-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QylQOOq+R1P4b5NOojFs6A4o6LXJYmSj31aaMUTXKIp5jJbiS+RCMQs7IIAMd2QH RAOLlOG8iSx88i6pKEtzLQ== 0000950135-03-001486.txt : 20030228 0000950135-03-001486.hdr.sgml : 20030228 20030228095722 ACCESSION NUMBER: 0000950135-03-001486 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030228 EFFECTIVENESS DATE: 20030228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTFORD LIFE INSURANCE COMPANY SEPARATE ACCOUNT TWO CENTRAL INDEX KEY: 0000796330 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04732 FILM NUMBER: 03584746 BUSINESS ADDRESS: STREET 1: 200 HOPMEADOW ST CITY: SIMSBURY STATE: CT ZIP: 06089 BUSINESS PHONE: 2038438214 MAIL ADDRESS: STREET 1: 200 HOPMEADOW STREET CITY: SIMSBURY STATE: CT ZIP: 06070 N-30D 1 b45364nanv30d.txt NATIONS VARIABLE /OUTLOOK VARIABLE ANNUITY ANNUAL SOLD THROUGH: BANC OF AMERICA INVESTMENT SERVICES, INC.(TM) AND ITS SUBSIDIARIES AND AGENCIES Nations Variable Annuity Nations Outlook Variable Annuity Tax-Deferred Variable Annuities Annual Report December 31, 2002 SUPPLEMENT TO PROSPECTUS ENCLOSED [THE HARTFORD LOGO] Issued by: Hartford Life Insurance Company THE ANNUITY PRODUCT INTRODUCED TO YOU: - - IS NOT INSURED BY THE FDIC OR ANY OTHER FEDERAL GOVERNMENT AGENCY. - - IS NOT A DEPOSIT OR OTHER OBLIGATION OF, AND IS NOT ISSUED, UNDERWRITTEN OR GUARANTEED BY THE BANK OR ANY OF ITS AFFILIATES. - - MAY INVOLVE INVESTMENT RISK, INCLUDING INTEREST RATE RISK. THE MARKET VALUE OF THE INVESTMENT MAY FLUCTUATE, CAUSING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. - - IS NOT A CONTRACT THAT THE BANK OR ITS AFFILIATES ARE OBLIGATED TO PROVIDE BENEFITS UNDER OR GUARANTEE PERFORMANCE BY THE INSURER ISSUING THE ANNUITY. - - IS AVAILABLE THROUGH OTHER LICENSED BROKERS OR AGENTS. YOU NEED NOT PURCHASE ANNUITIES FROM THE BANK, ANY OF ITS AFFILIATES, OR ANY PARTICULAR FINANCIAL INSTITUTION, AGENT, SOLICITOR OR BROKER. YOU NEED NOT AGREE TO REFRAIN FROM PURCHASING ANNUITIES FROM, NOR ARE YOU PROHIBITED FROM OBTAINING ANNUITIES FROM, AN UNAFFILIATED ENTITY. [NO FDIC LOGO] [NO BANK LOGO] Neither Hartford Life Insurance Company, Banc of America Investment Services, Inc., nor their agents or affiliates provide financial, tax, legal or accounting advice. Purchase of a variable annuity through a tax-advantaged retirement plan, such as an IRA, results in no additional tax advantage from the variable annuity. Under these circumstances, purchase of a variable annuity should be considered only if it makes sense because of the annuity's other features such as lifetime income payments and death benefit protection. We recommend that you consult with your professional advisers in these areas before taking action. Annuity products are offered through: Banc of America Investment Services, Inc. in AZ, AR, CA, FL, GA, ID, IL, IA, KS, MO, NC, OR, SC, TN, VA, and WA; Banc of America Agency, LLC in DC and MD; Banc of America Agency of Nevada, Inc. in NV; BA Agency, Inc. in NM; Banc of America Agency of Texas, Inc. in TX; and IFMG of Oklahoma, Inc. in OK. NATIONS SEPARATE ACCOUNT TRUST NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO, NATIONS MARSICO GROWTH PORTFOLIO AND NATIONS MARSICO 21ST CENTURY PORTFOLIO (COLLECTIVELY THE "PORTFOLIOS") SUPPLEMENT DATED JANUARY 29, 2003 TO PROSPECTUSES DATED MAY 1, 2002, AS SUPPLEMENTED The prospectuses for the Portfolios are hereby supplemented as follows: 1. Effective February 1, 2003, Mr. Thomas F. Marsico and Mr. James A. Hillary co-manage Nations Marsico Focused Equities Portfolio and Nations Marsico Growth Portfolio. 2. Effective February 1, 2003, Mr. Hillary no longer manages Nations Marsico 21st Century Portfolio. Mr. Corydon J. Gilchrist, CFA is the portfolio manager of Nations Marsico 21st Century Portfolio. Prior to joining Marsico Capital Management, LLC in May of 2000, Mr. Gilchrist spent four years as an international portfolio manager and analyst at Invista Capital Management, where he was on a committee that managed several international equity funds. He holds BBA and MBA degrees from the University of Iowa, and holds a CFA charter. 3. All references to the portfolio managers of the Portfolios throughout the prospectuses should be read in accordance with the above information. Hartford Small Company HLS Fund PORTFOLIO MANAGER [PHOTO OF STEVEN C. ANGELI] STEVEN C. ANGELI, CFA Senior Vice President and Partner Wellington Management Company, LLP PERFORMANCE OVERVIEW 8/9/96 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Small Russell Russell 2000 Company IB 2000 Index Growth Index# $10,000 $10,000 $10,000 $10,820 $10,606 $10,759 $10,705 $11,158 $10,786 $9,979 $10,581 $9,655 $11,810 $12,296 $11,350 $13,810 $14,127 $13,270 $12,640 $13,653 $12,183 $14,194 $15,027 $13,630 $13,749 $14,326 $12,847 $11,034 $11,440 $9,975 $14,082 $13,306 $12,332 $14,335 $12,584 $12,125 $17,170 $14,541 $13,913 $17,157 $13,622 $13,229 $23,312 $16,134 $17,647 $26,081 $17,277 $19,285 $24,137 $16,624 $17,863 $22,862 $16,808 $17,153 $20,217 $15,647 $13,689 $15,770 $14,629 $11,608 $17,990 $16,719 $13,694 $13,740 $13,243 $9,849 $17,170 $16,036 $12,425 $17,315 $16,675 $12,182 $15,123 $15,282 $10,270 $11,905 $12,012 $8,060 $11,951 $12,751 $8,665
RETURNS as of 12/31/02
SINCE 1 YEAR 5 YEAR* INCEPTION* ------ ------- ---------- SMALL COMPANY IB -30.39% -1.12% 2.83% RUSSELL 2000 INDEX -20.48% -1.36% 3.87% RUSSELL 2000 GROWTH INDEX -30.27% -6.59% -2.22%
*Annualized Returns. Inception date is August 9, 1996. The chart represents a hypothetical investment in the Hartford Small Company HLS Fund Class IB Shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Small Company HLS Fund returned -30.39% for the 12 months ended December 31, 2002. The Fund outperformed the Russell 2000 Growth Index, which returned -30.27% over the same period. The Fund under performed both the Russell 2000 Index, which returned -20.48% and the Lipper Small Company Growth VA-UF Average, which returned -18.99% over the same period. WHY DID THE FUND PERFORM THIS WAY? This was a difficult year for small growth funds, as every sector posted negative returns except financials. Unfortunately, the Fund was hurt by its underweight position in financials. The Fund benefited, however, from its underweight in the poorly performing telecom sector. Moreover, stock selection was excellent in the sector, with the Fund's few holdings in the sector performing well. During the third quarter, we increased the Fund's weight in health care stocks, and unfortunately this was one of the worst performing sectors in the fourth quarter. The markets staged a significant year-end rally, dominated by high-beta technology stocks. Technology stocks were among the Fund's best and worst performers. The Fund benefited from a sizable position in Rational Software Corp. (software & services), which was acquired by International Business Machines Corp. (computers & office equipment) for a 28% premium. Other strong contributors included Western Digital Corp. (computers & office equipment) and Hyperion Solutions Corp. (software & services). However, the poor performance of software firms, PracticeWorks, Inc. (software & services) and Actuate Corp. (software & services), more than offset these gains. WHAT IS YOUR OUTLOOK FOR 2003? On the one hand, we foresee below-consensus profits, slowing consumer spending, and continuing geopolitical risks. On the other hand, we anticipate an eventual, albeit slow, recovery with modest inflation and 3% GDP growth. And with the S&P 500 at 18x projected 2003 earnings, we see little room for multiple expansion. Therefore, we believe 2003 will be a stock-pickers environment, where individual stock selection will shine over sector allocation. We are not particularly excited about any one sector. We are starting 2003 with a meaningful overweight in Consumer Discretionary and underweight in Financials. We do own companies leveraged to an economic rebound, but we also maintain positions in more stable growth companies (e.g., health care stocks) that should deliver steady earnings and solid cash flow over the next three to six months. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. # The Fund has changed its benchmark from the Russell 2000 Index to the Russell 2000 Growth Index because the Russell 2000 Growth Index is better suited for the investment strategy of the fund. Hartford Capital Appreciation HLS Fund PORTFOLIO MANAGER [PHOTO OF SAUL J. PANNELL] SAUL J. PANNELL, CFA Senior Vice President and Partner Wellington Management Company, LLP PERFORMANCE OVERVIEW 12/31/92 - 12/31/02 Growth of a $10,000 investment. [LINE GRAPH]
Capital S&P Appreciation 500 IB Index $10,000 $10,000 $10,524 $10,436 $11,125 $10,486 $11,721 $10,756 $12,050 $11,006 $11,851 $10,589 $11,316 $10,633 $12,551 $11,152 $12,321 $11,150 $13,197 $12,235 $14,601 $13,401 $16,063 $14,464 $16,008 $15,335 $16,919 $16,157 $17,798 $16,880 $18,408 $17,400 $19,273 $18,850 $18,513 $19,356 $22,052 $22,732 $25,146 $24,432 $23,520 $25,134 $26,504 $28,638 $26,270 $29,584 $21,714 $26,642 $27,105 $32,313 $29,113 $33,923 $31,711 $36,315 $29,927 $34,046 $37,191 $39,111 $43,063 $40,007 $41,890 $38,945 $44,500 $38,567 $42,034 $35,551 $40,215 $31,339 $42,620 $33,171 $34,491 $28,305 $39,049 $31,331 $38,608 $31,418 $33,149 $27,211 $28,822 $22,512 $31,285 $24,409
RETURNS as of 12/31/02
1 YEAR 5 YEAR* 10 YEAR* ------ ------- -------- CAPITAL APPRECIATION IB -19.88% 5.87% 12.08% S&P 500 INDEX -22.10% -0.58% 9.33%
*Annualized Returns. Inception date is April 2, 1984. The chart represents a hypothetical investment in the Hartford Capital Appreciation HLS Fund Class IB Shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Capital Appreciation HLS Fund returned -19.88% for the 12 months ended December 31, 2002. The Fund outperformed the Lipper Multi-Cap Core VA-UF Average, which returned -22.48% for the same time period. The Fund underperformed the Composite Index (S&P 500 Index 40%: Russell 2500 Index 60%), which returned -19.43% over the same period. WHY DID THE FUND PERFORM THIS WAY? For the 12-month period, ended December 31, 2002, value outperformed growth and mid-cap stocks fared better than small- and large-caps, but there were very few places to hide as all market caps, styles and sectors posted negative returns for the year. The Fund benefited from strong stock selection in health care, industrials and energy, but these relative gains were largely offset by the negative stock selection in financials, utilities and consumer discretionary. The Fund's holdings in Adelphia Communications Corp. (communications) in the media industry and WorldCom, Inc, (communications) in telecommunication services detracted significantly from Fund performance during this twelve-month period. In each case, the position was eliminated before the final act unfolded in the situations, but it was too late to escape the effects entirely. Despite these setbacks, the Fund was able to outperform its Lipper peer group average due largely to the strength of our holdings in Nextel Communications, Inc., Class A (communications), Boston Scientific Corp. (medical instruments & supplies) and YUKOS, ADR (energy & services). WHAT IS YOUR OUTLOOK FOR 2003? It probably goes without saying that the geo-political environment is tenuous. The potential ramifications of a conflict in Iraq, a showdown with North Korea, or another terrorist attack are challenging to forecast and to factor into an investment strategy. Nevertheless, such concerns, along with investor mistrust, high corporate debt, and excess capacity have weighed heavily on the market. It will take some more time to work through the excesses, but much is being done to set the stage for a return to modest economic growth. Currently, borrowing costs remain low, balance sheets are being repaired, and President Bush's second economic stimulus package sits before Congress. The economy is exhibiting signs of a modest recovery, and this should continue. In this environment, we would not be surprised to see some upside earnings surprises in the near-term. Ironically, however, we are not convinced that the market's long-term expectations are low enough to reflect the moderate, long-term, earnings-growth environment that we envision. Given this conundrum and the valuation of the market at what we would describe as a reasonable level, intensive research and an opportunistic approach to portfolio construction should be important to investing success going forward. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. Hartford International Opportunities HLS Fund PORTFOLIO MANAGER [PHOTO OF TROND SKRAMSTAD] TROND SKRAMSTAD Senior Vice President, Partner, Director of Global Equity Strategies Wellington Management Company, LLP PERFORMANCE OVERVIEW 12/31/92 - 12/31/02 Growth of a $10,000 investment. [LINE GRAPH]
International MSCI AC Opportunities Free ex MSCI EAFE IB U.S. Index# GDP Index $10,000 $10,000 $10,000 $10,526 $11,153 $11,198 $10,978 $12,260 $12,218 $12,094 $13,072 $13,238 $13,340 $13,490 $13,411 $12,766 $13,826 $14,165 $13,019 $14,401 $14,546 $13,368 $14,752 $14,617 $13,048 $14,385 $14,512 $13,000 $14,429 $14,779 $13,516 $14,720 $15,136 $14,081 $15,272 $15,651 $14,829 $15,815 $16,198 $15,548 $16,331 $16,688 $15,973 $16,658 $17,103 $15,757 $16,600 $17,077 $16,704 $16,871 $17,504 $16,613 $16,829 $17,641 $18,397 $19,013 $19,635 $18,493 $18,839 $19,841 $16,719 $17,215 $18,581 $18,906 $19,567 $21,814 $19,495 $19,277 $22,684 $16,177 $16,363 $19,410 $18,882 $19,704 $23,620 $20,030 $20,171 $24,124 $20,903 $21,113 $24,991 $21,588 $21,830 $26,382 $26,361 $25,794 $31,031 $26,432 $25,996 $31,316 $24,848 $24,935 $30,009 $23,133 $22,902 $27,493 $21,813 $21,903 $26,282 $18,743 $19,024 $23,163 $18,740 $18,999 $22,945 $15,934 $16,193 $19,429 $17,695 $17,633 $20,519 $17,891 $17,993 $20,805 $17,225 $17,448 $20,594 $13,477 $14,079 $16,334 $14,490 $15,045 $17,325
RETURNS as of 12/31/02
1 YEAR 5 YEAR* 10 YEAR* ------ ------- -------- INT'L. OPP. IB -18.12% -2.82% 3.78% MSCI EAFE GDP** -15.57% -1.39% 5.65% MSCI AC FREE U.S. -14.68% -2.66% 4.17%
*Annualized Returns. Inception date is July 2, 1990. The chart represents a hypothetical investment in the Hartford International Opportunities HLS Fund Class IB Shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. ** The Morgan Stanley Europe Australia Far East GDP Index. HOW DID THE FUND PERFORM? Hartford International Opportunities HLS Fund returned -18.12% for the 12 months ended December 31, 2002. The Fund underperformed both the Morgan Stanley Capital International (MSCI) All-Country World Free ex US Index, which returned - -14.68% and the Morgan Stanley Capital International (MSCI) Europe, Australasias and Far East (EAFE) GDP Index, which returned -15.57%, as well as the Lipper International VA-UF Average, which returned -16.54% over the same period. WHY DID THE FUND PERFORM THIS WAY? International equity markets fell for the third year in a row in 2002, as investors struggled to digest the combination of corporate malfeasance, global terrorism and geopolitical fears, a very sluggish economic recovery and the lingering aftermath of the late 1990s capital expenditure and consumer bubbles. Most equity markets regained some of their losses on a sharp rebound in October and November, helped by the end of forced selling by European financial institutions and bargain hunting amidst the wreckage of the worst bear market since the early 1970s. At the beginning of the fourth quarter, valuations had gotten to the point where they were pricing in more realistic, post-bubble growth expectations. The strongest stocks in the fourth quarter were those that had been hit the hardest in the previous quarters, including technology, media and telecommunications ("TMT") stocks, and selected financials. Within the Fund, stock selection was strongest in telecommunications services, helped by holdings such as Koninklijke KPN N.V. (communications, netherlands), Telekom Austria AG (communications, austria), and Korea Telecom (communications, korea), all diversified telecommunication companies. Stock selection in the materials sector also helped performance. Anglogold Ltd., ADR (metals, minerals & mining, South Africa), Companhia Vale do Rico Doce ADR (metals, minerals & mining, brazil), and Posco ADR (metals, minerals & mining, south korea) all assisted performance. Stock selection was weakest in financials, hurt by Credit Suisse Group (banks, switzerland), HypoVereinsbank (banks, germany), and ING Group N.V. (insurance, netherlands). Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. # The Fund has changed its benchmark from the MSCI EAFE GDP Index to the MSCI AC World Free ex US Index because the MSCI AC World Free ex US Index is better suited for the investment strategy of the fund. Hartford International Opportunities HLS Fund WHAT IS YOUR OUTLOOK FOR 2003? Our global economic outlook calls for economic growth over the next 12-18 months to be quite modest in comparison to prior recoveries as economies around the globe recover from the excesses of the 1990s bubble era. That being said, we don't expect a relapse into recession either. While corporate spending has been below trend levels for the last two years and could see modest improvement in coming quarters, consumer spending has only recently begun to slow and will likely require a significantly longer period of softness before recovering to trend rates of growth as consumers de-lever their balance sheets. Within this environment we are tempering our optimism and overweight in Europe, which is caught in a policy bind. Although we are underweighted in Japan, we are looking opportunistically at adding to our Japan position as it has recently underperformed. We retain our positive bias regarding developed Asia ex-Japan and the emerging markets. From a sector perspective, we continue to favor the telecommunications services sector, as the companies continue to cut debt, reduce spending, shed unnecessary assets and focus on their core businesses. We also like the pharmaceuticals, where the market has already taken into account many of the imminent drug patent expirations. We like selected names in the technology sector, as growth expectations remain relatively modest, but are looking to reduce our consumer discretionary exposure due to slower consumer spending. We are only slightly underweight, overall, as we believe that the market has largely priced in our slow growth outlook. Hartford Stock HLS Fund PORTFOLIO MANAGER [PHOTO OF RAND L. ALEXANDER] RAND L. ALEXANDER, CFA Senior Vice President and Partner Wellington Management Company, LLP ASSOCIATE PORTFOLIO MANAGER [PHOTO OF MAYA K. BITTAR] MAYA K. BITTAR, CFA Vice President Wellington Management Company, LLP PERFORMANCE OVERVIEW 12/31/92 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Stock S&P 500 IB Index $10,000 $10,000 $10,344 $10,436 $10,434 $10,486 $11,014 $10,756 $11,405 $11,006 $10,977 $10,589 $10,879 $10,633 $11,335 $11,152 $11,161 $11,150 $12,214 $12,235 $13,185 $13,401 $14,276 $14,644 $14,930 $15,335 $15,825 $16,157 $16,675 $16,880 $17,241 $17,400 $18,521 $18,850 $19,095 $19,356 $22,578 $22,732 $23,862 $24,432 $24,272 $25,134 $27,902 $28,638 $29,421 $29,584 $26,473 $26,642 $32,329 $31,313 $34,032 $33,923 $36,518 $36,315 $34,145 $34,046 $38,655 $39,111 $39,679 $40,007 $38,247 $38,945 $37,575 $38,567 $35,868 $35,551 $31,888 $31,339 $33,025 $33,171 $28,261 $28,305 $31,424 $31,331 $31,299 $31,418 $26,194 $27,211 $21,649 $22,512 $23,751 $24,409
RETURNS as of 12/31/02
1 YEAR 5 YEAR* 10 YEAR* ------ ------- -------- STOCK IB -24.42% -0.43% 9.04% S&P 500 INDEX -22.10% -0.58% 9.33%
*Annualized Returns. Inception date is August 31, 1977. The chart represents a hypothetical investment in the Hartford Stock HLS Fund Class IB Shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Stock HLS Fund returned -24.42% for the 12 months ended December 31, 2002. The Fund underperformed both the Lipper Large Cap Core VA-UF Average, which returned -23.45% and the S&P 500 Index, which returned -22.10% over the same period. WHY DID THE FUND PERFORM THIS WAY? 2002 was a very disappointing year for equity investors. The S&P 500 fell for the third straight year as a multitude of real or perceived problems led investors to abandon equities and seek shelter in cash, fixed income securities, real estate and even gold. Terrorism, war with Iraq, nuclear weapons in North Korea, Wall Street chicanery, corporate malfeasance, accounting irregularities, bankruptcies, options accounting and pension under funding, the list could go on and on. And yet, what 2002 was really all about was a collapse in corporate earnings. The economic recovery that was supposed to materialize in 2002 driven by lower interest rates, government spending and a resilient consumer never translated into strong corporate profit performance. Toward the end of the year, the S&P 500 rebounded somewhat during the fourth quarter on the news of a further cut in interest rates by the Fed, the potential for more fiscal stimulus by a firmly in control Republican administration, the hope of a relatively peaceful solution to the Iraq problems and a sense that business conditions had stopped deteriorating for most companies. The best performing industry groups during the year included: consumer staples, energy and basic materials. The worst performing sectors included were: technology, consumer discretionary and health care. Value stocks outperformed growth stocks and mid cap stocks outperformed both large cap and small caps stocks. The Fund under performed the index due to our emphasis on large caps, our under weights in consumer staples and consumer discretionary and significant declines in a few of our major holdings such as AOL Time Warner, Inc. (software & services), Tyco International Ltd. (consumer non-durables), Wyeth (drugs), WorldCom, Inc. (communications), and Safeway, Inc. (consumer non-durables). The Fund continues to be positioned to benefit from resurgence in economic growth brought about by lower interest rates and fiscal stimulus. Unfortunately, the U.S. economy has yet to respond in a robust way to such stimulus as confidence in the future has been undermined by threats of war and continuing corporate governance and accounting problems. WHAT IS YOUR OUTLOOK FOR 2003? Going forward, we continue to believe that the combination of very low interest rates coupled with continued fiscal stimulus will lead to a pick up in economic growth both here in the U.S. and abroad. While the Middle East and Iraq remain problematic, we believe that some positive resolution of the Iraqi situation may occur over the next six to twelve months. With the yield on equities now higher than the yield on money market instruments, and with most large companies now reporting that profits have at least stabilized, we believe that the large cap, high quality companies that make up the Fund should provide very competitive returns over the next twelve months. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. Hartford Dividend and Growth HLS Fund PORTFOLIO MANAGER [PHOTO OF EDWARD P. BOUSA] EDWARD P. BOUSA, CFA Vice President Wellington Management Company, LLP PERFORMANCE OVERVIEW 3/9/94 - 12/31/02 Growth of a $10,000 investment. [LINE GRAPH]
Dividend S&P & Growth 500 IB Index $10,000 $10,000 $9,928 $9,594 $10,405 $10,062 $10,176 $10,060 $11,005 $11,039 $11,793 $12,091 $12,896 $13,050 $13,842 $13,835 $14,718 $14,578 $15,307 $15,231 $15,767 $15,702 $16,970 $17,010 $17,434 $17,467 $20,261 $20,514 $21,676 $22,049 $22,326 $22,682 $24,929 $25,844 $24,737 $26,697 $22,872 $24,043 $25,937 $29,161 $25,982 $30,613 $27,785 $32,772 $25,355 $30,725 $27,266 $35,296 $27,451 $36,104 $26,831 $35,145 $28,639 $34,804 $30,199 $32,083 $28,525 $28,282 $29,746 $29,935 $27,088 $25,543 $28,927 $28,275 $30,279 $28,353 $27,706 $24,556 $22,498 $20,316 $24,756 $22,027
RETURNS as of 12/31/02
SINCE* 1 YEAR 5 YEAR* INCEPTION ------ ------- --------- DIV. AND GROW. IB -14.42% 2.09% 10.83% S&P 500 INDEX -22.10% 0.58% 9.37%
*Annualized Returns. Inception date is March 9, 1994. The chart represents a hypothetical investment in the Hartford Dividend and Growth HLS Fund Class IB Shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Dividend and Growth HLS Fund returned -14.42% for the 12 months ended December 31, 2002. The Fund outperformed both the Lipper Equity Income VA-UF Average, which returned -16.84% and the S&P 500 Index, which returned -22.10% over the same period. WHY DID THE FUND PERFORM THIS WAY? During the 12-month period ended December 31, 2002, the economy continued to grow slowly, with no sign of a stronger rebound apparent. Corporate spending was under pressure from low stock prices, balance sheet concerns, and recently pension fund cash infusions are becoming common. The weaker dollar has helped the basic materials industry, as pricing is holding up despite the weak economy. The airline industry, which employs hundreds of thousands of people, has been facing major bankruptcies. Finally, the consumer has slowed spending as seen in poor Christmas sales. With respect to the Fund's relative performance, strong stock selection in the industrials and utilities sectors were the greatest contributors. The Fund continued to be significantly underweight in the information technology sector. This underweight position relative to the S&P 500 Index also helped performance. Among the stocks that positively contributed to performance of the Fund were Omnicom Group, Inc. (business services), Halliburton Co. (construction), Exelon Corp. (utilities), Procter & Gamble Co. (The) (consumer non-durables) and Pharmacia Corp. (drugs). The Fund also had a few disappointments during the 12-month period including Alcoa, Inc. (metals, minerals & mining), International Business Machines Corp. (computers & office equipment), McDonald's Corp. (retail), Safeway, Inc. (consumer non-durables) and Delta Air Lines, Inc. (transportation). WHAT IS YOUR OUTLOOK FOR 2003? The weakness in consumer spending is likely to continue as higher energy prices, more state and local taxes and the weaker dollar put pressure on paychecks. However, the weaker dollar could help U.S.-manufacturing including materials, capital goods and aerospace. Some consumer and pharmaceutical companies would benefit as well. With the stock market recovery in the fourth quarter, valuations suggest only modest upside. With the possibility of war in the first quarter, we may see continued volatility in the first half of 2003. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. Hartford Advisers HLS Fund PORTFOLIO MANAGERS [PHOTO OF RAND L. ALEXANDER] RAND L. ALEXANDER, CFA Senior Vice President and Partner Wellington Management Company, LLP [PHOTO OF PAUL D. KAPLAN] PAUL D. KAPLAN Senior Vice President, Partner, Director of Fixed Income Wellington Management Company, LLP PERFORMANCE OVERVIEW 12/31/92 - 12/31/02 Growth of a $10,000 investment. [LINE GRAPH]
