interest rate or index. Options, futures, swaps, stripped securities, collateralized mortgage obligations, and structured notes are examples of derivatives the Funds can use. If the issuer of the derivative does not pay the amount due, the Funds can lose money on the investment. Also, the underlying security or investment on which the derivative is based, and the derivative itself, may not perform the way the Manager expects it to perform. If that happens, the Funds' share price could decline or the Funds could get less income than expected. Certain derivative investments held by the Funds might be illiquid. Using derivatives can cause the Funds to lose money on its investments and/or increase the volatility of its share prices. Each Fund has limits on the amount of particular types of derivatives it can hold. Other Investment Strategies and Risks Zero-Coupon and "Stripped" Securities. Some of the U.S. government and corporate debt securities the Funds can buy are zero-coupon bonds that pay no interest. They are issued at a substantial discount from their face value. "Stripped" securities are the separate income or principal components of a debt security. Some CMO's or other mortgage-related securities may be stripped, with each component having a different proportion of principal or interest payments. One class might receive all the interest and the other all the principal payments. Zero-coupon and stripped securities are subject to greater fluctuations in price from interest rate changes than conventional interest-bearing securities. The Funds may have to pay out the imputed income on zero-coupon securities without receiving the actual cash currently. Interest-only securities are particularly sensitive to changes in interest rates. The values of interest-only mortgage-related securities are also very sensitive to prepayments of underlying mortgages. Principal-only securities are also sensitive to changes in interest rates. When prepayments tend to fall, the timing of the cash flows to these securities increases, making them more sensitive to changes in interest rates. The market for some of these securities may be limited, making it difficult for the Funds to value them or to dispose of its holdings at an acceptable price. Repurchase Agreements. The Funds can enter into repurchase agreements. In a repurchase transaction, a Fund buys a security and simultaneously sells it to the vendor for delivery at a future date. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the Fund could incur costs in disposing of the collateral and might experience losses if there is any delay in its ability to do so. Investments in Oppenheimer Institutional Money Market Fund. Each Fund can invest its free cash balances in Class E shares of Oppenheimer Institutional Money Market Fund, to provide liquidity or for defensive purposes. Each Fund can invest in Oppenheimer Institutional Money Market Fund rather than purchasing individual short-term investments to try to seek a higher yield than the Fund could obtain on its own. Oppenheimer Institutional Money Market Fund is a registered open-end management investment company, regulated as a money market fund under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and is part of the Oppenheimer Family of Funds. It invests in a variety of short-term, high-quality, dollar-denominated money market instruments issued by the U.S. Government, domestic and foreign corporations, other financial institutions, and other entities. Those investments may have a higher rate of return than the investments that would be available to a Fund directly. At the time of an investment, a Fund cannot always predict what the yield of the Oppenheimer Institutional Money Market Fund will be because of the wide variety of instruments that fund holds in its portfolio. The return on those investments may, in some cases, be lower than the return that would have been derived from other types of investments that would provide liquidity. As a shareholder, a Fund will be subject to its proportional share of the expenses, including the advisory fee, of Oppenheimer Institutional Money Market Fund's Class E shares. However, the Manager will waive a portion of a Fund's advisory fee to the extent of the Fund's share of the advisory fee paid to the Manager by Oppenheimer Institutional Money Market Fund. Illiquid and Restricted Securities. Neither Fund will invest more than 15% of its net assets in illiquid or restricted securities. Investments may be illiquid because they do not have an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. Restricted securities may have terms that limit their resale to other investors or may require registration under applicable securities laws before they may be sold publicly. Certain restricted securities that are eligible for resale to qualified institutional purchasers may not be subject to that limit. The Manager monitors holdings of illiquid securities on an ongoing basis to determine whether to sell any holdings to maintain adequate liquidity. Credit Default Swaps. Each Fund may enter into credit default swaps. A credit default swap enables an investor to buy or sell protection against a credit event, such as an issuer's failure to make timely payments of interest or principal, bankruptcy or restructuring. The terms of the instrument are generally negotiated by the Fund and the swap counterparty. If a Fund buys credit protection using a credit default swap, the Fund will make fixed payments to the counterparty. If a credit event occurs, the Fund will deliver the defaulted bonds underlying the swap and the swap counterparty will pay the par amount of the bonds. If the Fund sells credit protection using a credit default swap, the Fund will receive fixed payments from the counterparty. If a credit event occurs, the Fund will pay the par amount of the defaulted bonds underlying the swap and the swap counterparty will deliver the bonds. If the swap is on a basket of securities, the notional amount of the swap is reduced by the par amount of the defaulted bonds, and the fixed payments are then made on the reduced notional amount. Risks of credit default swaps include the cost of paying for credit protection if there are no credit events, pricing transparency when assessing the cost of a credit default swap, counterparty risk, and the need to fund the delivery obligation (either cash or the defaulted bonds, depending on whether the Fund is long or short the swap, respectively). The tax treatment of many types of credit default swaps is uncertain. "Structured" Notes. Core Bond Fund/VA can buy "structured" notes, which are privately negotiated debt obligations in which the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate, an index of securities or specified interest rates, or the differential performance of two assets or markets (such as indices reflecting bonds). The terms of the instrument may be "structured" by the purchaser (Core Bond Fund/VA) 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 Core Bond Fund/VA 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 Core Bond Fund/VA to sell its investment at an acceptable price. Loans of Portfolio Securities. Each Fund may make loans of its portfolio securities, with a value not to exceed 25% of its net assets, in accordance with policies approved by each Fund's Board. Each Fund has entered into a securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan Chase") for that purpose. Under the agreement, a Fund's portfolio securities may be loaned to brokers, dealers and financial institutions, provided that such loans comply with the collateralization and other requirements of the securities lending agreement, the Fund's policies and applicable government regulations. JPMorgan Chase has agreed, in general, to bear the risk that a borrower may default on its obligation to return loaned securities. However, a Fund will be responsible for risks associated with the investment of its cash collateral, including the risk of a default by the issuer of a security in which cash collateral has been invested. If that occurs, a Fund may incur additional costs in seeking to obtain the collateral or may lose the amount of the collateral investment. A Fund may also lose money if the value of the investments purchased with cash collateral decreases. Temporary Defensive and Interim Investments. In times of unstable adverse market or economic conditions, Core Bond Fund/VA can invest up to 100% of its assets in temporary investments that are inconsistent with its principal investment strategies. Generally such investments would be cash or cash equivalents, such as U.S. Treasury Bills and other short-term U.S. government obligations or high-grade commercial paper, or shares of Oppenheimer Institutional Money Market Fund. Core Bond Fund/VA can also hold these types of securities pending the investment of proceeds from the sale of Core Bond Fund/VA shares or portfolio securities or to meet anticipated redemptions of Core Bond Fund/VA shares. To the extent Core Bond Fund/VA invests defensively in these securities, it might not achieve its investment objectives. Portfolio Turnover. A change in the securities held by a Fund is known as "portfolio turnover." Each Fund can engage in active and frequent short-term trading while trying to achieve its objective, although Panorama Fund's turnover rate has been less than 100% annually over the last five fiscal years ended December 31, 2007. Increased portfolio turnover creates higher brokerage and transaction costs for a Fund (and may reduce performance). A Fund may realize capital gains when it sells its portfolio investments. For a contract owner, any increase in realized gains will generally not be taxable directly but may affect an owner's tax basis in his or her account with a Participating Insurance Company. The table below shows the Funds' portfolio turnover rates for the last five fiscal years, excluding purchase and sale transactions of To Be Announced mortgage-related securities: - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- 2007 2006 2005 2004 2003 - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- Panorama Fund 84% 82% 84% 99% 43% - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- Core Bond Fund/VA 89% 114% 111% 95% 101% - ----------------------------------------- -------------- --------------- -------------- --------------- -------------- Special Portfolio Diversification Requirements. To enable a variable annuity or variable life insurance contract based on an insurance company separate account to qualify for favorable tax treatment under the Internal Revenue Code, the underlying investments must follow special diversification requirements that limit the percentage of assets that can be invested in securities of particular issuers. Each Fund's investment program is managed to meet those requirements, in addition to other diversification requirements under the Internal Revenue Code and the Investment Company Act that apply to publicly-sold mutual funds. Failure by a Fund to meet those special requirements could cause earnings on a contract owner's interest in an insurance company separate account to be taxable income. Those diversification requirements might also limit, to some degree, a Fund's investment decisions in a way that could reduce its performance. Possible Conflicts of Interest. The investment activities of the Manager and its affiliates in regard to other accounts they manage may present conflicts of interest that could disadvantage a Fund and its shareholders. The Manager or its affiliates may provide investment advisory services to other funds and accounts that have investment objectives or strategies that differ from, or are contrary to, those of a Fund. That may result in another such fund or account holding investment positions that are adverse to a Fund's investment strategies or activities. For example, a Fund may take a long position in a security at the same time that another fund or account advised by the Manager takes a short position in the same security. Other funds or accounts advised by the Manager or its affiliates may have conflicting interests arising from investment objectives that are similar to those of a Fund. Those funds and accounts may engage in, and compete for, transactions in the same types of securities or other investments as the Fund. At other times, there may be conflicts of interest with other funds or accounts that invest in one of the same issuers that a Fund invests in. For example, a Fund may invest in an issuer's equity or debt securities that are subordinate to other securities of that issuer held by another fund or account the Manager advises. The Manager and its affiliates are not obligated to make available to a Fund's investment personnel any information regarding the strategies or investment activities of other funds or accounts that the Manager and its affiliates advise. The trading and other investment activities of those other funds or accounts are carried out without regard to the investment activities of a Fund and, as a result, the value of securities held by a Fund or the Fund's investment strategies may be adversely affected. A Fund's investment performance will usually differ from the performance of other accounts advised by the Manager or its affiliates and the Fund may experience losses during periods in which other accounts advised by the Manager or its affiliates achieve significant gains. Each Fund offers its shares to separate accounts of different insurance companies, as an investment for their variable annuity, variable life and other investment product contracts. While neither Fund foresees any disadvantages to contract owners from these arrangements, it is possible that the interests of owners of different contracts participating in a Fund through different separate accounts might conflict. For example, a conflict could arise because of differences in tax treatment. Each Fund's Board has procedures to monitor the Fund's portfolio for possible conflicts to determine what action should be taken. Such policies and procedures may also limit a Fund's investment activities and affect its performance. If a conflict occurs, a Fund's Board might require one or more Participating Insurance Company separate accounts to withdraw their investments in the Fund. That could force a Fund to sell securities at disadvantageous prices, and orderly portfolio management could be disrupted. Also, a Fund's Board might refuse to sell shares of the Fund to a particular separate account, or could terminate the offering of the Fund's shares if required to do so by law or if it would be in the best interests of the shareholders of the Fund to do so. The risks described above collectively form the expected overall risk profile, respectively, of each Fund and can affect the value of a Fund's investments, its investment performance and its prices per share. Particular investments and investment strategies also have risks. These risks mean that you can lose money by investing in either Fund. When you redeem your shares, they may be worth more or less than what you paid for them. There is no assurance that either Fund will achieve its investment objective. WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT ARE THEY EXPECTED TO BE AFTER THE REORGANIZATION? Each Fund pays a variety of expenses directly for management of their respective assets, administration and other services. Those expenses are subtracted from each Fund's assets to calculate the Fund's net asset value per share. Shareholders pay these expenses indirectly. The Funds do not charge an initial sales charge to buy shares or to reinvest dividends. There are no exchange fees or redemption fees and no contingent deferred sales charges; however, you should refer to the prospectus provided by your Participating Insurance Company for information on initial or contingent deferred sales charges, exchange fees or redemption fees under your variable contract. Those charges and fees are not reflected in the fee and expense tables below. Current and Pro Forma Fee Tables The tables below reflect the current contractual management fee schedule for each Fund and the proposed "pro forma" management fee schedule for the surviving Core Bond Fund/VA upon the successful completion of the Reorganization. The tables are provided to help you understand and compare the fees and expenses of investing in shares of each Fund. The pro forma fees and expenses of the surviving Core Bond Fund/VA show what the fees and expenses are expected to be after giving effect to the Reorganization. "Other Expenses" in the tables include transfer agent fees, custodial fees, and accounting and legal expenses that each Fund pays. The "Other Expenses" in the tables are based on, among other things, the fees each Fund would have paid if the Transfer Agent had not waived a portion of its fee under a voluntary undertaking to the Funds to limit these fees to 0.35% of average daily net assets per fiscal year. For each Fund, that undertaking may be amended or withdrawn at any time. The transfer agent fees did not exceed this expense limitation for either Fund for the fiscal year ended December 31, 2007. If the Reorganization is not approved, the Manager expects that the "Other Fees" and "Total Annual Operating Expenses" for Panorama Fund would continue at the levels reflected in the table below so long as Panorama Fund's asset base continues to remain flat or in decline. Please see "Reasons for the Reorganization - Board Considerations" for more discussion about Panorama Fund's fees and expenses. - ----------------------------------------------- -------------------- ------------------------ --------------------- Combined Core Bond Fund/VA Fee and Expense Comparison Panorama Fund (Non-Service Shares) Pro Forma Expenses - ----------------------------------------------- -------------------- ------------------------ --------------------- - ----------------------------------------------- -------------------- ------------------------ --------------------- Management Fee 0.525% 0.60% 0.60% - ----------------------------------------------- -------------------- ------------------------ --------------------- - ----------------------------------------------- -------------------- ------------------------ --------------------- Distribution and/or Service (12b-1) Fees None None None - ----------------------------------------------- -------------------- ------------------------ --------------------- - ----------------------------------------------- -------------------- ------------------------ --------------------- Other Fees 0.495% 0.04% 0.04% - ----------------------------------------------- -------------------- ------------------------ --------------------- - ----------------------------------------------- -------------------- ------------------------ --------------------- Total Annual Operating Expenses 1.020% 0.64% 0.64% - ----------------------------------------------- -------------------- ------------------------ --------------------- In the table, "Management Fee" and "Total Annual Operating Expenses" for Core Bond Fund/VA and Combined Pro Forma Expenses reflect Core Bond Fund/VA's revised management fee schedule, which took effect on May 1, 2007. Core Bond Fund/VA's actual "Management Fee" for the period ended December 31, 2007 was 0.64% and actual "Total Annual Operating Expenses" were 0.68%. Examples The examples below are intended to help you compare the cost of investing in Panorama Fund, Core Bond Fund/VA, and the surviving Core Bond Fund/VA after the Reorganization. The examples assume that you invest $10,000 in shares of a Fund for the time periods indicated and reinvest your dividends and distributions. The examples also assume that your investment has a 5% return each year and that a Fund's operating expenses remain the same. Separate account or contract expenses are not included and if they were included, overall expenses would be higher. Your actual costs may be higher or lower, because expenses will vary over time. Based on these assumptions your expenses would be as follows whether or not you redeem your investment at the end of each period: Panorama Fund - --------------------- -------------------- -------------------- --------------------- 1 Year 3 Years 5 Years 10 Years - --------------------- -------------------- -------------------- --------------------- - --------------------- -------------------- -------------------- --------------------- $105 $326 $566 $1,254 - --------------------- -------------------- -------------------- --------------------- Core Bond Fund/VA (Non-Service Shares) - ---------------------- ------------------- -------------------- --------------------- 1 Year 3 Years 5 Years 10 Years - ---------------------- ------------------- -------------------- --------------------- - ---------------------- ------------------- -------------------- --------------------- $66 $206 $358 $801 - ---------------------- ------------------- -------------------- --------------------- Pro Forma Surviving Core Bond Fund/VA (Post-Reorganization) (Non-Service Shares) - --------------------- ------------------- ------------------- --------------------- 1 year 3 years 5 years 10 years - --------------------- ------------------- ------------------- --------------------- - --------------------- ------------------- ------------------- --------------------- $66 $206 $358 $801 - --------------------- ------------------- ------------------- --------------------- What are the capitalizations of the Funds and what would the capitalization be after the Reorganization? The following tables set forth the existing capitalization of Panorama Fund and Core Bond Fund/VA as of December 31, 2007, and the pro forma combined capitalization of Core Bond Fund/VA as of December 31, 2007, as if the Reorganization had occurred on that date. - -------------------------------------------------------------------------------------------------------------------- Net Assets Shares Net Asset Value Outstanding Per Share - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Panorama Fund 17,023,920 15,741,980 $1.08 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Net Assets Shares Net Asset Value Outstanding Per Share - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Core Bond Fund/VA (Non-Service 325,661,015 29,454,744 $11.06 shares) - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Net Assets Shares Net Asset Value Outstanding Per Share - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Core Bond Fund/VA 342,684,935 30,993,977 $11.06 (Pro Forma Surviving Fund) (Non-Service shares)* - -------------------------------------------------------------------------------------------------------------------- * Reflects the issuance of 1,539,233 Non-Service shares of Core Bond Fund/VA in a tax-free exchange for the net assets of Panorama Fund, aggregating $17,023,920. How have the Funds performed? The following past performance information for each Fund is set forth below: (i) a bar chart showing changes in the performance of Panorama Fund and Non-Service shares of Core Bond Fund/VA from year to year for the last ten calendar years and (ii) tables detailing how the average annual total returns of each of Panorama Fund and Non-Service shares of Core Bond Fund/VA compared to those of broad-based market indices. Charges imposed by the separate accounts that invest in a Fund are not included in the calculations of a Fund's returns and, if those charges were included, a Fund's returns would be less than those shown. A Fund's past investment performance is not necessarily an indication of how the Fund will perform in the future. Annual Total Returns for Panorama Fund as of 12/31 each year [Graphic bar chart] ------------------------------------------------------- ----------------------------------------------- Calendar Year Ended: Annual Total Returns ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/98 8.14% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/99 -1.73% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/00 12.36% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/01 7.23% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/02 10.06% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/03 2.58% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/04 4.17% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/05 1.48% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/06 3.74% ------------------------------------------------------- ----------------------------------------------- ------------------------------------------------------- ----------------------------------------------- 12/31/07 6.48% ------------------------------------------------------- ----------------------------------------------- During the period shown in the bar chart, the highest return (not annualized) for a calendar quarter was 6.42% (3QTR02) and the lowest return (not annualized) for a calendar quarter was -2.73% (2QTR04). Annual Total Returns for Core Bond Fund/VA (Non-Service shares) as of 12/31 each year [Graphic bar chart] - ----------------------------------------------------------- --------------------------------------------------------- Calendar Year Ended: Annual Total Returns - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/98 6.80% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/99 -1.52% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/00 6.10% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/01 7.79% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/02 9.02% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/03 6.78% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/04 5.49% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/05 2.59% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/06 5.28% - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- 12/31/07 4.39% - ----------------------------------------------------------- --------------------------------------------------------- During the period shown in the bar chart, the highest return for a calendar quarter was 4.04% (1QTR01) and the lowest return for a calendar quarter was - -2.23% (2QTR04). - ------------------------------------------------ --------------------- ----------------------- --------------------- Panorama Fund - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Average Annual Total Returns for the periods 10 Years ended December 31, 2007 1 Year 5 Years - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Panorama Fund (inception 5/13/92) 6.48% 3.68% 5.37% - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Merrill Lynch Master Government Index 8.76% 4.11% 5.90% (reflects no deduction for fees, expenses or taxes) - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Core Bond Fund/VA (Non-Service shares) - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Average Annual Total Returns 1 Year 5 Years 10 Years for the periods ended December 31, 2007 - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Core Bond Fund/VA 4.39% 4.90% 5.24% Non-Service shares (inception 4/3/85) - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Citigroup Broad Investment Grade Index 7.22% 4.55% 6.02% - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Lehman Brothers Aggregate Bond Index 6.97% 4.42% 5.97% - ------------------------------------------------ --------------------- ----------------------- --------------------- - ------------------------------------------------ --------------------- ----------------------- --------------------- Lehman Brothers Credit Index 5.11% 4.84% 6.05% - ------------------------------------------------ --------------------- ----------------------- --------------------- A Fund's average annual total returns in the table measure the performance of a hypothetical account without deducting charges imposed by the separate accounts that invest in the Fund and assume that all dividends and capital gains distributions have been reinvested in additional shares. The Panorama Fund's performance is compared to the Merrill Lynch Master Government Index, an unmanaged composite index of both the Merrill Lynch Treasury and Merrill Lynch Agency Master Indices. The performance of Non-Service shares of Core Bond Fund/VA is compared to the Lehman Brothers Aggregate Bond Index, a broad-based index of government agencies and corporate debt; the Citigroup Broad Investment Grade Index, an index of investment grade corporate and U.S. government bonds; and the Lehman Brothers Credit Index, an index of non-convertible U.S. investment grade corporate bonds. The indices' performance includes reinvestment of income but does not reflect transaction costs, fees or expenses. A Fund's investments vary from the securities that compose the index or indices to which the Fund's performance is compared. A Fund's total returns should not be expected to be the same as the returns of other Oppenheimer funds, even if both funds have the same portfolio managers and/or similar names. HOW DO THE ACCOUNT FEATURES AND SHAREHOLDER SERVICES FOR THE FUNDS COMPARE? Purchases and Redemptions Shares of each Fund may be purchased and redeemed only by separate investment accounts of Participating Insurance Companies as an underlying investment for variable life insurance policies, variable annuity contracts or other investment products. Individual investors cannot buy or redeem shares of a Fund directly. Shares of each Fund are sold to and redeemed by Participating Insurance Companies at their offering price, which is the net asset value per share. Neither Fund imposes any sales charge on the purchase, redemption or exchange of its shares. You should refer to the prospectus of the Participating Insurance Company for a description of any initial transaction-related, surrender, or withdrawal charge imposed under the variable annuity, variable life or other contract through which a Fund's shares are purchased or redeemed. Frequent purchases and redemptions of a Fund's shares may interfere with the Manager's ability to manage the Fund's investments, may increase the Fund's transaction and administrative costs and/or may affect the performance. For example, if large dollar amounts were involved in redemption transactions, a Fund might be required to sell portfolio securities or administrative expenses might be increased. The extent to which the Fund might be affected by such trading activity would depend on various factors, such as the current asset size of a Fund, the nature of its investments, the amount of Fund assets the portfolio managers maintain in cash or cash equivalents, and the aggregate dollar amount, number and frequency of the share trades. The Manager and each Fund's Board have adopted policies and procedures to try to prevent frequent and/or excessive purchase and redemption activity. The Transfer Agent and OppenheimerFunds Distributor, Inc. (the "Distributor"), on behalf of each Fund, have entered into agreements with Participating Insurance Companies designed to detect and restrict excessive short term trading activity by contract or policy owners or their financial advisers in their accounts. The Transfer Agent generally does not consider periodic asset allocation or re-balancing that affects a portion of the Fund shares held in the account of a policy or contract owner to be "excessive trading." However, the Transfer Agent has advised Participating Insurance Companies that it generally considers certain other types of trading activity to be "excessive," such as making a "transfer" out of a Fund within 30 days of buying Fund shares (by the sale of the recently purchased Fund shares and the purchase of shares of another fund) or making more than six "round trip transfers" between funds during one year. The agreements require Participating Insurance Companies to provide transaction information to the Funds and to execute Fund instructions to restrict trading in Fund shares. A Participating Insurance Company may also have its own policies and procedures and may impose its own restrictions or limitations to discourage short-term and/or excessive trading by its policy or contract owners. Those policies and procedures may be different from the Funds' in certain respects. You should refer to the prospectus for your insurance company variable annuity contract for specific information about the insurance company's policies. To the extent that a Fund has agreed to utilize an insurance company's short-term or excessive trading restrictions, policy or contract owners may be required to only transmit purchase or redemption orders by first class U.S. mail. Dividends and Distributions Both Funds intend to declare dividends separately for each class of shares from net investment income on an annual basis and pay them annually. Dividends paid by a Fund (and any capital gains distributions) will be reinvested automatically in additional shares of the Fund at net asset value for the account of the Participating Insurance Company (unless the insurance company elects to have dividends or distributions paid in cash). The Funds have no fixed dividend rate and cannot guarantee that they will pay any dividends or distributions. A Fund may realize capital gains on the sale of portfolio securities. If it does, it may make distributions out of any net short-term or long-term capital gains each year. Each Fund may make supplemental distributions of dividends and capital gains following the end of its fiscal year. However, there can be no assurance that either Fund will pay any capital gains distributions in a particular year. INFORMATION ABOUT THE REORGANIZATION This following is a summary of the Reorganization Agreement. You may request a copy of the Reorganization Agreement, free of charge, by calling 1.800.399.7181. How will the Reorganization be carried out? If the shareholders of Panorama Fund approve the Reorganization, the Reorganization will take place after various conditions are satisfied by Panorama Fund and Core Bond Fund/VA, including delivery of certain documents. The Closing Date is presently scheduled to occur on or about April 30, 2008 and the "Valuation Date" (which is the business day preceding the Closing Date of the Reorganization) is presently scheduled to be on or about April 29, 2008. If the shareholders of Panorama Fund vote to approve the Reorganization, substantially all of the assets of Panorama Fund will be transferred to Core Bond Fund/VA in exchange for Non-Service shares of Core Bond Fund/VA, and shareholders will receive Non-Service shares of Core Bond Fund/VA equal in value to the value as of the Valuation Date of your shares of Panorama Fund. Panorama Fund will then be liquidated and its outstanding shares will be cancelled. The stock transfer books of Panorama Fund will be permanently closed at the close of business on the Valuation Date. If shareholders of Panorama Fund approve the Reorganization (please see "Voting Information - Quorum and Required Vote" for more information about the required vote), all shareholders' of Panorama Fund will have their shares redeemed at net asset value on the Valuation Date, after Panorama Fund subtracts a cash reserve ("Cash Reserve"), and the proceeds of redemption will be reinvested in Non-Service shares of Core Bond Fund/VA at net asset value. The Cash Reserve is an amount retained by Panorama Fund for the payment of Panorama Fund's outstanding debts, taxes and expenses of liquidation following the Reorganization. Core Bond Fund/VA is not assuming any debts of Panorama Fund except debts for unsettled securities transactions and outstanding dividend and redemption checks. Any debts paid out of the Cash Reserve will be those debts, taxes or expenses of liquidation incurred by Panorama Fund on or before the Closing Date. Panorama Fund will recognize capital gains or losses on any sales of portfolio securities made prior to the Reorganization. The sales of portfolio securities contemplated by the Reorganization are anticipated to be in the ordinary course of business of Panorama Fund's activities. Following the Reorganization, Panorama Fund will take all necessary steps to complete its liquidation and effect a complete dissolution of the Fund. Under the Reorganization Agreement, either Panorama Fund or Core Bond Fund/VA may abandon and terminate the Reorganization Agreement for any reason and there will be no liability for damages or other recourse available to the other Fund; provided, however, that in the event that one of the Funds terminates the Reorganization Agreement without reasonable cause, it shall, upon demand, reimburse the other Fund for all expenses, including reasonable out-of-pocket expenses and fees incurred in connection with the Reorganization Agreement. To the extent permitted by law, the Funds may agree to amend the Reorganization Agreement without shareholder approval. They may also agree to terminate and abandon the Reorganization at any time before or, to the extent permitted by law, after the approval of shareholders of Panorama Fund. Who will pay the expenses of the Reorganization? Panorama Fund will be responsible for its out-of-pocket expenses associated with the Reorganization, including outside legal and accounting fees and shareholder communication costs. The Manger will bear such expenses incurred by Core Bond Fund/VA. The Manager has estimated total merger related costs to be approximately $51,650 for Panorama Fund and $26,750 for Core Bond Fund/VA. Due to the relatively moderate cost of the Reorganization, the Manager does not anticipate that either Fund will experience any dilution as a result of the proposed Reorganization. What are the tax consequences of the Reorganization? The Reorganization is intended to qualify as a tax-free reorganization for federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended. Based on certain assumptions and representations received from Panorama Fund and Core Bond Fund/VA, it is expected to be the opinion of Bell, Boyd & Lloyd LLP ("tax opinion") that: (i) shareholders of Panorama Fund should not recognize any gain or loss for federal income tax purposes as a result of the exchange of their shares for shares of Core Bond Fund/VA; (ii) shareholders of Core Bond Fund/VA should not recognize any gain or loss upon receipt of Panorama Fund's assets; and (iii) the holding period of Core Bond Fund/VA shares received in that exchange should include the period that Panorama Fund shares were held (provided such shares were held as a capital asset on the Closing Date). In addition, neither Fund is expected to recognize a gain or loss as a direct result of the Reorganization. If the tax opinion is not received by the Closing Date, Panorama Fund may still pursue the Reorganization, pending re-solicitation of shareholders and shareholder approval, which would delay the reorganization by several months. Although not likely, in the event the tax opinion is not received, the Reorganization may not qualify as a tax-free reorganization. Prior to the Valuation Date, Panorama Fund may pay a dividend which will have the effect of distributing to Panorama Fund's shareholders all of Panorama Fund's investment company taxable income, if any, for taxable years ending on or prior to the Closing Date (computed without regard to any deduction for dividends paid) and all of its net capital gains, if any, realized in taxable years ending on or prior to the Closing Date (after reduction for any available capital loss carry-forward). As of December 31, 2007, Panorama Fund had $210,319 of net capital loss carry-forward available to offset any realized capital gains and thereby reduce the capital gains distributions. Any such dividends will be taxable, if at all, to the accounts of Participating Insurance Companies, although such dividends may affect the tax basis of certain types of distributions made to you by a Participating Insurance Company. You will continue to be responsible for tracking the purchase cost and holding period of your shares and should consult your tax adviser regarding the effect, if any, of the Reorganization in light of your individual circumstances. You should also consult your tax adviser as to state and local and other tax consequences, if any, of the Reorganization because this discussion relates only to federal income tax consequences. REASONS FOR THE REORGANIZATION Board Considerations In considering whether to approve the proposed Reorganization on behalf of the Panorama Fund, Panorama Fund' Board of Directors reviewed and discussed the proposed Reorganization with the Manager and the Board's independent legal counsel. Panorama Fund's Board of Directors considered information with respect to, among other things, each Fund's management fees and total expenses; comparability of the Funds' investment objectives, investment policies, and portfolio characteristics; the Funds' historical investment performance; and the terms of the proposed Reorganization. The Board reviewed information indicating that over the last several years, the net assets of Panorama Fund have decreased significantly. The Manager presented its view that this trend is unlikely to be reversed. The Manager reported that Panorama Fund is currently offered under the variable annuity or variable life contracts of only one insurance company sponsor, which does not offer the Fund under new contracts. The Manager reported that it has found no interest among other insurance companies to offer Panorama Fund under their variable annuity or variable life insurance products and, therefore, there is no opportunity to increase Panorama Fund's asset base through sales of shares to new investors. Given the Fund's diminishing asset base and inability to increase assets through new sales, the Manager believes that Panorama Fund is not likely to provide opportunities for economies of scale as a means to try to reduce expenses. The Board further considered the Manager's view that the proposed Reorganization is the best alternative for shareholders of Panorama Fund to benefit from a fund with a larger asset base and lower total expenses. Panorama Fund's "other expenses" (0.495%) are significantly higher than those of Core Bond Fund/VA (0.04%). The Board considered that, although the management fee rate of Core Bond Fund/VA (0.60%) as of December 31, 2007 is higher than that of Panorama Fund (0.525%), following the Reorganization, shareholders of Panorama Fund would benefit because Core Bond Fund/VA Non-Service shares' total expense ratio (0.64%)(2) is significantly lower than that of Panorama Fund (1.020%). The Board also considered the Funds' respective investment objectives and policies. The Board discussed with the Manager that each Fund has as an investment objective of high current income, with Panorama Fund seeking a high degree of safety of principal and Core Bond Fund/VA having a secondary objective of capital appreciation when consistent with high current income. The Board considered that each Fund emphasizes investment in high-quality securities, with Core Bond Fund/VA having greater flexibility to invest in private issuer securities, foreign securities, and high yield debt securities. The Manager discussed with the Board that the same portfolio management team manages both Funds and that the Funds' portfolios have substantial overlap in positions. The Board considered the Manager's view that the Reorganization would allow shareholders of Panorama Fund to continue to participate in a fund that seeks high current income and emphasizes investment in high-quality debt securities, with the possibility that shareholders could benefit from a portfolio that is more diversified across the various segments of the fixed income market. The Board also considered the Funds' relative historical investment performance. The Board received information reflecting that Panorama Fund had higher one-year and ten-year average annual total returns, and Core Bond Fund/VA had higher five-year returns, for the periods ended December 31, 2007. The Board also considered the terms and conditions of the Reorganization, including that there would be no sales or other transaction charge imposed by a Fund in effecting the Reorganization and that the Reorganization is expected to be a tax-free reorganization. After consideration of the above factors, other considerations, and such information as the Board of Panorama Fund deemed relevant, Panorama Fund's Board of Directors, including the Directors who are not "interested persons" (as defined in the Investment Company Act) of Panorama Fund or the Manager (the "Independent Trustees"), unanimously approved the Reorganization and the Reorganization Agreement and voted to recommend its approval by the shareholders of Panorama Fund. The Board and the Independent Trustees also concluded that Panorama Fund's participation in the transaction was in the best interests of Panorama Fund and that the Reorganization would not result in a dilution of the interests of existing shareholders of Panorama Fund. The Board of Trustees of Core Bond Fund/VA also determined that the Reorganization was in the best interests of Core Bond Fund/VA and its shareholders and that no dilution would result to those shareholders. Core Bond Fund/VA shareholders do not vote on the Reorganization. The Board on behalf of Core Bond Fund/VA, including the Independent Trustees, unanimously approved the Reorganization and the Reorganization Agreement. Board members are not required, nor do they plan, to attend the Special Meeting of Shareholders. For the reasons discussed above, the Board, on behalf of Panorama Fund, recommends that you vote FOR the Reorganization. If shareholders of Panorama Fund do not approve the Reorganization, it will not take place. Receipt of Non-Service Shares of Core Bond Fund/VA Upon consummation of the Reorganization, Non-Service shares of Core Bond Fund/VA will be distributed to shareholders (in this case, separate accounts established by a Participating Insurance Company) of Panorama Fund, in connection with the Reorganization. The Non-Service shares of Core Bond Fund/VA will be recorded electronically in the separate account of the Participating Insurance Company. Core Bond Fund/VA will then send a confirmation to the Participating Insurance Company with respect to each of its separate accounts previously invested in Panorama Fund. The Participating Insurance Company will be responsible for allocating to Core Bond Fund/VA the contract values that were previously allocated to Panorama Fund. WHAT ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS? Both Panorama Fund and Core Bond Fund/VA have certain additional fundamental investment restrictions that can only be changed with shareholder approval. Generally, these investment restrictions are similar between the Funds. Please see the Statements of Additional Information for Panorama Fund (SEC File No. 2-73969) and Core Bond Fund/VA (SEC File No. 2-93177) for descriptions of those investment restrictions, which are incorporated by reference into the Statement of Additional Information, dated March 7, 2008, relating to the Reorganization. OTHER COMPARISONS BETWEEN THE FUNDS A description of certain other key features of the Funds is set forth below. More detailed information is available in each Fund's Prospectus and Statement of Additional Information, which are incorporated by reference. Management of the Funds Core Bond Fund/VA is governed by a Board of Trustees, and Panorama Fund is governed by a Board of Directors. Each Fund's Board is comprised of the same members. The Board of Core Bond Fund/VA is responsible for protecting the interests of the Fund's shareholders under Massachusetts law and other applicable laws while the Board of Panorama Fund is responsible for protecting the interests of shareholders under Maryland law and other applicable laws. For a listing of the Core Bond Fund/VA's Board of Trustees and biographical information, please refer to the Statement of Additional Information of Core Bond Fund/VA (SEC File No. 2-93177) dated April 30, 2007, revised as of August 31, 2007 and supplemented October 12, 2007, which is incorporated by reference into the Statement of Additional Information, dated March 7, 2008, relating to this Prospectus and Proxy Statement. Investment Management and Fees The day-to-day management of the business and affairs of each Fund is the responsibility of the Manager. Pursuant to each Fund's investment advisory agreement, the Manager acts as the investment advisor for both Funds, manages the assets of both Funds and makes each Fund's investment decisions. The Manager employs the Funds' portfolio managers. Since April 23, 2002, each Fund has been managed by Angelo Manioudakis, together with a team of investment professionals including Benjamin J. Gord, Geoffrey Caan, Thomas Swaney and Antulio N. Bomfim, who are primarily responsible for the day-to-day management of the Portfolio's investments. Both Funds obtain investment management services from the Manager according to terms that are substantially similar. The advisory agreements require the Manager, at its expense, to provide each Fund 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 required to provide effective administration for the Funds. Those responsibilities include the compilation and maintenance of records with respect to their operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of the Funds. Each Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The advisory agreements list examples of expenses paid by each Fund. The major categories relate to interest, taxes, brokerage commissions, fees to Independent Trustees/Directors, legal and audit expenses, custodian bank and transfer agent expenses, share issuance costs, certain printing and registration costs, and non-recurring expenses, including litigation costs. Panorama Fund's investment advisory agreement provides 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 investment advisory agreement, the Manager is not liable for any loss sustained by reason of good faith errors or omissions in connection with any matters to which the agreement(s) relate. Core Bond Fund/VA's investment advisory agreement provides that the Manager is not be liable for any loss sustained by the Fund in connection with matters to which the investment advisory agreement relates, except a loss resulting by reason of the Manager's willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of the Manager's reckless disregard of its obligations and duties under the investment advisory agreement. The Manager is controlled by Oppenheimer Acquisition Corp., a holding company owned in part by senior officers of the Manager and ultimately controlled by Massachusetts Mutual Life Insurance Company, a mutual life insurance company that also advises pension plans and investment companies. The Manager has been an investment advisor since January 1960. The Manager (including subsidiaries and an affiliate) managed more than $260 billion in assets as of December 31, 2007, including other Oppenheimer funds with more than 6 million shareholder accounts. The Manager is located at 225 Liberty Street, 11th Floor, New York, New York 10281-1008. Management Fees. Under each Fund's investment advisory agreement, the Fund pays the manager an advisory fee at an annual rate that declines on additional assets as the Fund grows. The table below shows the current advisory fee schedule for each Fund. As shown in the table, based on net assets as of December 31, 2007, the effective management fee for Core Bond Fund/VA was 0.60% and 0.525% for Panorama Fund. Core Bond Fund/VA's fee schedule would be the fee schedule for the combined Fund upon successful completion of the Reorganization. Panorama Fund Core Bond Fund/VA Net assets Fee Net Assets Fee Up to $300 million 0.525% Up to $1 billion 0.60% Next $100 million 0.500% Over $1 billion 0.50% Over $400 million 0.450% Effective Fee (based on net assets Effective Fee (based on net of $17.0 million as of 12/31/07) 0.525% assets of $429.2 million as of 0.60% 12/31/07) Core Bond Fund/VA's management fee schedule shown above became effective on May 1, 2007. From January 1, 2007 through April 30, 2007, Core Bond Fund/VA's annual advisory fee rate was: 0.75% of the first $200 million of net assets; 0.72% of the next $200 million; 0.69% of the next $200 million; 0.66% of the next $200 million; 0.60% of the next $200 million; and 0.50% of net assets over $1 billion. Payments to Financial Intermediaries and Service Providers The Manager and the Distributor, in their discretion, may pay financial intermediaries and service providers for distribution and/or shareholder servicing activities. These payments are made out of the Manager's and/or the Distributor's own resources, including from the profits derived from the advisory fees the Manager receives from a Fund. These cash payments, which may be substantial, are paid to many firms having business relationships with the Manager and Distributor. These payments are in addition to any distribution fees, servicing fees, or transfer agency fees paid directly or indirectly by the Fund to these financial intermediaries and any commissions the Distributor pays to these firms out of the sales charges paid by investors. These payments by the Manager or Distributor from their own resources are not reflected in the fee tables contained in this combined Prospectus and Proxy Statement because they are not paid by the Fund. "Financial intermediaries" are firms that offer and sell shares of the Funds to their clients, or provide shareholder services to the Funds, or both, and receive compensation for doing so. Each Participating Insurance Company, for example, is a financial intermediary. In general, these payments to financial intermediaries can be categorized as "distribution-related" or "servicing" payments. Payments for distribution-related expenses, such as marketing or promotional expenses, are often referred to as "revenue sharing." Revenue sharing payments may be made on the basis of the sales of shares attributable to a financial intermediary, the average net assets of a Fund and other Oppenheimer funds attributable to the accounts of that dealer and its clients, negotiated lump sum payments for distribution services provided, or sales support fees. In some circumstances, revenue sharing payments may create an incentive for a financial intermediary or its representatives to recommend or offer shares of a Fund or other Oppenheimer funds to its customers. These payments also may give a financial intermediary an incentive to cooperate with the Distributor's marketing efforts. A revenue sharing payment may, for example, qualify a Fund for preferred status with the intermediary receiving the payment or provide representatives of the Distributor with access to representatives of the intermediary's sales or other personnel, in some cases on a preferential basis over funds of competitors. Additionally, as firm support, the Manager or Distributor may reimburse expenses related to educational seminars and "due diligence" or training meetings (to the extent permitted by applicable laws or the rules of the Financial Industry Regulatory Authority (FINRA) (formerly known as the NASD) designed to increase sales representatives' awareness about Oppenheimer funds, including travel and lodging expenditures. However, the Manager does not consider a financial intermediary's sale of shares of the Funds or other Oppenheimer funds when selecting brokers or dealers to effect portfolio transactions for the funds. Various factors are used to determine whether to make revenue sharing payments. Possible considerations include, without limitation, the types of services provided by the intermediary, sales of Fund shares, the redemption rates on accounts of clients of the intermediary or overall asset levels of Oppenheimer funds held for or by clients of the intermediary, the willingness of the intermediary to allow the Distributor to provide educational and training support for the intermediary's sales personnel relating to the Oppenheimer funds, the availability of the Oppenheimer funds on the intermediary's sales system, as well as the overall quality of the services provided by the intermediary and the Manager or Distributor's relationship with the intermediary. The Manager and Distributor have adopted guidelines for assessing and implementing each prospective revenue sharing arrangement. To the extent that financial intermediaries receiving distribution-related payments from the Manager or Distributor sell more shares of the Oppenheimer funds or retain more shares of the funds in their client accounts, the Manager and Distributor benefit from the incremental management and other fees they receive with respect to those assets. Payments may also be made by the Manager, the Distributor or the Transfer Agent to financial intermediaries to compensate or reimburse them for administrative or other client services provided such as sub-transfer agency services for shareholders or retirement plan participants, omnibus accounting or sub-accounting, participation in networking arrangements, account set-up, recordkeeping and other shareholder services. Payments may also be made for administrative services related to the distribution of Fund shares through the intermediary. Firms that may receive servicing fees include retirement plan administrators, qualified tuition program sponsors, banks and trust companies, and others. These fees may