Lehman S&P Brothers Advisers 500 Govt/Credit IB Index Bond Index $10,000 $10,000 $10,000 $10,347 $10,436 $10,465 $10,483 $10,486 $10,779 $10,945 $10,756 $11,136 $11,197 $11,006 $11,103 $10,817 $10,589 $10,755 $10,687 $10,633 $10,622 $10,953 $11,152 $10,674 $10,863 $11,150 $10,714 $11,702 $12,235 $11,247 $12,548 $13,401 $11,977 $13,292 $14,464 $12,206 $13,907 $15,335 $12,775 $14,318 $16,157 $12,476 $14,817 $16,880 $12,535 $15,238 $17,400 $12,756 $16,174 $18,850 $13,146 $16,458 $19,356 $13,033 $18,738 $22,732 $13,507 $19,708 $24,432 $13,980 $20,087 $25,134 $14,429 $22,178 $28,638 $14,647 $13,160 $29,584 $15,031 $22,153 $16,642 $15,775 $14,986 $32,313 $15,796 $25,694 $33,923 $15,607 $26,688 $36,315 $15,436 $25,609 $34,046 $15,519 $27,582 $39,111 $15,456 $28,237 $40,007 $15,872 $27,699 $38,945 $16,102 $27,665 $38,567 $16,565 $27,327 $35,551 $17,288 $25,726 $31,339 $17,841 $26,298 $33,171 $17,895 $24,327 $28,305 $18,747 $26,010 $31,331 $18,758 $25,973 $31,418 $18,670 $23,400 $27,211 $19,370 $21,126 $22,512 $20,474 $22,373 $24,409 $20,828
RETURNS as of 12/31/02
1 YEAR 5 YEAR* 10 YEAR* ------ ------- -------- ADVISERS IB -13.99% 2.18% 8.39% S&P 500 INDEX -22.10% -0.58% 9.33% LEHMAN BROTHERS GOVT./CREDIT BOND INDEX 11.04% 7.62% 7.61%
*Annualized Returns. Inception date is March 31, 1983. The chart represents a hypothetical investment in the Hartford Advisers HLS Fund Class IB shares. (The annualized returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Advisers HLS Fund returned -13.99% for the 12 months ended December 31, 2002. The Fund underperformed both the Lipper Flexible VA-UF Average, which returned -10.32% and the Composite Index (S&P 500 Index 55%, Lehman Brothers Government/Credit Bond Index 35% and 90 day Treasury Bills 10%), which returned - -8.75% over the same period. WHY DID THE FUND PERFORM THIS WAY? For both the fourth quarter and the year, the most obvious factor affecting the bond market was the continued decline in the general level of interest rates. Low inflation, modest economic growth, and geopolitical uncertainty provided the backdrop against which investors were happy to accept historically low yields from their fixed income investments. As is typically the case in an environment such as the one we experienced during 2002, yields fell most dramatically for short- and intermediate- maturity securities and less for those of the longest maturities. The result was that the fixed income markets as broadly measured achieved another year of double-digit total returns. During the year, we trimmed our positions in bonds in order to take advantage of attractive equity valuations. Within the fixed income portion of the Fund, we were overweight in U.S. mortgage backed securities and commercial mortgages. Looking forward, we expect interest rates to stabilize and remain low mitigating mortgage prepayment risk and volatility in the near term. We have been underweight U.S. government and agencies and overweight investment grade credits in anticipation of an economic recovery, which we believe will gather steam as the new year unfolds. WHAT IS YOUR OUTLOOK FOR 2003? Interest rates are quite low by any historical measure. These yield levels are the result of low inflation, modest growth, and economic uncertainty, and it would be overly optimistic to believe that all of these factors will continue to favor the bond market during 2003. Our best guess is that economic growth will accelerate, that geopolitical uncertainty will diminish, and that inflation fears, if not actual inflation will worsen somewhat. This analysis would argue that interest rates are likely to be somewhat higher at the end of 2003 than they are today. We also believe that Treasury securities are likely to be the poorest-performing sector of the bond market this year. The corporate bond market is poised for recovery as scandal and credit problems abate. The rebuilding of balance sheets that we expect argues for a more stable credit environment and that more stable environment should bring investors back to corporates. Mortgages will benefit from stable to rising interest rates and the diminution of refinancing fears. In addition, mortgages still offer yields that seem attractive given their credit quality. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. Hartford Bond HLS Fund PORTFOLIO MANAGER [PHOTO OF ALISON D. GRANGER] ALISON D. GRANGER, CFA Senior Vice President Hartford Investment Management Company PERFORMANCE OVERVIEW 12/31/92 - 12/31/02 Growth of a $10,000 investment. [LINE GRAPH]
Lehman Lehman Brothers Brothers Bond Aggregate Govt./Credit IB Bond Index# Bond Index $10,000 $10,000 $10,000 $10,400 $10,414 $10,465 $10,696 $10,691 $10,779 $11,066 $10,969 $11,136 $10,995 $10,975 $11,103 $10,615 $10,660 $10,755 $10,483 $10,550 $10,622 $10,525 $10,615 $10,674 $10,535 $10,655 $10,714 $11,019 $11,192 $11,247 $11,716 $11,874 $11,977 $11,896 $12,108 $12,206 $12,452 $12,623 $12,775 $12,177 $12,398 $12,476 $12,211 $12,469 $12,535 $12,422 $12,699 $12,756 $12,858 $13,080 $13,146 $12,826 $13,007 $13,033 $13,319 $13,486 $13,507 $13,832 $13,936 $13,980 $14,282 $14,346 $14,429 $14,527 $14,568 $14,647 $14,876 $14,908 $15,031 $15,393 $15,538 $15,775 $15,414 $15,591 $15,795 $15,225 $15,511 $15,607 $15,006 $15,375 $15,436 $15,085 $15,480 $15,519 $15,077 $15,461 $15,456 $15,458 $15,803 $15,872 $15,788 $16,076 $16,102 $16,183 $16,562 $16,565 $16,853 $17,259 $17,288 $17,378 $17,782 $17,841 $17,420 $17,881 $17,895 $18,095 $18,706 $18,747 $18,284 $18,713 $18,758 $18,164 $18,732 $18,670 $18,724 $19,423 $19,370 $19,281 $20,314 $20,477 $20,081 $20,633 $20,828
RETURNS as of 12/31/02
1 YEAR 5 YEAR* 10 YEAR* ------ ------- -------- BOND IB 9.83% 7.05% 7.22% LEHMAN BROTHERS AGGREGATE BOND INDEX 10.26% 7.54% 7.51% LEHMAN BROTHERS GOVT./CREDIT BOND INDEX 11.04% 7.62% 7.61%
*Annualized Returns. Inception date is August 31, 1977. The chart represents a hypothetical investment in the Bond HLS Fund Class IB shares. (The returns include the Fund level expenses, but exclude the insurance charges). PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE FUND PERFORM? Hartford Bond HLS Fund returned 9.83% for the 12 months ended December 31, 2002. The Fund outperformed the Lipper Corporate Debt BBB Rated VA-UF Average, which returned 8.19% over the same period. The Fund underperformed both the Lehman Brothers U.S. Aggregate Bond Index, which returned 10.26% and the Lehman Brothers Government/Credit Bond Index, which returned 11.04% over the same period. WHY DID THE FUND PERFORM THIS WAY? Over the last couple of months, the Fund has benefited both in terms of yield and price appreciation from its increased weighting to longer-duration corporate bonds and an underweight to mortgage issues. We continue to see a sharper focus on corporations working to improve the health of their balance sheets. The reduction in our mortgage exposure was based on high levels of refinancing and the premium pricing of mortgage pass-throughs. The Fund's modest exposure in non-dollar-denominated, developed-government, short-maturity Treasuries has also contributed positively to returns since these issues yield significantly more than equivalent maturity U.S. Treasury issues. The Fund's position in government debt, denominated in a combination of pound sterling, the Australian dollar and the Euro have been favorable as these currencies have performed well versus the U.S. dollar of late, providing added price appreciation to the Fund. WHAT IS YOUR OUTLOOK FOR 2003? In the near term, we believe that war fears will dominate valuations of many fixed income instruments, particularly Treasury securities. We expect these concerns to lend volatility to the market. Apart from this consideration, we are seeing growing signs that certain corporations are focused on reducing leverage and improving their financial flexibility. Yields are currently at attractive levels relative to U.S. Treasury securities. Within corporates, Fund holdings particularly emphasize select telecommunications and technology issues, as well as basic industry cyclicals. We expect these industries to lead the U.S. economy toward higher growth. We are not emphasizing finance and consumer-sensitive securities, as we expect the consumer to lag any economic recovery produced by a rise in capital spending. Performance for periods when fee waivers were in place would have been lower in the absence of the waivers. Class IB shares commenced on April 1, 1998. Class IB share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class IB shares. The performance after such date reflects actual Class IB share performance. # The Fund has changed its benchmark from the Lehman Brothers Government/Credit Bond Index to the Lehman Brothers U.S. Aggregate Bond Index because the Lehman Brothers U.S. Aggregate Bond Index is better suited for the investment strategy of the fund. Nations Marsico International Opportunities Portfolio PORTFOLIO MANAGEMENT JAMES G. GENDELMAN, Marsico Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment. [LINE GRAPH]
Nations Marsico International MSCI Opportunities EAFE $10,000 $10,000 $10,190 $10,106 $10,311 $10,461 $10,973 $10,876 $14,750 $13,282 $14,483 $12,742 $12,714 $11,400 $11,565 $9,733 $10,936 $8,953 $11,595 $8,808 $10,132 $7,526
RETURNS as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------ ------ ---------- NATIONS MARSICO INTERNATIONAL OPPORTUNITIES -7.35% -11.76% 0.28% MSCI EAFE -15.94% -17.24% -5.80%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Marsico International Opportunities Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2001, the Portfolio had a different name, investment objective, principal investment strategies and investment sub-adviser. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Marsico International Opportunities Portfolio outperformed its benchmark with a total return of - -7.35% versus -15.94% for the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index(1). WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) From an economic sector perspective, there were several areas that had a significant and positive impact on the Portfolio's investment results: financial services, information technology, industrials and consumer staples. The financial services sector overall was an important contributor to the Portfolio's relative performance. Insurance and banking positions were the two primary industries that buoyed investment results. Specific positions owned in these areas included Northern Rock plc, UBS AG, Kookmin Bank and Corporacion Mapfre, SA. We generally did not maintain substantial levels of investment in the information technology sector, which had a positive impact on performance. However, our technology-related holdings did contribute meaningfully to the Portfolio's investment results for the period. We were fortunate to have good technology-related stock selection, particularly in the hardware and equipment industry, and some timely sell decisions during the year. Companies such as Nokia Oyj, Samsung Electronics Company, Ltd., Accenture and Hitachi were among the Portfolio's stronger-performing individual positions. The Portfolio's automobile investments posted solid overall performance during the year. These holdings included Nissan Motor Company, Ltd. and Porsche AG. Nissan Motor posted a return of more than 44% for the period it was held in the Portfolio. Stock selection in the capital goods and transportation industries helped the Portfolio's performance. Opportunistic investments in the airline and aircraft manufacturing industry, including Ryanair Holdings plc and Embraer-Empresa Brasileira de Aeronautica, contributed to the Portfolio's outperformance. Aerospace and defense company, Smiths Group, returned more than 15% during the period it was held in the Portfolio. The Portfolio's overweighting in the consumer staples sector aided performance, highlighted by a relatively overweighted position in the food, beverage and tobacco industry. Unilever NV, Molson Inc., Shoppers Drug Mart Corporation and cosmetics manufacturer Shiseido contributed to the Portfolio's outperformance. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS. (1) The Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Marsico International Opportunities Portfolio One area that detracted from the Portfolio's performance as compared to the MSCI EAFE was an underweighted position in the materials sector. This was one of a very few sectors that had positive returns for the 12-month period ended December 31, 2002. Retailing positions, including The Seiyu, Ltd., Thomson and Ito-Yokado, also hurt results. Country allocations, in aggregate, had a modestly positive affect on the Portfolio's performance. Generally, the Portfolio's country allocations are a residual of our investment process. We are typically more focused on sectors, industries and individual companies in terms of formulating an investment strategy. However, at times country position can either intentionally or other- wise have a material effect on performance, particularly for countries that are well represented in a benchmark index such as MSCI EAFE. On the positive side, the Portfolio's overweighted position in countries such as Korea and Finland (primarily comprised by a position in Nokia) added value, while positions in German equities had a negative impact on performance. As of December 31, 2002 the Portfolio's holdings, in terms of economic sector distribution, were allocated primarily to consumer discretionary, financial services and consumer staples. The Fund's largest country allocations were to the United Kingdom, Netherlands, Germany, Canada and Japan. WHAT IS YOUR OUTLOOK FOR 2003?(3) Our overall "global view" has several facets. First, we believe that, in general, the U.S. leads the rest of the world into and out of periods of economic slowdown. It appears to us at this point that there is evidence the U.S. is experiencing an economic recovery. However, that improvement seems somewhat subdued in nature thus far, in contrast to the remarkably robust levels of economic activity that prevailed during most of the 1990s. That likely will have, in our opinion, future implications in terms of the timing and magnitude for a full-fledged global economic rebound. The U.S. economy appears ham-strung to some extent by continued geopolitical concerns -- Iraq, North Korea and Venezuela, for example -- higher oil prices, concerns over the possibility of additional major terrorist attacks, predominantly unenthusiastic corporate capital spending and questions about the overall financial health of consumers. The global economy, in our view, is mixed overall. Certain major regions, particularly in Continental Europe -- United Kingdom, Germany and France -- appear to be struggling, while Japan faces continued economic malaise. At the same time, China is experiencing tremendous economic growth. Our investment posture might be considered defensive in terms of portfolio orientation. Our strategy has favored consumer-related industries, such as beverages, automobiles, airlines and financial services companies, particular- ly those involved primarily in banking activities. Valuations and earnings growth potential in these areas appear compelling to us in the context of generally subdued worldwide economic activity. We did not have any positions in health care as of year end 2002. We view sectors such as technology and telecommunications services as offering some select opportunities at the individual company level. In general, however, we believe many companies in these areas face highly uncertain profit outlooks and yet continue to trade at relatively high valuations. If geopolitical concerns were to abate meaningfully and the U.S. economic activity showed signs of strengthening, we believe it is possible that our Portfolio structure would change somewhat. That may potentially include higher allocations to areas such as technology, which could benefit upon the resumption of more robust levels of capital expenditures and economically-sensitive industries such as media, lodging and consumer durables. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations International Value Portfolio PORTFOLIO MANAGEMENT Large Cap Investment Committee, Brandes Investment Partners, LLC. PERFORMANCE OVERVIEW 7/7/00 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations International MSCI Value EAFE $10,000 $10,000 $9,540 $9,581 $9,440 $9,664 $9,090 $9,194 $9,130 $8,977 $9,010 $8,640 $9,465 $8,947 $9,003 $7,617 $8,532 $7,027 $8,370 $6,913 $7,164 $5,907
RETURNS as of 12/31/02
1 YEAR SINCE INCEPTION* ------ ---------------- NATIONS INTERNATIONAL VALUE -16.04% -12.55% MSCI EAFE -15.94% -18.98%
*Annualized Returns. Inception date is July 7, 2000. The chart represents a hypothetical investment in Nations International Value Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. EFFECTIVE SEPTEMBER 30, 2002, NATIONS INTERNATIONAL VALUE PORTFOLIO NO LONGER ACCEPTS NEW INVESTMENTS. SHARES OF THE PORTFOLIO MAY ONLY BE PURCHASED THROUGH REINVESTMENT OF DISTRIBUTIONS BY THE PORTFOLIO. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations International Value Portfolio declined 16.04%, while the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index(1), the Portfolio's benchmark, fell 15.94%. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) While most international markets experienced declines in 2002, holdings in the United Kingdom proved the greatest weakness for Portfolio returns during the period. United Kingdom-based holdings experiencing declines included BAE Systems plc, Royal & Sun Alliance Insurance Group plc and Safeway plc. The Portfolio's holdings in Japan, France, Switzerland and Brazil also weighed on returns. The Portfolio's holdings in several industries proved detrimental to returns in 2002, with price weakness affecting holdings in the diversified financials, communications equipment and commercial services and supplies industries. Significant exposure to the banking industry also negatively influenced returns. Among the poorest-performing holdings in these industries were Alcatel SA, ADR, Zurich Financial Services AG, ADR, Reuters Group plc and Bayerische Hypo-und Vereinsbank AG, ADR. As a direct result of our individual stock selection, the Portfolio's exposure to the diversified telecommunication services, insurance and diversified financials industries increased. The Portfolio added to existing positions we believed to be temporarily underpriced, such as Deutsche Telekom AG, ADR, Royal & Sun Alliance Insurance Group plc and ING Groep NV, ADR. The Portfolio sold its holdings in the food products industry, including Unilever, to pursue what we believed to be more attractive opportunities. Focusing on attractive security prices, we purchased new positions in Japan, the United Kingdom and France. New additions to the Portfolio included Sankyo Company, Ltd., Reuters Group plc and Axa, ADR. The Portfolio sold its positions in Ireland, including Allied Irish Bank, as a result of price appreciation. INTERNATIONAL INVESTING MAY INVOLVE SPECIAL RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS AND OTHER MONETARY AND POLITICAL RISKS. (1) The Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations International Value Portfolio Diversified telecommunication services, banking and oil and gas represented the Portfolio's most significant industry exposure. Our individual stock selection resulted in Japan, the United Kingdom and Spain comprising the greatest country exposure for the Portfolio. WHAT IS YOUR OUTLOOK FOR 2003?(3) Overall, future macroeconomic and political developments have virtually no bearing on our company-specific research and analysis. While we are aware of short-term developments, our investment philosophy focuses on company-by-company analysis with a long-term perspective. In all market environments, we adhere to our strict, value-based investment approach. As a "bottom-up" manager, we do not make "top-down" projections for sectors, industries, countries, economies or interest rates. We choose our equities one company at a time based on a comprehensive review of their fundamental strengths, with an eye to understanding the nature of their businesses and our estimate of their long-term intrinsic values. Applied globally, we believe our investment process continues to uncover promising opportunities in both developed and emerging markets. In our opinion, the strength of Portfolio holdings increase our potential for long-term outperformance. We believe long-term investors will be rewarded for their patience, as global markets evolve to more accurately reflect holdings' underlying values. Over the long term, we remain confident that the markets will recognize the undervalued companies we hold. We intend to build on our heritage of favorable returns with limited risk and appreciate your continued confidence. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations Marsico Focused Equities Portfolio PORTFOLIO MANAGEMENT THOMAS F. MARSICO+, Marsico Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [CHART]
Nations Marsico Focused Equities S&P 500 $10,000 $10,000 $11,470 $10,343 $13,016 $11,300 $15,018 $12,698 $19,951 $13,677 $18,473 $13,618 $16,796 $12,432 $14,592 $11,600 $13,820 $10,955 $14,016 $9,514 $11,730 $8,534
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------- ------- ----------- NATIONS MARSICO FOCUSED EQUITIES -15.13% -16.23% 3.40% S&P 500 -22.09% -14.54% -3.30%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Marsico Focused Equities Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Marsico Focused Equities Portfolio had a total return of -15.13%, outperforming the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)(1), which had a total return of -22.09%. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) This past year can best be summarized, and at some risk understated, as an exceedingly difficult period for many equity investors. None of the ten economic sectors that comprise the S&P 500 Index registered a positive return for the year. The information technology, telecommunications and utilities sectors absorbed declines of 37%, 34% and 30%, respectively. The best-performing sector was consumer staples. Buoyed by gains in the household products industry, the sector declined by a relatively modest 4%. In reflecting upon the period while studying the Portfolio's strategic positioning and individual holdings, there were a variety of contributing factors to the Portfolio's relative outperformance as compared to the S&P 500 Index. In particular, the Portfolio benefited from investments in the industrials and health care sectors. Companies such as Lockheed Martin Corporation and General Dynamics Corporation outperformed the S&P 500 Index for the period and were among the Portfolio's better-performing individual holdings. Throughout the period, performance was positively impacted on two dimensions within the health care sector. The Portfolio maintained an overweighted position, as compared to the S&P 500 Index, in the health care equipment and services industry. This industry outperformed the broad equity market, while the Portfolio's aggregate holdings within the industry helped performance during the period. As an example, UnitedHealth Group Inc. rose in price by more than 18% during the period. The Portfolio also made select investments in the pharmaceutical/biotechnology industry, which contributed positively to investment results. Amgen Inc. posted a return of more than 38% during the period. The Portfolio had substantial investments in the capital goods industry, which is the largest component of the S&P Industrial sector, with aerospace/defense positions representing the bulk of investments in this area. THE PORTFOLIO NORMALLY INVESTS IN A CORE PORTFOLIO OF 20-30 COMMON STOCKS. BY MAINTAINING A RELATIVELY CONCENTRATED PORTFOLIO, THE PORTFOLIO MAY BE SUBJECT TO GREATER RISK THAN A PORTFOLIO THAT IS MORE FULLY DIVERSIFIED. + Effective February 1, 2003, Nations Marsico Focused Equities Portfolio will be co-managed by Thomas F. Marsico and James A. Hillary. (1) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO The Portfolio's investment results were helped during the year by generally being underweighted in the information technology sector, particularly by having relatively modest levels of investment in the hardware and equipment industry. In addition, QUALCOMM Inc., a wireless communications company which the Portfolio owned, returned more than 15% for the period. The Portfolio maintained substantial holdings within the consumer discretionary sector, with emphasis on retail companies. Holdings in automobile companies, such as Porsche AG and Ford Motor Company, and media companies, such as Clear Channel Communications, Inc. and Cox Communications, were the most significant industry-level holdings that positively impacted performance. Certain financial-related holdings had a positive impact on performance. SLM Corporation ("Sallie Mae") was one of the strongest performing position in the Portfolio, posting a return of more than 24% for the period. Citigroup, Inc. and Lehman Brothers Holdings, however did not perform well during the period. Certain Portfolio holdings in the health care sector hindered performance. These included Baxter International, Quest Diagnostics, Inc. and Johnson & Johnson. The Portfolio's primary "blemishes" during the period were maintaining generally underweighted positions in the consumer staples sector, particularly the household and personal products industry, as well as positions in the banking industry. The Portfolio's relative lack of exposure to the materials sector also detracted from investment results. As of December 31, 2002, the Portfolio's economic sector allocations emphasized consumer-discretionary, financial services and health care companies. The Portfolio's allocation to the information technology sector increased modestly during the fourth quarter. WHAT IS YOUR OUTLOOK FOR 2003?