be used by the service provider to offset or reduce fees that would otherwise be paid directly to them by certain account holders, such as retirement plans. Each Fund's Statement of Additional Information contains more information about revenue sharing and service payments made by the Manager or the Distributor. Please refer to separate account prospectuses provided by your Participating Insurance Company for a description of any fees that you may pay or charges to the Participating Insurance Company charges in addition to those disclosed in this combined Prospectus and Proxy Statement. Transfer Agency and Custody Services Both Funds receive shareholder accounting and other clerical services from OppenheimerFunds Services, a division of the Manager, in its capacity as transfer agent and dividend paying agent. It acts on an annual per-account fee basis for both Funds. The terms of the transfer agency agreement for both Funds, and of a voluntary undertaking to limit transfer agent fees to 0.35% of average daily net assets per fiscal year for Non-Service shares of Core Bond Fund/VA and shares of Panorama Fund, are substantially similar. JP Morgan Chase Bank, located at 4 Chase Metro Tech Center, Brooklyn, NY 11245, acts as custodian for both Funds. Shareholder Rights Core Bond Fund/VA is a Massachusetts business trust and Panorama Fund is a Maryland Corporation. The Funds are not required to, and do not, hold annual meetings of shareholders and have no current intention to hold such meetings, except as required by the Investment Company Act or other applicable law. Under the Investment Company Act, a Fund is required to hold a shareholder meeting if, among other reasons, the numbers of Trustees or Directors elected by the Fund's shareholders is less than a majority of the total number of Trustees or Directors, or if the Fund seeks to change a fundamental investment policy. The Trustees of Core Bond Fund/VA will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of the record holders of 10% of its outstanding shares. If the Trustees receive a request from at least 10 shareholders stating that they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the Fund's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense. The shareholders making the request must have been shareholders for at least six months and must hold shares of the Fund valued at $25,000 or more or constituting at least 1% of the Fund's outstanding shares. The Trustees may also take other action as permitted by the Investment Company Act. The rights of shareholders of both Funds are substantially the same under their governing documents. The table below compares important provisions of each Fund's charter documents. Shares of a Fund will be fully paid and non-assessable when issued. Neither Fund permits cumulative voting. - ----------------------------------------------------------- --------------------------------------------------------- Panorama Fund, a series of Panorama Series Fund, Inc. Core Bond Fund/VA, a series of Oppenheimer Variable (the "Corporation") Account Funds (the "Trust") - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- Shareholders have the power to elect and remove Directors. Shareholders have the power to elect and remove Trustees. - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- The Corporation reserves the right from time to time to The Declaration of Trust may be amended by the make any amendment to its charter now or thereafter affirmative vote of the holders of not less than a authorized by law, including any amendment which changes majority of the shares. The Trustees generally may charter terms or contract rights, as expressly set forth amend the Declaration of Trust without the vote or in the charter, by classification, reclassification, or consent of shareholders; however, no amendment may be otherwise. made, which would change any rights with respect to any shares of the Trust or any series or class thereof by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto, except with the vote or consent of the holders of a majority of the Shares entitled to vote. - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- The Board of Directors may amend or repeal any provision The Bylaws may be altered, amended, added to or of the Bylaws at any meeting of the Board. The Bylaws repealed by the Shareholders or by majority vote of the may be amended or repealed at any regular meeting of the entire Board of Trustees, but any such alteration, stockholders or at any special meeting of the amendment, addition or repeal of the Bylaws by action stockholders at which a quorum is present or represented, of the Board of Trustees may be altered or repealed by provided that the Shareholders. notice of the proposed amendment, alteration, or repeal be contained in the notice of such special meeting. - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- Under Maryland law, a voluntary dissolution of the The liquidation of the Trust or any particular Series Corporation requires approval by a majority of the entire or Class thereof may be authorized at any time by vote Board of Directors and by the affirmative vote of of a majority of the Trustees or instrument executed by two-thirds of all the shareholders' votes entitled to be a majority of their number then in office, provided the cast on the matter. Trustees find that it is in the best interest of the Shareholders of such Series or Class or as otherwise provided in this Declaration of Trust or the instrument establishing such Series or Class. The Trustees shall provide written notice to affected shareholders of such liquidation. - ----------------------------------------------------------- --------------------------------------------------------- - ----------------------------------------------------------- --------------------------------------------------------- Meetings of the stockholders may be called for any Meetings of the Shareholders for any purpose or purpose or purposes by a majority of the Board of purposes may be called by the Chairman of the Board of Directors, by the President, or upon the written request Trustees, if any, or by the President or by the Board of the holder of at least 25% of the outstanding capital of Trustees and shall be called by the Secretary upon stock of the Corporation entitled to vote at such meeting. receipt of the request in writing signed by Shareholders holding not less than one third in amount of the entire number of Shares issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting. In addition, meetings of the Shareholders shall be called by the Board of Trustees upon receipt of the request in writing signed by Shareholders that hold not less than ten percent in amount of the entire number of Shares issued and outstanding and entitled to vote thereat, stating that the purpose of the proposed meeting is the removal of a Trustee. - ----------------------------------------------------------- --------------------------------------------------------- VOTING INFORMATION How do I vote? Please take a few moments to complete your proxy ballot promptly. You may vote your shares by completing and signing the enclosed proxy ballot(s) and mailing the proxy ballot(s) in the postage paid envelope provided. You also may vote your shares by telephone by following the instructions on the attached proxy ballot(s) and accompanying materials. You may cast your vote by attending the Meeting in person if you are a record owner. If you need assistance, have any questions regarding the Reorganization or need a replacement proxy ballot, you may contact us toll-free at 1-866-406-2288. Any proxy given by a shareholder, whether in writing, by telephone, is revocable as described below under the paragraph titled "Revoking a Proxy". If you simply sign and date the proxy but give no voting instructions, your shares will be voted in favor of the Reorganization. As the Meeting date approaches, certain shareholders may receive telephone calls from a representative of the solicitation firm (if applicable) if their vote has not yet been received. Authorization to permit the solicitation firm to execute proxies may be obtained by telephonic instructions from shareholders of Panorama Fund. Proxies that are obtained telephonically will be recorded in accordance with the procedures discussed below. These procedures have been designed to reasonably ensure that the identity of the shareholder providing voting instructions is accurately determined and that the voting instructions of the shareholder are accurately recorded. In all cases where a telephonic proxy is solicited, the solicitation firm representative is required to ask for each shareholder's full name, address, title (if the shareholder is authorized to act on behalf of an entity, such as a corporation) and to confirm that the shareholder has received the Prospectus and Proxy Statement and ballot. If the information solicited agrees with the information provided to the solicitation firm, the solicitation firm representative has the responsibility to explain the process, read the proposal listed on the proxy ballot, and ask for the shareholder's instructions on such proposal. The solicitation firm representative, although he or she is permitted to answer questions about the process, is not permitted to recommend to the shareholder how to vote. The solicitation firm representative may read any recommendation set forth in the Prospectus and Proxy Statement. The solicitation firm representative will record the shareholder's instructions. Within 72 hours, the shareholder will be sent a confirmation of his or her vote asking the shareholder to call the solicitation firm immediately if his or her instructions are not correctly reflected in the confirmation. For additional information, see also the section below titled "Solicitation of Proxies". Who is entitled to vote and how are votes counted? Shareholders of record of Panorama Fund at the close of business on January 29, 2008 (the "Record Date") will be entitled to vote at the Meeting. On January 29, 2008, there were 15,811,061 outstanding shares of Panorama Fund's shares. Each shareholder will be entitled to one vote for each full share, and a fractional vote for each fractional share of Panorama Fund held on the Record Date. The individuals named as proxies on the proxy ballots (or their substitutes) will vote according to your directions if your proxy ballot is received and properly executed, or in accordance with the instructions you provide if you vote by telephone or mail. You may direct the proxy holders to vote your shares on the proposal by checking the appropriate box "FOR" or "AGAINST", or instruct them not to vote those shares on the proposal by checking the "ABSTAIN" box. Quorum and Required Vote A Participating Insurance Company is required to request voting instructions from variable contract owners and must vote all Panorama Fund shares held in the separate accounts of the Participating Insurance Company in proportion to the voting instructions received. This method of voting is sometimes referred to as proportional voting. Because of proportional voting, a small number of contract owners could determine the outcome of the vote with respect to the Reorganization. The presence in person or by proxy of a majority of Panorama Fund's shares outstanding and entitled to vote constitutes a quorum. Shares whose proxies reflect an abstention on the proposal are counted as shares present and entitled to vote for purposes of determining whether the required quorum of shares exists for voting on the Reorganization. However, abstentions will have the same effect as a vote "against" the Reorganization. In the absence of a quorum, the shareholders present or represented by proxy and entitled to vote thereat have the power to adjourn the meeting from time to time. The Reorganization must be approved by the affirmative vote of two-thirds of all the votes entitled to be cast by Panorama Fund shareholders on the matter. Core Bond Fund/VA shareholders do not vote on the Reorganization. In the absence of a quorum or if a quorum is present but sufficient votes to approve the Reorganization are not received by the date of the Meeting, the persons named in the enclosed proxy (or their substitutes) may propose and approve one or more adjournments of the Meeting to permit further solicitation of proxies. All such adjournments will require the affirmative vote of a majority of the shares present in person or by proxy at the session of the Meeting to be adjourned. The persons named as proxies on the proxy ballots (or their substitutes) will vote the shares present in person or by proxy (including abstentions) in favor of such an adjournment if they determine additional solicitation is warranted and in the interests of the Fund's shareholders. Solicitation of Proxies Participating Insurance Companies may be required to forward soliciting material to the beneficial owners of the shares on behalf of Panorama Fund and to obtain authorization for the execution of proxies. For any such services, Participating Insurance companies may be reimbursed by the Panorama Fund for their reasonable expenses incurred in connection with the proxy solicitation to the extent that Panorama Fund would have directly borne those expenses. In addition to solicitations by mail, solicitations may be conducted by telephone or email including by a proxy solicitation firm hired at Panorama Fund's expense. It is expected that a proxy solicitation firm will be hired. It is estimated that the cost to Panorama Fund of engaging a proxy solicitation firm would not exceed $14,360, plus any additional costs which would be incurred in connection with contacting those shareholders who have not voted, in the event of a need for re-solicitation of votes. These costs are included in the estimated total merger related costs discussed earlier. Currently, if the Manager determines to retain the services of a proxy solicitation firm on behalf of the Fund, the Manager anticipates retaining The Altman Group, Inc. Any proxy solicitation firm engaged by the Fund, among other things, will be: (i) required to maintain the confidentiality of all shareholder information; (ii) prohibited from selling or otherwise disclosing shareholder information to any third party; and (iii) required to comply with applicable telemarketing laws. Revoking a Proxy You may revoke a previously granted proxy at any time before it is exercised by: (1) delivering a written notice to Panorama Fund expressly revoking your proxy, (2) signing and sending to the Panorama Fund a later-dated proxy, (3) telephone or (4) attending the Meeting and casting your votes in person if you are a record owner. Please be advised that the deadline for revoking your proxy by telephone is 3:00 p.m., Eastern Time, on the last business day before the Meeting. What other matters will be voted upon at the Meeting? The Board of Directors of Panorama Fund does not intend to bring any matters before the Meeting other than those described in this combined Prospectus and Proxy Statement. Neither the Board nor the Manager is aware of any other matters to be brought before the Meeting by others. Matters not known at the time of the solicitation may come before the Meeting. The proxy as solicited confers discretionary authority with respect to such matters that might properly come before the Meeting, including any adjournment or adjournments thereof, and it is the intention of the persons named as attorneys-in-fact in the proxy (or their substitutes) to vote the proxy in accordance with their judgment on such matters. o Shareholder Proposals. The Funds are not required and do not intend to hold shareholder meetings on a regular basis. Special meetings of shareholders may be called from time to time by either a Fund or its shareholders (for certain matters and under special conditions described in the Funds' Statements of Additional Information). Under the proxy rules of the SEC, shareholder proposals that meet certain conditions may be included in a fund's proxy statement for a particular meeting. Those rules currently require that for future meetings, the shareholder must be a record or beneficial owner of Fund shares either (i) with a value of at least $2,000 or (ii) in an amount representing at least 1% of the Fund's securities to be voted, at the time the proposal is submitted and for one year prior thereto, and must continue to own such shares through the date on which the meeting is held. Another requirement relates to the timely receipt by a Fund of any such proposal. Under those rules, a proposal must have been submitted a reasonable time before the Fund began to print and mail this Prospectus and Proxy Statement in order to be included in this Prospectus and Proxy Statement. A proposal submitted for inclusion in a Fund's proxy material for the next special meeting after the meeting to which this Prospectus and Proxy Statement relates must be received by the Fund a reasonable time before the Fund begins to print and mail the proxy materials for that meeting. Notice of shareholder proposals to be presented at the Meeting must have been received within a reasonable time before the Fund began to mail this Prospectus and Proxy Statement. The fact that the Fund receives a proposal from a qualified shareholder in a timely manner does not ensure its inclusion in the proxy materials because there are other requirements under the proxy rules for such inclusion. o Shareholder Communications to the Board. Shareholders who desire to communicate generally with the Board should address their correspondence to the Board of Trustees of Core Bond Fund/VA or the Board of Directors of Panorama Fund, as applicable, and may submit their correspondence by mail to the applicable Fund at 6803 South Tucson Way, Centennial, CO 80112, attention Secretary of the Fund; and if the correspondence is intended for a particular Trustee or Director, the shareholder should so indicate. ADDITIONAL INFORMATION ABOUT THE FUNDS Both Funds also file proxy materials, proxy voting reports and other information with the SEC in accordance with the informational requirements of the Securities and Exchange Act of 1934 and the Investment Company Act. These materials can be inspected and copied at: the SEC's Public Reference Room in Washington, D.C. (Phone: 1.202.551.8090) or the EDGAR database on the SEC's website at www.sec.gov. Copies may be obtained upon payment of a duplicating fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102. Householding of Reports to Shareholders and Other Fund Documents To avoid sending duplicate copies of materials to households, the Funds mail only one copy of each report to shareholders having the same last name and address on the Funds' records. The consolidation of these mailings, called householding, benefits the Funds through reduced mailing expenses. If you want to receive multiple copies of these materials or request householding in the future, you may call the transfer agent at 1.800.647.7374. You may also notify the transfer agent in writing at 6803 South Tucson Way, Centennial, Colorado 80112. Individual copies of prospectuses and reports will be sent to you within 30 days after the transfer agent receives your request to stop householding. Principal Shareholders As of January 31, 2008, the officers and Directors of Panorama Fund as a group, and officers and Trustees of Core Bond Fund/VA as a group, owned less than 1% of the outstanding voting shares of any class of their respective Fund. As of January 31, 2008, the only persons who owned of record or were known by Panorama Fund or Core Bond Fund/VA to own beneficially 5% or more of any class of the outstanding shares of that respective Fund are listed in Exhibit A. EXHIBIT TO THE COMBINED PROXY STATEMENT AND PROSPECTUS Exhibit A. Principal Shareholders EXHIBIT A PRINCIPAL SHAREHOLDERS Principal Shareholders of Panorama Fund. As of January 31, 2008, the only persons who owned of record or were known by Panorama Fund to own beneficially 5% or more of any class of the outstanding shares of Panorama Fund were: All of the outstanding shares of Government Securities Portfolio were owned by Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111, for variable annuity contracts, variable life insurance policies and other investment products owned by its customers. Principal Shareholders of Core Bond Fund/VA. As of January 31, 2008, the only persons who owned of record or were known by Core Bond Fund/VA to own beneficially 5% or more of any class of the outstanding shares of Core Bond Fund/VA were: Genworth Life and Annuity Insurance Company, which owned 16.94% of the outstanding Non-Service shares of Core Bond Fund/VA; Massachusetts Mutual Life Insurance Company, which owned 41.26% of the outstanding Non-Service shares of Core Bond Fund/VA and Nationwide Insurance, which owned 35.96% of the outstanding Non-Service shares of Core Bond Fund/VA. STATEMENT OF ADDITIONAL INFORMATION TO PROSPECTUS AND PROXY STATEMENT OF OPPENHEIMER CORE BOND FUND/VA a series of Oppenheimer Variable Account Funds PART B Acquisition of the Assets of GOVERNMENT SECURITIES PORTFOLIO, a series of Panorama Series Fund, Inc. By and in exchange for Non-Service Shares of OPPENHEIMER CORE BOND FUND/VA, a series of Oppenheimer Variable Account Funds This Statement of Additional Information to this Prospectus and Proxy Statement (the "SAI") relates specifically to the proposed delivery of substantially all of the assets of Government Securities Portfolio, a series of Panorama Series Fund, Inc. ("Panorama Fund"), for Non-Service shares of Oppenheimer Core Bond Fund/VA ("Core Bond Fund/VA"), a series of Oppenheimer Variable Account Funds (together, these transactions are referred to as the "Reorganization"). This SAI consists of (i) this Cover Page; (ii) audited financial statements of Core Bond Fund/VA for the fiscal year ended December 31, 2007, and audited financial statements of Panorama Fund for the fiscal year ended December 31, 2007; and (iii) the following documents which are incorporated into this SAI by reference: the Statement of Additional Information of Panorama Fund (SEC File No. 2-73969), dated April 30, 2007, revised as of May 25, 2007 and supplemented December 3, 2007, and the Statement of Additional Information of Core Bond Fund/VA (SEC File No. 2-93177), dated April 30, 2007, revised as of August 31, 2007 and supplemented October 12, 2007. This SAI is not a Prospectus; you should read this SAI in conjunction with the combined Prospectus and Proxy Statement dated March 7, 2008 relating to the Reorganization. You can request a copy of the Prospectus and Proxy Statement by calling 1.800.647.1963 or by writing OppenheimerFunds Services at P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is March 7, 2008. PRO FORMA FINANCIAL STATEMENTS Pro forma financial statements demonstrating the effect of the Reorganization on Core Bond Fund/VA are not necessary because the net asset value of Panorama Fund does not exceed ten percent of the net asset value of Core Bond Fund/VA as of December 31, 2007. (1) Total expense ratio reflects Core Bond Fund/VA's revised management fee schedule, which took effect on May 1, 2007. (2) Total expense ratio reflects Core Bond Fund/VA's revised management fee schedule, which took effect on May 1, 2007. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CORE BOND FUND/VA: We have audited the accompanying statement of assets and liabilities of Oppenheimer Core Bond Fund/VA (the "Fund"), a series of Oppenheimer Variable Account Funds, including the statement of investments, as of December 31, 2007, 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 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2007, 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. /s/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Denver, Colorado February 13, 2008 DECEMBER 31, 2007 STATEMENT OF INVESTMENTS December 31, 2007 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES--5.0% Aesop Funding II LLC, Automobile Asset-Backed Certificates, Series 2005-1A, Cl. A2, 5.009%, 4/20/09 1,2 $ 426,667 $ 426,631 - -------------------------------------------------------------------------------- Argent Securities Trust 2004-W8, Asset-Backed Pass-Through Certificates, Series 2004-W8, Cl. A2, 5.345%, 5/25/34 2 1,476,940 1,391,413 - -------------------------------------------------------------------------------- Capital One Prime Auto Receivables Trust, Automobile Asset-Backed Certificates, Series 2005-1, Cl. A4, 5.048%, 4/15/11 2 4,930,000 4,912,100 - -------------------------------------------------------------------------------- Citibank Credit Card Issuance Trust, Credit Card Receivable Nts., Series 2003-C4, Cl. C4, 5%, 6/10/15 310,000 292,028 - -------------------------------------------------------------------------------- Citigroup Mortgage Loan Trust, Inc. 2005-WF2, Asset-Backed Pass-Through Certificates, Series 2005-WF2, Cl. AF2, 4.922%, 8/25/35 2 76,142 75,964 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2002-4, Asset-Backed Certificates, Series 2002-4, Cl. A1, 5.605%, 2/25/33 2 35,747 32,011 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-11, Asset-Backed Certificates, Series 2005-11, Cl. AF2, 4.657%, 2/25/36 640,000 636,149 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-16, Asset-Backed Certificates, Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 2 670,000 645,778 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-17, Asset-Backed Certificates, Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 2 440,000 436,631 - -------------------------------------------------------------------------------- Honda Auto Receivables Owner Trust, Automobile Receivable Obligations, Series 2005-2, Cl. A4, 4.15%, 10/15/10 920,000 917,269 - -------------------------------------------------------------------------------- Household Home Equity Loan Trust, Home Equity Loan Pass-Through Certificates, Series 2005-3, Cl. A1, 5%, 1/20/35 2 673,259 657,954 - -------------------------------------------------------------------------------- Lehman XS Trust, Mtg. Pass-Through Certificates: Series 2005-10, Cl. 2A3B, 5.55%, 1/25/36 723,981 725,282 Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 454,626 455,338 - -------------------------------------------------------------------------------- Litigation Settlement Monetized Fee Trust, Asset-Backed Certificates, Series 2001-1A, Cl. A1, 8.33%, 4/25/31 3 2,185,807 2,179,687 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES Continued Merrill Lynch Mortgage Investors Trust 2006-WMC1, Mtg. Asset- Backed Certificates, Series 2006- WMC1, Cl. A2B, 5.005%, 1/25/37 2 $ 731,979 $ 722,712 - -------------------------------------------------------------------------------- NC Finance Trust, CMO Pass-Through Certificates, Series 1999-I, Cl. ECFD, 0.491%, 1/25/29 3,14 3,370,016 572,903 - -------------------------------------------------------------------------------- Option One Mortgage Loan Trust, Asset-Backed Certificates, Series 2006-2, Cl. 2A2, 4.965%, 7/1/36 2 1,250,000 1,217,206 - -------------------------------------------------------------------------------- Popular ABS Mortgage Pass-Through Trust 2005-6, Mtg. Pass-Through Certificates, Series 2005-6, Cl. A3, 5.68%, 1/25/36 2 690,000 684,107 - -------------------------------------------------------------------------------- Structured Asset Investment Loan Trust, Mtg. Pass-Through Certificates, Series 2006-BNC3, Cl. A2, 4.905%, 9/25/36 2 925,616 904,400 - -------------------------------------------------------------------------------- Structured Asset Securities Corp., Mtg. Pass-Through Certificates, Series 2002-AL1, Cl. B2, 3.45%, 2/25/32 2,386,566 1,893,591 - -------------------------------------------------------------------------------- Tobacco Settlement Authority, Asset-Backed Securities, Series 2001-A, 6.79%, 6/1/10 1,570,000 1,602,138 --------------- Total Asset-Backed Securities (Cost $24,399,232) 21,381,292 - -------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS--79.9% - -------------------------------------------------------------------------------- GOVERNMENT AGENCY--51.2% - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED--51.0% Fannie Mae Trust 2004-W9, Pass-Through Certificates, Trust 2004-W9, Cl. 2A2, 7%, 2/25/44 512,837 544,075 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp.: 4.50%, 5/15/19 9,570,377 9,411,788 5%, 8/15/33 4,041,662 3,950,112 6%, 7/15/17-3/15/33 8,483,965 8,673,554 6.50%, 4/15/18-4/15/34 1,218,433 1,262,085 7%, 5/15/29-3/15/35 5,796,278 6,077,447 8%, 4/15/16 557,664 591,591 9%, 8/15/22-5/15/25 161,082 173,794 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment Conduit Multiclass Pass-Through Certificates: Series 151, Cl. F, 9%, 5/15/21 30,394 30,343 Series 2006-11, Cl. PS, 6.728%, 3/25/36 2 662,756 735,642 Series 2043, Cl. ZP, 6.50%, 4/15/28 1,083,464 1,125,972 Series 2066, Cl. Z, 6.50%, 6/15/28 2,243,785 2,316,706 Series 2195, Cl. LH, 6.50%, 10/15/29 1,256,633 1,301,891 Series 2326, Cl. ZP, 6.50%, 6/15/31 436,852 457,461 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment Conduit Multiclass Pass-Through Certificates: Continued Series 2461, Cl. PZ, 6.50%, 6/15/32 $ 1,375,522 $ 1,437,750 Series 2500, Cl. FD, 5.528%, 3/15/32 2 313,058 313,401 Series 2526, Cl. FE, 5.428%, 6/15/29 2 510,355 509,091 Series 2538, Cl. F, 5.628%, 12/15/32 2 3,046,583 3,068,570 Series 2551, Cl. FD, 5.428%, 1/15/33 2 395,348 397,103 Series 2676, Cl. KY, 5%, 9/15/23 552,000 536,918 Series 3025, Cl. SJ, 6.316%, 8/15/35 2 140,999 160,440 Series 3094, Cl. HS, 5.949%, 6/15/34 2 413,449 451,057 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security: Series 176, Cl. IO, 4.908%, 6/1/26 4 548,871 126,589 Series 183, Cl. IO, 3.481%, 4/1/27 4 855,039 195,347 Series 184, Cl. IO, 9.161%, 12/1/26 4 937,977 213,195 Series 192, Cl. IO, 8.247%, 2/1/28 4 224,461 54,475 Series 200, Cl. IO, 7.322%, 1/1/29 4 270,429 62,849 Series 206, Cl. IO, (9.554)%, 12/1/29 4 540,203 118,015 Series 2130, Cl. SC, 3.243%, 3/15/29 4 601,298 58,263 Series 216, Cl. IO, 9.04%, 12/1/31 4 359,920 87,209 Series 224, Cl. IO, 5.646%, 3/1/33 4 1,099,866 258,181 Series 243, Cl. 6, 15.199%, 12/15/32 4 679,519 143,355 Series 2796, Cl. SD, (2.121)%,7/15/26 4 962,057 85,241 Series 2802, Cl. AS, 5.232%, 4/15/33 4 1,058,066 71,423 Series 2920, Cl. S, (4.806)%,1/15/35 4 3,490,446 248,222 Series 3000, Cl. SE, 11.913%,7/15/25 4 4,171,932 223,777 Series 3110, Cl. SL, 24.356%,2/15/26 4 577,276 29,502 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Principal-Only Stripped Mtg.