(3) We believe the recent and current investment environment is the most difficult experienced in the past 60 years. Our investment outlook might best be considered as somewhat cautious over the ensuing one to six months and more optimistic longer-term. Our near-term assessment for equity markets is prompted primarily by the numerous geopolitical challenges facing the U.S. and its allies. These include rising tensions with North Korea, the potential for war with Iraq, the still combustible situation in the Middle East and the ever-present fact that the U.S. remains at war in Afghanistan. Our view is that tangible and sustainable progress in resolving these issues, particularly with respect to North Korea and Iraq, will need to be made as a prerequisite to an improved investment environment. These geopolitical risks, while difficult to quantify precisely in terms of portfolio construction, have undoubtedly painted a negative pallor over the equity markets. In our opinion, these geopolitical risks contributed greatly to the general level of uncertainty regarding the outlook for corporate profits. Stock market volatility in 2002 was the highest since the 1930s. Prices for gold and oil have risen sharply. We think these factors are directly reflective of the tense geopolitical situation we are expe- (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO riencing. For example, we feel if oil prices were to stay above $30/barrel for an extended period, it would likely exert a negative impact on both corporations and consumers. On the brighter side, we think a reasonable and balanced case can be made for improved longer-term equity returns, assuming geopolitical factors show signs of being mitigated or, even better, being resolved. In offering that pronouncement, we acknowledge that pessimism in the capital markets--particularly for equities--is quite high at the moment due to three consecutive years of negative stock market returns influenced by geopolitical matters. This is the first time this has occurred since 1939-1941. This has created lower measures of consumer confidence, weaker holiday retail sales, concerns about labor market stability, fears of recurring corporate accounting scandals and bankruptcy filings by some of the United State's largest companies, including Enron, WorldCom, Conseco and UAL Corporation. And yet, we think there are a significant number of more positive factors at work that are important to recognize. In the U.S., interest rates are at 40-year lows. The stimulus, or positive impact, associated with low interest rates is significant. Inflation, despite a probable rise associated with higher oil prices, remains constrained overall. Monetary policy has been accommodative, and productivity gains continue to be robust. These factors, in our opinion, suggest a favorable underlying backdrop for equities. U.S. stocks are coming off one of their worst periods in history. In the past, severely sustained downturns in equities have spawned a great deal of collateral damage, including the collapse of banks, contraction of lending and sharply higher rates of unemployment. Over the past few years, the diversity and resiliency of the U.S. economy have been expressed. Notably, the banking system has remained strong during the past several years. The unemployment rate has risen, but the present 6% level does not generally appear to be a major "drag" on the economy and, in fact, approximates what many economists consider to be full employment during periods of normal economic activity. Aggregate equity market valuations appear reasonable to us, particularly in the context of low interest rates and quiescent inflation. While equities currently may be perceived to be risky based on their decline from peak levels reached in early 2000, we would note that stocks were much more likely to be vulnerable on the basis of valuation back then than they are today. Is a fourth consecutive calendar year decline possible? Perhaps, although that has occurred just once during the Great Depression years of 1929-1932. Equities tend to trade to extreme levels. We think it is increasingly possible that the worst days for equities are in the past. We think many companies' earnings outlooks are increasingly favorable, with their stocks currently priced at compelling levels. We believe corporate earnings quality, overall, has improved. There are some economic sectors in the S&P 500 Index, including information technology and telecommunications services, which still appear overpriced to us. However, a number of other sectors and industries NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO look quite compelling and include certain consumer-related, health care, financial services and capital goods companies. In addition, certain companies with "special" technology and/or market share advantages in the information technology and telecommunications areas look attractive. Events and initiatives in Washington, D.C. warrant mention as well. We think the mid-term elections were important in terms of giving a mandate to the Bush administration. President Bush has announced a $600 billion economic package (twice the amount that had been anticipated) that will feature tax cuts, including the complete elimination of dividend taxes, aid to states and extension of unemployment benefits. While these plans obviously are in the proposal stage and likely will undergo considerable debate before being approved, it appears to us that some meaningful fiscal policy from the government may be forthcoming. Our longer-term, more positive view is anchored by the premise that geopolitical risks will abate. This should remove a major element of uncertainty that has plagued equity markets while simultaneously allowing some of the "good news" mentioned earlier to gain greater traction with investors. We believe the U.S. economic recovery, while somewhat subdued, is indeed well underway. Absent a further deterioration in the geopolitical situation, we believe equity returns should improve going forward. Nations Small Company Portfolio PORTFOLIO MANAGEMENT SmallCap Strategies Team, Banc of America Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations Small Company Russell 2000 Growth $10,000 $10,000 $9,750 $9,426 $9,065 $9,048 $9,366 $10,209 $9,602 $12,947 $10,285 $13,106 $10,643 $10,043 $11,277 $10,047 $11,061 $9,117 $9,821 $7,535 $8,145 $6,357
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------- ------- ---------- NATIONS SMALL COMPANY -26.37% -5.34% -4.21% RUSSELL 2000 GROWTH -30.26% -21.11% -9.10%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Small Company Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2001, the Portfolio had a different name, investment objective, principal investment strategies and portfolio management. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Small Company Portfolio outperformed its benchmark, declining 26.37%, versus the Russell 2000 Growth Index(1), which declined 30.26%. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) Retail was one of the best performing sectors for the Portfolio during the period as a result of good stock selection. Columbia Sportswear Company was the top-performing retail stock in the Portfolio during the period, up over 35%. Columbia's strong brand name, spring "sell-through," and international market gains have allowed them to report several upside earnings surprises during the year. The largest retail holding in the Portfolio, Cato Corporation was up approximately 15% during the period. Cato continued to report solid same-store sales gains, good merchandise mix during the period, and we feel it maintains good earnings visibility going forward. Health care was also a leading sector during the period as a result of good stock selection and stock specific events. Martek Biosciences Corporation was the leading contributor to performance in the Portfolio during the period, up approximately 15%. During the period, two major pharmaceutical companies, Bristol-Myers Squibb Corporation and Abbott Laboratories, announced they would be launching a line of infant formula products containing Martek's oils. In addition, Martek has stated they see revenue and earnings up significantly next year. Centene Corporation, a main player in the fast growing industry of Medicaid managed care, was up over 50% during the period, as their positive results were driven by membership growth across markets and improved pricing. The finance sector was the main detractor from performance during the period as a result of stock selection and stock specific events. One of our top holdings, Affiliated Managers Group, Inc. was down over 25% for the period. A weak stock market environment caused the asset management sector as a whole to decline on fears that outflows of investments would decrease fee revenues. Throughout the period, Affiliated Managers reported solid earnings, fee growth and a positive outlook, but the subsequent short-term gains after they reported earnings were not enough to offset the general sector decline. Also within the Portfolio, The Phoenix Companies, Inc. was not immune to the difficult market environment during the period, and its profitability was adversely affected, given its exposure to the investment management business. The stock finished down over 50% for the period. BECAUSE SMALL COMPANIES OFTEN HAVE NARROWER MARKETS, LIMITED FINANCIAL RESOURCES AND STOCKS THAT ARE NOT AS ACTIVELY TRADED AS LARGE COMPANY STOCKS, THEIR SHARE PRICES MAY BE MORE VOLATILE. (1) The Russell 2000 Growth Index is an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Companies in the Russell 2000 Growth Index tend to exhibit higher price-to-book and price-earnings ratios. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Small Company Portfolio WHAT IS YOUR OUTLOOK FOR 2003?(3) We remain optimistic regarding the outlook for small-cap stocks for 2003. Although the small-cap segment of the market has had three good years relative to large-caps, many of the factors that contributed to the small-cap outperformance still exist. We believe attractive valuations, greater earnings and sales growth, the historical pattern of outperformance as the economy emerges from a slowdown, a relatively slow initial public offering market, larger-cap companies acquiring smaller-cap companies in an attempt to add growth at an attractive price, and finally, the low interest rate environment, continue to provide small-cap companies with the opportunity to outperform. Given these factors, we feel investments will continue to flow into small-cap equities, thereby driving outperformance through 2003. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations Marsico 21st Century Portfolio PORTFOLIO MANAGEMENT JAMES A. HILLARY+, Marsico Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations Marsico 21st Century S&P 500 $10,000 $10,000 $10,150 $10,343 $10,644 $11,300 $11,887 $12,698 $11,682 $13,677 $10,959 $13,618 $8,508 $12,432 $6,580 $11,600 $6,249 $10,955 $6,380 $9,514 $5,737 $8,534
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------ ------ ---------- NATIONS MARSICO 21ST CENTURY -8.20% -21.11% -11.01% S&P 500 -22.09% -14.54% -3.30%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Marsico 21st Century Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2001 the portfolio had a different name, investment objective, principal investment strategies and investment sub-adviser. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Marsico 21st Century Portfolio returned -8.20%, significantly outperforming its benchmark, the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)(1), which had a total return of -22.09% for the same period. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) There were several factors contributing to the Portfolio's outperformance during the past twelve months, the strongest of which was the Portfolio's investments in the consumer discretionary sector. The Portfolio's total holdings in this sector--spanning five industries--declined by a relatively modest amount of 6% over the past year. That compared favorably to the overall equity market decline. The Portfolio benefited from being relatively overweighted in the consumer discretionary sector, while industry and stock selection also added value. In particular, investments in three industries were strong performers: consumer durables, automobiles and consumer discretionary. Homebuilding companies such as MDC Corporation and Lennar Corporation posted positive returns for the Portfolio as well as investments in automobile companies, such as Nissan Motor Corporation and Porsche AG. The Portfolio's investment results were also helped overall by having substantial positions in the retail industry during the first part of the year. Companies such as Furniture Brands International, Galyans Trading, and Talbots posted positive returns. We should note that as of December 31, 2002 the Portfolio's retailing positions totaled approximately 2% of net assets. Media-related positions, such as Clear Channel Communications, Inc., also positively contributed to performance. The Portfolio's performance was positively impacted by positions in the health care and industrials sectors. Health care positions included two industries: equipment and services and pharmaceuticals/biotechnology. UnitedHealth Group Inc., one of the Portfolio's largest positions, gained 18% over the last year. The Portfolio's positions in pharmaceutical/biotechnology companies posted an aggregate gain of more than 6% during the year. These included companies such as Inspire Pharmaceuticals Inc. and Amgen Inc. The Portfolio's holdings in the industrials sector during the period generally favored capital goods companies. Defense-related companies such as Lockheed Martin Corporation and General Dynamics Corporation contributed positively to the Portfolio's investment results. Performance also benefited through some opportunistic investments in the airline and aircraft manufacturing industry, which included Frontier Airlines, Continental + Effective February 1, 2003, Corydon J. Gilchrist will be the portfolio manager to Nations Marsico 21st Century Portfolio. (1) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Marsico 21st Century Portfolio Airlines, Delta Airlines and JetBlue Airways. These positions were bought and then sold within the period. In fact, as of December 31, 2002, the Portfolio did not have any positions in the transportation industry. Stock selection in the information technology sector, including BEA Systems, Inc., QUALCOMM Inc., AMDOCS and Microsoft Corporation, had a positive impact on the Portfolio's performance. Another area of value-added performance stemmed from the Portfolio maintaining a relatively low level of exposure to the telecommunications services sector. This sector was a good place to avoid, as it declined by 34% during the period. Select diversified financial services positions posted strong returns, particularly SLM Corporation ("Sallie Mae") and Capital One Financial. Sallie Mae posted a return of more than 26% for the period. The Portfolio did not invest in the banking industry for the 12-month period ended December 31, 2002, and this had an adverse impact on performance because banking stocks, in general, were among the better-performing industries for the period. Some primary "blemishes" during the period were investments in certain health care companies, such as Quest Diagnostics, Inc., Johnson & Johnson, Priority Healthcare Corporation, IDEC Pharmaceuticals Corporation and Intermune, Inc. Select consumer discretionary holdings, such as Four Seasons Hotels Inc., Omnicom Group Inc., Tiffany & Company and General Motors Corporation also performed poorly during the period. As of December 31, 2002 the Portfolio maintained four areas of emphasis in terms of economic sector distribution. These included: consumer discretionary, health care, information technology and financial services. The Portfolio also had modest exposure to the industrials, telecommunications, utilities and consumer staples sectors. The Portfolio did not have any exposure to energy and materials. What is your outlook for 2003?(3) We believe the recent and current investment environment is the most difficult experienced in the past 60 years. Our investment outlook might best be considered as somewhat cautious over the ensuing one to six months and more optimistic longer-term. Our near-term assessment for equity markets is prompted primarily by the numerous geopolitical challenges facing the U.S. and its allies. These include rising tensions with North Korea, the potential for war with Iraq, the still combustible situation in the Middle East and the ever-present fact that the U.S. remains at war in Afghanistan. Our view is that tangible and sustainable progress in resolving these issues, particularly with respect to North Korea and Iraq, will need to be made as a prerequisite to an improved investment environment. These geopolitical risks, while difficult to quantify precisely in terms of portfolio construction, have undoubtedly painted a negative pallor over the equity markets. In our opinion, these geopolitical (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations Marsico 21st Century Portfolio risks contributed greatly to the general level of uncertainty regarding the outlook for corporate profits. Stock market volatility in 2002 was the highest since the 1930's. Prices for gold and oil have risen sharply. We think these factors are directly reflective of the tense geopolitical situation we are experiencing. For example, we feel if oil prices were to stay above $30/barrel for an extended period, it would likely exert a negative impact on both corporations and consumers. On the brighter side, we think a reasonable and balanced case can be made for improved longer-term equity returns, assuming geopolitical factors show signs of being mitigated or, even better, being resolved. In offering that pronouncement, we acknowledge that pessimism in the capital markets-- particularly for equities--is quite high at the moment due to three consecutive years of negative stock market returns influenced by geopolitical matters. This is the first time this has occurred since 1939-1941. This has created lower measures of consumer confidence, weaker holiday retail sales, concerns about labor market stability, fears of recurring corporate accounting scandals and bankruptcy filings by some of the United State's largest companies, including Enron, WorldCom, Conseco and UAL Corporation. And yet, we think there are a significant number of more positive factors at work that are important to recognize. In the U.S., interest rates are at 40-year lows. The stimulus, or positive impact, associated with low interest rates is significant. Inflation, despite a probable rise associated with higher oil prices, remains constrained overall. Monetary policy has been accommodative, and productivity gains continue to be robust. These factors, in our opinion, suggest a favorable underlying backdrop for equities. U.S. stocks are coming off one of their worst periods in history. In the past, severely sustained downturns in equities have spawned a great deal of collateral damage, including the collapse of banks, contraction of lending and sharply higher rates of unemployment. Over the past few years, the diversity and resiliency of the U.S. economy have been expressed. Notably, the banking system has remained strong during the past several years. The unemployment rate has risen, but the present 6% level does not generally appear to be a major "drag" on the economy and, in fact, approximates what many economists consider to be full employment during periods of normal economic activity. Aggregate equity market valuations appear reasonable to us, particularly in the context of low interest rates and quiescent inflation. While equities currently may be perceived to be risky based on their decline from peak levels reached in early 2000, we would note that stocks were much more likely to be vulnerable on the basis of valuation back then than they are today. Is a fourth consecutive calendar year decline possible? Perhaps, although that has occurred just once-- during the Great Depression years of 1929-1932. Equities tend to trade to extreme levels. We think it is increasingly possible that the worst days for equities are in the past. We think many companies' earnings outlooks are increasingly favorable, with their stocks currently priced at compelling levels. We believe corporate earnings quality, overall, Nations Marsico 21st Century Portfolio has improved. There are some economic sectors in the S&P 500 Index, including information technology and telecommunications services, which still appear overpriced to us. However, a number of other sectors and industries look quite compelling and include certain consumer-related, health care, financial services and capital goods companies. In addition, certain companies with "special" technology and/or market share advantages in the information technology and telecommunications areas look attractive. Events and initiatives in Washington, D.C. warrant mention as well. We think the mid-term elections were important in terms of giving a mandate to the Bush administration. President Bush has announced a $600 billion economic package (twice the amount that had been anticipated) that will feature tax cuts, including the complete elimination of dividend taxes, aid to states and extension of unemployment benefits. While these plans obviously are in the proposal stage and likely will undergo considerable debate before being approved, it appears to us that some meaningful fiscal policy from the government may be forthcoming. Our longer-term, more positive view is anchored by the premise that geopolitical risks will abate. This should remove a major element of uncertainty that has plagued equity markets while simultaneously allowing some of the "good news" mentioned earlier to gain greater traction with investors. We believe the U.S. economic recovery, while somewhat subdued, is indeed well underway. Absent a further deterioration in the geopolitical situation, we believe equity returns should improve going forward. Nations Marsico Growth Portfolio PORTFOLIO MANAGEMENT THOMAS F. MARSICO+, Marsico Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations Marsico Growth S&P 500 $10,000 $10,000 $11,270 $10,343 $12,180 $11,300 $13,953 $12,698 $18,891 $13,677 $18,300 $13,618 $16,544 $12,432 $14,599 $11,600 $13,626 $10,955 $13,687 $9,514 $11,428 $8,534
Returns as of 12/31/02
1 YEAR 3 YEAR INCEPTION* ------ ------ ---------- NATIONS MARSICO GROWTH -16.13 -15.43% 2.84% S&P 500 -22.09 -14.54% -3.30%
* Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Marsico Growth Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2002, the Portfolio had a different name, investment objective and principal investment strategies. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Marsico Growth Portfolio returned -16.13%, substantially outperforming the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)(1), which had a total return of - -22.09%. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) This past year can best be summarized, and at some risk understated, as an exceedingly difficult period for many equity investors. None of the ten economic sectors that comprise the S&P 500 Index registered a positive return for the year. The information technology, telecommunications and utilities sectors absorbed declines of 37%, 34% and 30%, respectively. The best-performing sector was consumer staples. Buoyed by gains in the household products industry, the sector declined by a relatively modest amount of 4%. In reflecting upon the period while studying the Portfolio's strategic positioning and individual holdings, there were a variety of contributing factors to the Portfolio's relative outperformance as compared to the S&P 500 Index. In particular, the Portfolio benefited from investments in the industrials and health care sectors. Companies such as Lockheed Martin Corporation and General Dynamics Corporation outperformed the S&P 500 Index for the period and were among the Portfolio's better-performing individual holdings. Throughout the period, performance was positively impacted on two dimensions within the health care sector. The Portfolio maintained an overweighted position, as compared to the S&P 500 Index, in the health care equipment and services industry. This industry outperformed the broad equity market, while the Portfolio's aggregate holdings within the industry helped performance during the period. For example, UnitedHealth Group Inc. rose in price by more than 18% during the period. The Portfolio also made select investments in the pharmaceutical/biotechnology industry, which contributed positively to investment results. Amgen Inc. posted a return of more than 38% during the period. The Portfolio had substantial investments in the capital goods industry, which is the largest component of the S&P Industrial sector, with aerospace/defense positions representing the bulk of investments in this area. The Portfolio's investment results were helped during the year by generally being underweighted in the information technology sector, particularly by having relatively modest levels of investment in the hardware and equipment industry. In addition, QUALCOMM Inc., a wireless communications company, which the Portfolio owned, returned more than 15% for the period. + Effective February 1, 2003, Nations Marsico Growth Portfolio will be co-managed by Thomas F. Marsico and James A. Hillary. (1) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Marsico Growth Portfolio The Portfolio maintained substantial holdings within the consumer discretionary sector, with emphasis on retail companies. Holdings in automobile companies, such as Porsche AG and Ford Motor Company, and media companies, such as Clear Channel Communications, Inc. and Cox Communications, were the most significant industry-level holdings that positively impacted performance. Certain financial-related holdings had a positive impact on performance. SLM Corporation ("Sallie Mae") was one of the strongest performing position in the Portfolio, posting a return of more than 24% for the period. Citigroup, Inc and Lehman Brothers Holdings, however, did not perform well during the period. Certain Portfolio holdings in the health care sector hindered performance, these included Baxter International, Quest Diagnostics, Inc. and Johnson & Johnson. The Portfolio's primary "blemishes" during the period were maintaining generally underweighted positions in the consumer staples sector, particularly the household and personal products industry, as well as positions in the banking industry. The Portfolio's relative lack of exposure to the materials sector also detracted from investment results. As of December 31, 2002, the Portfolio's economic sector allocations emphasized consumer-discretionary, financial services and health care companies. The Portfolio's allocation to the information technology sector increased modestly during the fourth quarter. WHAT IS YOUR OUTLOOK FOR 2003?