-Backed Security: Series 176, Cl. PO, 5.939%, 6/1/26 5 223,618 184,475 Series 192, Cl. PO, 7.631%, 2/1/28 5 224,461 177,518 - -------------------------------------------------------------------------------- Federal National Mortgage Assn.: 4.50%, 9/25/18-8/25/20 14,924,845 14,687,035 5%, 12/25/17-3/25/34 36,161,501 35,876,138 5%, 1/1/22 6 9,328,000 9,338,205 5%, 6/25/33 7 4,169,738 4,078,747 5.50%, 1/25/33-1/25/34 26,884,998 26,926,720 5.50%, 1/1/22-1/1/37 6 16,308,000 16,335,583 6%, 5/25/29-11/1/33 10,568,209 10,782,719 6%, 1/1/22 6 3,752,000 3,839,350 6.50%, 3/25/11-11/25/31 10,344,203 10,734,177 7%, 11/25/17-7/25/35 3,758,629 3,946,047 7.50%, 4/25/08-1/25/33 23,026 24,612 8%, 5/25/17 5,213 5,536 8.50%, 7/25/32 47,405 51,067 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Trust 1989-17, Cl. E, 10.40%, 4/25/19 53,733 58,354 Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,312,557 1,354,021 Trust 1998-58, Cl. PC, 6.50%, 10/25/28 1,109,573 1,148,973 Trust 1998-61, Cl. PL, 6%, 11/25/28 603,681 619,446 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Continued Trust 1999-54, Cl. LH, 6.50%, 11/25/29 $ 821,312 $ 863,125 Trust 2001-70, Cl. LR, 6%, 9/25/30 161,391 161,915 Trust 2001-74, Cl. QE, 6%, 12/25/31 1,836,626 1,880,145 Trust 2001-82, Cl. ZA, 6.50%, 1/25/32 564,651 576,586 Trust 2002-9, Cl. PC, 6%, 3/25/17 1,344,373 1,391,187 Trust 2003-130, Cl. CS, 4.37%, 12/25/33 2 385,418 364,453 Trust 2003-28, Cl. KG, 5.50%, 4/25/23 3,964,000 3,989,854 Trust 2003-84, Cl. PW, 3%, 6/25/22 470,883 467,857 Trust 2004-101, Cl. BG, 5%, 1/25/20 1,908,000 1,914,341 Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,120,000 1,125,157 Trust 2005-59, Cl. NQ, 4.713%, 5/25/35 2 709,166 709,259 Trust 2006-46, Cl. SW, 6.362%, 6/25/36 2 501,944 550,786 Trust 2006-50, Cl. KS, 6.362%, 6/25/36 2 1,105,284 1,176,477 Trust 2006-50, Cl. SA, 6.362%, 6/25/36 2 1,412,254 1,505,232 Trust 2006-50, Cl. SK, 6.362%, 6/25/36 2 443,782 472,087 Trust 2006-64, Cl. MD, 5.50%, 7/25/36 4,671,000 4,636,857 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Trust 2001-65, Cl. S, 11.769%, 11/25/31 4 1,871,817 241,756 Trust 2001-81, Cl. S, 3.721%, 1/25/32 4 450,815 48,555 Trust 2002-47, Cl. NS, 2.892%, 4/25/32 4 1,172,221 129,147 Trust 2002-51, Cl. S, 3.029%, 8/25/32 4 1,076,103 120,851 Trust 2002-52, Cl. SD, (0.737)%, 9/25/32 4 1,192,052 194,050 Trust 2002-77, Cl. SH, 5.015%, 12/18/32 4 559,799 55,199 Trust 2002-84, Cl. SA, 12.932%, 12/25/32 4 1,646,089 191,140 Trust 2003-118, Cl. S, 9.431%, 12/25/33 4 3,354,181 576,518 Trust 2003-33, Cl. SP, 9.135%, 5/25/33 4 1,696,241 220,214 Trust 2003-4, Cl. S, 12.143%, 2/25/33 4 1,089,260 132,862 Trust 2004-54, Cl. DS, (2.17)%, 11/25/30 4 894,916 71,925 Trust 2005-19, Cl. SA, 1.188%, 3/25/35 4 8,834,864 628,244 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Continued Trust 2005-40, Cl. SA, 0.806%, 5/25/35 4 $ 1,944,233 $ 133,783 Trust 2005-6, Cl. SE, 3.271%, 2/25/35 4 2,494,298 216,490 Trust 2005-71, Cl. SA, 8.893%, 8/25/25 4 2,630,460 204,660 Trust 2005-87, Cl. SE, 12.322%, 10/25/35 4 4,911,349 342,627 Trust 2005-87, Cl. SG, 14.11%, 10/25/35 4 4,935,612 462,475 Trust 2006-33, Cl. SP, 15.444%, 5/25/36 4 3,844,364 355,078 Trust 222, Cl. 2, 14.682%, 6/1/23 4 1,876,620 444,446 Trust 240, Cl. 2, 17.248%, 9/1/23 4 2,263,896 520,540 Trust 252, Cl. 2, 14.948%, 11/1/23 4 1,462,654 360,804 Trust 273, Cl. 2, 13.207%, 8/1/26 4 425,316 96,575 Trust 303, Cl. IO, (3.329)%, 11/1/29 4 237,177 56,623 Trust 319, Cl. 2, 11.251%, 2/1/32 4 397,161 92,260 Trust 321, Cl. 2, 6.373%, 4/1/32 4 4,386,049 1,016,624 Trust 331, Cl. 9, 15.578%, 2/1/33 4 1,012,132 250,941 Trust 334, Cl. 17, 22.98%, 2/1/33 4 699,455 161,474 Trust 339, Cl. 7, 10.442%, 7/1/33 4 3,576,381 845,153 Trust 342, Cl. 2, 6.635%, 9/1/33 4 246,604 57,739 Trust 344, Cl. 2, 4.743%, 12/1/33 4 7,002,459 1,605,620 Trust 345, Cl. 9, 8.864%, 1/1/34 4 1,446,102 344,065 Trust 362, Cl. 12, 9.377%, 8/1/35 4 1,932,348 447,288 Trust 362, Cl. 13, 9.359%, 8/1/35 4 1,071,421 246,042 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed Security, Trust 1993-184, Cl. M, 5.585%, 9/25/23 5 543,801 444,444 ---------------- 218,772,687 - -------------------------------------------------------------------------------- GNMA/GUARANTEED--0.2% Government National Mortgage Assn.: 7%, 1/30/09-5/29/09 9,056 9,225 8.50%, 8/15/17-12/29/17 237,240 256,015 - -------------------------------------------------------------------------------- Government National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Series 2001-21, Cl. SB, 8.438%, 1/16/27 4 945,026 95,105 Series 2002-15, Cl. SM, 5.989%, 2/16/32 4 1,174,606 181,141 Series 2004-11, Cl. SM, 1.721%, 1/17/30 4 787,867 127,698 Series 2006-47, Cl. SA, 31.192%, 8/16/36 4 5,903,623 465,549 ---------------- 1,134,733 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- NON-AGENCY--28.7% - -------------------------------------------------------------------------------- COMMERCIAL--11.5% Asset Securitization Corp., Commercial Interest-Only Stripped Mtg.-Backed Security, Series 1997-D4, Cl. PS1, 2.706%, 4/14/29 4 $ 13,797,762 $ 564,607 - -------------------------------------------------------------------------------- Banc of America Commercial Mortgage, Inc., Commercial Mtg. Pass-Through Certificates, Series 2005-3, Cl. A2, 4.501%, 7/10/43 2,100,000 2,075,456 - -------------------------------------------------------------------------------- Banc of America Funding Corp., CMO Pass-Through Certificates, Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 1,441,816 1,466,373 - -------------------------------------------------------------------------------- Banc of America Mortgage Securities, Inc., CMO Pass-Through Certificates, Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,146,075 1,168,049 - -------------------------------------------------------------------------------- Capital Lease Funding Securitization LP, Interest-Only Corporate-Backed Pass-Through Certificates, Series 1997-CTL1, (6.498)%, 6/22/24 4 10,797,339 320,855 - -------------------------------------------------------------------------------- Citigroup Mortgage Loan Trust, Inc. 2006-WF1, Asset-Backed Pass-Through Certificates, Series 2006-WF1, Cl. A2B, 5.536%, 3/1/36 460,000 459,904 - -------------------------------------------------------------------------------- Citigroup/Deutsche Bank 2007-CD4 Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates: Series 2007-CD4, Cl. A2B, 5.205%, 12/11/49 1,510,000 1,509,762 Series 2007-CD4, Cl. A4, 5.322%, 12/1/49 8 1,970,000 1,967,912 - -------------------------------------------------------------------------------- CitiMortgage Alternative Loan Trust 2006-A5, Real Estate Mtg. Investment Conduit Pass-Through Certificates: Series 2006-A5, Cl. 1A1, 5.265%, 10/25/36 2 3,113,536 2,953,519 Series 2006-A5, Cl. 1A13, 5.315%, 10/25/36 2 1,556,768 1,522,170 - -------------------------------------------------------------------------------- Deutsche Alt-A Securities Mortgage Loan Trust, Mtg. Pass-Through Certificates: Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 818,876 818,730 Series 2006-AB3, Cl. A7, 6.36%, 7/1/36 262,671 262,888 - -------------------------------------------------------------------------------- First Horizon Alternative Mortgage Securities Trust 2004-FA2, Mtg. Pass-Through Certificates, Series 2004-FA2, Cl. 3A1, 6%, 1/25/35 829,749 798,679 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- COMMERCIAL Continued First Horizon Alternative Mortgage Securities Trust 2007-FA2, Mtg. Pass-Through Certificates, Series 2007-FA2, Cl. 1A1, 5.50%, 4/25/37 $ 950,000 $ 938,462 - -------------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations, Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,190,000 1,185,895 - -------------------------------------------------------------------------------- Greenwich Capital Commercial Funding Corp., Commercial Mtg. Pass-Through Certificates: Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 1,460,000 1,442,573 Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,290,000 1,293,057 Series 2007-GG9, Cl. A2, 5.381%, 3/10/39 4,250,000 4,276,295 - -------------------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities Corp., Commercial Mtg. Pass-Through Certificates: Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 510,000 504,775 Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 1,720,000 1,709,558 Series 2007-LDPX, Cl. A2S, 5.305%, 1/15/49 590,000 590,860 Series 2006-CB14, Cl. A4, 5.481%, 12/12/44 2,190,000 2,219,175 Series 2007-LD12, Cl. A2, 5.827%, 2/15/51 1,040,000 1,062,187 - -------------------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates: Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,430,000 1,427,860 Series 2007-C1, Cl. A2, 5.318%, 1/15/12 1,700,000 1,708,243 Series 2007-C1, Cl. A4, 5.424%, 2/11/40 1,680,000 1,690,520 - -------------------------------------------------------------------------------- Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only Stripped Mtg.-Backed Security, Series 1998-C1, Cl. IO, (0.88)%, 2/18/30 4 6,809,288 176,314 - -------------------------------------------------------------------------------- Lehman Structured Securities Corp., CMO, Series 2002-GE1, Cl. A, 2.514%, 7/26/24 3 272,953 210,174 - -------------------------------------------------------------------------------- Mastr Alternative Loan Trust, CMO Pass-Through Certificates: Series 2004-9, Cl. A3, 4.70%, 8/25/34 2 39,117 38,978 Series 2004-6, Cl. 10A1, 6%, 7/25/34 1,550,630 1,535,736 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- COMMERCIAL Continued RALI Series 2003-QS1 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 $ 759,305 $ 755,535 - -------------------------------------------------------------------------------- RALI Series 2007-QS6 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2007-QS6, Cl. A114, 5.75%, 4/25/37 1,312,491 1,297,400 - -------------------------------------------------------------------------------- Residential Asset Securitization Trust 2006-A9CB, CMO Pass-Through Certificates, Series 2006-A9CB, Cl. A5, 6%, 9/25/36 1,882,552 1,879,081 - -------------------------------------------------------------------------------- Salomon Brothers Mortgage Securities VII, Inc., Interest-Only Commercial Mtg. Pass-Through Certificates, Series 1999-C1, Cl. X, (5.389)%, 5/18/32 4 258,810,500 398,775 - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 2005-C17, Commercial Mtg. Pass-Through Certificates, Series 2005-C17, Cl. A2, 4.782%, 3/15/42 2,520,000 2,509,183 - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 2006-C29, Commercial Mtg. Pass-Through Certificates, Series 2006-C29, Cl. A2, 5.272%, 11/15/48 355,000 355,831 - -------------------------------------------------------------------------------- WaMu, Mtg. Pass-Through Certificates, Series 2006-AR8, Cl. 2A1, 6.133%, 8/25/36 2 4,379,770 4,378,975 ---------------- 49,474,346 - -------------------------------------------------------------------------------- MANUFACTURED HOUSING--1.7% Wells Fargo Mortgage-Backed Securities 2006-AR12 Trust, Mtg. Pass-Through Certificates, Series 2006-AR12, Cl. 2A1, 6.102%, 9/25/36 2 3,419,170 3,426,716 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2006-AR2 Trust, Mtg. Pass-Through Certificates, Series 2006-AR2, Cl. 2A5, 5.10%, 3/25/36 2 3,969,757 3,940,316 ---------------- 7,367,032 - -------------------------------------------------------------------------------- MULTIFAMILY--9.0% Banc of America Mortgage Securities, Inc., CMO Pass-Through Certificates, Series 2005-F, Cl. 2A3, 4.716%, 7/25/35 2 2,820,303 2,798,470 - -------------------------------------------------------------------------------- Bear Stearns ARM Trust 2006-4, Mtg. Pass-Through Certificates, Series 2006-4, Cl. 2A1, 5.802%, 10/25/36 2 1,571,602 1,583,678 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- MULTIFAMILY Continued Citigroup Mortgage Loan Trust, Inc. 2006-AR5, Mtg. Pass-Through Certificates, Series 2006-AR5, Cl. 1A3A, 5.894%, 7/25/36 2 $ 1,172,685 $ 1,183,115 - -------------------------------------------------------------------------------- Countrywide Alternative Loan Trust, CMO: Series 2008-85CB, Cl. 2A3, 5.50%, 2/25/36 1,790,000 1,700,266 Series 2004-28CB, Cl. 2A4, 5.75%, 1/25/35 2,316,000 2,213,868 - -------------------------------------------------------------------------------- Countrywide Home Loans Servicing LP, Mtg. Pass-Through Certificates: Series 2003-46, Cl. 1A2, 4.122%, 1/19/34 2 2,018,465 2,043,183 Series 2005-HYB1, Cl. 5A1, 4.995%, 3/25/35 2 2,687,933 2,626,614 Series 2007-HY1, Cl. 1A1, 5.695%, 4/25/37 2 2,872,197 2,884,641 - -------------------------------------------------------------------------------- GMAC Mortgage Corp. Loan Trust, Mtg. Pass-Through Certificates: Series 2005-AR4, Cl. 2A1, 5.292%, 7/19/35 2 3,149,052 3,159,939 Series 2004-J4, Cl. A7, 5.50%, 9/25/34 1,660,000 1,588,881 - -------------------------------------------------------------------------------- GSR Mortgage Loan Trust 2005-AR7, Mtg. Pass-Through Certificates, Series 2005-AR7, Cl. 3A1, 5.152%, 11/25/35 2 4,573,708 4,570,077 - -------------------------------------------------------------------------------- Merrill Lynch Mortgage Investors Trust 2007-2, Mtg. Pass-Through Certificates, Series 2007-2, Cl. 2A1, 6.007%, 6/25/37 2 3,873,769 3,895,259 - -------------------------------------------------------------------------------- WaMu, Mtg. Pass-Through Certificates, Series 2005-AR8, Cl. 2AB1, 5.115%, 7/25/45 2 37,267 37,186 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2004-AA Trust, Mtg. Pass-Through Certificates, Series 2004-AA, Cl. 2A, 4.993%, 12/25/34 2 927,973 915,011 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2004-S Trust, Mtg. Pass- Through Certificates, Series 2004-S, Cl. A1, 3.54%, 9/25/34 2 771,487 759,729 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2005-AR2 Trust, Mtg. Pass-Through Certificates, Series 2005-AR2, Cl. 2A2, 4.547%, 3/25/35 2 574,768 570,176 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2005-AR4 Trust, Mtg. Pass-Through Certificates, Series 2005-AR4, Cl. 2A2, 4.524%, 4/25/35 2 953,773 946,101 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- MULTIFAMILY Continued Wells Fargo Mortgage-Backed Securities 2006-AR10 Trust, Mtg. Pass-Through Certificates: Series 2006-AR10, Cl. 4A1, 5.56%, 7/25/36 2 $ 1,892,727 $ 1,903,402 Series 2006-AR10, Cl. 2A1, 5.646%, 7/25/36 2 1,460,208 1,471,152 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2006-AR2 Trust, Mtg. Pass-Through Certificates, Series 2006-AR2, Cl. 2A6, 5.10%, 3/25/36 2 753,853 748,262 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2006-AR6 Trust, Mtg. Pass-Through Certificates, Series 2006-AR6, Cl. 3A1, 5.093%, 3/25/36 2 840,377 836,812 ---------------- 38,435,822 - -------------------------------------------------------------------------------- OTHER--0.0% Salomon Brothers Mortgage Securities VI, Inc., Interest-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. B, 91.826%, 10/23/17 4 8,386 1,040 - -------------------------------------------------------------------------------- Salomon Brothers Mortgage Securities VI, Inc., Principal-Only Stripped Mtg.-Backed Security, Series1987-3, Cl. A, 4.037%, 10/23/17 5 12,411 11,562 ---------------- 12,602 - -------------------------------------------------------------------------------- RESIDENTIAL--6.5% Chase Mortgage Finance Trust Series 2005-S1, Multiclass Mtg. Pass-Through Certificates, Series 2005-S1, Cl. 1A5, 5.50%, 5/25/35 1,000,000 983,269 - -------------------------------------------------------------------------------- Countrywide Alternative Loan Trust, CMO: Series 2005-18CB, Cl. A8, 5.50%, 5/25/36 2,420,000 2,335,488 Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 2,290,023 2,339,815 Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 2,151,269 2,158,598 - -------------------------------------------------------------------------------- Morgan Stanley Mortgage Loan Trust 2006-AR, Mtg. Pass-Through Certificates, Series 2006-AR, Cl. 5A3, 5.427%, 6/25/36 2 1,110,000 1,115,129 - -------------------------------------------------------------------------------- RALI Series 2006-QS5 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2006-QS5, Cl. 2A2, 6%, 4/25/08 1,080,504 1,079,297 - -------------------------------------------------------------------------------- STARM Mortgage Loan Trust 2007-S1, Mtg. Pass-Through Certificates, Series 2007-S1, Cl. 3A1, 5.004%, 8/1/22 2 4,272,338 4,214,261 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- RESIDENTIAL Continued WaMu, Mtg. Pass-Through Certificates: Series 2006-AR12, Cl. 2A1, 5.75%, 10/25/36 2 $ 4,262,606 $ 4,236,800 Series 2007-HY6, Cl. 2A1, 5.702%, 6/25/37 2 2,708,071 2,674,110 - -------------------------------------------------------------------------------- Washington Mutual Mortgage Loan Trust, Mtg. Pass-Through Certificates, 2007-A, Cl. 1A8, 6%, 2/25/37 3,691,408 3,702,854 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2006-AR5 Trust, Mtg. Pass-Through Certificates, Series 2006-AR5, Cl. 2A2, 5.535%, 4/1/36 2 1,656,531 1,505,638 - -------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2003-6 Trust, Mtg. Pass-Through Certificates, Series 2003-6, Cl. 1A1, 5%, 6/25/18 1,552,618 1,544,743 -------------- 27,890,002 -------------- Total Mortgage-Backed Obligations (Cost $338,516,149) 343,087,224 - -------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES--19.8% - -------------------------------------------------------------------------------- Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 8 1,675,000 1,707,616 - -------------------------------------------------------------------------------- Barclays Bank plc, 6.278% Perpetual Bonds 9 5,160,000 4,498,901 - -------------------------------------------------------------------------------- Belo Corp., 8% Sr. Unsec. Unsub. Nts., 11/1/08 2,825,000 2,850,837 - -------------------------------------------------------------------------------- Buckeye Partners LP, 4.625% Sr. Nts., 7/15/13 1,955,000 1,878,939 - -------------------------------------------------------------------------------- Caesars Entertainment, Inc., 7.50% Sr. Unsec. Nts., 9/1/09 3 2,250,000 2,391,451 - -------------------------------------------------------------------------------- Capmark Financial Group, Inc., 5.875% Nts., 5/10/12 1 1,090,000 863,585 - -------------------------------------------------------------------------------- Centex Corp., 5.80% Sr. Unsec. Nts., 9/15/09 1,400,000 1,289,940 - -------------------------------------------------------------------------------- Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 1,540,000 1,592,044 - -------------------------------------------------------------------------------- CIT Group Funding Co. of Canada, 4.65% Sr. Unsec. Nts., 7/1/10 1,235,000 1,175,188 - -------------------------------------------------------------------------------- Citigroup, Inc., 8.30% Jr. Sub. Bonds, 12/21/57 2 790,000 827,252 - -------------------------------------------------------------------------------- Clear Channel Communications, Inc., 6.25% Nts., 3/15/11 1,370,000 1,240,723 - -------------------------------------------------------------------------------- Cox Enterprises, Inc., 4.375% Nts., 5/1/08 1 2,145,000 2,138,282 - -------------------------------------------------------------------------------- CSC Holdings, Inc., 7.25% Sr. Unsec. Nts., 7/15/08 1,635,000 1,641,131 - -------------------------------------------------------------------------------- D.R. Horton, Inc., 8% Sr. Nts., 2/1/09 615,000 597,937 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES Continued - -------------------------------------------------------------------------------- Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 $ 1,141,000 $ 1,324,902 - -------------------------------------------------------------------------------- Dillard's, Inc., 6.625% Unsec. Nts., 11/15/08 3 930,000 928,838 - -------------------------------------------------------------------------------- Eastman Kodak Co., 3.625% Nts., Series A, 5/15/08 975,000 965,250 - -------------------------------------------------------------------------------- EchoStar DBS Corp., 5.75% Sr. Unsec. Nts., 10/1/08 2,445,000 2,448,056 - -------------------------------------------------------------------------------- El Paso Corp., 6.50% Sr. Unsec. Nts., 6/1/08 390,000 393,703 - -------------------------------------------------------------------------------- Ford Motor Credit Co., 9.75% Sr. Unsec. Nts., 9/15/10 3,860,000 3,685,335 - -------------------------------------------------------------------------------- Gap, Inc. (The), 10.05% Unsub. Nts., 12/15/08 2 466,000 483,475 - -------------------------------------------------------------------------------- General Motors Acceptance Corp., 8% Bonds, 11/1/31 1,660,000 1,395,846 - -------------------------------------------------------------------------------- Goldman Sachs Capital, Inc. (The), 6.345% Sub. Bonds, 2/15/34 8 3,595,000 3,256,484 - -------------------------------------------------------------------------------- HBOS plc, 6.413% Sub. Perpetual Bonds, Series A 1,9 6,300,000 5,140,687 - -------------------------------------------------------------------------------- HSBC Finance Capital Trust IX, 5.911% Nts., 11/30/35 2 4,600,000 4,262,825 - -------------------------------------------------------------------------------- Hyundai Motor Manufacturing Alabama LLC, 5.30% Sr. Unsec. Nts., 12/19/08 1 1,115,000 1,119,099 - -------------------------------------------------------------------------------- IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 2,3 1,180,000 1,206,550 - -------------------------------------------------------------------------------- Kaneb Pipe Line Operating Partnership LP, 5.875% Sr. Unsec. Nts., 6/1/13 1,560,000 1,589,376 - -------------------------------------------------------------------------------- Lennar Corp., 7.625% Sr. Unsec. Nts., 3/1/09 1,930,000 1,839,271 - -------------------------------------------------------------------------------- Liberty Media Corp., 7.875% Sr. Nts., 7/15/09 580,000 591,739 - -------------------------------------------------------------------------------- Liberty Media LLC, 7.75% Sr. Nts., 7/15/09 1,840,000 1,887,305 - -------------------------------------------------------------------------------- MBIA, Inc., 5.70% Sr. Unsec. Unsub. Nts., 12/1/34 1,055,000 839,337 - -------------------------------------------------------------------------------- MetLife, Inc., 6.40% Jr. Unsec. Sub. Bonds, 12/15/66 2 3,565,000 3,277,493 - -------------------------------------------------------------------------------- MGM Mirage, Inc., 6% Sr. Sec. Nts., 10/1/09 2,570,000 2,570,000 - -------------------------------------------------------------------------------- Monongahela Power Co., 7.36% Unsec. Nts., Series A, 1/15/10 1,925,000 2,029,456 - -------------------------------------------------------------------------------- NCR Corp., 7.125% Sr. Unsec. Unsub. Nts., 6/15/09 1,580,000 1,633,505 - -------------------------------------------------------------------------------- PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 1 1,048,872 1,034,652 - -------------------------------------------------------------------------------- Popular North America, Inc., 4.70% Nts., 6/30/09 2,485,000 2,461,383 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES Continued - -------------------------------------------------------------------------------- Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 1 $ 2,400,000 $ 2,881,512 - -------------------------------------------------------------------------------- Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 1 2,035,000 2,405,655 - -------------------------------------------------------------------------------- Pulte Homes, Inc., 4.875% Nts., 7/15/09 825,000 768,188 - -------------------------------------------------------------------------------- Qwest Corp., 5.625% Unsec. Nts., 11/15/08 3 250,000 250,000 - -------------------------------------------------------------------------------- SLM Corp.: 3.95% Nts., Series A, 8/15/08 220,000 214,724 4% Nts., 1/15/09 1,670,000 1,609,219 - -------------------------------------------------------------------------------- Standard Pacific Corp., 5.125% Sr. Unsec. Unsub. Nts., 4/1/09 8 865,000 687,675 - -------------------------------------------------------------------------------- TEPPCO Partners LP, 6.125% Nts., 2/1/13 900,000 938,548 - -------------------------------------------------------------------------------- Tribune Co., 5.50% Nts., Series E, 10/6/08 3 1,427,000 1,350,299 - -------------------------------------------------------------------------------- Univision Communications, Inc., 3.875% Sr. Unsec. Nts., 10/15/08 590,000 578,938 - -------------------------------------------------------------------------------- Valero Logistics Operations LP, 6.05% Nts., 3/15/13 390,000 399,094 - -------------------------------------------------------------------------------- Westar Energy, Inc., 7.125% Sr. Unsec. Nts., 8/1/09 1,820,000 1,878,517 -------------- Total Corporate Bonds and Notes (Cost $87,712,277) 85,020,762 UNITS - -------------------------------------------------------------------------------- RIGHTS, WARRANTS AND CERTIFICATES--0.0% - -------------------------------------------------------------------------------- Pathmark Stores, Inc. Wts., Exp. 9/19/10 3,10 (Cost $14,872) 5,408 189 SHARES VALUE - -------------------------------------------------------------------------------- INVESTMENT COMPANIES--1.0% - -------------------------------------------------------------------------------- Oppenheimer Institutional Money Market Fund, Cl. E, 5.03% 11,12 (Cost $4,105,793) 4,105,793 $ 4,105,793 - -------------------------------------------------------------------------------- Total Investments, at Value (excluding Investments Purchased with Cash Collateral from Securities Loaned) (Cost $454,748,323) 453,595,260 PRINCIPAL AMOUNT - -------------------------------------------------------------------------------- INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--0.8% 13 - -------------------------------------------------------------------------------- Undivided interest of 0.18% in joint repurchase agreement (Principal Amount/Value $1,000,000,000, with a maturity value of $1,000,250,000) with Bank of America NA, 4.50%, dated 12/31/07, to be repurchased at $1,832,106 on 1/2/08, collateralized by U.S. Agency Mortgages, 5%, 5/1/35, with a value of $1,020,000,000 $ 1,831,648 1,831,648 - -------------------------------------------------------------------------------- Whitehawk CDO Funding Corp., 5.041%, 3/17/08 1,500,000 1,500,000 -------------- Total Investments Purchased with Cash Collateral from Securities Loaned (Cost $3,331,648) 3,331,648 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $458,079,971) 106.5% 456,926,908 - -------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (6.5) (27,723,727) --------------------------- NET ASSETS 100.0% $ 429,203,181 =========================== INDUSTRY CLASSIFICATIONS ARE UNAUDITED. FOOTNOTES TO STATEMENT OF INVESTMENTS 1. 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 Trustees. These securities amount to $16,010,103 or 3.73% of the Fund's net assets as of December 31, 2007. 2. Represents the current interest rate for a variable or increasing rate security. 3. Illiquid security. The aggregate value of illiquid securities as of December 31, 2007 was $9,090,091, which represents 2.12% of the Fund's net assets. See Note 8 of accompanying Notes. 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. These securities amount to $15,178,495 or 3.54% of the Fund's net assets as of December 31, 2007. 5. Principal-Only Strips represent the right to receive the monthly principal payments on an underlying pool of mortgage loans. The value of these securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Interest rates disclosed represent current yields based upon the current cost basis and estimated timing of future cash flows. These securities amount to $817,999 or 0.19% of the Fund's net assets as of December 31, 2007. 6. When-issued security or delayed delivery to be delivered and settled after December 31, 2007. See Note 1 of accompanying Notes. 7. All or a portion of the security is held in collateralized accounts to cover initial margin requirements on open futures contracts. The aggregate market value of such securities is $509,125. See Note 6 of accompanying Notes. 8. Partial or fully-loaned security. See Note 9 of accompanying Notes. 9. This bond has no contractual maturity date, is not redeemable and contractually pays an indefinite stream of interest. Rate reported represents the current interest rate for this variable rate security. 10. Non-income producing security. 11. Rate shown is the 7-day yield as of December 31, 2007. STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- 12. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended December 31, 2007, by virtue of the Fund owning at least 5% of the voting securities of the issuer or as a result of the Fund and the issuer having the same investment adviser. Transactions during the period in which the issuer was an affiliate are as follows: SHARES GROSS GROSS SHARES DECEMBER 31, 2006 ADDITIONS REDUCTIONS DECEMBER 31, 2007 - ----------------------------------------------------------------------------------------------------------------------------- Oppenheimer Institutional Money Market Fund, Cl. E 4,562,502 281,699,962 282,156,671 4,105,793 > DIVIDEND VALUE INCOME - ----------------------------------------------------------------------------------------------------------------------------- Oppenheimer Institutional Money Market Fund, Cl. E $ 4,105,793 $ 542,042 > 13. The security/securities have been segregated to satisfy the forward commitment to return the cash collateral received in securities lending transactions upon the borrower's return of the securities loaned. See Note 9 of accompanying Notes. 14. Short-fall security. - -------------------------------------------------------------------------------- FUTURES CONTRACTS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- UNREALIZED NUMBER OF EXPIRATION APPRECIATION CONTRACT DESCRIPTION BUY/SELL CONTRACTS DATE VALUE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Long Bonds Buy 455 3/19/08 $ 52,950,625 $ (323,052) U.S. Treasury Nts., 2 yr. Sell 531 3/31/08 111,642,750 48,676 U.S. Treasury Nts., 5 yr. Buy 218 3/31/08 24,041,313 126,459 U.S. Treasury Nts., 10 yr. Sell 206 3/19/08 23,358,469 (135,945) ----------- $ (283,862) =========== - -------------------------------------------------------------------------------- CREDIT DEFAULT SWAPS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- BUY/SELL NOTIONAL PAY/ PREMIUM CREDIT AMOUNT RECEIVE TERMINATION PAID/ SWAP COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATE (RECEIVED) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- Barclays Bank plc: Beazer Homes USA, Inc. Sell $ 570 2.100% 6/20/08 $ -- $ (30,486) Capmark Financial Group, Inc. Sell 950 1.000 6/20/12 -- (189,344) CDX.NA.IG.9 Index Sell 7,860 0.600 12/20/12 (49,117) (57,765) CDX.NA.IG.9 Index Sell 3,930 0.600 12/20/12 (29,584) (28,882) Countrywide Home Loans, Inc. Sell 1,250 0.750 9/20/08 -- (183,245) Dillard's, Inc. Sell 750 1.900 12/20/08 -- (4,955) iStar Financial, Inc. Sell 1,140 4.400 12/20/12 -- 19,736 Lehman Brothers Holdings, Inc. Sell 2,050 0.490 9/20/10 -- (51,941) Merrill Lynch & Co., Inc. Sell 4,265 0.680 9/20/08 -- (36,301) Six Flags, Inc. Sell 1,075 8.250 12/20/08 -- (15,151) Toys "R" Us, Inc. Sell 1,000 1.450 9/20/08 -- (19,892) - ----------------------------------------------------------------------------------------------------------------------------------- Credit Suisse International: ArvinMeritor, Inc. Sell 1,635 1.550 9/20/08 -- (20,263) Freescale Semiconductor, Inc. Sell 975 0.600 3/20/08 -- (4,060) Freescale Semiconductor, Inc. Sell 1,085 0.750 3/20/08 -- (4,108) Intelsat Ltd. Sell 1,075 3.450 9/20/08 -- (5,920) Quebecor World, Inc. Sell 1,175 2.600 9/20/08 -- (105,721) Rite Aid Corp. Sell 1,595 0.875 6/20/08 -- (35,694) Saks, Inc. Sell 1,715 2.000 9/20/08 -- (5,280) The Goodyear Tire & Rubber Co. Sell 1,640 1.550 9/20/08 -- 3,579 TXU Corp. Sell 365 5.910 12/20/12 -- 10,561 TXU Corp. Sell 350 6.050 12/20/12 -- 12,030 TXU Corp. Sell 365 6.000 12/20/12 -- 10,562 Univision Communications, Inc. Sell 490 0.750 3/20/08 -- (1,412) BUY/SELL NOTIONAL PAY/ PREMIUM CREDIT AMOUNT RECEIVE TERMINATION PAID/ SWAP COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATE (RECEIVED) VALUE - -------------------------------------------------------------------------------------------------------------------------------- Deutsche Bank AG: ABX.HE.AA.06-2 Index Sell $ 450 0.170% 5/25/46 $ (53,996) $(171,519) Allied Waste North America, Inc. Sell 630 2.000 9/20/09 -- (3,068) Allied Waste North America, Inc. Sell 990 2.000 9/20/09 -- (4,821) Capital One Bank Buy 670 1.800 12/20/12 -- 8,592 Capital One Bank Buy 1,235 1.700 12/20/12 -- 21,815 CDX.NA.HY.8 Index Sell 905 2.750 6/20/12 (78,546) (44,940) CDX.NA.HY.8 Index Sell 905 2.750 6/20/12 (54,790) (44,940) CDX.NA.HY.8 Index Sell 280 2.750 6/20/12 (36,612) (13,904) CDX.NA.HY.8 Index Sell 1,010 2.750 6/20/12 (69,522) (50,154) CDX.NA.IG.9 Index Sell 15,890 0.600 12/20/12 (95,756) (119,809) CDX.NA.IG.9 Index Sell 7,945 0.600 12/20/12 (45,270) (59,905) Centex Corp. Sell 355 1.550 9/20/09 -- (16,050) Countrywide Home Loans, Inc. Sell 1,150 3.250 9/20/08 -- (149,075) Dillard's, Inc. Sell 420 0.750 9/20/08 -- (7,634) Dow Jones CDX.NA.IG.7 Index Buy 3,600 0.400 12/20/11 370 60,013 Georgia-Pacific Corp. Sell 1,635 1.750 9/20/08 -- 10,350 Intelsat Ltd. Sell 430 2.850 9/20/08 -- (2,644) iStar Financial, Inc. Sell 2,025 2.925 12/20/08 -- (38,625) iStar Financial, Inc. Sell 1,175 3.000 12/20/08 -- (21,566) iStar Financial, Inc. Sell 180 4.320 12/20/12 -- 2,022 Lehman Brothers Holdings, Inc. Sell 2,230 1.410 9/20/08 -- 398 Levi Strauss & Co. Sell 935 1.000 9/20/08 -- (9,352) Levi Strauss & Co. Sell 700 0.900 9/20/08 -- (7,523) MBIA, Inc. Sell 1,025 0.520 9/20/08 -- (59,861) MBIA, Inc. Sell 1,020 0.600 9/20/08 -- (59,036) Merrill Lynch & Co., Inc. Sell 630 1.850 6/20/08 -- 2,032 Owens-Illinois, Inc. Sell 900 1.250 9/20/08 -- 1,989 Tenet Healthcare Corp. Sell 1,635 1.600 3/20/09 -- (40,768) The Bear Stearns Cos., Inc. Sell 4,195 2.350 9/20/08 -- 8,642 Washington Mutual, Inc. Sell 255 4.500 12/20/08 -- (1,360) Washington Mutual, Inc. Sell 1,275 4.500 12/20/08 -- (6,802) - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs Capital Markets LP: ABX.HE.AA.06-2 Index Sell 760 0.170 5/25/46 (300,182) (288,782) ABX.HE.AA.06-2 Index Sell 155 0.170 5/25/46 (12,771) (58,896) Capmark Financial Group, Inc. Sell 1,035 0.950 6/20/12 -- (205,997) First Data Corp. Sell 1,020 1.150 9/20/08 -- (7,356) - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs International: Amkor Technology, Inc. Sell 155 2.650 9/20/08 -- 1,340 Citigroup, Inc. Sell 1,315 1.250 9/20/08 -- (33,531) Dole Food Co., Inc. Sell 1,645 3.880 9/20/08 -- (7,405) D.R. Horton, Inc. Sell 935 4.210 12/20/08 -- (1,009) General Mills, Inc. Sell 1,415 0.380 12/20/12 -- (390) iStar Financial, Inc. Sell 185 3.950 12/20/12 -- 130 K. Hovnanian Enterprises, Inc. Sell 635 6.750 9/20/08 -- (49,913) Merrill Lynch & Co., Inc. Sell 1,440 1.850 6/20/08 -- 4,875 Pulte Homes, Inc. Sell 1,625 2.750 9/20/09 -- (51,110) Quebecor World, Inc. Sell 495 3.000 9/20/08 -- (37,428) Sara Lee Corp. Buy 1,370 0.419 9/20/12 -- (4,754) Smurfit-Stone Container Enterprises, Inc. Sell 1,640 1.450 9/20/08 -- 356 Standard Pacific Corp. Sell 845 6.625 9/20/08 -- (86,464) - -------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing, Inc.: Capital One Bank Buy 730 1.800 12/20/12 -- 11,715 D.R. Horton, Inc. Sell 1,705 4.200 12/20/08 -- (829) General Mills, Inc. Sell 1,715 0.400 12/20/12 -- (752) Morgan Stanley Sell 4,275 0.640 9/20/08 -- (18,186) Nortel Networks Corp. Sell 265 1.850 9/20/08 -- (652) Residential Capital LLC Sell 1,015 5.000 6/20/08 (131,950) (111,086) Univision Communications, Inc. Sell 155 3.000 12/20/08 -- (956) Univision Communications, Inc. Sell 1,325 3.000 12/20/08 -- (5,003) Washington Mutual, Inc. Sell 595 4.400 12/20/08 -- (5,420) STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CREDIT DEFAULT SWAPS: Continued - -------------------------------------------------------------------------------- BUY/SELL NOTIONAL PAY/ PREMIUM CREDIT AMOUNT RECEIVE TERMINATION PAID/ SWAP COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATE (RECEIVED) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Capital Services, Inc.: ABX.HE.AA.06-2 Index Sell $ 155 0.170% 5/25/46 $ (12,383) $ (58,815) ABX.HE.AA.06-2 Index Sell 300 0.170 5/25/46 (29,999) (112,529) Beazer Homes USA, Inc. Sell 1,040 2.150 6/20/08 -- (48,160) CDX.NA.IG.9 Index Sell 4,925 0.600 12/20/12 (38,992) (37,298) Countrywide Home Loans, Inc. Sell 800 0.750 9/20/08 -- (105,573) Countrywide Home Loans, Inc. Sell 3,070 0.420 6/20/09 -- (624,657) First Data Corp. Sell 620 1.350 9/20/08 -- (4,309) Ford Motor Co. Sell 2,065 7.150 12/20/16 -- (58,552) Ford Motor Co. Sell 980 7.050 12/20/16 -- (32,349) General Motors Corp. Sell 1,035 5.800 12/20/16 -- (74,895) General Motors Corp. Sell 1,000 5.750 12/20/16 -- (74,762) Harrah's Operating Co., Inc. Sell 720 2.200 9/20/08 -- (3,962) Inco Ltd. Buy 1,030 0.700 3/20/17 -- (10,596) Inco Ltd. Buy 1,015 0.630 3/20/17 -- (5,132) J.C. Penney Co., Inc. Sell 1,095 1.300 12/20/17 -- (43,257) J.C. Penney Co., Inc. Sell 1,060 1.070 12/20/17 -- (59,539) K. Hovnanian Enterprises, Inc. Sell 500 1.850 6/20/08 -- (34,198) K. Hovnanian Enterprises, Inc. Sell 500 1.850 6/20/08 -- (34,198) Kohl's Corp. Buy 1,640 0.870 12/20/17 -- 27,441 Kohl's Corp. Buy 1,590 0.660 12/20/17 -- 52,060 Lennar Corp. Sell 1,210 2.900 12/20/08 -- (46,064) Residential Capital LLC Sell 220 5.000 6/20/08 (29,700) (26,463) Residential Capital LLC Sell 310 5.000 6/20/08 (44,950) (37,288) Residential Capital LLC Sell 570 5.000 6/20/08 (82,650) (68,562) Residential Capital LLC Sell 2,455 6.120 9/20/08 -- (401,440) Sara Lee Corp. Buy 1,760 0.418 9/20/12 -- (8,276) Toys "R" Us, Inc. Sell 640 2.550 9/20/08 -- (6,888) Tribune Co. Sell 1,000 1.000 6/20/08 -- (45,050) Vale Overseas Ltd. Sell 1,030 1.170 3/20/17 -- (12,774) Vale Overseas Ltd. Sell 1,015 1.100 3/20/17 -- (17,771) --------------------------- $ (1,196,400) $(4,532,814) =========================== - -------------------------------------------------------------------------------- INTEREST RATE SWAPS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- NOTIONAL TERMINATION SWAP COUNTERPARTY AMOUNT PAID BY THE FUND RECEIVED BY THE FUND DATE VALUE - --------------------------------------------------------------------------------------------------------------------- Three-Month Credit Suisse International $4,580,000 USD BBA LIBOR 5.428% 8/7/17 $ 315,489 - --------------------------------------------------------------------------------------------------------------------- Three-Month Deutsche Bank AG 3,870,000 USD BBA LIBOR 5.445 8/8/17 295,525 ---------- $ 611,014 ========== Index abbreviation is as follows: BBA LIBOR British Bankers' Association London-Interbank Offered Rate - -------------------------------------------------------------------------------- TOTAL RETURN SWAPS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- > NOTIONAL TERMINATION SWAP COUNTERPARTY AMOUNT PAID BY THE FUND RECEIVED BY THE FUND DATE VALUE - ----------------------------------------------------------------------------------------------------------------------------------- Barclays Bank plc: If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index $ 6,720,000 U.S. CMBS AAA 8.5+ Index minus 20 basis points 6/1/08 $ 112,774 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 1,800,000 U.S. CMBS AAA 8.5+ Index minus 25 basis points 5/1/08 30,130 - ------------------------------------------------------------------------------------------------------------------------------------ Deutsche Bank AG: If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 4,420,000 U.S. CMBS AAA 8.5+ Index minus 45 basis points 2/1/08 77,080 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 13,160,000 U.S. CMBS AAA 8.5+ Index plus 60 basis points 2/1/08 241,011 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 1,180,000 U.S. CMBS AAA 8.5+ Index plus 25 basis points 2/1/08 21,266 - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Special Financing, Inc.: If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 7,900,000 U.S. CMBS AAA 8.5+ Index minus 40 basis points 6/1/08 136,564 If negative, the absolute value If positive, the Total Return of the Lehman Brothers of the Lehman Brothers 5,450,000 U.S. CMBS AAA 8.5+ Index U.S. CMBS AAA 8.5+ Index 2/1/08 96,237 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 5,400,000 U.S. CMBS AAA 8.5+ Index minus 20 basis points 5/1/08 94,801 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 4,785,000 U.S. CMBS AAA 8.5+ Index plus 60 basis points 2/1/08 86,647 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 6,556,000 U.S. CMBS AAA 8.5+ Index plus 55 basis points 5/1/08 118,471 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 2,860,000 U.S. CMBS AAA 8.5+ Index minus 25 basis points 3/1/08 49,966 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 8,690,000 U.S. CMBS AAA 8.5+ Index plus 45 basis points 5/1/08 156,381 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL RETURN SWAPS: Continued - -------------------------------------------------------------------------------- NOTIONAL TERMINATION SWAP COUNTERPARTY AMOUNT PAID BY THE FUND RECEIVED BY THE FUND DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Capital If positive, the Total Return Services, Inc.: If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index $ 5,600,000 U.S. CMBS AAA 8.5+ Index minus 40 basis points 6/1/08 $ 85,626 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 6,720,000 U.S. CMBS AAA 8.5+ Index plus 90 basis points 6/1/08 108,522 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 900,000 U.S. CMBS AAA 8.5+ Index plus 110 basis points 1/31/08 14,660 - ------------------------------------------------------------------------------------------------------------------------------------ UBS AG: If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 3,800,000 U.S. CMBS AAA 8.5+ Index minus 20 basis points 5/1/08 67,175 If positive, the Total Return If negative, the absolute value of the Lehman Brothers of the Lehman Brothers U.S. CMBS AAA 8.5+ Index 5,981,000 U.S. CMBS AAA 8.5+ Index plus 60 basis points 2/1/08 109,851 ----------- $1,607,162 =========== Index abbreviation is as follows: CMBS Commercial Mortgage Backed Securities SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF ASSETS AND LIABILITIES December 31, 2007 - -------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------- Investments, at value-see accompanying statement of investments: Unaffiliated companies (cost $453,974,178) $ 452,821,115 Affiliated companies (cost $4,105,793) 4,105,793 ---------------- 456,926,908 - ---------------------------------------------------------------------------------------------------------------- Cash 32,272 - ---------------------------------------------------------------------------------------------------------------- Swaps, at value (premiums received $897,108) 1,736,115 - ---------------------------------------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 5,209,084 Interest, dividends and principal paydowns 2,970,054 Investments sold (including $1,142,094 sold on a when-issued or delayed delivery basis) 1,542,155 Futures margins 103,077 Other 16,431 ---------------- Total assets 468,536,096 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------------------- Return of collateral for securities loaned 3,331,648 - ---------------------------------------------------------------------------------------------------------------- Swaps, at value (premiums received $299,292) 4,050,753 - ---------------------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased on a when-issued or delayed delivery basis 30,488,769 Shares of beneficial interest redeemed 1,281,505 Shareholder communications 61,953 Distribution and service plan fees 59,684 Trustees' compensation 10,734 Transfer and shareholder servicing agent fees 1,751 Other 46,118 ---------------- Total liabilities 39,332,915 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS $ 429,203,181 ================ - ---------------------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS - ---------------------------------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 38,886 - ---------------------------------------------------------------------------------------------------------------- Additional paid-in capital 450,197,264 - ---------------------------------------------------------------------------------------------------------------- Accumulated net investment income 18,856,205 - ---------------------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (37,334,011) - ---------------------------------------------------------------------------------------------------------------- Net unrealized depreciation on investments (2,555,163) ---------------- NET ASSETS $ 429,203,181 ================ - ---------------------------------------------------------------------------------------------------------------- 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 $325,661,015 and 29,454,744 shares of beneficial interest outstanding) $ 11.06 - ---------------------------------------------------------------------------------------------------------------- Service Shares: Net asset value, redemption price per share and offering price per share (based on net assets of $103,542,166 and 9,431,174 shares of beneficial interest outstanding) $ 10.98 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS For the Year Ended December 31, 2007 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- Interest $ 23,201,092 - -------------------------------------------------------------------------------- Dividends--affiliated companies 542,042 - -------------------------------------------------------------------------------- Fee income 106,223 - -------------------------------------------------------------------------------- Portfolio lending fees 61,792 ------------- Total investment income 23,911,149 - -------------------------------------------------------------------------------- EXPENSES - -------------------------------------------------------------------------------- Management fees 2,674,865 - -------------------------------------------------------------------------------- Distribution and service plan fees--Service shares 174,887 - -------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Non-Service shares 10,107 Service shares 10,034 - -------------------------------------------------------------------------------- Shareholder communications: Non-Service shares 30,649 Service shares 4,304 - -------------------------------------------------------------------------------- Trustees' compensation 14,154 - -------------------------------------------------------------------------------- Custodian fees and expenses 2,455 - -------------------------------------------------------------------------------- Administration service fees 1,500 - -------------------------------------------------------------------------------- Other 55,434 ------------- Total expenses 2,978,389 Less reduction to custodian expenses (779) Less waivers and reimbursements of expenses (10,315) ------------- Net expenses 2,967,295 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 20,943,854 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain (loss) on: Investments from unaffiliated companies (79,713) Closing and expiration of futures contracts (646,982) Foreign currency transactions 298 Swap contracts (2,375,158) ------------- Net realized loss (3,101,555) - -------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on: Investments 1,637,840 Futures contracts (468,091) Swap contracts (1,180,815) ------------- Net change in unrealized depreciation (11,066) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,831,233 ============= SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2007 2006 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income $ 20,943,854 $ 19,887,682 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized loss (3,101,555) (1,856,406) - ------------------------------------------------------------------------------------------------------------------------------------ Net change in unrealized depreciation (11,066) 2,736,740 --------------------------- Net increase in net assets resulting from operations 17,831,233 20,768,016 - ------------------------------------------------------------------------------------------------------------------------------------ DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS - ------------------------------------------------------------------------------------------------------------------------------------ Dividends from net investment income: Non-Service shares (18,342,384) (21,803,446) Service shares (2,404,569) (608,147) --------------------------- (20,746,953) (22,411,593) - ------------------------------------------------------------------------------------------------------------------------------------ BENEFICIAL INTEREST TRANSACTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from beneficial interest transactions: Non-Service shares (37,703,583) (61,099,902) Service shares 61,525,061 29,289,033 --------------------------- 23,821,478 (31,810,869) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) 20,905,758 (33,454,446) - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of period 408,297,423 441,751,869 --------------------------- End of period (including accumulated net investment income of $18,856,205 and $20,676,318, respectively) $429,203,181 $408,297,423 =========================== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.16 $ 11.19 $ 11.50 $ 11.42 $ 11.31 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .55 1 .53 1 .51 1 .43 1 .51 Net realized and unrealized gain (loss) (.08) .03 (.23) .18 .23 ---------------------------------------------------------------------- Total from investment operations .47 .56 .28 .61 .74 - --------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.57) (.59) (.59) (.53) (.63) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.06 $ 11.16 $ 11.19 $ 11.50 $ 11.42 ====================================================================== - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 2 4.39% 5.28% 2.59% 5.49% 6.78% - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 325,661 $ 367,106 $ 430,642 $ 504,244 $ 618,234 - --------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 345,723 $ 391,750 $ 466,033 $ 552,293 $ 691,931 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 5.07% 4.83% 4.56% 3.82% 4.03% Total expenses 0.68% 4,5,6 0.77% 4,5 0.76% 6 0.75% 6 0.73% 6 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 89% 7 114% 7 111% 7 95% 7 101% 1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an 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. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods of less than one full year. 4. Total expenses including indirect expenses from affiliated fund were as follows: Year Ended December 31, 2007 0.68% Year Ended December 31, 2006 0.77% 5. Voluntary waiver or reimbursement of indirect management fees less than 0.005%. 6. Reduction to custodian expenses less than 0.005%. 7. The portfolio turnover rate excludes purchase and sale transactions of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - -------------------------------------------------------------------------------- Year Ended December 31, 2007 $ 662,784,931 $ 678,316,693 Year Ended December 31, 2006 $ 1,168,229,255 $ 1,270,329,129 Year Ended December 31, 2005 $ 2,420,041,493 $ 2,423,498,913 Year Ended December 31, 2004 $ 2,841,348,053 $ 2,925,500,296 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. SERVICE SHARES YEAR ENDED DECEMBER 31, 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.10 $ 11.15 $ 11.47 $ 11.39 $ 11.30 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .52 1 .49 1 .47 1 .40 1 .43 Net realized and unrealized gain (loss) (.08) .03 (.22) .18 .28 ---------------------------------------------------------------------- Total from investment operations .44 .52 .25 .58 .71 - --------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.56) (.57) (.57) (.50) (.62) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.98 $ 11.10 $ 11.15 $ 11.47 $ 11.39 ====================================================================== - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 2 4.09% 4.93% 2.33% 5.22% 6.56% - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 103,542 $ 41,191 $ 11,110 $ 3,505 $ 3,835 - --------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 70,116 $ 21,265 $ 7,213 $ 3,002 $ 3,903 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 4.85% 4.56% 4.29% 3.55% 3.73% Total expenses 0.92% 4,5,6 1.06% 4,5 1.03% 6 0.99% 6 0.98% 6 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 89% 7 114% 7 111% 7 95% 7 101% 1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an 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. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods less than one full year. 4. Total expenses including indirect expenses from affiliated fund were as follows: Year Ended December 31, 2007 0.92% Year Ended December 31, 2006 1.06% 5. Voluntary waiver or reimbursement of indirect management fees less than 0.005%. 6. Reduction to custodian expenses less than 0.005%. 7. The portfolio turnover rate excludes purchase and sale transactions of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - -------------------------------------------------------------------------------- Year Ended December 31, 2007 $ 662,784,931 $ 678,316,693 Year Ended December 31, 2006 $ 1,168,229,255 $ 1,270,329,129 Year Ended December 31, 2005 $ 2,420,041,493 $ 2,423,498,913 Year Ended December 31, 2004 $ 2,841,348,053 $ 2,925,500,296 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Core Bond Fund/VA (the "Fund"), is a separate series of Oppenheimer Variable Account Funds, an open-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund's main investment objective is to seek a high level of current income. As a secondary objective, the Fund seeks capital appreciation when consistent with its primary objective. The Fund's investment adviser is OppenheimerFunds, Inc. (the "Manager"). 