(3) We believe the recent and current investment environment is the most difficult experienced in the past 60 years. Our investment outlook might best be considered as somewhat cautious over the ensuing one to six months and more optimistic longer-term. Our near-term assessment for equity markets is prompted primarily by the numerous geopolitical challenges facing the U.S. and its allies. These include rising tensions with North Korea, the potential for war with Iraq, the still combustible situation in the Middle East and the ever-present fact that the U.S. remains at war in Afghanistan. Our view is that tangible and sustainable progress in resolving these issues, particularly with respect to North Korea and Iraq, will need to be made as a prerequisite to an improved investment environment. These geopolitical risks, while difficult to quantify precisely in terms of portfolio construction, have undoubtedly painted a negative pallor over the equity markets. In our opinion, these geopolitical risks contributed greatly to the general level of uncertainty regarding the outlook for corporate profits. Stock market volatility in 2002 was the highest since the 1930s. Prices for gold and oil have risen sharply. We think these factors are directly reflective of the tense geopolitical situation we are experiencing. For example, we feel if oil prices were to stay above $30/barrel for an extended period, it would likely exert a negative impact on both corporations and consumers. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations Marsico Growth Portfolio On the brighter side, we think a reasonable and balanced case can be made for improved longer-term equity returns, assuming geopolitical factors show signs of being mitigated or, even better, being resolved. In offering that pronouncement, we acknowledge that pessimism in the capital markets-- particularly for equities--is quite high at the moment due to three consecutive years of negative stock market returns influenced by geopolitical matters. This is the first time this has occurred since 1939-1941. This has created lower measures of consumer confidence, weaker holiday retail sales, concerns about labor market stability, fears of recurring corporate accounting scandals and bankruptcy filings by some of the United State's largest companies, including Enron, WorldCom, Conseco and UAL Corporation. And yet, we think there are a significant number of more positive factors at work that are important to recognize. In the U.S., interest rates are at 40-year lows. The stimulus or positive impact, associated with low interest rates is significant. Inflation, despite a probable rise associated with higher oil prices, remains constrained overall. Monetary policy has been accommodative, and productivity gains continue to be robust. These factors, in our opinion, suggest a favorable underlying backdrop for equities. U.S. stocks are coming off one of their worst periods in history. In the past, severely sustained downturns in equities have spawned a great deal of collateral damage, including the collapse of banks, contraction of lending and sharply higher rates of unemployment. Over the past few years, the diversity and resiliency of the U.S. economy have been expressed. Notably, the banking system has remained strong during the past several years. The unemployment rate has risen, but the present 6% level does not generally appear to be a major "drag" on the economy and, in fact, approximates what many economists consider to be full employment during periods of normal economic activity. Aggregate equity market valuations appear reasonable to us, particularly in the context of low interest rates and quiescent inflation. While equities currently may be perceived to be risky based on their decline from peak levels reached in early 2000, we would note that stocks were much more likely to be vulnerable on the basis of valuation back then than they are today. Is a fourth consecutive calendar year decline possible? Perhaps, although that has occurred just once -- during the Great Depression years of 1929-1932. Equities tend to trade to extreme levels. We think it is increasingly possible that the worst days for equities are in the past. We think many companies' earnings outlooks are increasingly favorable, with their stocks currently priced at compelling levels. We believe corporate earnings quality, overall, has improved. There are some economic sectors in the S&P 500 Index, including information technology and telecommunications services, which still appear overpriced to us. However, a number of other sectors and industries look quite compelling and include certain consumer-related, health care, financial service, and capital goods companies. In addition, certain companies with "special" technology and/or market share advantages in the information technology and telecommunications areas look attractive. Nations Marsico Growth Portfolio Events and initiatives in Washington, D.C. warrant mention as well. We think the mid-term elections were important in terms of giving a mandate to the Bush administration. President Bush has announced a $600 billion economic package (twice the amount that had been anticipated) that will feature tax cuts, including the complete elimination of dividend taxes, aid to states and extension of unemployment benefits. While these plans obviously are in the proposal stage and likely will undergo considerable debate before being approved, it appears to us that some meaningful fiscal policy from the government may be forthcoming. Our longer-term, more positive view is anchored by the premise that geopolitical risks will abate. This should remove a major element of uncertainty that has plagued equity markets while simultaneously allowing some of the "good news" mentioned earlier to gain greater traction with investors. We believe the U.S. economic recovery, while somewhat subdued, is indeed well underway. Absent a further deterioration in the geopolitical situation, we believe equity returns should improve going forward. Nations Capital Growth Portfolio PORTFOLIO MANAGEMENT Growth Strategies Team, Banc of America Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations Russell Capital Growth 1000 Growth ------- ------- $10,000 $10,000 $10,320 $10,454 $11,139 $12,046 $12,397 $13,306 $13,174 $16,041 $13,033 $16,721 $11,658 $12,444 $10,895 $10,672 $10,270 $9,902 $8,110 $7,844 $7,183 $7,141
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------ ------ ---------- NATIONS CAPITAL GROWTH -30.06% -18.31% -6.71% RUSSELL 1000 GROWTH -27.88% -23.64% -6.84%
* Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Capital Growth Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2001, the Portfolio had a different name, investment objective, principal investment strategies and portfolio management. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations Capital Growth Portfolio returned -30.06% versus -27.88% for the Russell 1000 Growth Index(1), the Portfolio's benchmark. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) The U.S. stock market was characterized by extreme volatility over the last 12 months. The period was marked by substantial stock market losses in response to disappointing corporate earnings, a sluggish economic recovery and continuing revelations about bad behavior on Wall Street. Although we were pleased to see the Portfolio outperform its index as the market collapsed during the summer, we were disappointed that it could not keep pace with its benchmark when the market surged during the fall. We believe Nations Capital Growth Portfolio is biased to high-quality companies with strong fundamentals and good earnings prospects. The fall rally was led primarily by stocks with less than stellar fundamentals. As a result, we would not expect to keep pace with a rally such as this but we seek to outperform our index over time. Holdings such as Berkshire Hathaway Inc., Clear Channel Communications, Inc., Colgate-Palmolive Company and Abbot Laboratories were some of our best performers. The Portfolio's overweight exposure to financials and underweight position in technology helped relative returns during the fourth quarter rally. The market continued to drop through mid-October and then moved sharply higher in late October and November. The rise could be attributed to better market valuation, a resumption of earnings growth for the broad market and a 50 basis point rate cut by the Federal Reserve Board. During this period, the many stocks that had previously dropped the most, because of their weak fundamentals, rose the most. Many low-quality technology stocks with stock prices under $5 surged ahead. The Portfolio was hurt by its underweight exposure to the technology sector and the market's rotation out of many of the Portfolio's "safe haven" stocks including United Healthcare, Berkshire Hathaway Inc., Coca-Cola Company and Lockheed Martin Corporation. During December, the market drifted lower as some investors cashed in on the market's strong two-month advance, worried about the economic recovery and fretted over the possibility of war with Iraq. The Portfolio performed similarly to its index during this one-month period. (1) The Russell 1000 Growth Index is an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Capital Growth Portfolio WHAT IS YOUR OUTLOOK FOR 2003?(3) After three consecutive years of negative returns for the market, we believe the prospect for a positive 2003 seems quite probable. The last time the market was down three consecutive years was over 60 years ago. We are optimistic going forward for many reasons. First, we see a resumption of earnings growth for the broad market. This is significant in our opinion because we believe that stock prices follow earnings. The broad market had six consecutive quarters of negative earnings growth from the fourth quarter of 2000 through the first quarter of 2002. The market started showing rising earnings in the second quarter of 2002 and continued in the third quarter. We believe earnings for the broad market will continue to advance in 2003, which should lead to rising stock prices. Secondly, we see the economy as stable and improving. We believe the U.S. economy could grow by over 2% in 2003. In addition, we believe that the Bush Administration is committed to the success of the economy and we would not be surprised to see an aggressive move forward for a fiscal stimulus package and tax reductions. We believe both of these initiatives may be good for businesses, consumers and the stock market. Thirdly, we believe that individual stocks and the broad market are attractively priced. The Standard & Poor's 500 Composite Stock Price Index(4) is currently trading near its historical average price to earnings ratio. With expected earnings growth of 12%, we would hope the market could rise at least 10%, and it could go up even higher if investors felt more comfortable with the economy and were less worried about war. Fourthly, we do not find competing investments for stocks as attractive today. Money market accounts and bonds offer investors low yields because interest rates are near historic lows. The primary risks to our outlook include a protracted war with Iraq, substantial reductions in company earning estimates, slowing consumer spending and business spending coming back later than what investors are hoping for. The U.S. stock market has had a nice rally from its mid-October low through year-end. While we are hopeful that the market will start strong in January, we believe that new buyers will not enter the market until they hear some good news. This good news could be better than expected economic statistics, such as lower unemployment or rising industrial production. The good news could also be companies telling analysts to raise their earnings estimates. We expect the U.S. economy to strengthen in 2003, which, we believe, will cause better economic news, corporate earnings growth and rising stock prices. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. (4) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. NATIONS MIDCAP GROWTH PORTFOLIO PORTFOLIO MANAGEMENT Growth Strategies Team, Banc of America Capital Management, LLC PERFORMANCE OVERVIEW 5/01/01 - 12/31/02 Growth of a $10,000 Investment [LINE CHART] Nations Russell S&P MidCap Growth 1000 Growth MidCap 400 -------------- ----------- ---------- $10,000 $10,000 $10,000 $9,780 $10,233 $9,953 $9,580 $10,192 $9,958 $6,790 $8,503 $7,190 $8,440 $10,032 $9,135 $6,320 $9,710 $7,336 $5,570 $8,576 $6,632
Returns as of 12/31/02
1 YEAR SINCE INCEPTION* ------- ---------------- NATIONS MIDCAP GROWTH -34.00% -29.58% RUSSELL MIDCAP GROWTH -27.41% -21.84% S&P MIDCAP 400 -14.51% -8.80%
*Annualized Returns. Inception date is May 1, 2001. The chart represents a hypothetical investment in Nations MidCap Growth Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. The annual reports for the fiscal period ended December 31, 2001 compare the Portfolio's performance to the Standard & Poor's MidCap 400 Index. Effective May 1, 2002, portfolio management changed the index to which it compares its performance because the Russell MidCap Growth Index is a more appropriate benchmark and the composition of the Index more closely resembles the composition of the Portfolio. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations MidCap Growth Portfolio returned -34.00% compared to -27.41% for the Russell MidCap Growth Index(1), the Portfolio's benchmark. WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) There is no chance of hyperbole when describing how unpleasant 2002 turned out to be for most equity investors. Despite three brief, hopeful rallies during the year the stock market produced its third consecutive year of losses--something that hasn't happened in 60 years. The Standard & Poor's 500 Composite Stock Price Index(3) lost 22.09%, the Nasdaq Composite Index(4) fell 31.5%, all of the rest of the major indexes posted double-digit declines and each of the S&P 500 Index sectors declined for the first time since 1981. Clearly the expectations at the start of the year for better economic and corporate growth did not materialize. That however, does not begin to explain the drubbing inflicted on many stocks throughout much of the year. In fact, 2002 was filled with good news. The economy actually grew at an annualized rate of roughly 2.4% (3.4% in the first three quarters), new home sales hit a record high in November, auto sales were strong, productivity figures were up and unemployment claims improved. The one factor that was worse than anyone imagined was psychological-- the risk premium determined by investor confidence. Corporate malfeasance, record large bankruptcies, distrust of Wall Street, geopolitics and war were enough to kill any appetite for risk. The intolerance for risk put enormous pressure on growth stocks. Technology was the hardest hit sector and contributed one-third of the negative performance in the Portfolio for the year. Several large holdings that experienced sharp declines in share price include Convergys Corporation and CSG Systems International, Inc., which serve the weak cable and telecom markets. Both of these businesses, along with another large position, Concord EFS, Inc., continued to generate significant earnings and cash flow, but could not overcome their slowing growth rates. The weakness in the communications sector was a major contributor to performance and much of the reason for the underperformance relative to the benchmark. A meltdown in both the cable and the telecommunications sectors had the biggest impact. There was a backlash against highly leveraged companies like Charter Communications, Inc. and Cablevision Systems Corporation, and Adelphia Communications Corporation became the victim of a massive fraud by the controlling family. BECAUSE MID-SIZED COMPANIES OFTEN HAVE NARROWER MARKETS, LIMITED FINANCIAL RESOURCES AND STOCKS THAT ARE NOT OR ACTIVELY TRADED OR LARGE COMPANY STOCKS, THEIR SHARE PRICES TEND TO BE MORE VOLATILE. (1) The Russell MidCap Growth Index is an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. (3) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (4) The Nasdaq Composite Index tracks the performance of domestic common stocks traded on the regular Nasdaq market as well as National Market System traded foreign stocks and ADRs. It is unmanaged and unavailable for investment. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. NATIONS MIDCAP GROWTH PORTFOLIO The growth segments of the health care sector were also hit hard. Investors had little patience for the uncertainty of the biotech and the specialty drug companies. In most cases it did not matter whether the businesses were being valued on current earnings or the future pipeline. Despite having great promise and little to do with the economy, these long-duration assets could not sustain their high multiples or expensive valuations. Contrary to the broader market, the Portfolio had two sectors, transportation and basic industry, produce a positive return for the period. Holdings that helped the Portfolio's performance were Ecolab, Inc. and Avery Dennison Corporation. The energy sector, which had an allocation that was overweight relative to the benchmark, also significantly outperformed the market. WHAT IS THE OUTLOOK FOR 2003?(5) We are optimistic that the equity market will break its three-year losing streak in 2003. Most important is that the economy is indeed growing, albeit less than its potential. We believe there are a number of reasons to be optimistic. Many of the negatives plaguing the market in the past year have subsided or may soon be resolved. The current monetary stimulus and pending fiscal stimulus may provide both a shot in the arm to the economy today and sets the stage for better long-term growth. While not as low as they were on October 10, 2002, the market low for the year, we feel valuations are reasonable, particularly with Treasury yields remaining at record lows. Lastly, earnings growth, which has been weak for two years, appears capable of growing at least in the high single digits. There are, however, real risks to this optimism. Not only does it depend on U.S. consumers, many of whom are out of work or have over-extended credit, to continue a healthy pace of spending, it requires corporations, which represent one-third of the economy, to resume their capital spending. In the end, our optimism rests on the resiliency of Americans and the U.S. economy. (5) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations Value Portfolio PORTFOLIO MANAGEMENT Value Strategies Team, Banc of America Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE CHART] Nations Russell Value 1000 Value -------------- ------------ $10,000 $10,000 $9,940 $10,045 $10,448 $10,356 $11,211 $11,689 $10,710 $11,117 $10,366 $10,647 $11,510 $11,897 $10,929 $11,746 $10,681 $11,231 $9,992 $10,694 $8,466 $9,487
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* ------- ------ ---------- NATIONS VALUE -20.73% -7.54% -3.43% RUSSELL 1000 VALUE -15.52% -5.14% -1.10%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Value Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. How did the Portfolio perform? For the 12-month period ended December 31, 2002, Nations Value Portfolio posted a -20.73% return, which compares to the total return of -15.52% for the Russell 1000 Value Index(1). Why did the Portfolio perform this way?(2) There are times when more cyclically oriented stocks can represent an attractive opportunity. The Value Strategies Team believed this to be the case for this reporting period. From an economic standpoint, the U.S. as a whole was expected to post a respectable Gross Domestic Product (GDP) figure, as we saw progress on corporate profit growth. However, the performance within the stock market both as a whole, and in particular cyclical stocks, did not reflect this. Around July and August the published economic statistics became somewhat mixed, and many cyclical stocks fell as a result. The Portfolio held positions in paper companies such as Bowater, Inc. and International Paper Company and consumer stocks such as Ford Motor Corporation, McDonald's Corporation and Starwood Hotels & Resorts Worldwide, Inc. that underperformed its benchmark. Even companies such as Honeywell International Inc., Lockheed Martin Corporation and Raytheon Company, which had exposure to the positive long-term trends we saw in defense spending, were hurt due to their exposure to commercial aviation and other cyclical businesses. The Portfolio's underweighted positions in technology and communications stocks during the October rally caused returns to lag slightly. As a result, we increased our exposure in these areas, given attractive valuations and signs that a bottom in fundamentals had been reached. The Portfolio was "barbelled" in energy stocks and held benchmark weightings in key holdings like ExxonMobil Corporation and Chevron Texaco Corporation while simultaneously having exposure to companies that had a more leveraged exposure to improving commodity prices. Stocks like ENSCO International Inc. and Nabors Industries, Ltd., which are involved in drilling and oil field services, did well and drove positive returns in the group. The health care sector performed well for the Portfolio, thanks in large part to Pharmacia Corporation, which received a takeover bid and Abbott Laboratories, which saw a strong rebound during the period. (1) The Russell 1000 Value Index is an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. (2) Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Value Portfolio What is your outlook for 2003?(3) News of Middle East concerns, accounting scandals, corporate fraud and bankruptcies dominated 2002. While stock valuations twelve months ago may not have been compelling, in our opinion they were not bad in light of the forecasts for good GDP and decent corporate profit growth. Given a better earnings growth outlook for 2003, we believe future stock valuations look good. History, we feel, is also on our side. The Standard & Poor's 500 Composite Stock Price Index (4) has not seen four consecutive down years since 1929-1932, which was the time which marked the beginning of the Great Depression. We feel we are a long way away from the issues which produced that difficult period in the market. We believe that a longer-term perspective is the proper way to view investments. Shell-shocked market strategists are understandably getting more and more conservative, given the challenges of the last few years. We take an objective look at corporate profit growth, fiscal policy and valuations coupled with the belief that market returns will at some point revert back to their mean. This gives us reason to be optimistic. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. (4) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Nations Asset Allocation Portfolio PORTFOLIO MANAGEMENT Fixed Income Management Team and Growth Strategies Team Banc of America Capital Management, LLC PERFORMANCE OVERVIEW 3/27/98 - 12/31/02 Growth of a $10,000 Investment [LINE GRAPH]
Nations Lehman Asset S&P Aggregate Russell Allocation 500 Bond Index 1000 ---------- -------- ---------- -------- $10,000 $10,000 $10,000 $10,000 $9,790 $10,343 $10,234 $10,250 $9,777 $11,300 $10,703 $11,204 $10,222 $12,698 $10,556 $12,497 $9,918 $13,677 $10,615 $13,547 $9,836 $13,618 $11,038 $13,653 $10,725 $12,432 $11,849 $12,492 $10,556 $11,600 $12,278 $11,612 $10,219 $10,955 $12,850 $10,937 $9,323 $9,514 $13,337 $9,535 $8,835 $8,534 $14,168 $8,589
Returns as of 12/31/02
SINCE 1 YEAR 3 YEAR INCEPTION* --------- ---------- ---------- NATIONS ASSET ALLOCATION -13.54% -3.78% -2.56% S&P 500 -22.09% -14.54% -3.30% LEHMAN AGGREGATE BOND INDEX 10.25% 10.10% 7.61% RUSSELL 1000 -21.65% -14.16% -3.20%
*Annualized Returns. Inception date is March 27, 1998. The chart represents a hypothetical investment in Nations Asset Allocation Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. Prior to May 1, 2001, the Portfolio had a different name, investment objective, principal investment strategies and investment sub-adviser. Effective January 1, 2002, Banc of America Capital Management, LLC began managing the equity portion of the Portfolio, replacing Chicago Equity Partners, LLC as the prior investment adviser. Effective December 31, 2002, the Portfolio changed its principal investment strategies as well as the portfolio management team that makes the day-to-day investment decisions for the equity portion of the Portfolio. The annual reports for the fiscal period ended December 31, 2001 compare the equity portion of the Portfolio's performance to the Standard & Poor's 500 Composite Stock Price Index. Effective December 31, 2002, portfolio management for the equity portion of the Portfolio changed the index to which it compares its performance because the Russell 1000 Index is a more appropriate benchmark and the composition of the Index more closely resembles the composition of the equity portion of the Portfolio. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? The allocation to the positively performing fixed-income investments was not enough to offset one of the worst equity markets in history. As a consequence, Nations Asset Allocation Portfolio suffered a decline of 13.54% in the 12-month period ended December 31, 2002. That compares with a positive 10.25% total return for the Lehman Aggregate Bond Index(1) and a negative 22.09% total return for the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)(2) over the same time period. WHY DID THE PORTFOLIO PERFORM THIS WAY?(3) The final quarter of the year was the lone positive quarter for stocks, but the rebound fell far short of recovering the severe losses in the first three quarters. As the year progressed, investors bore the weight of compounding geopolitical concerns, including the war against terrorism waged in Afghanistan, the ongoing threat of terrorism, escalating violence in the Middle East, war rhetoric with Iraq and provocative nuclear concerns with North Korea. Domestically, the economy struggled through the year to maintain its recovery mode, as unemployment was creeping gradually higher. All of that was on top of corporate malfeasance and fraud revelations, a number of record setting corporate bankruptcies, conflicts of interest for Wall Street and a double-digit drop in corporate earnings. It was a year fraught with concern, fear and mistrust that resulted in the worst performance since 1974 for the S&P 500 Index. Only three other calendar years in the history of the S&P 500 Index had worse than a 20% drop in price, all three in the depression decade of the 1930's. The stocks held in Nations Asset Allocation Portfolio were predominantly large-capitalization stocks of high-quality companies. The equity performance tracked the large-capitalization indices for the most part, hindered slightly by an underweighting in the materials industry stocks, the second best performing sector for the year, off 7.7%. The worst-performing sectors for the year were technology and telecommunication stocks, which fell more than 35% during the year. A reduced relative weighting in those sectors was an advantage for the equity portfolio until the fourth quarter when technology and telecommunication stocks rebounded 22% and 36%, respectively, surpassing than the 8% pace of the broader market. 1 The Lehman Aggregate Bond Index is an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index and includes U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The Index is unavailable for investment and does not reflect fees, brokerage commissions or other expenses of investing. 2 The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 3 Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations Asset Allocation Portfolio Individual stocks in the equity portfolio whose revenues were tied to the stable spending patterns of consumers like Anheuser-Busch Companies, Inc. and PepsiCo Inc. fared well during the year compared to the more severe declines in the general market. Detracting from relative performance were stocks of companies expected to benefit from the economic recovery such as Honeywell International Inc. and General Electric Company. The pace of economic recovery for 2002, however, was much below historic rebounds, and the momentum many of these cyclical stocks enjoyed early in the year faltered as the economy plodded forward. The bonds held in Nations Asset Allocation Portfolio were also dominated by high-quality issues and worked to buffer the declines in stocks. For the year, the strongest returns were focused in the Treasury segment of the bond market, as investors sought the safest investments in a tumultuous environment. The Lehman U.S. Treasury Bond Index(4) gained 11.8% in 2002. Close behind Treasury performance were the returns of high-grade corporate bonds. The lagging returns in the lower-quality segment of the bond market hindered the Portfolio's bond performance slightly, as the Lehman U.S. High Yield Bond Index(5) fell 1.4% for the year. WHAT IS YOUR OUTLOOK FOR 2003?(6) Last year was the third consecutive year of negative returns for stocks, a string not experienced since 1939 through 1941. While it is not unprecedented to string four years of negative performance together, we believe the starting point for stocks in 2003 is more attractive than last year. In our opinion, valuations are at more reasonable levels, and quarterly earnings are growing. The prospect for favorable tax treatment for stock dividends could also work to positively influence stock prices. While an above-average year in equity performance is possible, the progress made in resolving some of the many issues that concern investors is key. From an economic and earnings perspective alone, we believe the probability of a positive year for stocks looks good. For the highest-quality segment of the bond market, particularly government securities, potential returns may be subdued as interest rate pressures could hold down the appreciation in value of fixed-income investments. Lower-quality corporate bonds, however, are expected to benefit from the improvements in company balance sheets as the result of continued economic growth and higher corporate earnings. 4 The Lehman U.S. Treasury Index is an index consisting of U.S. Treasury debt obligations and is generally considered to be representative of U.S. Treasury market activity. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 5 The Lehman U.S. High Yield Bond Index is an unmanaged index generally representative of corporate bonds rated below investment-grade. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 6 The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. Nations High Yield Bond Portfolio PORTFOLIO MANAGEMENT High Yield Portfolio Management Team, MacKay Shields LLC [LINE GRAPH] PERFORMANCE OVERVIEW 7/7/00-12/31/02 Growth of a 10,000 Investment
Nations CSFB High Yield Global High Bond Yield $10,000 $10,000 $10,050 $10,094 $10,090 $10,162 $9,970 $10,068 $9,720 $9,755 $9,210 $9,371 $9,466 $9,559 $9,963 $9,969 $10,254 $10,115 $10,219 $10,130 $10,478 $10,419
Returns as of 12/31/02
SINCE 1 YEAR INCEPTION* --------- ---------- NATIONS HIGH YIELD BOND 2.18% 1.90% CSFB GLOBAL HIGH YIELD 3.01% 1.65%
*Annualized Returns. Inception date is July 7, 2000. The chart represents a hypothetical investment in Nations High Yield Bond Portfolio. The returns assume reinvestment of all distributions and include capital gains and portfolio level expenses, but do not include insurance charges. The performance shown includes the effect of fee waivers and/or expense reimbursements by the investment adviser and/or other service providers, which have the effect of increasing total return. Had all fees and expenses been considered, the total returns would have been lower. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE VALUE OF THE CONTRACT WILL FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE WORTH MORE OR LESS THAN THE ORIGINAL INVESTMENT. HOW DID THE PORTFOLIO PERFORM? For the 12-month period ended December 31, 2002, Nations High Yield Bond Portfolio returned 2.18% versus 3.01% for the Credit Suisse First Boston (CSFB) Global High Yield Index (the Index)(1). WHY DID THE PORTFOLIO PERFORM THIS WAY?(2) The high yield market rallied throughout the fourth quarter. We began 2002 overweighted in risk credits (B-CCC). During the period, we consistently added to the seasoned issuers (BB-B) with unusually attractive yields. The combination of these strategies led to some underperformance, as the market sold off to historic lows. However, it positioned the Portfolio well for the ultimate rebound, which began in October. The high yield market started off strongly during the first part of 2002. As the second quarter progressed, however, several shocks caused the high yield market to trade off sharply in May and June. Bonds of WorldCom, Adelphia Communications Corporation and Xerox Corporation, all large high yield issuers, traded significantly lower following accounting scandals. Accounting fears have been a contagion across several high yield industries, including telecommunications, cable, media, technology and utility credits and have impacted the equity markets even more severely. Fears of continued high defaults, accounting irregularities, declining equity prices, terrorism and the weakness of the U.S. dollar caused a flight to quality and plagued the markets during the second quarter, as Treasuries returned 6.0%. During the first six months of 2002, the high yield market continued to become more represented by "fallen angels" or former investment grade companies that have been downgraded to high yield status. We have been active participants in this part of the market. During the second quarter, the events surrounding WorldCom pressured the entire telecommuncations sector. While we have never been involved in WorldCom bonds, we are involved in Qwest Corporation and Sprint Capital Corporation, both of which traded lower during the second quarter. Other communications holdings that negatively impacted the Portfolio include AT&T Wireless Services Inc., Alamosa Holdings, Inc. and US Unwired Inc. We have increased our weighting in this sector to approximately market weight. The index weight is likely to climb as more "fallen angels" enter into the high yield indices. THE PORTFOLIO INVESTS PRIMARILY IN HIGH-YIELD DEBT SECURITIES, WHICH ARE OFTEN REFERRED TO AS "JUNK BONDS." HIGH-YIELD DEBT SECURITIES OFFER THE POTENTIAL FOR HIGHER INCOME THAN OTHER KINDS OF DEBT SECURITIES WITH SMALLER MATURITIES, BUT THEY ALSO HAVE HIGHER RISK. 1 The Credit Suisse First Boston (CSFB) Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 2 Portfolio characteristics and holdings are subject to change and may not be representative of current characteristics and holdings. Nations High Yield Bond Portfolio Metals and mining was one of the better-performing sectors in the high yield market during the second quarter, and our holding in Algoma Steel Inc. was a top performer. The security was buoyed by higher steel prices and, as a Canadian Steel company, it stands to benefit from the current U.S. trade policies. Other Portfolio holdings in this sector that added to performance included Newmont Mining, Neenah Foundry Corporation, United States Steel LLC and UCAR Finance Inc. The cable industry had a poor showing as one of the worst sectors in the high yield market in the first half. The most disappointing investment in the second quarter was Adelphia Communications Corporation. The repeatedly negative news about the cable company, accounting fraud and self-dealing, pushed its bonds lower. We continue, however, to be constructive on its credit, particularly of its operating subsidiary, Frontiervision. We find the value of the subsidiary company outweighs the obligations and negative news that it has endured. The marketplace has treated the subsidiary in the same manner as the holding company. Other cable holdings in the Portfolio facing pressure included Charter Communications, Inc. and Rogers Cable Inc. Top-performing holdings for the second quarter were filled with health care companies, even though the sector performed in the middle of the pack for the overall high yield market. Alaris Medical Systems, Inc., HCA - The Healthcare Company, and Team Health Inc. contributed gains to the Portfolio. The gaming and leisure sector produced top performers as well, such as Hollywood Casino, Venetian Casino Resort LLC, Jacobs Entertainment Corporation and Hilton Hotels Corporation. The technical sector of the high yield market fluctuated during the third quarter. Mutual fund investments were positive for high yield after August's positive performance; however, they swung strongly negative at the end of the quarter. There were few new issues during the third quarter. With that background, high yield spreads are trading close to historic highs. We believe the high yield market looks cheap compared to historical standards, especially with the 10-year Treasury yielding 3.6%, which is lower than when high yield was last trading at such high levels in the early 1990s. Only a handful of industries were positive for the third quarter: telecommunications, wireless communications, gaming/leisure and chemicals. The three poorest performing sectors of the high yield market were aerospace, which includes airlines, utilities and technology. The Portfolio was overweighted in these sectors and market weighted in airlines, which severely hampered performance. We continue to be constructive on these areas, as we see great value in them. Airlines came under pressure as USAirways filed for bankruptcy in August and as United Airlines' financial problems, including a Chapter 11 bankruptcy filing, came to light. The Portfolio held Delta Airlines, Inc. and Northwest Airlines Inc., both of which were brought down by the negative industry performance, placing them among the Portfolio's worst performers. We see value in both companies. Delta Airlines, which has a low cost structure relative to the other major carriers and Northwest, which has attractive routes and a younger jet fleet than other major carriers. Nations High Yield Bond Portfolio The negative performance of the utility sector in the third quarter was a drag on the entire Portfolio. Positions in AES Corporation, Mirant Americas Generation LLC, Calpine Corporation and PG&E National Energy Group weighted heavily on the Portfolio. In July, utilities stocks "sold off " with the news of investigations into Citigroup and JPMorgan Chase regarding their role in financing Enron's transactions in a "deceptive" manner. These investigations are looking into what other utility companies may have set up similar transactions. Investors are showing concern over the independent power producers' viability in the post-Enron marketplace. The collapse of Enron on the energy trading markets may have altered them dramatically, but we expect that the markets will stabilize, creating opportunities for independent power producers. In the meantime, many of these independent power producers have significant assets that are being severely discounted. The values in this area were evidenced as Warren Buffet's Berkshire Hathaway bought a gas pipeline system from Dynegy. While we were bearish in the telecommunications and wireless communications sectors in the past, our current market weight in the industry helped performance during the quarter. Telus Corporation was among the top performers for the third quarter. Telus Corporation, one of the two dominant local telecom providers in Canada, was purchased as the entire industry was under pressure. Energy companies helped the Portfolio's performance for the period. Energy Corporation of America, Plains Exploration & Production Company, Vintage Petroleum, Inc. and Petroleum Geo-Services ASA were among our top performers. The gaming/leisure sector provided solid performance this summer. Holdings included Park Place Entertainment Corporation, Venetian Casino Resort LLC, Jacobs Entertainment Corporation, Hilton Hotels Corporation and Vail Resorts, Inc. For the fourth quarter, the best-performing industries were technology, telecommunications, wireless telecommunications and diversified media. There were only a few industries with negative performance. Transportation, metals and minerals and chemicals led the market on the downside. Qwest Corporation, which is the largest holding on an issuer basis performed well this quarter. They began to restructure the company and repair its balance sheet, building asset coverage for bondholders. Wireless telecommunication companies were a strong second-best performer for the quarter. The Portfolio's holdings included AT&T Wireless Services Inc., Call Net Enterprises, Millicom International Cellular SA, Sprint Capital Corporation and Nextel International, all of which were among the top-performing issues for the quarter. Many technology companies are still continuing to suffer from the poor economy and the punishment from limited access to capital. A number of investment-grade technology companies were trading at high yield valuations well in advance of downgrades into the high yield market. Investments in NATIONS HIGH YIELD BOND PORTFOLIO Avaya Inc., Nortel Networks Corporation and Lucent Technologies Inc. have been penalized along with the industry. We view these companies as attractive because they are managing their cash flow better in order to meet their current needs. As the economy recovers these companies should benefit from increased capital spending. Other technology holdings include Juniper Networks, Inc., LSI Logic Corporation, PMC-Sierra, Inc., Vitesse Semiconductor Corporation and Xerox Corporation. Cable companies provided a sobering note to the performance of the fourth quarter. While the industry posted gains, it underperformed the market. Charter Communications was among poor performers due to the government's investigation of the company. Other cable holdings included Frontiervision, Time Warner Inc., Cablevision SA, Comcast Corporation and Rogers Cable Inc. While the industry's performance was disappointing, cable companies appear to be on firmer footing. The companies have rolled out new products and services that allow them to better compete with satellite television providers, as valuations for the industry have fallen. While not among the worst-performing sectors for the quarter, energy companies were lackluster. Concerns clouded the industry over the possibility of war in Iraq and a strike in Venezuela that is now six weeks long. A sour note in the Portfolio was Petroleum Geo-Services ASA. The company is one of the largest providers of seismic mapping data used for oil and gas exploration, and they also operate a fleet of production, storage and off-loading vessels to transfer reserves from wells to tankers where pipelines don't exist. Weakness in the prices of seismic data and the company's high leverage halted a de-leveraging merger with Veritas. We remain constructive on the credit because the company will either sell one of its operations to pay down debt or restructure to improve its current conditions. Other energy holdings included Comstock Resources, Inc., El Paso Corporation, Parker Drilling Company, Plains Exploration & Production Company and Vintage Petroleum, Inc. WHAT IS YOUR OUTLOOK FOR 2003?(3) The prospects for the economy remain somewhat uncertain. Concerns remain regarding the U.S. consumers who continue to deal with higher unemployment and increased personal debt. It may be difficult to have a robust economy if these pressures result in weak consumer spending. However, the consumer has proven resilient over time, and we feel the housing market is holding up reasonable well. In addition, the high-yield asset class is experiencing positive investment flows, and there is renewed availability of investment capital in the financial markets. Barring a protracted global recession, we remain optimistic on the outlook for high yield. Yield spreads remain at historically wide levels. Unless the economy goes back into a recession, we believe default rates should continue their recent decline from the 10% highs over the last two years. (3) The outlook for this Portfolio may differ from that presented for other Nations Funds Portfolios. HARTFORD SMALL COMPANY HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- --------- COMMON STOCKS -- 93.6% AEROSPACE & DEFENSE -- 1.9% *358 Garmin Ltd. ...................................... $ 10,495 --------- AGRICULTURE & FISHING -- 1.0% *391 VCA Antech, Inc. ................................. 5,872 --------- APPAREL & TEXTILE -- 3.6% *352 Quiksilver, Inc. ................................. 9,377 *339 Steven Madden Ltd. ............................... 6,130 *129 Timberland Co. (The).............................. 4,579 --------- 20,086 --------- BANKS -- 3.0% 166 FNB Corp. ........................................ 4,570 +142 First Niagara Financial Group, Inc. .............. 3,714 *1,335 Providian Financial Corp. ........................ 8,663 --------- 16,947 --------- BUSINESS SERVICES -- 0.7% *+615 Administaff, Inc. ................................ 3,689 --------- COMMUNICATIONS -- 2.0% *+2,057 American Tower Corp., Class A..................... 7,259 *+621 Nextel Partners, Inc. ............................ 3,768 --------- 11,027 --------- COMPUTERS & OFFICE EQUIPMENT -- 2.9% *52 Fargo Electronics................................. 450 *1,279 Scientific Games Corp., Class A................... 9,289 *1,065 Western Digital Corp. ............................ 6,804 --------- 16,543 --------- CONSTRUCTION -- 0.1% 27 ElkCorp. ......................................... 475 --------- CONSUMER DURABLES -- 0.8% @ 366 Dalsa Corp. ...................................... 4,228 --------- CONSUMER NON-DURABLES -- 3.5% *137 Kenneth Cole Productions, Inc., Class A........... 2,781 *106 Leapfrog Enterprises, Inc. ....................... 2,661 *1,198 Lexar Media, Inc. ................................ 7,514 *511 Pinnacle Systems, Inc. ........................... 6,955 --------- 19,911 --------- CONSUMER SERVICES -- 0.7% 108 G & K Services, Inc., Class A..................... 3,831 --------- DRUGS -- 7.7% *814 Abgenix, Inc. .................................... 5,999 *765 Array BioPharma, Inc. ............................ 4,246 *+135 Intermune, Inc. .................................. 3,445 *179 Medicines Co. (The)............................... 2,874 *314 Millennium Pharmaceuticals, Inc. ................. 2,496 *259 NPS Pharmaceuticals, Inc. ........................ 6,516 *203 OSI Pharmaceuticals, Inc. ........................ 3,336 *579 OraSure Technologies, Inc. ....................... 3,157 *394 SangStat Medical Corp. ........................... 4,447 *86 Scios, Inc. ...................................... 2,815 *246 Vertex Pharmaceuticals, Inc. ..................... 3,905 --------- 43,236 ---------
MARKET SHARES VALUE - --------- --------- EDUCATION -- 0.5% *71 Career Education Corp. ........................... $ 2,824 --------- ELECTRICAL EQUIPMENT -- 2.2% *79 Photon Dynamics, Inc. ............................ 1,811 *332 Rudolf Technologies, Inc. ........................ 6,370 *141 Varian, Inc. ..................................... 4,048 --------- 12,229 --------- ELECTRONICS -- 4.5% *1,464 ASE Test Ltd. .................................... 5,854 121 Harman International Industries, Inc. ............ 7,187 *599 MEMC Electronic Materials, Inc. .................. 4,534 *904 Pericom Semiconductor Corp. ...................... 7,515 --------- 25,090 --------- ENERGY & SERVICES -- 4.7% +695 Chesapeake Energy Corp. .......................... 5,377 +168 Helmerich & Payne, Inc. .......................... 4,695 206 Patina Oil & Gas Corp. ........................... 6,528 *388 Wilbros Group, Inc. .............................. 3,186 264 XTO Energy, Inc. ................................. 6,525 --------- 26,311 --------- EXCHANGE TRADED FUNDS -- 1.6% 222 iShares Russell 2000 Growth Index Fund............ 8,924 --------- FINANCIAL SERVICES -- 1.3% 160 Federated Investors, Inc., Class B................ 4,071 *144 Investment Technology Group, Inc. ................ 3,223 --------- 7,294 --------- FOOD, BEVERAGE & TOBACCO -- 2.8% 367 Bunge Ltd. ....................................... 8,825 45 Interstate Bakeries Corp. ........................ 691 *421 Peet's Coffee & Tea, Inc. ........................ 5,952 --------- 15,468 --------- HEALTH SERVICES -- 5.2% *174 AmSurg Corp. ..................................... 3,550 *191 Coventry Health Care, Inc. ....................... 5,558 *353 Edwards Lifesciences Corp. ....................... 8,987 *660 Human Genome Sciences, Inc. ...................... 5,815 *641 Option Care, Inc. ................................ 5,105 --------- 29,015 --------- HOTELS & GAMING -- 2.3% *506 Station Casinos, Inc. ............................ 8,960 *+300 Wynn Resorts, Ltd. ............................... 3,937 --------- 12,897 --------- INSURANCE -- 4.6% *390 Amerigroup Corp. ................................. 11,833 *261 Arch Capital Group Ltd. .......................... 8,127 *1,462 HealthExtras, Inc. ............................... 5,922 --------- 25,882 --------- MACHINERY -- 2.7% 387 AGCO Corp. ....................................... 8,561 405 Pall Corp. ....................................... 6,759 --------- 15,320 ---------
The accompanying notes are an integral part of this financial statement. 1 HARTFORD SMALL COMPANY HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- --------- COMMON STOCKS -- (CONTINUED) MEDIA & ENTERTAINMENT -- 4.9% *569 AMC Entertainment, Inc. .......................... $ 5,032 *306 Cumulus Media, Inc., Class A...................... 4,552 *59 Entercom Communications Corp. .................... 2,746 *696 Hollywood Entertainment Corp. .................... 10,508 *+162 Multimedia Games, Inc. ........................... 4,442 --------- 27,280 --------- MEDICAL INSTRUMENTS & SUPPLIES -- 4.3% 67 DENTSPLY International, Inc. ..................... 2,490 *252 Orthofix International N.V. ...................... 7,067 *428 Steris Corp. ..................................... 10,381 *+473 Therasense, Inc. ................................. 3,950 --------- 23,888 --------- METALS, MINERALS & MINING -- 1.1% +360 Harmony Gold Mining Co., Ltd., ADR................ 6,046 --------- RESEARCH & TESTING FACILITIES -- 2.2% *+256 CV Therapeutics, Inc. ............................ 4,670 *646 Quintiles Transnational Corp. .................... 7,818 --------- 12,488 --------- RETAIL -- 4.6% *54 Blue Rhino Corp. ................................. 943 *+349 Chicago Pizza & Brewery, Inc. .................... 2,408 *455 J Jill Group, Inc. (The).......................... 6,363 *616 Pacific Sunwear of California, Inc. .............. 10,891 *156 Panera Bread Co. ................................. 5,435 --------- 26,040 --------- RUBBER & PLASTICS PRODUCTS -- 0.8% *221 Applied Films Corp. .............................. 4,422 --------- SOFTWARE & SERVICES -- 11.2% *2,342 Actuate Corp. .................................... 4,145 *720 Borland Software Corp. ........................... 8,851 *445 CheckFree Corp. .................................. 7,113 *131 Cognos, Inc. ..................................... 3,061 *324 Filenet Corp. .................................... 3,956 *253 Hyperion Solutions Corp. ......................... 6,483 *512 Networks Associates, Inc. ........................ 8,237 *+227 PracticeWorks, Inc. .............................. 1,795 *731 Rational Software Corp. .......................... 7,597 *1,328 Red Hat, Inc. .................................... 7,848 *527 VeriSign, Inc. ................................... 4,227 --------- 63,313 --------- TRANSPORTATION -- 4.2% 223 CNF Transportation, Inc. ......................... 7,409 *+317 JetBlue Airways Corp. ............................ 8,565 *332 Yellow Corp. ..................................... 8,360 --------- 24,334 --------- Total common stocks............................... $ 525,405 ========= SHORT-TERM SECURITIES -- 16.0% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 8.7% 48,928 Boston Global Investment Trust.................... $ 48,928 ========= PRINCIPAL MARKET AMOUNT VALUE - --------- --------- REPURCHASE AGREEMENT -- 7.3% $ 41,230 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 41,230 --------- Total short-term securities....................... $ 90,158 =========
DIVERSIFICATION OF NET ASSETS: Total common stocks (cost $560,563)..... 93.6% $ 525,405 Total short-term securities (cost $90,158).............................. 16.0 90,158 ----- --------- Total investment in securities (total cost $650,721) -- including $45,267 of securities loaned (See Note 2(i))..... 109.6 615,563 Cash, receivables and other assets...... 0.0 148 Payable for securities purchased........ (0.8) (4,605) Payable for Fund shares redeemed........ (0.1) (682) Payable for accounting services......... (0.0) (1) Securities lending collateral payable to brokers (See Note 2(i))............... (8.7) (48,928) Other liabilities....................... (0.0) (43) ----- --------- Net assets.............................. 100.0% $ 561,452 ===== =========
SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 1,500,000 shares authorized; 60,461 shares outstanding.................................. $ 6,046 Paid in capital................................ 992,565 Accumulated net investment loss................ (34) Accumulated net realized loss on investments... (401,973) Unrealized depreciation on securities.......... (35,158) Unrealized appreciation on other assets and liabilities in foreign currencies............ 6 --------- Net assets..................................... $ 561,452 =========
Class IA Net asset value per share ($495,074 / 53,269 shares outstanding) (1,125,000 shares authorized).................................... $9.29 ===== Class IB Net asset value per share ($66,378 / 7,192 shares outstanding) (375,000 shares authorized)....... $9.23 =====
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002. (See Note 2(i)). @ Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the market value of these securities amounted to $4,228 or 0.8% of net assets.