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. Both classes of shares have identical rights and voting privileges with respect to the Fund in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. The following is a summary of significant accounting policies consistently followed by the Fund. - -------------------------------------------------------------------------------- SECURITIES VALUATION. The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. Securities may be valued primarily using dealer-supplied valuations or a portfolio pricing service authorized by the Board of Trustees. Securities traded on a registered U.S. securities exchange 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. Securities whose principal exchange is NASDAQ(R) are valued based on the closing price reported by NASDAQ 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 traded on foreign exchanges are valued based on the last sale price on the principal exchange on which the security is traded, as identified by the portfolio pricing service, prior to the time when the Fund's assets are valued. In the absence of a sale, the security is valued at the official closing price on the principal exchange. Corporate, government and municipal debt instruments having a remaining maturity in excess of sixty days and all mortgage-backed securities, collateralized mortgage obligations and other asset-backed securities will be valued at the mean between the "bid" and "asked" prices. Securities for which market quotations are not readily available are valued at their fair value. Securities whose values have been materially affected by what the Manager identifies as a significant event occurring before the Fund's assets are valued but after the close of their respective exchanges will be fair valued. Fair value is determined in good faith using consistently applied procedures under the supervision of the Board of Trustees. Shares of a registered investment company that are not traded on an exchange are valued at the acquired investment company's net asset value per share. "Money market-type" debt instruments with remaining maturities of sixty days or less are valued at cost adjusted by the amortization of discount or premium to maturity (amortized cost), which approximates market value. - -------------------------------------------------------------------------------- SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Fund may purchase securities on a "when-issued" basis, and may purchase or sell securities on a "delayed delivery" basis. "When-issued" or "delayed delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis normally takes place within six months and possibly as long as two years or more after the 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 purchase of securities on a when-issued basis may increase the volatility of the Fund's net asset value to the extent the Fund executes such transactions while remaining substantially fully invested. When the Fund engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Fund to lose the opportunity to obtain or dispose of the security at a price and yield it considers advantageous. The Fund maintains internally designated assets with a market value equal to or greater than the amount of its purchase commitments. The Fund may also sell securities that it purchased on a when-issued basis or forward commitment prior to settlement of the original purchase. As of December 31, 2007, the Fund had purchased securities issued on a when-issued or delayed delivery basis and sold securities issued on a delayed delivery basis as follows: WHEN-ISSUED OR DELAYED DELIVERY BASIS TRANSACTIONS -------------------------------------------------- Purchased securities $30,488,769 Sold securities 1,142,094 The Fund may enter into "forward roll" transactions with respect to mortgage-related securities. In this type of transaction, the Fund sells a mortgage-related security to a buyer and simultaneously agrees to repurchase a similar security (same type, coupon and maturity) at a later date at a set price. During the period between the sale and the repurchase, the Fund will not be entitled to receive interest and principal payments on the securities that have been sold. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain (loss) on investments or as fee income in the case of such transactions that have an associated fee in lieu of a difference in the forward purchase and sale price. Risks of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Fund to receive inferior securities at redelivery as compared to the securities sold to the counterparty; counterparty credit risk. To assure its future payment of the purchase price, the Fund maintains internally designated assets with a market value equal to or greater than the payment obligation under the roll. - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in U.S. dollars. The values of securities denominated in foreign currencies and amounts related to the purchase and sale of foreign securities and foreign investment income are translated into U.S. dollars as of the close of the Exchange, normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. Foreign exchange rates may be valued primarily using a reliable bank, dealer or service authorized by the Board of Trustees. Reported net realized gains and losses from foreign currency transactions arise from sales of portfolio securities, sales and maturities of short-term securities, sales of foreign currencies, exchange rate fluctuations between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation and depreciation on the translation of assets and liabilities denominated in foreign currencies arise from changes in the values of assets and liabilities, including investments in securities at fiscal period end, resulting from changes in exchange rates. 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. - -------------------------------------------------------------------------------- INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Fund is permitted to invest daily available cash balances in an affiliated money market fund. The Fund may invest the available cash in Class E shares of Oppenheimer Institutional Money Market Fund ("IMMF") to seek current income while preserving liquidity. IMMF is a registered open-end management investment company, regulated as a money market fund under the Investment Company Act of 1940, as amended. The Manager is also the investment adviser of IMMF. The Fund's investment in IMMF is included in the Statement of Investments. As a shareholder, the Fund is subject to its proportional share of IMMF's Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund's investment in IMMF. - -------------------------------------------------------------------------------- JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated funds advised by the Manager, may transfer uninvested cash balances into joint trading accounts on a daily basis. These balances are invested in one or more repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. 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. - -------------------------------------------------------------------------------- INVESTMENTS WITH OFF-BALANCE SHEET RISK. The Fund enters into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected in the Fund's Statement of Assets and Liabilities. - -------------------------------------------------------------------------------- ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than those attributable to a specific class), gains and losses are allocated on a daily basis 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. - -------------------------------------------------------------------------------- FEDERAL TAXES. The Fund intends to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its investment company taxable income, including any net realized gain on investments not offset by capital loss carryforwards, if any, to shareholders. Therefore, no federal income or excise tax provision is required. The Fund files income tax returns in U.S. federal and applicable state jurisdictions. The statute of limitations on the Fund's tax return filings remain open for the three preceding fiscal reporting period ends. The tax components of capital shown in the table below represent distribution requirements the Fund must satisfy under the income tax regulations, losses the Fund may be able to offset against income and gains realized in future years and unrealized appreciation or depreciation of securities and other investments for federal income tax purposes. NET UNREALIZED DEPRECIATION BASED ON COST OF SECURITIES AND UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME INCOME GAIN CARRYFORWARD 1,2,3,4 TAX PURPOSES -------------------------------------------------------------------------- $17,146,896 $-- $37,500,155 $668,979 1. As of December 31, 2007, the Fund had $37,269,804 of net capital loss carryforwards available to offset future realized capital gains, if any, and thereby reduce future taxable gain distributions. As of December 31, 2007, details of the capital loss carryforwards were as follows: EXPIRING ------------------------------------------ 2010 $ 29,885,554 2013 57,295 2014 6,081,496 2015 1,245,459 ------------ Total $ 37,269,804 ============ 2. As of December 31, 2007, the Fund had $230,351 of post-October losses available to offset future realized capital gains, if any. Such losses, if unutilized, will expire in 2016. 3. During the fiscal year ended December 31, 2007, the Fund did not utilize any capital loss carryforward. 4. During the fiscal year ended December 31, 2006, the Fund did not utilize any capital loss carryforward. 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 net realized gain was recorded by the Fund. Accordingly, the following amounts have been reclassified for December 31, 2007. Net assets of the Fund were unaffected by the reclassifications. REDUCTION TO REDUCTION TO ACCUMULATED ACCUMULATED NET NET INVESTMENT REALIZED LOSS INCOME ON INVESTMENTS -------------------------------------------- $2,017,014 $2,017,014 The tax character of distributions paid during the years ended December 31, 2007 and December 31, 2006 was as follows: YEAR ENDED YEAR ENDED DECEMBER 31, 2007 DECEMBER 31, 2006 ---------------------------------------------------------------- Distributions paid from: Ordinary income $20,746,953 $22,411,593 The aggregate cost of securities and other investments and the composition of unrealized appreciation and depreciation of securities and other investments for federal income tax purposes as of December 31, 2007 are noted below. The primary difference between book and tax appreciation or depreciation of securities and other investments, if applicable, is attributable to the tax deferral of losses or tax realization of financial statement unrealized gain or loss. Federal tax cost of securities $ 458,197,688 Federal tax cost of other investments (60,925,720) -------------- Total federal tax cost $ 397,271,968 ============== Gross unrealized appreciation $ 10,079,441 Gross unrealized depreciation (10,748,420) -------------- Net unrealized depreciation $ (668,979) ============== - -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Board of Trustees has adopted a compensation deferral plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Fund. For purposes of determining the amount owed to the Trustee under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of the Fund or in other Oppenheimer funds selected by the Trustee. The Fund purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Fund asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Fund, and will not materially affect the Fund's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral plan. - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles, are recorded on the ex-dividend date. Income and capital gain distributions, if any, are declared and paid annually or at other times as deemed necessary by the Manager. - -------------------------------------------------------------------------------- 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 is recognized on an accrual basis. Market discount and premium, which are included in interest income on the Statement of Operations, are amortized or accreted daily. - -------------------------------------------------------------------------------- CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may include interest expense incurred by the Fund on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. The Fund pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Fund, at a rate equal to the Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item, if applicable, represents earnings on cash balances maintained by the Fund during the period. Such interest expense and other custodian fees may be paid with these earnings. - -------------------------------------------------------------------------------- SECURITY TRANSACTIONS. Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. - -------------------------------------------------------------------------------- INDEMNIFICATIONS. The Fund's organizational documents provide current and former trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote. - -------------------------------------------------------------------------------- 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Fund has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows: YEAR ENDED DECEMBER 31, 2007 YEAR ENDED DECEMBER 31, 2006 SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------- NON-SERVICE SHARES Sold 1,273,250 $ 13,904,774 953,894 $ 10,320,632 Dividends and/or distributions reinvested 1,704,683 18,342,384 2,058,871 21,803,446 Redeemed (6,416,114) (69,950,741) (8,604,369) (93,223,980) ----------------------------------------------------------- Net decrease (3,438,181) $ (37,703,583) (5,591,604) $ (61,099,902) =========================================================== - ---------------------------------------------------------------------------------------------------------------- SERVICE SHARES Sold 6,555,320 $ 70,649,282 2,826,656 $ 30,522,972 Dividends and/or distributions reinvested 224,516 2,404,569 57,590 608,147 Redeemed (1,059,398) (11,528,790) (170,116) (1,842,086) ----------------------------------------------------------- Net increase 5,720,438 $ 61,525,061 2,714,130 $ 29,289,033 =========================================================== - -------------------------------------------------------------------------------- 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations and investments in IMMF, for the year ended December 31, 2007, were as follows: PURCHASES SALES - -------------------------------------------------------------------------------- Investment securities $213,589,856 $ 238,809,894 U.S. government and government agency obligations 107,959,273 115,802,561 To Be Announced (TBA) mortgage-related securities 662,784,931 678,316,693 - -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Fund pays the Manager a management fee based on the daily net assets of the Fund at an annual rate as shown in the following table: FEE SCHEDULE FOR MAY 1, 2007 TO DEC. 31, 2007 FEE SCHEDULE FOR JAN. 1, 2007 TO APRIL 30, 2007 - --------------------------------------------- ----------------------------------------------- Up to $1 billion 0.60% Up to $200 million 0.75% Over $1 billion 0.50 Next $200 million 0.72 Next $200 million 0.69 Next $200 million 0.66 Next $200 million 0.60 Over $1 billion 0.50 - -------------------------------------------------------------------------------- ADMINISTRATION SERVICE FEES. The Fund pays the Manager a fee of $1,500 per year for preparing and filing the Fund's tax returns. - -------------------------------------------------------------------------------- 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 a per account fee. For the year ended December 31, 2007, the Fund paid $20,112 to OFS for services to the Fund. Additionally, funds offered in variable annuity separate accounts are subject to minimum fees of $10,000 per class, for class level assets of $10 million or more. Each class is subject to the minimum fee in the event that the per account fee does not equal or exceed the applicable minimum fee. - -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a Distribution and Service Plan (the "Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940 for Service shares to pay OppenheimerFunds Distributor, Inc. (the "Distributor"), for distribution related services, personal service and account maintenance for the Fund's Service shares. Under the Plan, payments are made periodically at an annual rate of up to 0.25% of the average annual net assets of Service shares of the Fund. 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. These fees are paid out of the Fund's assets on an on-going basis and 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. Fees incurred by the Fund under the Plan are detailed in the Statement of Operations. - -------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. The Manager will waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund's investment in IMMF. During the year ended December 31, 2007, the Manager waived $10,315 for IMMF management fees. - -------------------------------------------------------------------------------- 5. FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into foreign currency exchange contracts ("forward contracts") for the purchase or sale of a foreign currency at a negotiated rate at a future date. Foreign currency exchange contracts are reported on a schedule following the Statement of Investments. Forward contracts will be valued daily based upon the closing prices of the forward currency rates determined at the close of the Exchange as provided by a bank, dealer or pricing service. The resulting unrealized appreciation (depreciation) is reported in the Statement of Assets and Liabilities as a receivable or payable and in the Statement of Operations within the change in unrealized appreciation (depreciation). At contract close, the difference between the original cost of the contract and the value at the close date is recorded as a realized gain (loss) in the Statement of Operations. NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5. FOREIGN CURRENCY EXCHANGE CONTRACTS Continued Risks to the Fund include both market and credit risk. Market risk is the risk that the value of the forward contract will depreciate due to unfavorable changes in the exchange rates. Credit risk arises from the possibility that the counterparty will default. If the counterparty defaults, the Fund's loss will consist of the net amount of contractual payments that the Fund has not yet received. As of December 31, 2007, the Fund had no outstanding forward contracts. - -------------------------------------------------------------------------------- 6. FUTURES CONTRACTS A futures contract is a commitment to buy or sell a specific amount of a financial instrument at a negotiated price on a stipulated future date. The Portfolio may buy and sell futures contracts that relate to broadly based securities indices (financial futures), debt securities (interest rate futures) and various commodities (commodity index futures). The Fund may also buy or write put or call options on these futures contracts. Futures contracts traded on a commodities or futures exchange will be valued at the final settlement price or official closing price on the principal exchange as reported by such principal exchange at its trading session ending at, or most recently prior to, the time when the Fund's assets are valued. Upon entering into a futures contract, the Fund 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 Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. Futures contracts are reported on a schedule following the Statement of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Statement of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted in the Statement of Assets and Liabilities. The net change in unrealized appreciation and depreciation is reported in the Statement of Operations. Realized gains (losses) are reported in the Statement of Operations at the closing or expiration of futures contracts. Risks of entering into futures contracts (and related options) include the possibility that there may be an illiquid market where the Fund is unable to liquidate the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Fund's securities. - -------------------------------------------------------------------------------- 7. SWAP CONTRACTS The Fund may enter into swap contract agreements with a counterparty to exchange a series of cash flows based on either specified reference rates, or the occurrence of a credit event, over a specified period. Such contracts may include interest rate, equity, debt, index, total return, credit and currency swaps. Swaps are marked to market daily using primarily quotations from pricing services, counterparties and brokers. Swap contracts are reported on a schedule following the Statement of Investments. The value of the contracts is separately disclosed on the Statement of Assets and Liabilities. The unrealized appreciation (depreciation) related to the change in the valuation of the notional amount of the swap is combined with the accrued interest due to (owed by) the Fund at termination or settlement. The net change in this amount during the period is included on the Statement of Operations. The Fund also records any periodic payments received from (paid to) the counterparty, including at termination, under such contracts as realized gain (loss) on the Statement of Operations. Risks of entering into swap contracts include credit, market and liquidity risk. Credit risk arises from the possibility that the counterparty will default. If the counterparty defaults, the Fund's loss will consist of the net amount of contractual payments that the Fund has not yet received. Market risk is the risk that the value of the contract will depreciate due to unfavorable changes in the reference asset. If there is an illiquid market for the agreement, the Fund may be unable to close the contract prior to contract termination. - -------------------------------------------------------------------------------- CREDIT DEFAULT SWAP CONTRACTS. A credit default swap is a bilateral contract that enables an investor to buy or sell protection against a defined-issuer credit event. The Fund may enter into credit default swaps on a single security, or a basket of securities. In a credit default swap contract, the purchaser of the contract will pay a periodic interest fee, similar to an insurance premium, on the notional amount of the swap contract to the counterparty (the seller of the contract). If there is a credit event (for example, bankruptcy or a failure to timely pay interest or principal), the purchaser will exercise the contract and will receive a payment from the seller of the contract equal to the notional value of the credit default swap contract less the value of the underlying security. In the event that the credit default swap is exercised due to a credit event, the difference between the value of the underlying security and the notional amount is recorded as realized gain (loss) and is included on the Statement of Operations. Risks of credit default swaps include, but are not limited to, the cost of paying for credit protection if there are no credit events. - -------------------------------------------------------------------------------- INTEREST RATE SWAP CONTRACTS. An interest rate swap is an agreement between counterparties to exchange periodic interest payments on the notional amount of the contract. One cash flow stream will typically be a floating rate payment based upon a specified index while the other is typically a fixed rate. Interest rate swap agreements include interest rate risk. There is a risk, based on movements of interest rates in the future, the payments made by the Fund under a swap agreement will be greater than the payments it received. - -------------------------------------------------------------------------------- TOTAL RETURN SWAP CONTRACTS. A total return swap is an agreement between counterparties to exchange a set of future cash flows on the notional amount of the contract. One cash flow is typically based on a reference interest rate or index and the other on the total return of a reference asset such as a security, a basket of securities, or an index. The total return includes appreciation or depreciation on the reference asset, plus any interest or dividend payments. - -------------------------------------------------------------------------------- 8. ILLIQUID SECURITIES As of December 31, 2007, investments in securities included issues that are illiquid. Investments may be illiquid because they do not have an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. The Fund will not invest more than 15% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid securities. Securities that are illiquid are marked with an applicable footnote on the Statement of Investments. - -------------------------------------------------------------------------------- 9. SECURITIES LENDING The Fund lends portfolio securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The loans are secured by collateral (either securities, letters of credit, or cash) in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Fund could experience delays and cost in recovering the securities loaned or in gaining access to the collateral. The Fund continues to receive the economic benefit of interest or dividends paid on the securities loaned in the form of a substitute payment received from the borrower and recognizes the gain or loss in the fair value of the securities loaned that may occur during the term of the loan. The Fund has the right under the lending agreement to recover the securities from the borrower on demand. As of December 31, 2007, the Fund had on loan securities valued at $3,290,065. Collateral of $3,331,648 was received for the loans, all of which was received in cash and subsequently invested in approved instruments. NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 10. RECENT ACCOUNTING PRONOUNCEMENT In September 2006, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of December 31, 2007, the Manager does not believe the adoption of SFAS No. 157 will materially impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period. - -------------------------------------------------------------------------------- 11. FUND REORGANIZATION On November 30, 2007, the Board of Directors of Government Securites Portfolio (the "Portfolio"), a series of Panorama Series Fund, Inc., determined that it is in the best interest of the Portfolio's shareholders that the Portfolio reorganize with and into the Fund. The Board of Directors of the Portfolio unanimously approved an Agreement and Plan of Reorganization to be entered into between the Portfolio and the Fund, whereby the Fund will acquire all of the assets of the Portfolio in exchange for newly-issued shares of the Fund (the "Reorganization"). If the Reorganization takes place, Portfolio shareholders will receive Non-Service shares of the Fund. The Reorganization is conditioned upon, among other things, approval by the Portfolio's shareholders. The anticipated date for the shareholder meeting is on or about April 25, 2008 and, if approved by shareholders, the Reorganization would take place shortly thereafter. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF GOVERNMENT SECURITIES PORTFOLIO: We have audited the accompanying statement of assets and liabilities of Government Securities Portfolio (the "Portfolio"), a series of Panorama Series Fund, Inc., including the statement of investments, as of December 31, 2007, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Portfolio as of December 31, 2007, 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 /S/DELOITTE & TOUCHE LLP Denver, Colorado February 13, 2008 STATEMENT OF INVESTMENTS December 31, 2007 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES--4.8% - -------------------------------------------------------------------------------- Ace Securities Corp. Home Equity Loan Trust 2005-HE7, Asset- Backed Pass-Through Certificates, Series 2005-HE7, Cl. A2B, 5.045%, 11/25/35 1 $ 29,381 $ 29,263 - -------------------------------------------------------------------------------- Argent Securities Trust 2004-W8, Asset-Backed Pass-Through Certificates, Series 2004-W8, Cl. A2, 5.345%, 5/25/34 1 61,343 57,790 - -------------------------------------------------------------------------------- Argent Securities Trust 2006-M3, Asset-Backed Pass-Through Certificates, Series 2006-M3, Cl. A2B, 4.965%, 9/25/36 1 30,000 28,974 - -------------------------------------------------------------------------------- Argent Securities Trust 2006-W5, Asset-Backed Pass-Through Certificates, Series 2006-W5, Cl. A2B, 4.965%, 5/26/36 1 50,000 48,713 - -------------------------------------------------------------------------------- Centex Home Equity Loan Trust 2006-A, Asset-Backed Certificates, Series 2006-A, Cl. AV2, 4.965%, 5/16/36 1 60,000 58,964 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-16, Asset-Backed Certificates, Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 1 30,000 28,915 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-17, Asset-Backed Certificates: Series 2005-17, Cl. 1AF1, 5.096%, 5/25/36 1 6,437 6,427 Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 1 20,000 19,847 - -------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2006-25, Asset-Backed Certificates, Series 2006-25, Cl. 2A2, 4.985%, 12/25/29 1 40,000 37,440 - -------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2005-FF10, Mtg. Pass-Through Certificates, Series 2005-FF10, Cl. A3, 5.075%, 11/25/35 1 78,373 77,878 - -------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF10, Mtg. Pass-Through Certificates, Series 2006-FF10, Cl. A3, 4.955%, 7/25/36 1 50,000 47,682 - -------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF5, Mtg. Pass-Through Certificates, Series 2006-FF5, Cl. 2A1, 4.915%, 5/15/36 1 11,188 11,068 - -------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF9, Mtg. Pass-Through Certificates, Series 2006-FF9, Cl. 2A2, 4.975%, 7/7/36 1 30,000 28,637 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES Continued - -------------------------------------------------------------------------------- Household Home Equity Loan Trust, Home Equity Loan Pass-Through Certificates: Series 2005-3, Cl. A1, 5%, 1/20/35 1 $ 26,062 $ 25,469 Series 2006-4, Cl. A2V, 5.059%, 3/20/36 1 25,000 23,556 - -------------------------------------------------------------------------------- Lehman XS Trust, Mtg. Pass-Through Certificates: Series 2005-10, Cl. 2A3B, 5.55%, 1/25/36 28,729 28,781 Series 2005-2, Cl. 2A1B, 5.18%, 8/25/35 1 21,300 21,366 Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 16,334 16,359 - -------------------------------------------------------------------------------- Mastr Asset-Backed Securities Trust 2006-WMC3, Mtg. Pass-Through Certificates, Series 2006-WMC3, Cl. A3, 4.965%, 8/25/36 1 70,000 65,426 - -------------------------------------------------------------------------------- Popular ABS Mortgage Pass-Through Trust 2005-6, Mtg. Pass-Through Certificates, Series 2005-6, Cl. A3, 5.68%, 1/25/36 1 30,000 29,744 - -------------------------------------------------------------------------------- RAMP Series 2006-RS4 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2006-RS4, Cl. A1, 4.945%, 7/25/36 1 10,963 10,767 - -------------------------------------------------------------------------------- RASC Series 2006-KS7 Trust, Home Equity Mtg. Asset-Backed Pass- Through Certificates, Series 2006-KS7, Cl. A2, 4.965%, 9/25/36 1 60,000 58,690 - -------------------------------------------------------------------------------- Structured Asset Investment Loan Trust, Mtg. Pass-Through Certificates, Series 2006-2, Cl. A1, 4.925%, 4/25/36 1 7,350 7,301 - -------------------------------------------------------------------------------- Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust, Home Equity Asset-Backed Certificates, Series 2006-2, Cl. A2, 4.965%, 7/25/36 1 50,000 48,730 ----------- Total Asset-Backed Securities (Cost $842,987) 817,787 - -------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS--89.2% - -------------------------------------------------------------------------------- GOVERNMENT AGENCY--75.4% - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED--73.4% Fannie Mae Trust 2004-W9, Pass- Through Certificates, Trust 2004-W9, Cl. 2A2, 7%, 2/25/44 73,023 77,471 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp.: 4.50%, 5/15/19 117,824 115,880 5%, 8/15/33-12/15/34 207,104 202,413 6%, 10/15/22-3/15/33 221,652 226,158 6.50%, 4/15/18-12/15/30 212,561 220,362 7%, 8/15/16-10/15/31 187,590 196,114 10.50%, 11/14/20 5,779 6,698 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal Home Loan Mortgage Corp., CMO Gtd. Multiclass Mtg. Participation Certificates: Series 2042, Cl. N, 6.50%, 3/15/28 $ 38,464 $ 39,788 Series 2046, Cl. G, 6.50%, 4/15/28 115,481 120,692 Series 2736, Cl. DB, 3.30%, 11/15/26 132,472 130,193 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment Conduit Multiclass Pass-Through Certificates: Series 1674, Cl. Z, 6.75%, 2/15/24 100,937 106,687 Series 2003-11, Cl. FA, 5.865%, 9/25/32 1 4,667 4,713 Series 2006-11, Cl. PS, 6.728%, 3/25/36 1 26,902 29,860 Series 2034, Cl. Z, 6.50%, 2/15/28 13,594 14,137 Series 2053, Cl. Z, 6.50%, 4/15/28 17,593 18,379 Series 2055, Cl. ZM, 6.50%, 5/15/28 23,508 24,307 Series 2080, Cl. Z, 6.50%, 8/15/28 15,972 16,663 Series 2220, Cl. PD, 8%, 3/15/30 5,495 5,884 Series 2326, Cl. ZP, 6.50%, 6/15/31 13,868 14,523 Series 2435, Cl. EQ, 6%, 5/15/31 57,208 58,047 Series 2470, Cl. LF, 6.028%, 2/15/32 1 19,903 20,272 Series 2526, Cl. FE, 5.428%, 6/15/29 1 14,388 14,353 Series 2641, Cl. CE, 3.50%, 9/15/25 28,660 28,286 Series 2676, Cl. KY, 5%, 9/15/23 113,000 109,913 Series 2727, Cl. UA, 3.50%, 10/15/22 13,732 13,624 Series 2750, Cl. XG, 5%, 2/1/34 130,000 121,703 Series 2777, Cl. PJ, 4%, 5/15/24 13,445 13,366 Series 2890, Cl. PE, 5%, 11/1/34 130,000 123,117 Series 2936, Cl. PE, 5%, 2/1/35 69,000 65,011 Series 2939, Cl. PE, 5%, 2/15/35 247,000 233,103 Series 3025, Cl. SJ, 6.316%, 8/15/35 1 7,833 8,913 Series 3035, Cl. DM, 5.50%, 11/15/25 91,127 91,789 Series 3138, Cl. PA, 5.50%, 2/15/27 82,885 83,875 - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security: Series 192, Cl. IO, 8.183%, 2/1/28 2 6,981 1,694 Series 200, Cl. IO, 7.26%, 1/1/29 2 8,315 1,932 Series 2003-26, Cl. DI, 9.526%, 4/25/33 2 44,900 9,361 Series 205, Cl. IO, 2.827%, 9/1/29 2 43,496 10,244 Series 2074, Cl. S, 3.027%, 7/17/28 2 8,765 979 Series 2079, Cl. S, 2.871%, 7/17/28 2 14,315 1,698 Series 216, Cl. IO, 9.04%, 2/1/31 2 15,195 3,682 Series 224, Cl. IO, 5.645%, 3/1/33 2 44,062 10,343 Series 243, Cl. 6, 15.199%, 12/15/32 2 25,167 5,309 Series 2526, Cl. SE, (0.972)%, 6/15/29 2 23,698 1,596 Series 2802, Cl. AS, 5.232%, 4/15/33 2 41,904 2,829 Series 2819, Cl. S, (5.728)%, 6/15/34 2 191,207 18,751 Series 2920, Cl. S, (4.806)%, 1/15/35 2 124,777 8,873 Series 3000, Cl. SE, 11.89%, 7/15/25 2 152,930 8,203 Series 3004, Cl. SB, 33.208%, 7/15/35 2 218,249 13,522 Series 3110, Cl. SL, 24.357%, 2/15/26 2 21,922 1,120 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal Home Loan Mortgage Corp., Principal-Only Stripped Mtg.-Backed Security, Series 192, Cl. PO, 7.631%, 2/1/28 3 $ 6,981 $ 5,521 - -------------------------------------------------------------------------------- Federal National Mortgage Assn.: 4.50%, 5/25/18-8/25/20 708,499 697,293 5%, 12/25/17-8/25/34 1,933,183 1,918,199 5.296%, 10/1/36 601,651 606,046 5.50%, 12/25/32-11/1/34 2,230,639 2,233,857 5.50%, 8/25/33 4 368,132 368,462 6%, 7/25/24-10/25/33 698,664 712,762 6%, 1/1/22 5 623,000 637,504 6.50%, 2/25/09-11/25/31 556,760 577,694 7%, 11/25/13-4/25/34 406,716 428,073 8.50%, 7/25/32 1,228 1,323 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Trust 1999-54, Cl. LH, 6.50%, 11/25/29 34,949 36,729 Trust 2001-44, Cl. QC, 6%, 9/25/16 71,915 74,422 Trust 2001-50, Cl. NE, 6%, 8/25/30 233 233 Trust 2001-51, Cl. OD, 6.50%, 10/25/31 62,530 65,077 Trust 2001-70, Cl. LR, 6%, 9/25/30 5,279 5,296 Trust 2002-12, Cl. PG, 6%, 3/25/17 33,495 34,661 Trust 2002-9, Cl. PC, 6%, 3/25/17 56,659 58,632 Trust 2003-130, Cl. CS, 4.37%, 12/25/33 1 15,940 15,073 Trust 2003-23, Cl. EQ, 5.50%, 4/25/23 137,000 137,252 Trust 2003-84, Cl. AJ, 3%, 4/25/13 29,791 29,542 Trust 2003-84, Cl. PW, 3%, 6/25/22 20,862 20,728 Trust 2004-101, Cl. BG, 5%, 1/25/20 67,000 67,223 Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 40,000 40,184 Trust 2005-117, Cl. LA, 5.50%, 12/25/27 190,140 191,703 Trust 2005-59, Cl. NQ, 4.713%, 5/25/35 1 29,155 29,158 Trust 2006-110, Cl. PW, 5.50%, 5/25/28 238,316 241,163 Trust 2006-46, Cl. SW, 6.362%, 6/25/36 1 16,137 17,707 Trust 2006-50, Cl. KS, 6.362%, 6/25/36 1 88,745 94,462 Trust 2006-50, Cl. SA, 6.362%, 6/25/36 1 23,204 24,732 Trust 2006-50, Cl. SK, 6.362%, 6/25/36 1 15,571 16,564 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Trust 2001-61, Cl. SH, 11.44%, 11/18/31 2 74,605 6,978 Trust 2001-63, Cl. SD, 4.86%, 12/18/31 2 21,936 2,942 Trust 2001-68, Cl. SC, 3.745%, 11/25/31 2 15,122 1,568 Trust 2001-81, Cl. S, 3.721%, 1/25/32 2 15,590 1,679 Trust 2002-28, Cl. SA, 3.632%, 4/25/32 2 11,780 1,472 Trust 2002-38, Cl. IO, (0.995)%, 4/25/32 2 25,614 2,693 Trust 2002-39, Cl. SD, (0.495)%, 3/18/32 2 16,937 2,599 Trust 2002-48, Cl. S, 3.808%, 7/25/32 2 19,928 2,146 Trust 2002-52, Cl. SL, 3.81%, 9/25/32 2 12,176 1,328 Trust 2002-53, Cl. SK, (0.04)%, 4/25/32 2 59,012 6,259 Trust 2002-56, Cl. SN, 4.913%, 7/25/32 2 27,171 2,921 Trust 2002-77, Cl. IS, 2.733%, 12/18/32 2 43,639 7,323 Trust 2002-77, Cl. SH, 5.015%, 12/18/32 2 19,217 1,895 Trust 2002-9, Cl. MS, 3.652%, 3/25/32 2 22,687 2,452 Trust 2003-118, Cl. S, 9.431%, 12/25/33 2 126,915 21,814 Trust 2003-4, Cl. S, 12.143%, 2/25/33 2 41,045 5,006 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- FHLMC/FNMA/SPONSORED Continued Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security: Continued Trust 2005-40, Cl. SA, 0.805%, 5/25/35 2 $ 68,851 $ 4,738 Trust 2005-40, Cl. SB, 4.444%, 5/25/35 2 92,913 4,633 Trust 2005-71, Cl. SA, 8.892%, 8/25/25 2 96,531 7,510 Trust 2005-87, Cl. SE, 12.322%, 10/25/35 2 201,766 14,076 Trust 2005-87, Cl. SG, 14.11%, 10/25/35 2 204,320 19,145 Trust 2006-33, Cl. SP, 15.444%, 5/25/36 2 411,896 38,044 Trust 221, Cl. 2, 15.448%, 5/1/23 2 15,090 3,478 Trust 240, Cl. 2, 21.985%, 9/1/23 2 24,516 5,637 Trust 294, Cl. 2, 6.878%, 2/1/28 2 162,315 37,554 Trust 301, Cl. 2, 5.716%, 4/1/29 2 20,566 4,622 Trust 319, Cl. 2, 11.045%, 2/1/32 2 14,021 3,257 Trust 321, Cl. 2, 10.965%, 4/1/32 2 61,690 14,299 Trust 324, Cl. 2, 5.743%, 7/1/32 2 77,293 17,720 Trust 331, Cl. 5, 15.576%, 2/1/33 2 63,679 13,961 Trust 334, Cl. 12, 11.497%, 2/1/33 2 110,293 24,080 Trust 334, Cl. 5, 13.838%, 5/1/33 2 74,780 17,369 Trust 339, Cl. 7, 10.182%, 7/1/33 2 123,116 29,094 Trust 342, Cl. 2, 6.635%, 9/1/33 2 31,929 7,476 Trust 344, Cl. 2, 4.464%, 12/1/33 2 179,457 41,148 Trust 345, Cl. 9, 8.864%, 1/1/34 2 59,363 14,124 Trust 362, Cl. 12, 9.377%, 8/1/35 2 79,440 18,388 Trust 362, Cl. 13, 9.359%, 8/1/35 2 44,046 10,115 Trust 364, Cl. 15, 12.358%, 9/1/35 2 77,879 17,826 - -------------------------------------------------------------------------------- Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed Security, Trust 324, Cl. 1, 6.135%, 7/1/32 3 19,301 15,821 ------------ 12,498,895 - -------------------------------------------------------------------------------- GNMA/GUARANTEED--2.0% Government National Mortgage Assn., 7%, 10/29/23-3/15/26 84,206 89,432 - -------------------------------------------------------------------------------- Government National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Series 1999-32, Cl. ZB, 8%, 9/16/29 134,938 144,693 Series 2000-7, Cl. Z, 8%, 1/16/30 62,198 66,644 - -------------------------------------------------------------------------------- Government National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Series 1998-19, Cl. SB, 5.816%, 7/16/28 2 28,927 3,125 Series 2001-21, Cl. SB, 8.438%, 1/16/27 2 142,996 14,391 Series 2006-47, Cl. SA, 31.192%, 8/16/36 2 243,581 19,208 ------------ 337,493 - -------------------------------------------------------------------------------- NON-AGENCY--13.8% - -------------------------------------------------------------------------------- COMMERCIAL--11.2% Banc of America Commercial Mortgage, Inc., Commercial Mtg. Pass-Through Certificates, Series 2005-3, Cl. A2, 4.501%, 7/10/43 80,000 79,065 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- COMMERCIAL Continued Banc of America Funding Corp., CMO Pass-Through Certificates, Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 $ 50,296 $ 51,153 - -------------------------------------------------------------------------------- Banc of America Mortgage Securities, Inc., CMO Pass-Through Certificates, Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 39,396 40,152 - -------------------------------------------------------------------------------- ChaseFlex Trust 2006-2, Multiclass Mtg. Pass-Through Certificates, Series 2006-2, Cl. A1B, 4.965%, 8/25/08 1 19,038 19,021 - -------------------------------------------------------------------------------- Citigroup/Deutsche Bank 2007-CD4 Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates, Series 2007-CD4, Cl. A2B, 5.205%, 12/11/49 80,000 79,987 - -------------------------------------------------------------------------------- CitiMortgage Alternative Loan Trust Series 2006-A5, Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 2006-A5, Cl. 1A13, 5.315%, 10/25/36 1 65,205 63,756 - -------------------------------------------------------------------------------- Countrywide Alternative Loan Trust, Mtg. Pass-Through Certificates, Series 2007-8CB, Cl. A1, 5.50%, 5/25/37 162,712 159,970 - -------------------------------------------------------------------------------- Deutsche Alt-A Securities Mortgage Loan Trust, Mtg. Pass-Through Certificates: Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 34,563 34,557 Series 2006-AB4, Cl. A1A, 6.005%, 10/25/36 74,958 74,954 Series 2006-AB3, Cl. A7, 6.36%, 7/1/36 11,546 11,555 - -------------------------------------------------------------------------------- First Horizon Alternative Mortgage Securities Trust 2007-FA2, Mtg. Pass- Through Certificates, Series 2007-FA2, Cl. 1A1, 5.50%, 4/25/37 34,545 34,126 - -------------------------------------------------------------------------------- First Union National Bank/Lehman Brothers/Bank of America Commercial Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%, 11/18/35 22,467 22,452 - -------------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations: Series 2004-C3, Cl. A2, 4.433%, 7/10/39 50,000 49,826 Series 2005-C3, Cl. A2, 4.853%, 7/10/45 50,000 49,828 - -------------------------------------------------------------------------------- Greenwich Capital Commercial Funding Corp., Commercial Mtg. Pass- Through Certificates: Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 50,000 49,403 Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 50,000 50,119 Series 2007-GG9, Cl. A2, 5.381%, 3/10/39 60,000 60,371 - -------------------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities Corp., Commercial Mtg. Pass-Through Certificates: Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 20,000 19,795 Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 70,000 69,575 Series 2007-LDPX, Cl. A2S, 5.305%, 1/15/49 70,000 70,102 Series 2007-LD12, Cl. A2, 5.827%, 2/15/51 40,000 40,853 STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- COMMERCIAL Continued JPMorgan Chase Commercial Mortgage Securities Trust 2007-LDP11, Commercial Mtg. Pass-Through Certificates, Series 2007-LD11, Cl. A2, 5.992%, 6/15/49 1 $ 80,000 $ 81,854 - -------------------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates: Series 2005-C5, Cl. A2, 4.885%, 9/15/30 50,000 49,925 Series 2007-C1, Cl. A2, 5.318%, 1/15/12 70,000 70,339 - -------------------------------------------------------------------------------- Mastr Alternative Loan Trust, CMO Pass-Through Certificates: Series 2004-9, Cl. A3, 4.70%, 8/25/34 1 949 946 Series 2004-6, Cl. 10A1, 6%, 7/25/34 54,339 53,817 - -------------------------------------------------------------------------------- Mastr Asset Securitization Trust 2006-3, Mtg. Pass-Through Certificates, Series 2006-3, Cl. 2A1, 5.239%, 10/25/36 1 167,490 165,022 - -------------------------------------------------------------------------------- Nomura Asset Securities Corp., Commercial Mtg. Pass-Through Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 9,230 9,252 - -------------------------------------------------------------------------------- Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 96,000 101,805 - -------------------------------------------------------------------------------- RALI Series 2007-QS6 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2007-QS6, Cl. A114, 5.75%, 4/25/37 54,310 53,685 - -------------------------------------------------------------------------------- Residential Asset Securitization Trust 2006-A9CB, CMO Pass-Through Certificates, Series 2006-A9CB, Cl. A5, 6%, 9/25/36 74,758 74,621 - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 2005-C17, Commercial Mtg. Pass-Through Certificates, Series 2005-C17, Cl. A2, 4.782%, 3/15/42 90,000 89,614 - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 2006-C29, Commercial Mtg. Pass-Through Certificates, Series 2006-C29, Cl. A2, 5.272%, 11/15/48 15,000 15,035 ----------- 1,896,535 - -------------------------------------------------------------------------------- MULTIFAMILY--0.0% WaMu, Mtg. Pass-Through Certificates, Series 2005-AR8, Cl. 2AB1, 5.115%, 7/25/45 1 1,479 1,476 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- OTHER--0.5% JPMorgan Mortgage Trust, CMO Pass-Through Certificates, Series 2005-S2, Cl. 3A1, 6.756%, 2/25/32 1 $ 87,626 $ 89,089 - -------------------------------------------------------------------------------- RESIDENTIAL--2.1% Countrywide Alternative Loan Trust, CMO, Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 87,466 89,368 - -------------------------------------------------------------------------------- RALI Series 2006-QS13 Trust: Mtg. Asset-Backed Pass-Through Certificates, Series 2006-QS13, Cl. 1A5, 6%, 9/25/36 123,471 123,815 Mtg. Asset-Backed Pass-Through Certificates, Series 2006-QS13, Cl. 1A8, 6%, 9/25/36 54,719 54,699 - -------------------------------------------------------------------------------- RALI Series 2006-QS5 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2006-QS5, Cl. 2A2, 6%, 4/25/08 43,220 43,172 - -------------------------------------------------------------------------------- RALI Series 2007-QS6 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2007-QS6, Cl. A28, 5.75%, 4/25/37 45,258 44,846 ------------- 355,900 ------------- Total Mortgage-Backed Obligations (Cost $14,917,744) 15,179,388 - -------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--2.6% - -------------------------------------------------------------------------------- Resolution Funding Corp. Bonds, Residual Funding STRIPS, 5.218%, 1/15/21 6,7 (Cost $421,950) 825,000 448,774 - -------------------------------------------------------------------------------- JOINT REPURCHASE AGREEMENTS--1.6% - -------------------------------------------------------------------------------- Undivided interest of 0.63% in joint repurchase agreement (Principal Amount/Value $42,898,000, with a maturity value of $42,908,605) with UBS Warburg LLC, 4.45%, dated 12/31/07, to be repurchased at $270,067 on 1/2/08, collateralized by Federal Home Loan Mortgage Corp., 4.50%, 5/1/36, with a value of $43,867,966 (Cost $270,000) 270,000 270,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $16,452,681) 98.2% 16,715,949 - -------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 1.8 307,971 ----------------------- NET ASSETS 100.0% $17,023,920 ======================= INDUSTRY CLASSIFICATIONS ARE UNAUDITED. FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Represents the current interest rate for a variable or increasing rate security. 2. 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. These securities amount to $576,229 or 3.38% of the Portfolio's net assets as of December 31, 2007. 3. Principal-Only Strips represent the right to receive the monthly principal payments on an underlying pool of mortgage loans. The value of these securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Interest rates disclosed represent current yields based upon the current cost basis and estimated timing of future cash flows. These securities amount to $21,342 or 0.13% of the Portfolio's net assets as of December 31, 2007. 4. All or a portion of the security is held in collateralized accounts to cover initial margin requirements on open futures contracts. The aggregate market value of such securities is $327,001. See Note 5 of accompanying Notes. 5. When-issued security or delayed delivery to be delivered and settled after December 31, 2007. See Note 1 of accompanying Notes. 6. Zero coupon bond reflects effective yield on the date of purchase. 7. Partial or fully-loaned security. See Note 7 of accompanying Notes. - -------------------------------------------------------------------------------- FUTURES CONTRACTS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- UNREALIZED NUMBER OF EXPIRATION APPRECIATION CONTRACT DESCRIPTION BUY/SELL CONTRACTS DATE VALUE (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------- U.S. Long Bonds Buy 20 3/19/08 $2,327,500 $ (12,885) U.S. Treasury Nts., 2 yr. Sell 7 3/31/08 1,471,750 866 U.S. Treasury Nts., 5 yr. Sell 6 3/31/08 661,688 (2,515) U.S. Treasury Nts., 10 yr. Buy 10 3/19/08 1,133,906 712 --------------- $ (13,822) =============== - -------------------------------------------------------------------------------- CREDIT DEFAULT SWAPS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- SELL NOTIONAL RECEIVE CREDIT AMOUNT FIXED TERMINATION PREMIUM COUNTERPARTY REFERENCE EQUITY PROTECTION (000S) RATE DATE RECEIVED VALUE - --------------------------------------------------------------------------------------------------------------- Deutsche Bank AG: ABX.HE.AAA.06-2 Index Sell $40 0.11% 5/25/46 $ 2,000 $ (5,018) ABX.HE.AAA.06-2 Index Sell 40 0.11 5/25/46 1,999 (5,018) - --------------------------------------------------------------------------------------------------------------- Goldman Sachs Capital Markets LP ABX.HE.AAA.06-2 Index Sell 20 0.11 5/25/46 2,212 (2,700) -------------------- $ 6,211 $ (12,736) ==================== STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL RETURN SWAPS AS OF DECEMBER 31, 2007 ARE AS FOLLOWS: - -------------------------------------------------------------------------------- NOTIONAL TERMINATION SWAP COUNTERPARTY AMOUNT PAID BY THE PORTFOLIO RECEIVED BY THE PORTFOLIO DATE VALUE - ------------------------------------------------------------------------------------------------------------------------------ If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index Deutsche Bank AG $260,000 8.5+ Index plus 60 basis points 2/1/08 $ 4,762 - ------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Special Financing,Inc.: If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 50,000 8.5+ Index minus 25 basis points 5/1/08 874 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 100,000 8.5+ Index minus 20 basis points 5/1/08 1,756 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 95,000 8.5+ Index plus 60 basis points 2/1/08 1,720 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 260,000 8.5+ Index plus 55 basis points 5/1/08 4,698 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 120,000 8.5+ Index minus 25 basis points 3/1/08 2,096 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 344,000 8.5+ Index plus 45 basis points 5/1/08 6,190 - ------------------------------------------------------------------------------------------------------------------------------ UBS AG: If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 100,000 8.5+ Index minus 20 basis points 5/1/08 1,768 If negative, the absolute If positive, the Total Return value of the Lehman of the Lehman Brothers Brothers U.S. CMBS AAA U.S. CMBS AAA 8.5+ Index 119,000 8.5+ Index plus 60 basis points 2/1/08 2,186 --------- $ 26,050 ========= Index abbreviation is as follows: CMBS Commercial Mortgage Backed Securities SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF ASSETS AND LIABILITIES December 31, 2007 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------------------------------------ Investments, at value (cost $16,452,681)--see accompanying statement of investments $ 16,715,949 - ------------------------------------------------------------------------------------------------------ Cash 25,884 - ------------------------------------------------------------------------------------------------------ Swaps, at value 26,050 - ------------------------------------------------------------------------------------------------------ Receivables and other assets: Investments sold on a when-issued or delayed delivery basis 1,383,195 Interest and principal paydowns 77,614 Futures margins 9,577 Shares of capital stock sold 198 Other 4,894 ---------------- Total assets 18,243,361 - ------------------------------------------------------------------------------------------------------ LIABILITIES - ------------------------------------------------------------------------------------------------------ Swaps, at value (premiums received $6,211) 12,736 - ------------------------------------------------------------------------------------------------------ Payables and other liabilities: Investments purchased on a when-issued or delayed delivery basis 1,166,545 Shareholder communications 6,625 Directors' compensation 3,561 Transfer and shareholder servicing agent fees 865 Other 29,109 ---------------- Total liabilities 1,219,441 - ------------------------------------------------------------------------------------------------------ NET ASSETS $ 17,023,920 ================ - ------------------------------------------------------------------------------------------------------ COMPOSITION OF NET ASSETS - ------------------------------------------------------------------------------------------------------ Par value of shares of capital stock $ 15,742 - ------------------------------------------------------------------------------------------------------ Additional paid-in capital 16,239,637 - ------------------------------------------------------------------------------------------------------ Accumulated net investment income 696,067 - ------------------------------------------------------------------------------------------------------ Accumulated net realized loss on investments (196,497) - ------------------------------------------------------------------------------------------------------ Net unrealized appreciation on investments 268,971 ---------------- NET ASSETS--applicable to 15,741,980 shares of capital stock outstanding $ 17,023,920 ================ - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE PER SHARE $ 1.08 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS For the Year Ended December 31, 2007 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------ INVESTMENT INCOME - ------------------------------------------------------------------------------------------------------ Interest $ 913,808 - ------------------------------------------------------------------------------------------------------ Portfolio lending fees 2,261 ---------------- Total investment income 916,069 - ------------------------------------------------------------------------------------------------------ EXPENSES - ------------------------------------------------------------------------------------------------------ Management fees 88,051 - ------------------------------------------------------------------------------------------------------ Legal, auditing and other professional fees 25,276 - ------------------------------------------------------------------------------------------------------ Accounting service fees 15,000 - ------------------------------------------------------------------------------------------------------ Shareholder communications 12,963 - ------------------------------------------------------------------------------------------------------ Transfer and shareholder servicing agent fees 10,016 - ------------------------------------------------------------------------------------------------------ Directors' compensation 6,416 - ------------------------------------------------------------------------------------------------------ Custodian fees and expenses 1,956 - ------------------------------------------------------------------------------------------------------ Administration service fees 1,500 - ------------------------------------------------------------------------------------------------------ Other 10,045 ---------------- Total expenses 171,223 - ------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME 744,846 - ------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) on: Investments 699 Closing and expiration of futures contracts (26,018) Swap contracts (63,125) ---------------- Net realized loss (88,444) - ------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation on: Investments 343,061 Futures contracts 20,960 Swap contracts 19,525 ---------------- Net change in unrealized appreciation 383,546 - ------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,039,948 ================ SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2007 2006 - --------------------------------------------------------------------------------------------------------------------- OPERATIONS - --------------------------------------------------------------------------------------------------------------------- Net investment income $ 744,846 $ 686,029 - --------------------------------------------------------------------------------------------------------------------- Net realized loss (88,444) (52,842) - --------------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) 383,546 (6,321) ------------------------------- Net increase in net assets resulting from operations 1,039,948 626,866 - --------------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS - --------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (725,257) (610,210) - --------------------------------------------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from capital stock transactions 26,277 (571,528) - --------------------------------------------------------------------------------------------------------------------- NET ASSETS - --------------------------------------------------------------------------------------------------------------------- Total increase (decrease) 340,968 (554,872) - --------------------------------------------------------------------------------------------------------------------- Beginning of period 16,682,952 17,237,824 ------------------------------- End of period (including accumulated net investment income of $696,067 and $718,442, respectively) $ 17,023,920 $ 16,682,952 =============================== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.06 $ 1.06 $ 1.12 $ 1.14 $ 1.16 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .05 1 .04 1 .03 1 .03 1 .04 Net realized and unrealized gain (loss) .02 -- (.01) .01 (.01) ---------------------------------------------------------------------------- Total from investment operations .07 .04 .02 .04 .03 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.05) (.04) (.04) (.04) (.05) Distributions from net realized gain -- -- (.04) (.02) -- ---------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.05) (.04) (.08) (.06) (.05) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 1.08 $ 1.06 $ 1.06 $ 1.12 $ 1.14 ============================================================================ - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 2 6.48% 3.74% 1.48% 4.17% 2.58% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 17,024 $ 16,683 $ 17,238 $ 18,103 $ 19,537 - ----------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 16,773 $ 16,764 $ 17,696 $ 18,464 $ 20,743 - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 4.44% 4.09% 3.18% 2.83% 3.43% Total expenses 1.02% 0.88% 4 0.88% 4 0.85% 4 0.84% 4 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 84% 5 82% 5 84% 5 99% 5 43% 1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an 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. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 3. Annualized for periods less than one full year. 4. Reduction to custodian expenses less than 0.005%. 5. The portfolio turnover rate excludes purchase and sale transactions of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS ------------------------------------------------------------------------- Year Ended December 31, 2007 $ 29,502,958 $ 30,957,841 Year Ended December 31, 2006 $ 44,327,351 $ 48,590,182 Year Ended December 31, 2005 $ 93,525,147 $ 93,213,905 Year Ended December 31, 2004 $121,615,587 $127,136,434 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Government Securities Portfolio (the "Portfolio") is a series of Panorama Series Fund, Inc., 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 80% of its net assets, plus borrowings for investment purposes, under normal market conditions) in U.S. government securities and U.S. government-related securities. The Portfolio's investment adviser 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 Manager. The following is a summary of significant accounting policies consistently followed by the Portfolio. - -------------------------------------------------------------------------------- SECURITIES VALUATION. The Portfolio calculates the net asset value of its shares as of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. Securities may be valued primarily using dealer-supplied valuations or a portfolio pricing service authorized by the Board of Directors. Securities traded on a registered U.S. securities exchange 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. Securities whose principal exchange is NASDAQ(R) are valued based on the closing price reported by NASDAQ 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 traded on foreign exchanges are valued based on the last sale price on the principal exchange on which the security is traded, as identified by the portfolio pricing service, prior to the time when the Portfolio's assets are valued. In the absence of a sale, the security is valued at the official closing price on the principal exchange. Corporate, government and municipal debt instruments having a remaining maturity in excess of sixty days and all mortgage-backed securities, collateralized mortgage obligations and other asset-backed securities will be valued at the mean between the "bid" and "asked" prices. Securities for which market quotations are not readily available are valued at their fair value. Securities whose values have been materially affected by what the Manager identifies as a significant event occurring before the Portfolio's assets are valued but after the close of their respective exchanges will be fair valued. Fair value is determined in good faith using consistently applied procedures under the supervision of the Board of Directors. Shares of a registered investment company that are not traded on an exchange are valued at the acquired investment company's net asset value per share. "Money market-type" debt instruments with remaining maturities of sixty days or less are valued at cost adjusted by the amortization of discount or premium to maturity (amortized cost), which approximates market value. - -------------------------------------------------------------------------------- SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. The Portfolio may purchase securities on a "when-issued" basis, and may purchase or sell securities on a "delayed delivery" basis. "When-issued" or "delayed delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by the Portfolio on a when-issued basis normally takes place within six months and possibly as long as two years or more after the 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 purchase of securities on a when-issued basis may increase the volatility of the Portfolio's net asset value to the extent the Portfolio executes such transactions while remaining substantially fully invested. When the Portfolio engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Portfolio to lose the opportunity to obtain or dispose of the security at a price and yield it considers advantageous. The Portfolio maintains internally designated assets with a market value equal to or greater than the amount of its purchase commitments. The Portfolio may also sell securities that it purchased on a when-issued basis or forward commitment prior to settlement of the original purchase. NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued As of December 31, 2007, the Portfolio had purchased securities issued on a when-issued or delayed delivery basis and sold securities issued on a delayed delivery basis as follows: WHEN-ISSUED OR DELAYED DELIVERY BASIS TRANSACTIONS -------------------------------------------------- Purchased securities $1,166,545 Sold securities 1,383,195 - -------------------------------------------------------------------------------- JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Portfolio, along with other affiliated funds advised by the Manager, may transfer uninvested cash balances into joint trading accounts on a daily basis. These balances are invested in one or more repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. 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. - -------------------------------------------------------------------------------- INVESTMENTS WITH OFF-BALANCE SHEET RISK. The Portfolio enters into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected in the Portfolio's Statement of Assets and Liabilities. - -------------------------------------------------------------------------------- FEDERAL TAXES. The Portfolio intends to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its investment company taxable income, including any net realized gain on investments not offset by capital loss carryforwards, if any, to shareholders. Therefore, no federal income or excise tax provision is required. The Portfolio files income tax returns in U.S. federal and applicable state jurisdictions. The statute of limitations on the Portfolio's tax return filings remain open for the three preceding fiscal reporting period ends. The tax components of capital shown in the table below represent distribution requirements the Portfolio must satisfy under the income tax regulations, losses the Portfolio may be able to offset against income and gains realized in future years and unrealized appreciation or depreciation of securities and other investments for federal income tax purposes. NET UNREALIZED APPRECIATION BASED ON COST OF SECURITIES AND UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES ------------------------------------------------------------------------ $719,151 $-- $210,319 $263,268 1. As of December 31, 2007, the Portfolio had $210,319 of net capital loss carryforwards available to offset future realized capital gains, if any, and thereby reduce future taxable gain distributions. As of December 31, 2007, details of the capital loss carryforwards were as follows: EXPIRING ---------------------------- 2013 $ 15,147 2014 169,393 2015 25,779 ------------ Total $ 210,319 ============ 2. During the fiscal year ended December 31, 2007, the Portfolio did not utilize any capital loss carryforward. 3. During the fiscal year ended December 31, 2006, the Portfolio did not utilize any capital loss carryforward. 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 net realized gain was recorded by the Portfolio. Accordingly, the following amounts have been reclassified for December 31, 2007. Net assets of the Portfolio were unaffected by the reclassifications. REDUCTION TO REDUCTION TO ACCUMULATED NET ACCUMULATED NET REALIZED LOSS INVESTMENT INCOME ON INVESTMENTS ----------------------------------- $41,964 $41,964 The tax character of distributions paid during the years ended December 31, 2007 and December 31, 2006 was as follows: YEAR ENDED YEAR ENDED DECEMBER 31, 2007 DECEMBER 31, 2006 ---------------------------------------------------------------- Distributions paid from: Ordinary income $725,257 $610,210 The aggregate cost of securities and other investments and the composition of unrealized appreciation and depreciation of securities and other investments for federal income tax purposes as of December 31, 2007 are noted below. The primary difference between book and tax appreciation or depreciation of securities and other investments, if applicable, is attributable to the tax deferral of losses or tax realization of financial statement unrealized gain or loss. Federal tax cost of securities $ 16,452,681 Federal tax cost of other investments 1,341,282 ------------ Total federal tax cost $ 17,793,963 ============ Gross unrealized appreciation $ 334,286 Gross unrealized depreciation (71,018) ------------ Net unrealized appreciation $ 263,268 ============ - -------------------------------------------------------------------------------- DIRECTORS' COMPENSATION. The Board of Directors has adopted a compensation deferral plan for independent directors that enables directors to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Portfolio. For purposes of determining the amount owed to the Director under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of the Portfolio or in other Oppenheimer funds selected by the Director. The Portfolio purchases shares of the funds selected for deferral by the Director in amounts equal to his or her deemed investment, resulting in a Portfolio asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of directors' fees under the plan will not affect the net assets of the Portfolio, and will not materially affect the Portfolio's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral plan. - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles, are recorded on the ex-dividend date. Income and capital gain distributions, if any, are declared and paid annually or at other times as deemed necessary by the Manager. - -------------------------------------------------------------------------------- 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 is recognized on an accrual basis. Market discount and premium, which are included in interest income on the Statement of Operations, are amortized or accreted daily. NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may include interest expense incurred by the Portfolio on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. The Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Portfolio, at a rate equal to the Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item, if applicable, represents earnings on cash balances maintained by the Portfolio during the period. Such interest expense and other custodian fees may be paid with these earnings. - -------------------------------------------------------------------------------- SECURITY TRANSACTIONS. Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. - -------------------------------------------------------------------------------- INDEMNIFICATIONS. The Portfolio's organizational documents provide current and former directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Portfolio. In the normal course of business, the Portfolio may also enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Portfolio. The risk of material loss from such claims is considered remote. - -------------------------------------------------------------------------------- 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 increases and decreases in net assets from operations 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, 2007 YEAR ENDED DECEMBER 31, 2006 SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------- Sold 259,704 $ 271,890 70,753 $ 74,254 Dividends and/or distributions reinvested 704,133 725,257 598,245 610,210 Redeemed (923,017) (970,870) (1,207,744) (1,255,992) ------------------------------------------------------------ Net increase (decrease) 40,820 $ 26,277 (538,746) $ (571,528) ============================================================ - -------------------------------------------------------------------------------- 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations and investments in Oppenheimer Institutional Money Market Fund, for the year ended December 31, 2007, were as follows: PURCHASES SALES - ----------------------------------------------------------------------------- Investment securities $ 9,643,766 $ 6,271,523 U.S. government and government agency obligations 3,721,020 5,530,645 To Be Announced (TBA) mortgage-related securities 29,502,958 30,957,841 - -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Portfolio pays the Manager a management fee based on the daily net assets of the Portfolio at an annual rate as shown in the following table: FEE SCHEDULE ---------------------------------- Up to $300 million 0.525% Next $100 million 0.500 Over $400 million 0.450 - -------------------------------------------------------------------------------- ACCOUNTING SERVICE 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. - -------------------------------------------------------------------------------- ADMINISTRATION SERVICE FEES. The Portfolio pays the Manager a fee of $1,500 per year for preparing and filing the Portfolio's tax returns. - -------------------------------------------------------------------------------- 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 a per account fee. For the year ended December 31, 2007, the Portfolio paid $10,000 to OFS for services to the Portfolio. Additionally, funds offered in variable annuity separate accounts are subject to minimum fees of $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. - -------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees to 0.35% of average annual net assets of the Portfolio. 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 financial instrument at a negotiated price on a stipulated future date. The Portfolio may buy and sell futures contracts that relate to broadly based securities indices (financial futures), debt securities (interest rate futures) and various commodities (commodity index futures). The Portfolio may also buy or write put or call options on these futures contracts. Futures contracts traded on a commodities or futures exchange will be valued at the final settlement price or official closing price on the principal exchange as reported by such principal exchange at its trading session ending at, or most recently prior to, the time when the Portfolio's assets are valued. 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. Futures contracts are reported on a schedule following the Statement of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Statement of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted in the Statement of Assets and Liabilities. The net change in unrealized appreciation and depreciation is reported in the Statement of Operations. Realized gains (losses) are reported in the Statement of Operations at the closing or expiration of futures contracts. Risks of entering into futures contracts (and related options) include the possibility that there may be an illiquid market where the Portfolio is unable to liquidate the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Portfolio's securities. - -------------------------------------------------------------------------------- 6. SWAP CONTRACTS The Portfolio may enter into swap contract agreements with a counterparty to exchange a series of cash flows based on either specified reference rates, or the occurrence of a credit event, over a specified period. Such contracts may include interest rate, equity, debt, index, total return, credit and currency swaps. Swaps are marked to market daily using primarily quotations from pricing services, counterparties and brokers. Swap contracts are reported on a schedule following the Statement of Investments. The value of the contracts is separately disclosed on the Statement of Assets and Liabilities. The unrealized appreciation (depreciation) related to the change in the valuation of the notional amount of the swap is combined with the accrued interest due to (owed by) the Portfolio at termination or settlement. The net change in this amount during the period is included on the Statement NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6. SWAP CONTRACTS Continued of Operations. The Portfolio also records any periodic payments received from (paid to) the counterparty, including at termination, under such contracts as realized gain (loss) on the Statement of Operations. Risks of entering into swap contracts include credit, market and liquidity risk. 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 payments that the Portfolio has not yet received. Market risk is the risk that the value of the contract will depreciate due to unfavorable changes in the reference asset. If there is an illiquid market for the agreement, the Portfolio may be unable to close the contract prior to contract termination. - -------------------------------------------------------------------------------- CREDIT DEFAULT SWAP CONTRACTS. A credit default swap is a bilateral contract that enables an investor to buy or sell protection against a defined-issuer credit event. The Portfolio may enter into credit default swaps on a single security, or a basket of securities. In a credit default swap contract, the purchaser of the contract will pay a periodic interest fee, similar to an insurance premium, on the notional amount of the swap contract to the counterparty (the seller of the contract). If there is a credit event (for example, bankruptcy or a failure to timely pay interest or principal), the purchaser will exercise the contract and will receive a payment from the seller of the contract equal to the notional value of the credit default swap contract less the value of the underlying security. In the event that the credit default swap is exercised due to a credit event, the difference between the value of the underlying security and the notional amount is recorded as realized gain (loss) and is included on the Statement of Operations. Risks of credit default swaps include, but are not limited to, the cost of paying for credit protection if there are no credit events. - -------------------------------------------------------------------------------- TOTAL RETURN SWAP CONTRACTS. A total return swap is an agreement between counterparties to exchange a set of future cash flows on the notional amount of the contract. One cash flow is typically based on a reference interest rate or index and the other on the total return of a reference asset such as a security, a basket of securities, or an index. The total return includes appreciation or depreciation on the reference asset, plus any interest or dividend payments. - -------------------------------------------------------------------------------- 7. SECURITIES LENDING The Portfolio lends portfolio securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The loans are secured by collateral (either securities, letters of credit, or cash) in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Portfolio on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Portfolio could experience delays and cost in recovering the securities loaned or in gaining access to the collateral. The Portfolio continues to receive the economic benefit of interest or dividends paid on the securities loaned in the form of a substitute payment received from the borrower and recognizes the gain or loss in the fair value of the securities loaned that may occur during the term of the loan. The Portfolio has the right under the lending agreement to recover the securities from the borrower on demand. As of December 31, 2007, the Portfolio had on loan securities valued at $447,663. Collateral was received in the form of securities. - -------------------------------------------------------------------------------- 8. RECENT ACCOUNTING PRONOUNCEMENT In September 2006, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of December 31, 2007, the Manager does not believe the adoption of SFAS No. 157 will materially impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period. - -------------------------------------------------------------------------------- 9. PORTFOLIO REORGANIZATION On November 30, 2007, the Board of Directors of the Portfolio determined that it is in the best interest of the Portfolio's shareholders the Portfolio reorganize with and into Oppenheimer Core Bond Fund/VA ("Core Bond Fund/VA"). The Board unanimously approved an Agreement and Plan of Reorganization to be entered into between the Portfolio and Core Bond Fund/VA, whereby Core Bond Fund/VA will acquire all of the assets of the Portfolio in exchange for newly-issued shares of Core Bond Fund/VA (the "Reorganization"). If the Reorganization takes place, Portfolio shareholders will receive Non-Service shares of Core Bond Fund/VA. Following the Reorganization, the Portfolio will liquidate and dissolve. The Reorganization is conditioned upon, among other things, approval by the Portfolio's shareholders. The anticipated date for the shareholder meeting is on or about April 25, 2008 and, if approved by shareholders, the Reorganization would take place shortly thereafter. OPPENHEIMER VARIABLE ACCOUNT FUNDS FORM N-14 PART C OTHER INFORMATION Item 15. - Indemnification Reference is made to the provisions of Article Seventh of Registrant's Amended and Restated Declaration of Trust ("Declaration of Trust") filed as Exhibit 16(1) to this Registration Statement, and incorporated herein by reference. In accordance with Section 17(h) and 17(i) of the Investment Company Act of 1940, as amended, no provision of the Declaration of Trust protects any person against any liability to the Registrant or its shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "1933 Act") may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. Item 16. - Exhibits (1) Seventeenth Amended and Restated Declaration of Trust dated 4/30/06: Previously filed with Registrant's Post-Effective Amendment No. 48 (04/28/06), and incorporated herein by reference. (2) Amended By-Laws dated 10/24/00: Previously filed with Registrant's Post-Effective Amendment No. 36 (4/17/01), and incorporated herein by reference. (3) Not Applicable. (4) Agreement and Plan of Reorganization dated November 30, 2007: Previously filed with Registrant's Initial N-14 Registration Statement (1/18/08), and incorporated by reference. (5) (i) Oppenheimer Core Bond Fund/VA Non-Service Class Specimen Share Certificate: Previously filed with Registrant's Post-Effective Amendment No. 45 (04/28/05), and incorporated herein by reference. (ii) Oppenheimer Core Bond Fund/VA Service Class Specimen Share Certificate: Previously filed with Registrant's Post-Effective Amendment No. 45 (04/28/05), and incorporated herein by reference. (6) (i) Amendment No. 1 to the Amended and Restated investment Advisory Agreement for Oppenheimer Core Bond Fund/VA dated 4/10/07: Previously filed with Registrant's Post-Effective Amendment No. 52 (4/24/07), and incorporated herein by reference. (7) (i) N/A (ii) Form of Participation Agreement: Previously filed with Registrant's Post-Effective Amendment No. 52 (4/24/07), and incorporated herein by reference. (8) Form of Oppenheimer Funds Compensation Deferral Plan, As Amended and Restated Effective January 1, 2008: Previously filed with Post-Effective Amendment No. 18 to the Registration Statement of Oppenheimer International Bond Fund (Reg. No. 33-58383), (12/20/07), and incorporated herein by reference (9) Global Custody Agreement dated August 16, 2002: Previously filed with Post-Effective Amendment No. 51 to the Registration Statement of Oppenheimer Capital Appreciation Fund (Reg. No. 2-69719), (10/23/06), and incorporated herein by reference. (10) (i) Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Core Bond Fund/VA dated 10/28/05: Previously filed with Registrant's Post-Effective Amendment No. 48 (04/28/06), and incorporated herein by reference. (11) Form of Opinion and Consent of Counsel: Previously filed with Registrant's Initial N-14 Registration Statement, (1/18/08), and incorporated herein by reference. (12) Form of Tax Opinion: Form of Opinion and Consent of Counsel: Previously filed with Registrant's Initial N-14 Registration Statement, (1/18/08), and incorporated herein by reference. (13) Not applicable. (14) Independent Registered Public Accounting Firm's Consent: Filed herewith. (15) Not applicable. (16) Powers of Attorney for all Trustees/Directors and Principal Officers: Filed herewith. (17) Proxy Card: Filed herewith. Item 17. - Undertakings (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement or the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES As required by the Securities Act of 1933, as amended, this registration statement has been signed on behalf of the registrant, in the City of New York and State of New York, on the 7th day of March, 2008. Oppenheimer Variable Account Funds By: /s/ John V. Murphy* -------------------------- John V. Murphy, President, Principal Executive Officer & Trustee Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities on the dates indicated: Signatures Title Date William L. Armstrong* Chairman of the March 7, 2008 William L. Armstrong Board of Trustees John V. Murphy* President, Principal March 7, 2008 John V. Murphy Executive Officer and Trustee Brian W. Wixted* Treasurer, Principal March 7, 2008 Brian W. Wixted Financial & Accounting Officer George C. Bowen* Trustee March 7, 2008 George C. Bowen Edward L. Cameron* Trustee March 7, 2008 Edward L. Cameron Jon S. Fossel* Trustee March 7, 2008 Jon S. Fossel Sam Freedman* Trustee March 7, 2008 Sam Freedman Beverly L. Hamilton* Trustee March 7, 2008 Beverly L. Hamilton Robert J. Malone* Trustee March 7, 2008 Robert J. Malone F. William Marshall, Jr.* Trustee March 7, 2008 F. William Marshall, Jr. *By: /s/ Mitchell J. Lindauer Mitchell J. Lindauer, Attorney-in-Fact OPPENHEIMER VARIABLE ACCOUNT FUNDS EXHIBIT INDEX Exhibit No. Description (14) Independent Registered Public Accounting Firm's Consent (16) Powers of Attorney for all Trustees and Principal Officers (17) Proxy Card
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N-14/A Filing
Oppenheimer Variable Account Funds N-14/ARegistration statement for investment companies business combination (amended)
Filed: 7 Mar 08, 12:00am