The accompanying notes are an integral part of this financial statement. 2 HARTFORD CAPITAL APPRECIATION HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - ---------- ----------- COMMON STOCKS -- 91.4% BANKS -- 5.2% +2,723 Capital One Financial Corp. ...................... $ 80,913 +5,727 Citigroup, Inc. .................................. 201,526 1,000 Golden West Financial Corp. ...................... 71,810 ----------- 354,249 ----------- BUSINESS SERVICES -- 4.0% *+4,155 Concord EFS, Inc. ................................ 65,393 +2,500 Manpower, Inc. ................................... 79,750 +1,948 Omnicom Group, Inc. .............................. 125,854 ----------- 270,997 ----------- CHEMICALS -- 1.9% 2,250 Air Products & Chemicals, Inc. ................... 96,188 1,000 Rohm & Haas Co. .................................. 32,480 ----------- 128,668 ----------- COMMUNICATIONS -- 6.7% 2,030 AT&T Corp. ....................................... 52,992 *+19,767 Nextel Communications, Inc., Class A.............. 228,310 *+47,421 Nortel Networks Corp. ............................ 76,348 +5,350 Vodafone Group PLC, ADR........................... 96,933 ----------- 454,583 ----------- COMPUTERS & OFFICE EQUIPMENT -- 5.5% +2,000 3M Co. ........................................... 246,600 *7,639 Cisco Systems, Inc. .............................. 100,067 *1,200 Dell Computer Corp. .............................. 32,088 ----------- 378,755 ----------- CONSTRUCTION -- 1.7% 6,350 Halliburton Co. .................................. 118,806 ----------- CONSUMER NON-DURABLES -- 4.4% 5,085 McKesson Corp. ................................... 137,450 9,362 Tyco International Ltd. .......................... 159,910 ----------- 297,360 ----------- DRUGS -- 5.8% +1,013 AstraZeneca PLC, ADR.............................. 35,543 +531 Eli Lilly & Co. .................................. 33,738 6,165 Schering-Plough Corp. ............................ 136,863 +4,715 Shionogi & Co., Ltd. ............................. 66,670 +1,200 Teva Pharmaceutical Industries Ltd., ADR.......... 46,332 *2,714 Watson Pharmaceuticals, Inc. ..................... 76,730 ----------- 395,876 ----------- ELECTRICAL EQUIPMENT -- 0.7% *2,500 Thermo Electron Corp. ............................ 50,300 -----------
MARKET SHARES VALUE - ---------- ----------- ELECTRONICS -- 4.5% *1,605 ASM Lithography Holding N.V., ADR................. $ 13,418 *657 Analog Devices, Inc. ............................. 15,675 *425 Broadcom Corp., Class A........................... 6,402 +2,917 General Electric Co. ............................. 71,027 704 Samsung Electronics............................... 186,330 *12,669 Tawain Semiconductor Manufacturing Co., Ltd. ..... 15,522 ----------- 308,374 ----------- ENERGY & SERVICES -- 8.3% 806 Amerada Hess Corp. ............................... 44,343 2,500 Burlington Resources, Inc. ....................... 106,625 2,901 Canadian Natural Resources Ltd. .................. 85,949 +9,500 Sasol Ltd., ADR................................... 118,940 +2,308 Valero Energy Corp. .............................. 85,265 3,076 XTO Energy, Inc. ................................. 75,965 +365 YUKOS, ADR........................................ 51,439 ----------- 568,526 ----------- FINANCIAL SERVICES -- 1.0% 1,639 Morgan Stanley Dean Witter & Co. ................. 65,433 ----------- FOOD, BEVERAGE & TOBACCO -- 1.1% +3,200 Bunge Ltd. ....................................... 76,992 ----------- FOREST & PAPER PRODUCTS -- 2.0% *+9,000 Smurfit-Stone Container Corp. .................... 138,519 ----------- HEALTH SERVICES -- 1.6% *5,811 HEALTH SOUTH Corp. ............................... 24,405 *5,139 Tenet Healthcare Corp. ........................... 84,271 ----------- 108,676 ----------- HOTELS & GAMING -- 0.4% *+2,043 Wynn Resorts, Ltd. ............................... 26,789 ----------- INSURANCE -- 4.8% +6,929 Ace Ltd. ......................................... 203,309 2,135 American International Group, Inc. ............... 123,481 ----------- 326,790 ----------- MACHINERY -- 2.4% 2,525 Deere & Co. ...................................... 115,771 2,752 Pall Corp. ....................................... 45,907 ----------- 161,678 ----------- MEDIA & ENTERTAINMENT -- 5.1% *1,400 Clear Channel Communications, Inc. ............... 52,206 *5,701 Comcast Corp. .................................... 128,786 *9,427 Liberty Media Corp., Class A...................... 84,279 *+3,553 USA Networks, Inc. ............................... 81,217 ----------- 346,488 ----------- MEDICAL INSTRUMENTS & SUPPLIES -- 1.9% 3,000 Becton, Dickinson & Co. .......................... 92,070 *+1,316 Guidant Corp. .................................... 40,605 ----------- 132,675 -----------
The accompanying notes are an integral part of this financial statement. 3 HARTFORD CAPITAL APPRECIATION HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - ---------- ----------- COMMON STOCKS -- (CONTINUED) -x METALS, MINERALS & MINING -- 4.4% +3,400 Alcoa, Inc. ...................................... $ 77,452 +984 AngloGold Ltd., ADR............................... 33,695 1,796 Engelhard Corp. .................................. 40,138 +6,651 Gold Fields Ltd., ADR............................. 92,841 +1,538 JSC Mining and Smelting Co., ADR.................. 31,099 +402 Potash Corp. of Saskatchewan, Inc. ............... 25,550 ----------- 300,775 ----------- RESEARCH & TESTING FACILITIES -- 1.2% *+700 CV Therapeutics, Inc. ............................ 12,754 2,103 Monsanto Co. ..................................... 40,489 *+1,400 Regeneron Pharmeceuticals, Inc. .................. 25,914 ----------- 79,157 ----------- RETAIL -- 2.1% *1,000 Cheesecake Factory, Inc. (The).................... 36,150 1,404 Dollar General Corp. ............................. 16,772 2,042 McDonald's Corp. ................................. 32,834 *+1,830 Neiman Marcus Group, Inc., Class A................ 55,620 ----------- 141,376 ----------- RUBBER & PLASTICS PRODUCTS -- 0.1% *341 Reebok International Ltd. ........................ 10,017 ----------- SOFTWARE & SERVICES -- 5.3% *+7,441 AOL Time Warner, Inc. ............................ 97,472 *2,385 Computer Sciences Corp. .......................... 82,149 43 First Data Corp. ................................. 1,530 *+2,193 Microsoft Corp. .................................. 113,383 *184 Symantec Corp. ................................... 7,427 *+201 VERITAS Software Corp. ........................... 3,141 *+5,990 VeriSign, Inc. ................................... 48,041 *8,400 i2 Technologies, Inc. ............................ 9,660 ----------- 362,803 ----------- TRANSPORTATION -- 6.6% 2,220 Bombardier, Inc., Class B......................... 7,475 4,100 Delphi Corp. ..................................... 33,005 *1,030 Kia Motors Corp. ................................. 7,639 +2,673 Northrop Grumman Corp. ........................... 259,252 4,854 Toyota Motor Corp. ............................... 130,479 565 Werner Enterprises, Inc. ......................... 12,154 ----------- 450,004 ----------- UTILITIES -- 2.7% +1,110 FPL Group, Inc. .................................. 66,726 1,168 TXU Corp. ........................................ 21,809 4,354 Waste Management, Inc. ........................... 99,796 ----------- 188,331 ----------- Total common stocks............................... $ 6,242,997 ===========
PRINCIPAL MARKET AMOUNT VALUE - ---------- ----------- CORPORATE NOTESV -- 0.8% COMMUNICATIONS -- 0.8% $ 20,700 Qwest Capital Funding, Inc. (B2 Moodys) 7.90% due 08/15/10.............................. $ 13,455 60,300 Qwest Capital Funding, Inc. (Ba2 Moodys) 7.25% due 02/15/11.............................. 38,592 52,047 ----------- Total corporate notes............................. $ 52,047 =========== SHARES - ---------- -X SHORT-TERM SECURITIES -- 18.8% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 10.4% 314,434 UBS Private Money Market Fund..................... 314,434 84,116 UBS Select Money Market Fund...................... 84,116 1,598 Federated Prime Cash.............................. 1,598 102,682 Federated Prime Obligation........................ 102,682 207,354 Provident Temp Cash............................... 207,354 @@0 Provident Temp Fund............................... -- ----------- $ 710,184 ----------- PRINCIPAL AMOUNT - ---------- 6XREPURCHASE AGREEMENT -- 8.4% $ 576,395 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 576,395 ----------- Total short-term securities....................... $ 1,286,579 ===========
DIVERSIFICATION OF NET ASSETS: Total common stocks (cost $6,797,357)......................... 91.4% $ 6,242,997 Total corporate notes (cost $48,995)............................ 0.8 52,047 Total short-term securities (cost $1,286,579)......................... 18.8 1,286,579 Total investment in securities (total cost $8,132,931) -- including $674,993 of securities loaned (See Note 2(i)).......................... 111.0 7,581,623 Cash, receivables and other assets.... 1.3 89,599 Payable for securities purchased...... (1.9) (129,420) Payable for Fund shares redeemed...... (0.0) (1,942) Payable for accounting services....... (0.0) (7) Securities lending collateral payable to brokers (See Note 2(i)).......... (10.4) (710,184) Other liabilities..................... (0.0) (797) ----- ----------- Net assets............................ 100.0% $ 6,828,872 ===== ===========
The accompanying notes are an integral part of this financial statement. 4 - --------------------------------------------------------------------------------
MARKET VALUE ----------- SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 5,000,000 shares authorized; 215,459 shares outstanding................................. $ 21,546 Paid in capital............................... 8,977,127 Accumulated net investment income............. 1,931 Accumulated net realized loss on investments................................. (1,620,216) Unrealized depreciation on securities......... (551,308) Unrealized depreciation on forward foreign currency contracts (See Note 2(g))@@@....... (264) Unrealized appreciation on other assets and liabilities in foreign currencies........... 56 ----------- Net assets.................................... $ 6,828,872 ===========
Class IA Net asset value per share ($6,240,859 / 196,868 shares outstanding) (4,250,000 shares authorized)................................... $31.70 ====== Class IB Net asset value per share ($588,013 / 18,591 shares outstanding) (750,000 shares authorized)................................... $31.63 ======
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002 (See Note 2(i)). V The bond ratings are unaudited.
@@@FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT DECEMBER 31, 2002
UNREALIZED CONTRACT DELIVERY APPRECIATION DESCRIPTION MARKET VALUE AMOUNT DATE (DEPRECIATION) - ----------- ------------ -------- -------- -------------- Canadian Dollars (Buy) $ 296 $ 298 1/2/2003 $ (2) Canadian Dollars (Buy) 652 653 1/3/2003 (1) Canadian Dollars (Buy) 1,550 1,558 1/6/2003 (8) EURO (Sell) 18,021 17,589 1/2/2003 (432) Japanese Yen (Buy) 4,123 4,079 1/6/2003 44 Japanese Yen (Buy) 12,476 12,348 1/7/2003 128 Japanese Yen (Buy) 8,975 8,968 1/8/2003 7 ----- $(264) =====
The accompanying notes are an integral part of this financial statement. 5 HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- -------- COMMON STOCKS -- 97.8% AUSTRALIA -- 0.8% 815 News Corp., Ltd. (The) (Media & Entertainment).... $ 5,265 -------- AUSTRIA -- 1.1% @707.... Telekom Austria AG (Communications)............... 7,159 -------- BELGIUM -- 1.2% 451 Fortis (Financial Services)....................... 7,877 -------- BRAZIL -- 0.8% 177 Companhia Vale do Rio Doce ADR (Metals, Minerals & Mining)......................................... 5,113 -------- CANADA -- 2.6% 196 Canadian National Railway Co. (Transportation).... 8,125 *221 Celestica, Inc. (Electronics)..................... 3,119 +292 National Bank of Canada (Banks)................... 5,970 -------- 17,214 -------- FINLAND -- 2.8% 912 Nokia Oyj (Communications)........................ 14,499 +137 UPM-Kymmene Oyj (Forest & Paper Products)......... 4,401 -------- 18,900 -------- FRANCE -- 11.4% 367 AXA (Financial Services).......................... 4,929 249 Aventis S.A. (Drugs).............................. 13,544 +228 BNP Paribas S.A. (Banks).......................... 9,290 +85 Carrefour S.A. (Retail)........................... 3,773 +118 Peugeot Citroen S.A. (Transportation)............. 4,824 69 Sanofi-Synthelabo S.A. (Medical Instruments & Supplies)....................................... 4,205 65 Schneider Electric S.A. (Electrical Equipment).... 3,071 +324 Suez S.A. (Energy & Services)..................... 5,622 153 TotalFinaElf S.A., B Shares (Energy & Services)... 21,825 +256 Vivendi Environnement (Transportation)............ 5,960 -------- 77,043 -------- GERMANY -- 6.7% +79 Adidas AG (Apparel & Textile)..................... 6,714 217 BASF AG (Chemicals)............................... 8,171 +269 Metro AG (Retail)................................. 6,502 165 RWE AG (Utilities)................................ 4,234 59 SAP AG (Software & Services)...................... 4,640 227 Veba AG (Utilities)............................... 9,139 95 Wella AG (Consumer Durables)...................... 5,644 -------- 45,044 -------- HONG KONG -- 0.4% 427 Sun Hung Kai Properties (Real Estate)............. 2,530 --------
MARKET SHARES VALUE - --------- -------- IRELAND -- 2.4% 539 Allied Irish Banks PLC (Banks).................... $ 7,379 *1,254 Ryanair Holdings PLC (Transportation)............. 8,897 -------- 16,276 -------- ITALY -- 3.4% +421 ENI S.p.A. (Energy & Services).................... 6,694 +816 Mediaset S.p.A. (Media & Entertainment)........... 6,218 +850 Telecom Italia Mobile S.p.A. (Communications)..... 3,880 1,516 UniCredito Italiano S.p.A. (Financial Services)... 6,061 -------- 22,853 -------- JAPAN -- 14.3% +105 Canon, Inc. (Computers & Office Equipment)........ 3,955 +448 Citizen Watch Co., Ltd. (Retail).................. 1,997 +1 DDI Corp. (Communications)........................ 2,745 1 East Japan Railway Co. (Transportation)........... 4,929 107 Fast Retailing Co., Ltd. (Retail)................. 3,776 203 Fujisawa Pharmaceutical Co., Ltd. (Drugs)......... 4,629 171 Honda Motor Co., Ltd. (Transportation)............ 6,318 36 Hoya Corp. (Medical Instruments & Supplies)....... 2,521 +291 Kao Corp. (Consumer Non-Durables)................. 6,388 +285 Mitsubishi Estate Co., Ltd. (Real Estate)......... 2,171 128 Murata Manufacturing Co., Ltd. (Electronics)...... 5,023 +2 NTT DoCoMo, Inc. (Communications)................. 4,412 788 Nikko Cordial Corp. (Financial Services).......... 2,657 51 Nintendo Co., Ltd. (Consumer Non-Durables)........ 4,738 1 Nippon Unipac Holding (Forest & Paper Products)... 2,313 +194 Pioneer Corp. (Electronics)....................... 3,637 149 Promise Co., Ltd. (Financial Services)............ 5,307 13 Rohm Co., Ltd (Electronics)....................... 1,706 *6 SKY Perfect Communications, Inc. (Communications)................................ 4,880 +77 Secom Co., Ltd. (Electronics)..................... 2,624 +531 Shionogi & Co., Ltd. (Drugs)...................... 7,508 92 Sony Corp. (Electronics).......................... 3,846 *+1 Sumitomo Mitsui Financia (Banks).................. 2,849 +365 Tostem Inax Holding Corp. (Construction).......... 5,536 -------- 96,465 -------- MALAYSIA -- 0.7% 1,906 Resort World Berhad (Hotels & Gaming)............. 4,690 -------- NETHERLANDS -- 8.6% 677 Aegon N.V. (Insurance)............................ 8,707 605 ING Group N.V. (Insurance)........................ 10,246 1,606 Koninklijke KPN N.V. (Communications)............. 10,448 312 Philips Electronics N.V. (Electronics)............ 5,468
The accompanying notes are an integral part of this financial statement. 6 - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- -------- COMMON STOCKS -- (CONTINUED) NETHERLANDS -- (CONTINUED) +400 Royal Dutch Petroleum Co. (Energy & Services)..... $ 17,626 328 TNT Post Group N.V. (Consumer Services)........... 5,313 -------- 57,808 -------- NEW ZEALAND -- 0.5% o1,497 Telecom Corp. of New Zealand Ltd. (Communications)................................ 3,547 -------- SINGAPORE -- 1.4% @@0 Haw Par Corp., Ltd. (Financial Services).......... -- 477 Singapore Press Holding (Media & Entertainment)... 5,005 694 United Overseas Bank Ltd. (Financial Services).... 4,721 -------- 9,726 -------- SOUTH AFRICA -- 0.7% 142 AngloGold Ltd., ADR (Metals, Minerals & Mining)... 4,851 SOUTH KOREA -- 3.3% *301 Kia Motors Corp. (Transportation)................. 2,231 *50 Kookmin Bank (Banks).............................. 1,773 @385 Korea Tobacco & Ginseng Corp., GDR (Food, Beverage & Tobacco)...................................... 2,560 *44 SK Telecom Co., Ltd., ADR (Communications)........ 8,530 28 Samsung Electronics (Electronics)................. 7,312 -------- 22,406 -------- SPAIN -- 1.0% 274 Industria de Diseno Textil S.A. (Apparel & Textile)........................................ 6,465 -------- SWEDEN -- 3.6% 876 Gambro AB, A Shares (Medical Instruments & Supplies)....................................... 4,874 145 SFK AB (Metals, Minerals & Mining)................ 3,759 317 Svenska Handelsbanken, Inc. (Banks)............... 4,220 1,119 Swedish Match AB (Consumer Non-Durables).......... 8,798 3,408 Telefonaktiebolaget LM Ericcson AB, B Shares, ADR (Communications)................................ 2,386 -------- 24,037 -------- SWITZERLAND -- 6.7% 83 Ciba Speciality Chemicals (Chemicals)............. 5,793 327 Credit Suisse Group (Banks)....................... 7,099 80 Nestle S.A. (Food, Beverage & Tobacco)............ 16,988 162 Novartis AG (Drugs)............................... 5,926 44 Roche Holdings AG (Drugs)......................... 3,051 108 Syngenta AG (Chemicals)........................... 6,231 -------- 45,088 --------
MARKET SHARES VALUE - --------- -------- TAIWAN -- 1.1% *521 Taiwan Semiconductor Manufacturing Co., Ltd., ADR (Electronics)................................... $ 3,673 *745 Tawain Semiconductor Manufacturing Co., Ltd. (Electronics)................................... 913 *3,924 United Microelectronics Corp. (Electronics)....... 2,381 *+57 United Microelectronics Corp., ADR (Electronics)................................... 192 -------- 7,159 -------- THAILAND -- 0.9% *4,639 Siam Commercial Bank -- Foreign Registered (Banks)......................................... 3,095 *4,646 Thai Farmers Bank (Banks)......................... 3,234 -------- 6,329 -------- UNITED KINGDOM -- 19.9% 468 AstraZeneca PLC (Drugs)........................... 16,671 637 Aviva PLC (Financial Services).................... 4,555 1,894 BP PLC (Energy & Services)........................ 13,037 *507 British Sky Broadcasting PLC (Media & Entertainment).................................. 5,217 1,948 Compass Group PLC (Food, Beverage & Tobacco)...... 10,316 829 Diageo PLC (Food, Beverage & Tobacco)............. 9,012 542 GlaxoSmithKline PLC (Drugs)....................... 10,403 728 HSBC Holdings PLC (Banks)......................... 8,045 578 Hilton Group PLC (Hotels & Gaming)................ 1,535 671 Imperial Tobacco Group PLC (Food, Beverage & Tobacco)........................................ 11,361 632 Pearson PLC (Media & Entertainment)............... 5,844 643 Royal Bank of Scotland Group PLC (Banks).......... 15,382 12,822 Vodafone Group PLC (Communications)............... 23,428 -------- 134,806 -------- UNITED STATES OF AMERICA -- 1.5% *384 Accenture Ltd., Class A (Business Services)....... 6,912 83 Schlumberger Ltd. (Energy & Services)............. 3,483 -------- 10,395 -------- Total common stocks............................... $659,046 ======== SHORT-TERM SECURITIES -- 15.2% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 13.1% 88,489 State Street Navigator Securities Lending Prime Portfolio....................................... $ 88,489 PRINCIPAL AMOUNT - --------- REPURCHASE AGREEMENT -- 2.1% $14,095 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 14,095 -------- Total short-term securities....................... $102,584 ========
The accompanying notes are an integral part of this financial statement. 7 HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET VALUE -------- DIVERSIFICATION OF NET ASSETS: Total common stocks (cost $694,360)...... 97.8% $659,046 Total short-term securities (cost $102,584).............................. 15.2 102,584 ----- -------- Total investment in securities (total cost $796,944) -- including $84,154 of securities loaned (See Note 2(i))...... 113.0 761,630 Cash, receivables and other assets....... 0.4 2,611 Payable for securities purchased......... (0.2) (1,579) Payable for Fund shares redeemed......... (0.1) (435) Payable for accounting services.......... (0.0) (1) Securities lending collateral payable to brokers (See Note 2(i))................ (13.1) (88,489) Other liabilities........................ (0.0) (193) ----- -------- Net assets............................... 100.0% $673,544 ===== ========
SUMMARY OF NET ASSETS: Capital stock, par value $0.10 per share; 2,500,000 shares authorized; 87,932 shares outstanding.................................. $ 8,793 Paid in capital................................ 1,078,984 Accumulated net investment income.............. 1,082 Accumulated net realized loss on investments... (380,044) Unrealized depreciation on securities.......... (35,314) Unrealized depreciation on forward foreign currency contracts (See Note 2(g))@@@........ (23) Unrealized appreciation on other assets and liabilities in foreign currencies............ 66 ---------- Net assets..................................... $ 673,544 ==========
Class IA Net asset value per share ($646,903 / 84,452 shares outstanding) (1,875,000 shares authorized).................................... $7.66 ===== Class IB Net asset value per share ($26,641 / 3,480 shares outstanding) (625,000 shares authorized)....... $7.66 =====
MARKET VALUE -------- DIVERSIFICATION BY INDUSTRY Apparel & Textile......................... 2.0% $ 13,179 Banks..................................... 10.1 68,336 Business Services......................... 1.0 6,912 Chemicals................................. 3.0 20,195 Communications............................ 12.8 85,914 Computers & Office Equipment.............. 0.6 3,955 Construction.............................. 0.8 5,536 Consumer Durables......................... 0.8 5,644 Consumer Non-Durables..................... 3.0 19,924 Consumer Services......................... 0.8 5,313 Drugs..................................... 9.2 61,732 Electrical Equipment...................... 0.5 3,071 Electronics............................... 5.9 39,894 Energy & Services......................... 10.1 68,287 Financial Services........................ 5.4 36,107 Food, Beverage & Tobacco.................. 7.5 50,237 Forest & Paper Products................... 1.0 6,714 Hotels & Gaming........................... 0.9 6,225 Insurance................................. 2.8 18,953 Media & Entertainment..................... 4.1 27,549 Medical Instruments & Supplies............ 1.7 11,600 Metals, Minerals & Mining................. 2.0 13,723 Real Estate............................... 0.7 4,701 Retail.................................... 2.4 16,048 Software & Services....................... 0.7 4,640 Transportation............................ 6.1 41,284 Utilities................................. 1.9 13,373 ---- -------- Total common stocks................... 97.8% $659,046 ==== ========
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002. (See Note 2(i)). @ Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the market value of these securities amounted to $9,719 or 1.4% of net assets. o Private placement. @@ Due to the presentation of the financial statements in thousands, the number of shares rounds to zero.
@@@FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT DECEMBER 31, 2002
UNREALIZED DELIVERY APPRECIATION DESCRIPTION MARKET VALUE CONTRACT AMOUNT DATE (DEPRECIATION) - ----------- ------------ --------------- ---------- -------------- EURO (Sell) $835 $815 01/02/2003 $(20) British Pound (Sell) 612 609 01/02/2003 (3) Singapore Dollar (Sell) 52 52 01/06/2003 -- ---- $(23) ====
The accompanying notes are an integral part of this financial statement. 8 HARTFORD STOCK HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- ----------- COMMON STOCKS -- 98.3% AEROSPACE & DEFENSE -- 0.4% *1,878 General Motors Corp., Class H..................... $ 20,098 ----------- BANKS -- 12.3% 757 American Express Co. ............................. 26,742 1,855 Bank One Corp. ................................... 67,800 546 Bank of America Corp. ............................ 37,971 4,883 Citigroup, Inc. .................................. 171,847 1,083 Fannie Mae........................................ 69,695 2,376 Fleet Boston Financial Corp. ..................... 57,732 2,949 Household International, Inc. .................... 82,003 2,065 State Street Corp. ............................... 80,531 2,330 U.S. Bancorp...................................... 49,443 509 Wachovia Corp. ................................... 18,537 ----------- 662,301 ----------- BUSINESS SERVICES -- 1.0% *+3,066 Accenture Ltd., Class A........................... 55,159 ----------- CHEMICALS -- 1.0% 1,868 Dow Chemical Co. (The)............................ 55,468 ----------- COMMUNICATIONS -- 2.7% 3,445 SBC Communications, Inc. ......................... 93,381 1,315 Verizon Communications, Inc. ..................... 50,952 ----------- 144,333 ----------- COMPUTERS & OFFICE EQUIPMENT -- 5.1% *4,981 Cisco Systems, Inc. .............................. 65,252 5,208 Hewlett-Packard Co. .............................. 90,407 1,566 International Business Machines Corp. ............ 121,334 ----------- 276,993 ----------- CONSTRUCTION -- 0.9% 2,719 Halliburton Co. .................................. 50,867 ----------- CONSUMER NON-DURABLES -- 4.2% 1,488 Estee Lauder Cos., Inc. (The), Class A............ 39,294 1,771 Gillette Co. (The)................................ 53,765 365 Procter & Gamble Co. (The)........................ 31,360 *4,309 Safeway, Inc. .................................... 100,654 ----------- 225,073 ----------- DRUGS -- 13.8% 2,631 Abbott Laboratories............................... 105,256 *1,099 Amgen, Inc. ...................................... 53,101 150 Aventis S.A., ADR................................. 8,112 1,001 Eli Lilly & Co. .................................. 63,544 *2,150 Genzyme Corp. .................................... 63,576 *469 IDEC Pharmaceuticals Corp. ....................... 15,567 5,091 Pfizer, Inc. ..................................... 155,617 1,025 Pharmacia Corp. .................................. 42,835 4,292 Schering-Plough Corp. ............................ 95,280 3,813 Wyeth............................................. 142,595 ----------- 745,483 -----------
MARKET SHARES VALUE - --------- ----------- ELECTRONICS -- 4.6% 6,376 General Electric Co. ............................. $ 155,260 5,980 Intel Corp. ...................................... 93,113 ----------- 248,373 ----------- ENERGY & SERVICES -- 5.8% 1,019 Anadarko Petroleum Corp. ......................... 48,805 1,230 ChevronTexaco Corp. .............................. 81,751 4,046 Exxon Mobil Corp. ................................ 141,353 1,028 Schlumberger Ltd. ................................ 43,247 ----------- 315,156 ----------- FINANCIAL SERVICES -- 4.3% 3,112 Franklin Resources, Inc. ......................... 106,057 773 Goldman Sachs Group, Inc. (The)................... 52,669 1,947 Merrill Lynch & Co., Inc. ........................ 73,881 ----------- 232,607 ----------- FOOD, BEVERAGE & TOBACCO -- 4.0% 1,124 Coca-Cola Co. (The)............................... 49,232 +1,482 General Mills, Inc. .............................. 69,589 2,285 PepsiCo., Inc. ................................... 96,477 ----------- 215,298 ----------- FOREST & PAPER PRODUCTS -- 2.4% 1,533 International Paper Co. .......................... 53,592 1,617 Kimberly-Clark Corp. ............................. 76,735 ----------- 130,327 ----------- HEALTH SERVICES -- 0.6% 740 HCA, Inc. ........................................ 30,722 ----------- INSURANCE -- 4.9% 2,471 American International Group, Inc. ............... 142,947 1,912 Marsh & McLennan Cos., Inc. ...................... 88,344 *2,307 Travelers Property Casualty Corp., Class B........ 33,792 ----------- 265,083 ----------- MACHINERY -- 1.0% 460 Caterpillar, Inc. ................................ 21,013 512 United Technologies Corp. ........................ 31,732 ----------- 52,745 ----------- MEDIA & ENTERTAINMENT -- 2.5% *1,367 Comcast Corp., Class A............................ 32,232 710 Gannett Co., Inc. ................................ 50,949 *5,997 Liberty Media Corp., Class A...................... 53,615 ----------- 136,796 ----------- MEDICAL INSTRUMENTS & SUPPLIES -- 2.5% 3,259 Baxter International, Inc. ....................... 91,238 *532 Guidant Corp. .................................... 16,403 361 Medtronic, Inc. .................................. 16,462 *325 St. Jude Medical, Inc. ........................... 12,913 ----------- 137,016 -----------
The accompanying notes are an integral part of this financial statement. 9 HARTFORD STOCK HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- ----------- COMMON STOCKS -- (CONTINUED) METALS, MINERALS & MINING -- 3.0% 3,009 Alcoa, Inc. ...................................... $ 68,543 496 Illinois Tool Works, Inc. ........................ 32,197 546 Lockheed Martin Corp. ............................ 31,526 1,372 Masco Corp. ...................................... 28,870 ----------- 161,136 ----------- RETAIL -- 4.3% 3,300 CVS Corp. ........................................ 82,401 *2,028 Costco Wholesale Corp. ........................... 56,894 2,852 Home Depot, Inc. (The)............................ 68,334 1,429 McDonald's Corp. ................................. 22,983 ----------- 230,612 ----------- RUBBER & PLASTICS PRODUCTS -- 1.5% +1,759 NIKE, Inc., Class B............................... 78,223 ----------- SOFTWARE & SERVICES -- 9.1% *10,634 AOL Time Warner, Inc. ............................ 139,308 1,531 Automatic Data Processing, Inc. .................. 60,104 *1,439 Computer Sciences Corp. .......................... 49,567 *3,802 Microsoft Corp. .................................. 196,538 *4,402 Oracle Corp. ..................................... 47,542 ----------- 493,059 ----------- TRANSPORTATION -- 3.3% 1,677 Boeing Co. (The).................................. 55,337 410 CSX Corp. ........................................ 11,607 787 FedEx Corp. ...................................... 42,649 699 Northrop Grumman Corp. ........................... 67,755 ----------- 177,348 ----------- UTILITIES -- 3.1% 1,465 Exelon Corp. ..................................... 77,313 766 FPL Group, Inc. .................................. 46,078 1,586 Waste Management, Inc. ........................... 36,358 ----------- 159,749 ----------- Total common stocks............................... $ 5,300,025 =========== SHORT-TERM SECURITIES -- 2.2% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 0.6% 33,787 Boston Global Investment Trust.................... $ 33,787 ----------- PRINCIPAL MARKET AMOUNT VALUE - --------- ----------- REPURCHASE AGREEMENT -- 1.6% $87,844 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 87,844 ----------- Total short-term securities....................... $ 121,631 ===========
DIVERSIFICATION OF NET ASSETS: Total common stocks (cost $6,566,483)......................... 98.3% $ 5,300,025 Total short-term securities (cost $121,631)........................... 2.2 121,631 ----- ----------- Total investment in securities (total cost $6,688,114) -- including $32,720 of securities loaned (See Note 2(i))..................... 100.5 5,421,656 Cash, receivables and other assets.... 0.2 10,329 Payable for Fund shares redeeemed..... (0.1) (6,800) Payable for accounting services....... (0.0) (6) Securities lending collateral payable to brokers (See Note 2(i)).......... (0.6) (33,787) Other liabilities..................... (0.0) (349) ----- ----------- Net assets............................ 100.0% $ 5,391,043 ===== ===========
SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 3,400,000 shares authorized; 152,034 shares outstanding................................. $ 15,203 Paid in capital............................... 7,159,485 Accumulated net investment income............. 5,503 Accumulated net realized loss on investments................................. (522,690) Unrealized depreciation on securities......... (1,266,458) ----------- Net assets.................................... $ 5,391,043 ===========
Class IA Net asset value per share ($5,094,276 / 143,656 shares outstanding) (2,400,000 shares authorized)................................... $35.46 ====== Class IB Net asset value per share ($296,767 / 8,378 shares outstanding) (1,000,000 shares authorized)................................... $35.42 ======
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002. (See Note 2(i)).
The accompanying notes are an integral part of this financial statement. 10 HARTFORD DIVIDEND AND GROWTH HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- ---------- COMMON STOCKS -- 95.1% BANKS -- 8.5% 2,288 Citigroup, Inc. .................................. $ 80,510 684 Comerica, Inc. ................................... 29,589 1,240 Household International, Inc. .................... 34,479 597 PNC Financial Services Group...................... 24,993 1,129 Synovus Financial Corp. .......................... 21,903 1,342 U.S. Bancorp...................................... 28,481 1,306 Wachovia Corp. ................................... 47,576 ---------- 267,531 ---------- BUSINESS SERVICES -- 0.8% 372 Omnicom Group, Inc. .............................. 24,031 ---------- CHEMICALS -- 5.3% +498 Akzo Nobel N.V., ADR.............................. 15,872 346 Avery Dennison Corp. ............................. 21,103 766 Dow Chemical Co. (The)............................ 22,756 819 Rohm & Haas Co. .................................. 26,598 1,901 du Pont (E.I.) de Nemours & Co. .................. 80,604 ---------- 166,933 ---------- COMMUNICATIONS -- 6.4% 922 AT&T Corp. ....................................... 24,077 * 2559 AT&T Wireless Services, Inc. ..................... 14,461 2,087 Alcatel Alsthom CGE, ADR.......................... 9,266 1,838 BellSouth Corp. .................................. 47,552 +2,461 Motorola, Inc. ................................... 21,285 2,134 Verizon Communications, Inc. ..................... 82,702 ---------- 199,343 ---------- COMPUTERS & OFFICE EQUIPMENT -- 4.6% 2,234 Hewlett-Packard Co. .............................. 38,774 924 International Business Machines Corp. ............ 71,579 1,020 Pitney Bowes, Inc. ............................... 33,320 ---------- 143,673 ---------- CONSTRUCTION -- 0.5% 900 Halliburton Co. .................................. 16,846 ---------- CONSUMER NON-DURABLES -- 2.8% 620 Eastman Kodak Co. ................................ 21,735 610 Gillette Co. (The)................................ 18,529 640 McKesson Corp. ................................... 17,288 *950 Safeway, Inc. .................................... 22,192 397 Tyco International Ltd. .......................... 6,784 ---------- 86,528 ---------- DRUGS -- 6.2% 1,205 Abbott Laboratories............................... 48,208 839 AstraZeneca PLC, ADR.............................. 29,433 1,289 Pharmacia Corp. .................................. 53,900 2,822 Schering-Plough Corp. ............................ 62,657 ---------- 194,198 ----------
MARKET SHARES VALUE - --------- ---------- ELECTRONICS -- 2.2% 500 Emerson Electric Co. ............................. $ 25,435 557 General Electric Co. ............................. 13,560 1,165 Intel Corp. ...................................... 18,144 874 Texas Instruments, Inc. .......................... 13,116 ---------- 70,255 ---------- ENERGY & SERVICES -- 9.8% 697 ChevronTexaco Corp. .............................. 46,350 512 ConocoPhillips.................................... 24,797 1,511 EnCana Corp. ..................................... 46,983 2,656 Exxon Mobil Corp. ................................ 92,796 828 Royal Dutch Petroleum Co., ADR, NY Shares......... 36,457 651 Schlumberger Ltd. ................................ 27,413 474 TotalFinaElf S.A., ADR............................ 33,891 ---------- 308,687 ---------- FINANCIAL SERVICES -- 2.4% 898 Franklin Resources, Inc. ......................... 30,604 +966 Merrill Lynch & Co., Inc. ........................ 36,667 221 Morgan Stanley Dean Witter & Co. ................. 8,838 ---------- 76,109 ---------- FOOD, BEVERAGE & TOBACCO -- 4.2% 872 General Mills, Inc. .............................. 40,940 784 PepsiCo., Inc. ................................... 33,079 812 Philip Morris Cos., Inc. ......................... 32,918 1,168 Sara Lee Corp. ................................... 26,280 ---------- 133,217 ---------- FOREST & PAPER PRODUCTS -- 3.6% 816 Abitibi-Consolidated, Inc. ....................... 6,292 +285 Bowater, Inc. .................................... 11,960 525 Kimberly-Clark Corp. ............................. 24,936 +463 Temple-Inland, Inc. .............................. 20,747 1,004 Weyerhaeuser Co. ................................. 49,412 ---------- 113,347 ---------- HEALTH SERVICES -- 0.5% *908 Tenet Healthcare Corp. ........................... 14,891 ---------- INSURANCE -- 5.1% 500 AFLAC, Inc. ...................................... 15,063 447 Ace Ltd. ......................................... 13,118 838 American International Group, Inc. ............... 48,495 262 CIGNA Corp. ...................................... 10,765 688 MBIA, Inc. ....................................... 30,171 559 XL Capital Ltd., Class A.......................... 43,206 ---------- 160,818 ---------- MACHINERY -- 2.6% 981 Caterpillar, Inc. ................................ 44,860 +816 Parker-Hannifin Corp. ............................ 37,637 ---------- 82,497 ----------
The accompanying notes are an integral part of this financial statement. 11 HARTFORD DIVIDEND AND GROWTH HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - --------- ---------- COMMON STOCKS -- (CONTINUED) MEDIA & ENTERTAINMENT -- 2.6% *948 Comcast Corp. .................................... $ 21,406 *780 Comcast Corp., Class A............................ 18,388 591 Gannett Co., Inc. ................................ 42,463 ---------- 82,257 ---------- MEDICAL INSTRUMENTS & SUPPLIES -- 1.7% 1,120 Baxter International, Inc. ....................... 31,363 714 Becton, Dickinson & Co. .......................... 21,903 ---------- 53,266 ---------- METALS, MINERALS & MINING -- 2.2% 577 Alcan, Inc. ...................................... 17,033 2,301 Alcoa, Inc. ...................................... 52,412 ---------- 69,445 ---------- REAL ESTATE INVESTMENT TRUST -- 0.4% 394 Kimco Realty Corp. ............................... 12,060 ---------- RESEARCH & TESTING FACILITIES -- 0.5% 877 Monsanto Co. ..................................... 16,878 ---------- RETAIL -- 2.9% 598 CVS Corp. ........................................ 14,927 788 Home Depot, Inc. (The)............................ 18,885 2,066 McDonald's Corp. ................................. 33,215 949 Sears, Roebuck and Co. ........................... 22,724 ---------- 89,751 ---------- SOFTWARE & SERVICES -- 2.4% *1,910 AOL Time Warner, Inc. ............................ 25,017 340 Automatic Data Processing, Inc. .................. 13,361 *621 Computer Sciences Corp. .......................... 21,380 *275 Microsoft Corp. .................................. 14,202 ---------- 73,960 ---------- TRANSPORTATION -- 7.8% 923 Boeing Co. (The).................................. 30,453 805 CP Railway Ltd. .................................. 15,852 1,125 CSX Corp. ........................................ 31,860 2,148 Delphi Corp. ..................................... 17,290 1,152 Delta Air Lines, Inc. ............................ 13,944 517 FedEx Corp. ...................................... 28,053 1,695 Ford Motor Co. ................................... 15,766 1,241 Honeywell International, Inc. .................... 29,782 317 USFreightways Corp. .............................. 9,120 895 Union Pacific Corp. .............................. 53,602 ---------- 245,722 ---------- UTILITIES -- 9.1% +726 American Electric Power Co., Inc. ................ 19,842 640 Constellation Energy Group, Inc. ................. 17,794 289 Dominion Resources, Inc. ......................... 15,888 963 Exelon Corp. ..................................... 50,829 790 FPL Group, Inc. .................................. 47,485 1,015 FirstEnergy Corp. ................................ 33,451
MARKET SHARES VALUE - --------- ---------- UTILITIES -- (CONTINUED) 984 Pinnacle West Capital Corp. ...................... $ 33,528 564 Progress Energy, Inc. ............................ 24,432 1,664 Waste Management, Inc. ........................... 38,139 ---------- 281,388 ---------- Total common stocks............................... $2,983,631 ========== SHORT-TERM SECURITIES -- 6.0% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 1.0% 32,146 Boston Global Investment Trust.................... $ 32,146 ---------- PRINCIPAL AMOUNT - --------- REPURCHASE AGREEMENT -- 5.0% $157,383 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 157,383 ---------- Total short-term securities....................... $ 189,529 ==========
DIVERSIFICATION OF NET ASSETS: Total common stocks (cost $3,407,834).......................... 95.1% $2,983,631 Total short-term securities (cost $189,529)............................ 6.0 189,529 ----- ---------- Total investment in securities (total cost $3,597,363)--including $28,983 of securities loaned (See Note 2(i))................................ 101.1 3,173,160 Cash, receivables and other assets..... 0.3 9,634 Payable for securities purchased....... (0.4) (12,189) Payable for accounting services........ (0.0) (3) Securities lending collateral payable to brokers (See Note 2(i))........... (1.0) (32,146) Other liabilities...................... (0.0) (164) ----- ---------- Net assets............................. 100.0% $3,138,292 ===== ==========
SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 4,000,000 shares authorized; 207,992 shares outstanding.................................. $ 20,799 Paid in capital................................ 3,576,280 Accumulated net investment income.............. 3,506 Accumulated net realized loss on investments... (38,090) Unrealized depreciation on securities.......... (424,203) ---------- Net assets..................................... $3,138,292 ==========
Class IA Net asset value per share ($2,810,675 / 186,251 shares outstanding) (3,500,000 shares authorized)................................... $15.09 ====== Class IB Net asset value per share ($327,617 / 21,741 shares outstanding) (500,000 shares authorized)................................... $15.07 ======
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002 (See Note 2(i)).
The accompanying notes are an integral part of this financial statement. 12 HARTFORD ADVISERS HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- COLLATERALIZED MORTGAGE OBLIGATIONS V -- 1.5% @$ 43,000 AESOP Funding II LLC, Series 1998-1, Class A (Aaa Moodys) 6.14% due 05/20/06.............................. $ 46,340 18,000 Asset Securitization Corp., Series 1997-D4, Class A1D (Aaa Moodys) 7.49% due 04/14/29.............................. 20,713 17,200 Asset Securitization Corp., Series 1997-D5, Class A1E (AAA Fitch) 6.93% due 02/14/41.............................. 19,153 23,854 Chase Commercial Mortgage Securities Corp., Series 1997-1, Class A2 (Aaa Moodys) 7.37% due 02/19/07.............................. 26,967 3,400 Citibank Credit Card Issuance Trust Series 2000-B1, Class B1 (A2 Moodys) 7.05% due 09/17/07.............................. 3,753 4,000 Citibank Credit Card Master Trust l, Series 1999-7, Class B (A2 Moodys) 6.90% due 11/15/06.............................. 4,335 17,225 First Union -- Lehman Brothers Commercial Mortgage Trust Series 1997-C1, Class A3 (Aaa Moodys) 7.38% due 04/18/07.............................. 19,649 127 Money Store Home Improvement Trust (The), Series 1997-1 Class M1 (AAA Fitch) 7.41% due 05/15/17.............................. 128 3,000 Standard Credit Card Master Trust Series 1995-1, Class B (A1 Moodys) 8.45% due 01/07/07.............................. 3,351 ---------- 144,389 ---------- Total collateralized mortgage obligations......... $ 144,389 ==========
SHARES - ---------- COMMON STOCKS -- 63.0% AEROSPACE & DEFENSE -- 0.3% *3,200 General Motors Corp., Class H..................... $ 34,240 ---------- BANKS -- 8.2% 877 American Express Co. ............................. 31,005 2,134 Bank One Corp. ................................... 78,005 1,133 Bank of America Corp. ............................ 78,844 5,638 Citigroup, Inc. .................................. 198,393 1,258 Fannie Mae........................................ 80,927 2,615 Fleet Boston Financial Corp. ..................... 63,535 3,404 Household International, Inc. .................... 94,674 2,384 State Street Corp. ............................... 92,972 2,500 U.S. Bancorp 53,050 1,048 Wachovia Corp. ................................... 38,175 ---------- 809,580 ----------
MARKET SHARES VALUE - ---------- ---------- BUSINESS SERVICES -- 0.7% *+3,654 Accenture Ltd., Class A........................... $ 65,735 ---------- CHEMICALS -- 0.6% 2,161 Dow Chemical Co. (The)............................ 64,182 ---------- COMMUNICATIONS -- 1.6% 3,844 SBC Communications, Inc. ......................... 104,216 1,507 Verizon Communications, Inc. ..................... 58,408 ---------- 162,624 ---------- COMPUTERS & OFFICE EQUIPMENT -- 3.2% *5,710 Cisco Systems, Inc. .............................. 74,800 6,036 Hewlett-Packard Co. .............................. 104,785 1,795 International Business Machines Corp. ............ 139,082 ---------- 318,667 ---------- CONSTRUCTION -- 0.6% 3,285 Halliburton Co. .................................. 61,468 ---------- CONSUMER NON-DURABLES -- 2.8% +1,739 Estee Lauder Cos., Inc. (The), Class A............ 45,910 2,123 Gillette Co. (The)................................ 64,466 646 Procter & Gamble Co. (The)........................ 55,483 *4,875 Safeway, Inc. .................................... 113,873 ---------- 279,732 ---------- DRUGS -- 8.5% 2,984 Abbott Laboratories............................... 119,340 *1,268 Amgen, Inc. ...................................... 61,276 172 Aventis S.A., ADR................................. 9,326 1,169 Eli Lilly & Co. .................................. 74,219 *2,410 Genzyme Corp. .................................... 71,264 *+545 IDEC Pharmaceuticals Corp. ....................... 18,084 5,886 Pfizer, Inc. ..................................... 179,936 1,162 Pharmacia Corp. .................................. 48,567 4,554 Schering-Plough Corp. ............................ 101,099 4,375 Wyeth............................................. 163,640 ---------- 846,751 ---------- ELECTRONICS -- 2.9% 7,568 General Electric Co. ............................. 184,283 6,932 Intel Corp. ...................................... 107,928 ---------- 292,211 ---------- ENERGY & SERVICES -- 3.7% 1,182 Anadarko Petroleum Corp. ......................... 56,613 1,417 ChevronTexaco Corp. .............................. 94,169 4,672 Exxon Mobil Corp. ................................ 163,254 1,174 Schlumberger Ltd. ................................ 49,414 ---------- 363,450 ---------- FINANCIAL SERVICES -- 2.5% 3,182 Franklin Resources, Inc. ......................... 108,432 850 Goldman Sachs Group, Inc. (The)................... 57,892 +2,269 Merrill Lynch & Co., Inc. ........................ 86,120 ---------- 252,444 ----------
The accompanying notes are an integral part of this financial statement. 13 HARTFORD ADVISERS HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
MARKET SHARES VALUE - ---------- ---------- COMMON STOCKS -- (CONTINUED) FOOD, BEVERAGE & TOBACCO -- 2.5% 1,303 Coca-Cola Co. (The)............................... $ 57,089 +1,822 General Mills, Inc. .............................. 85,557 2,593 PepsiCo., Inc. ................................... 109,485 ---------- 252,131 ---------- FOREST & PAPER PRODUCTS -- 1.6% 1,730 International Paper Co. .......................... 60,488 2,124 Kimberly-Clark Corp. ............................. 100,803 ---------- 161,291 ---------- HEALTH SERVICES -- 0.4% +851 HCA, Inc. ........................................ 35,317 ---------- INSURANCE -- 3.1% 2,853 American International Group, Inc. ............... 165,024 2,193 Marsh & McLennan Cos., Inc. ...................... 101,315 *2,672 Travelers Property Casualty Corp., Class B........ 39,137 ---------- 305,476 ---------- MACHINERY -- 0.8% 864 Caterpillar, Inc. ................................ 39,484 593 United Technologies Corp. ........................ 36,737 ---------- 76,221 ---------- MEDIA & ENTERTAINMENT -- 1.6% *+1,588 Comcast Corp., Class A 37,425 824 Gannett Co., Inc. ................................ 59,170 *6,604 Liberty Media Corp., Class A 59,041 ---------- 155,636 ---------- MEDICAL INSTRUMENTS & SUPPLIES -- 1.6% 3,907 Baxter International, Inc. ....................... 109,396 *569 Guidant Corp. .................................... 17,560 419 Medtronic, Inc. .................................. 19,116 *377 St. Jude Medical, Inc. ........................... 14,959 ---------- 161,031 ---------- METALS, MINERALS & MINING -- 2.0% 3,851 Alcoa, Inc. ...................................... 87,714 571 Illinois Tool Works, Inc. ........................ 37,048 630 Lockheed Martin Corp. ............................ 36,383 1,821 Masco Corp. ...................................... 38,328 ---------- 199,473 ---------- RETAIL -- 2.7% 4,094 CVS Corp. ........................................ 102,222 *2,425 Costco Wholesale Corp. ........................... 68,037 3,138 Home Depot, Inc. (The)............................ 75,182 1,622 McDonald's Corp. ................................. 26,082 ---------- 271,523 ---------- RUBBER & PLASTICS PRODUCTS -- 0.9% 2,100 NIKE, Inc., Class B............................... 93,383 ----------
MARKET SHARES VALUE - ---------- ---------- SOFTWARE & SERVICES -- 5.8% *12,002 AOL Time Warner, Inc. ............................ $ 157,230 1,762 Automatic Data Processing, Inc. .................. 69,155 *1,894 Computer Sciences Corp. .......................... 65,241 *4,208 Microsoft Corp. .................................. 217,569 *5,077 Oracle Corp. ..................................... 54,828 ---------- 564,023 ---------- TRANSPORTATION -- 2.1% 1,935 Boeing Co. (The).................................. 63,839 456 CSX Corp. ........................................ 12,918 879 FedEx Corp. ...................................... 47,659 +809 Northrop Grumman Corp. ........................... 78,434 ---------- 202,850 ---------- UTILITIES -- 2.3% 2,165 Exelon Corp. ..................................... 114,221 1,059 FPL Group, Inc. .................................. 63,702 1,850 Waste Management, Inc. ........................... 42,391 ---------- 220,314 ---------- Total common stocks............................... $6,249,753 ==========
PRINCIPAL AMOUNT - ---------- CORPORATE NOTES V -- 16.6% BANKS -- 1.7% $ 20,000 Bank One Corp. (Aa3 Moodys) 6.875% due 08/01/06............................. $ 22,483 10,000 Bank of Boston Corp. (A2 Moodys) 6.625% due 02/01/04............................. 10,420 20,000 BankAmerica Corp. (Aa2 Moodys) 5.875% due 02/15/09............................. 21,946 1,000 BankAmerica Corp. (Aa3 Moodys) 6.20% due 02/15/06.............................. 1,101 14,825 Banponce Corp. (A- Fitch) 6.75% due 12/15/05.............................. 16,445 25,000 Bayerische Landesbank Girozentrale (NY) (Aaa Moodys) 5.65% due 02/01/09.............................. 27,124 1,000 Citigroup, Inc. (Aa1 Moodys) 6.50% due 01/18/11.............................. 1,122 1,500 First Chicago NBD Corp. (A1 Moodys) 7.125% due 05/15/07............................. 1,733 13,685 First Union National Bank (A1 Moodys) 5.80% due 12/01/08.............................. 15,013 1,000 Household Finance Corp. (A2 Moodys) 6.00% due 05/01/04.............................. 1,034 1,500 International Bank for Reconstruction & Development (Aaa Moodys) 7.00% due 01/27/05.............................. 1,657 36,745 Key Bank N.A. (A1 Moodys) 5.80% due 04/01/04.............................. 38,449 750 KeyCorp. Capital II (A3 Moodys) 6.875% due 03/17/29............................. 740
The accompanying notes are an integral part of this financial statement. 14 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) BANKS -- (CONTINUED) $ 1,500 Mellon Funding Corp. (A+ Fitch) 6.375% due 02/15/10............................. $ 1,680 1,000 Morgan (J.P.) Chase & Co. (A1 Moodys) 6.75% due 02/01/11.............................. 1,087 750 National City Corp. (A+ Fitch) 6.875% due 05/15/19............................. 816 500 Republic New York Capital 1 (A+ Fitch) 7.75% due 11/15/26.............................. 529 1,500 Salomon Smith Barney Holdings, Inc. (Aa1 Moodys) 5.875% due 03/15/06............................. 1,621 1,500 St Paul Bancorp, Inc. (A3 Moodys) 7.125% due 02/15/04............................. 1,571 1,000 Washington Mutual Financial Corp. (A Fitch) 7.25% due 06/15/06.............................. 1,115 1,000 Wells Fargo Co. (Aa2 Moodys) 6.45% due 02/01/11.............................. 1,123 ---------- 168,809 ---------- CHEMICALS -- 0.4% 20,000 ICI Wilmington, Inc. (Baa2 Moodys) 6.95% due 09/15/04.............................. 20,971 20,000 Rohm & Haas Co. (A3 Moodys) 7.40% due 07/15/09.............................. 23,085 ---------- 44,056 ---------- COMMUNICATIONS -- 0.4% 1,500 ALLTEL Corp. (A2 Moodys) 6.80% due 05/01/29.............................. 1,604 1,750 AT&T Corp. (BBB+ S&P) 7.80% due 11/15/11.............................. 1,913 500 AT&T Wireless Services, Inc. (A- Fitch) 8.75% due 03/01/31.............................. 490 10,000 BellSouth Telecommunications, Inc. (Aa2 Moodys) 6.375% due 06/01/28............................. 10,569 500 GTE Corp. (A+ S&P) 7.51% due 04/01/09.............................. 568 16,580 Motorola, Inc. (Baa2 Moodys) 7.60% due 01/01/07.............................. 17,347 500 Sprint Capital Corp. (BBB Fitch) 6.875% due 11/15/28............................. 403 500 Sprint Capital Corp. (BBB+ Fitch) 7.625% due 01/30/11............................. 475 750 Telecommunications de Puerto Rico (Baa1 Moodys) 6.65% due 05/15/06.............................. 794 500 Verizon Global Funding Corp. (A1 Moodys) 7.25% due 12/01/10.............................. 568
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- COMMUNICATIONS -- (CONTINUED) $ 500 Verizon Global Funding Corp. (A1 Moodys) 7.75% due 12/01/30.............................. $ 582 1,250 Vodafone Americas Asia, Inc. (A2 Moodys) 6.65% due 05/01/08.............................. 1,414 ---------- 36,727 ---------- COMPUTERS & OFFICE EQUIPMENT -- 0.8% 30,000 Hewlett-Packard Co. (A3 Moodys) 7.15% due 06/15/05.............................. 32,973 30,000 International Business Machines Corp. (AA- Fitch) 6.50% due 01/15/28.............................. 32,133 18,000 Placer Dome, Inc. (BBB+ S&P) 5.50% due 04/15/04.............................. 18,799 ---------- 83,905 ---------- CONSUMER NON-DURABLES -- 0.8% 25,000 Boise Cascade Corp. (Baa3 Moodys) 7.05% due 05/15/05.............................. 25,670 350 Cardinal Health, Inc. (A2 Moodys) 6.75% due 02/15/11.............................. 400 18,000 Colgate-Palmolive Co. (Aa3 Moodys) 5.58% due 11/06/08.............................. 19,919 750 Procter & Gamble Co. (The) (Aa3 Moodys) 6.875% due 09/15/09............................. 885 21,100 Procter & Gamble Co. (The) (Aa3 Moodys) 9.36% due 01/01/21.............................. 29,010 750 SYSCO Corp. (AA- S&P) 6.50% due 08/01/28.............................. 822 500 Safeway, Inc. (Baa2 Moodys) 7.25% due 01/01/31.............................. 566 ---------- 77,272 ---------- CONSUMER SERVICES -- 0.5% 38,616 Postal Square LP (AAA S&P) 8.95% due 06/15/22.............................. 53,183 ---------- DRUGS -- 0.7% 26,000 American Home Products Corp. (A S&P) 7.25% due 03/01/23.............................. 29,308 750 Bristol-Myers Squibb Co. (Aa2 Moodys) 6.80% due 11/15/26.............................. 830 29,000 Pharmacia Corp. (AA- S&P) 6.60% due 12/01/28.............................. 32,765 10,000 Zeneca Wilmington, Inc. (AA+ S&P) 6.30% due 06/15/03.............................. 10,200 ---------- 73,103 ---------- EDUCATION -- 0.1% 10,900 Harvard University (AAA S&P) 8.125% due 04/15/07............................. 12,939 ----------
The accompanying notes are an integral part of this financial statement. 15 HARTFORD ADVISERS HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) ELECTRICAL EQUIPMENT -- 0.7% $ 30,000 Danaher Corp. (A+ S&P) 6.00% due 10/15/08.............................. $ 32,877 30,000 Rockwell International Corp. (A S&P) 6.70% due 01/15/28.............................. 33,160 ---------- 66,037 ---------- ELECTRONICS -- 0.0% 500 Heller Financial, Inc. (Aaa Moodys) 6.375% due 03/15/06............................. 554 ---------- ENERGY & SERVICES -- 0.2% 12,250 Amoco Co. (Aa1 Moodys) 6.50% due 08/01/07.............................. 13,866 1,000 Conoco, Inc. (Baa1 Moodys) 6.95% due 04/15/29.............................. 1,133 @500 Dominion Fiber Ventures LLC (Baa2 Moodys) 7.05% due 03/15/05.............................. 488 1,000 Texaco Capital, Inc. (AA S&P) 8.625% due 06/30/10............................. 1,260 500 Valero Energy Corp. (Baa2 Moodys) 8.375% due 06/15/05............................. 534 ---------- 17,281 ---------- FINANCIAL SERVICES -- 0.9% 30,000 AXA Financial, Inc. (A+ S&P) 7.00% due 04/01/28.............................. 31,690 @16,355 ERAC USA Finance Co. (Baa1 Moodys) 7.35% due 06/15/08.............................. 18,415 1,000 Goldman Sachs Group, Inc. (The) (Aa3 Moodys) 6.65% due 05/15/09.............................. 1,102 1,500 Inter-American Development Bank (Aaa Moodys) 7.375% due 01/15/10............................. 1,851 1,000 Lehman Brothers Holdings, Inc. (A+ Fitch) 7.875% due 11/01/09............................. 1,172 750 Morgan Stanley Dean Witter & Co. (Aa3 Moodys) 7.75% due 06/15/05.............................. 837 @1,250 Prudential Insurance Co. of America (A+ S&P) 6.375% due 07/26/06............................. 1,340 500 State Street Corp. (A1 Moodys) 7.65% due 06/15/10.............................. 600 30,000 Toyota Motor Credit Corp. (AAA S&P) 5.50% due 12/15/08.............................. 32,572 ---------- 89,579 ----------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- FOOD, BEVERAGE & TOBACCO -- 1.0% $ 750 Anheuser-Busch Cos., Inc. (A1 Moodys) 7.55% due 10/01/30.............................. $ 955 750 Coca-Cola Bottling Co. Consolidated (Baa2 Moodys) 6.375% due 05/01/09............................. 820 30,000 Coca-Cola Enterprises, Inc. (A+ Fitch) 6.75% due 09/15/28.............................. 33,477 500 Coca-Cola Enterprises, Inc. (A+ Fitch) 8.50% due 02/01/22.............................. 647 19,555 ConAgra Foods, Inc. (Baa1 Moodys) 7.875% due 09/15/10............................. 23,648 1,500 Pepsi Bottling Group, Inc. (The) (A3 Moodys) 7.00% due 03/01/29.............................. 1,743 35,000 PepsiAmericas, Inc. (A- S&P) 6.375% due 05/01/09............................. 37,853 ---------- 99,143 ---------- INSURANCE -- 2.5% 20,000 ACE INA Holdings (A2 Moodys) 8.30% due 08/15/06.............................. 22,621 26,485 AmerUs Group Co. (BBB+ Fitch) 6.95% due 06/15/05.............................. 27,017 +500 American General Corp. (Aaa Moodys) 6.625% due 02/15/29............................. 558 30,000 Cincinnati Financial Corp. (A+ S&P) 6.90% due 05/15/28.............................. 31,145 @27,000 Jackson National Life Insurance Co. (AA S&P) 8.15% due 03/15/27.............................. 30,633 @30,000 Liberty Mutual Insurance (A- S&P) 8.20% due 05/04/07.............................. 31,338 @10,000 Lumbermens Mutual Casualty (BBB+ S&P) 9.15% due 07/01/26.............................. 4,568 @30,000 New England Mutual Life Insurance Co. (AA- Fitch) 7.875% due 02/15/24............................. 33,446 +1,000 Reliastar Financial Corp. (Aa3 Moodys) 8.00% due 10/30/06.............................. 1,143 27,600 Torchmark Corp. (A S&P) 8.25% due 08/15/09.............................. 31,961 29,000 UnitedHealth Group, Inc. (A S&P) 6.60% due 12/01/03.............................. 30,136 ---------- 244,566 ---------- MACHINERY -- 0.5% 20,000 Eaton Corp. (A2 Moodys) 6.95% due 11/15/04.............................. 21,776 25,000 Parker Hannifin Corp. (A2 Moodys) 5.65% due 09/15/03.............................. 25,716 ---------- 47,492 ----------
The accompanying notes are an integral part of this financial statement. 16 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) MEDIA & ENTERTAINMENT -- 1.0% $ 1,000 COX Communications, Inc. (BBB+ Fitch) 6.40% due 08/01/08.............................. $ 1,047 30,000 Comcast Cable Communications (Baa2 Moodys) 6.875% due 06/15/09............................. 31,917 1,000 Comcast Cable Communications (BBB+ Fitch) 8.50% due 05/01/27.............................. 1,042 +750 Liberty Media Corp. (Baa3 Moodys) 8.25% due 02/01/30.............................. 789 10,400 Times Mirror Co. (The), Class A (A S&P) 7.50% due 07/01/23.............................. 11,455 9,260 Viacom, Inc. (A3 Moodys) 6.40% due 01/30/06.............................. 10,223 1,500 Viacom, Inc. (A3 Moodys) 7.625% due 01/15/16............................. 1,836 35,000 Walt Disney Co. (The) (A3 Moodys) 6.375% due 03/01/12............................. 38,282 ---------- 96,591 ---------- MEDICAL INSTRUMENTS & SUPPLIES -- 0.2% +22,000 Becton, Dickinson & Co. (A+ S&P) 6.70% due 08/01/28.............................. 23,138 ---------- METALS, MINERALS & MINING -- 0.0% 1,500 Lockheed Martin Corp. (BBB+ Fitch) 7.65% due 05/01/16.............................. 1,853 ---------- REAL ESTATE INVESTMENT TRUST -- 0.2% 20,000 Liberty Property Trust (Baa2 Moodys) 7.25% due 08/15/07.............................. 22,311 ---------- RETAIL -- 1.1% 20,000 Albertson's, Inc. (Baa1 Moodys) 6.55% due 08/01/04.............................. 21,152 750 Federated Department Stores, Inc. (Baa1 Moodys) 6.30% due 04/01/09.............................. 800 30,000 Home Depot, Inc. (The) (AA S&P) 6.50% due 09/15/04.............................. 32,151 20,200 Target Corp. (A+ S&P) 5.875% due 11/01/08............................. 22,808 30,000 Wal-Mart Stores, Inc. (Aa2 Moodys) 6.875% due 08/10/09............................. 35,339 ---------- 112,250 ---------- SOFTWARE & SERVICES -- 0.2% +25,000 Computer Associates International, Inc. (BBB+ S&P) 6.50% due 04/15/08.............................. 23,688 1,000 Time Warner, Inc. (Baa1 Moodys) 6.875% due 06/15/18............................. 1,000 ---------- 24,688 ----------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- TRANSPORTATION -- 0.7% $ 500 Boeing Capital Corp. (A+ S&P) 6.10% due 03/01/11.............................. $ 518 1,500 CSX Corp. (Baa2 Moodys) 7.90% due 05/01/17.............................. 1,927 20,639 Continental Airlines, Inc. (AA- S&P) 6.90% due 01/02/18.............................. 18,071 1,000 DaimlerChrysler North America Holding Corp. (A3 Moodys) 7.40% due 01/20/05.............................. 1,078 +750 DaimlerChrysler North America Holding Corp. (A3 Moodys) 7.75% due 01/18/11.............................. 857 500 Ford Motor Co. (Baa1 Moodys) 6.375% due 02/01/29............................. 385 15,000 Ford Motor Co. (Baa1 Moodys) 6.625% due 10/01/28............................. 11,960 1,250 General Motors Acceptance Corp. (A2 Moodys) 6.15% due 04/05/07.............................. 1,272 35,000 General Motors Acceptance Corp. (A2 Moodys) 8.00% due 11/01/31.............................. 35,191 +500 Norfolk Southern Corp. (Baa1 Moodys) 6.75% due 02/15/11.............................. 566 1,000 Textron Financial Corp. (A Fitch) 7.125% due 12/09/04............................. 1,070 ---------- 72,895 ---------- U.S. GOVERNMENT AGENCIES -- 0.6% 50,000 Tennessee Valley Authority (Aa1 Moodys) 6.00% due 03/15/13.............................. 56,134 ---------- UTILITIES -- 1.4% 25,000 Alabama Power Co. (A2 Moodys) 7.125% due 08/15/04............................. 26,795 1,000 Alabama Power Co. (AAA Fitch) 7.125% due 10/01/07............................. 1,153 22,350 Duke Energy Corp. (A1 Moodys) 6.00% due 12/01/28.............................. 20,519 +500 El Paso Corp. (Baa2 Moodys) 8.05% due 10/15/30.............................. 310 40,000 Great Plains Energy, Inc. (A2 Moodys) 7.125% due 12/15/05............................. 44,420 1,500 Madison Gas & Electric Co. (Aa3 Moodys) 6.02% due 09/15/08.............................. 1,624 567 Niagara Mohawk Power Corp. (A- S&P) 7.625% due 10/01/05............................. 628 17,285 Northern Border Pipeline Co. (A3 Moodys) 7.75% due 09/01/09.............................. 19,293 10,000 Southern California Gas Co. (AA- S&P) 5.75% due 11/15/03.............................. 10,310
The accompanying notes are an integral part of this financial statement. 17 HARTFORD ADVISERS HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) UTILITIES -- (CONTINUED) $ 750 Tennessee Gas Pipeline Co. (Baa1 Moodys) 7.50% due 04/01/17.............................. $ 626 700 Williams Cos., Inc. (The) (B1 Moodys) 7.50% due 01/15/31.............................. 438 ---------- 126,116 ---------- Total corporate notes............................. $1,650,622 ========== FOREIGN/YANKEE BONDS & NOTES V -- 1.4% FOREIGN CORPORATIONS -- 1.4% 30,000 Alcan, Inc. (A2 Moodys) 7.25% due 11/01/28.............................. $ 35,376 30,000 Apache Finance Property Ltd. (A3 Moodys) 7.00% due 03/15/09.............................. 34,509 750 France Telecom S.A. (BBB+ Fitch) 9.25% due 03/01/11.............................. 867 15,000 Husky Oil Ltd. (Baa2 Moodys) 6.875% due 11/15/03............................. 15,553 500 Korea Development Bank (A3 Moodys) 7.125% due 04/22/04............................. 532 24,000 Natexis Banques Pop (A1 Moodys) 7.00% due 11/14/05.............................. 26,530 @18,680 SCL Terminal Aereo Santiago S.A. (Aaa Moodys) 6.95% due 07/01/12.............................. 20,709 1,250 Santandar Central Hispano Issuances Ltd. (A1 Moodys) 7.625% due 11/03/09............................. 1,413 +1,250 Telefonica Europe BV (A2 Moodys) 7.35% due 09/15/05.............................. 1,378 750 TransCanada PipeLines Ltd. (A2 Moodys) 6.49% due 01/21/09.............................. 825 1,250 Vodafone Group PLC (A2 Moodys) 7.875% due 02/15/30............................. 1,506 ---------- 139,198 ---------- FOREIGN GOVERNMENTS -- 0.0% 500 Corp. Andina de Fomento (CAF) (A2 Moodys) 7.10% due 02/01/03.............................. 500 ---------- Total foreign/yankee bonds & notes................ $ 139,698 ========== MUNICIPAL BONDS V -- 0.0% EDUCATION -- 0.0% 1,035 Mount Sinai School of Medicine NY (Aaa Moodys) 6.00% due 07/01/03.............................. $ 1,057 ---------- Total municipal bonds............................. $ 1,057 ==========
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- U.S. TREASURIES & FEDERAL AGENCIES -- 14.9% FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 0.0% $ 689 6.30% due 04/01/08................................ $ 765 7 9.00% due 03/01/21................................ 7 ---------- 772 ---------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.2% 58,857 6.00% due 06/15/24 -- 11/15/31.................... 61,504 29,572 6.50% due 03/15/26 -- 06/15/28.................... 31,086 183,528 7.00% due 12/15/26 -- 05/15/32.................... 194,589 715 7.50% due 09/15/23................................ 769 22,891 8.00% due 09/15/26 -- 02/15/31.................... 24,769 724 9.00% due 06/20/16 -- 01/15/23.................... 804 16 9.50% due 05/15/20................................ 18 ---------- 313,539 ---------- U.S. TREASURY BONDS -- 5.3% +400,000 6.25% due 08/15/23................................ 469,938 +50,000 7.25% due 08/15/04................................ 54,693 2,750 10.37% due 11/15/12............................... 3,676 ---------- 528,307 ---------- U.S. TREASURY NOTES -- 6.4% +200,000 3.25% due 12/31/03................................ 204,000 +400,000 3.375% due 04/30/04............................... 410,828 +5,000 5.00% due 02/15/11................................ 5,494 +10,000 6.625% due 05/15/07............................... 11,673 ---------- 631,995 ---------- Total U.S. treasuries & federal agencies........................................ $1,474,613 ========== SHARES - ---------- WARRANTS -- 0.0% BANKS -- 0.0% 59 Dime Bancorp, Inc. ............................... $ 7 ---------- COMMUNICATIONS -- 0.0% @@0 Minorplanet Systems USA, Inc. .................... -- ---------- Total warrants.................................... $ 7 ==========
The accompanying notes are an integral part of this financial statement. 18 - --------------------------------------------------------------------------------
MARKET SHARES VALUE - ---------- ---------- SHORT-TERM SECURITIES -- 15.3% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 13.2% 1,312,948 State Street Navigator Securities Lending Prime Portfolio....................................... $1,312,948 ---------- PRINCIPAL AMOUNT - ---------- U.S. Treasury Bills held as Collateral on Loaned Securities -- 0.0% 9.25% due 02/15/16................................ $ 1,095 ---------- REPURCHASE AGREEMENT -- 2.1% $ 208,818 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. 208,818 ---------- Total short-term securities....................... $1,522,861 ==========
DIVERSIFICATION OF NET ASSETS: Total collateralized mortgage obligations (cost $130,147)....................................... 1.5% $ 144,389 Total common stocks (cost $7,343,376)............. 63.0 6,249,753 Total corporate notes (cost $1,545,586)........... 16.6 1,650,622 Total foreign/yankee bonds & notes (cost $123,083)....................................... 1.4 139,698 Total municipal bonds (cost $1,033)............... 0.0 1,057 Total U.S. treasuries & federal agencies (cost $1,377,964)..................................... 14.9 1,474,613 Total warrants (cost $5).......................... 0.0 7 Total short-term securities (cost $1,521,766)..... 15.3 1,522,861 ----- ----------- Total investment in securities (total cost $12,042,960) -- including $1,285,438 of securities loaned (See Note 2(i))............... 112.7 11,183,000 Cash, receivables and other assets................ 0.5 56,365 Payable for Fund shares redeemed.................. (0.0) (3,306) Dividend payable.................................. (0.0) (506) Payable for accounting services................... (0.0) (11) Securities lending collateral payable to brokers (See Note 2(i))................................. (13.2) (1,314,043) Other liabilities................................. (0.0) (24) ----- ----------- Net assets........................................ 100.0% $ 9,921,475 ===== ===========
MARKET VALUE ----------- SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 9,500,000 shares authorized; 506,157 shares outstanding................................. $ 50,616 Paid in capital............................... 11,060,855 Accumulated net investment income............. 146,740 Accumulated net realized loss on investments................................. (475,681) Unrealized depreciation on securities......... (861,055) ----------- Net assets.................................... $ 9,921,475 ===========
Class IA Net asset value per share ($9,249,397 / 472,079 shares outstanding) (8,500,000 shares authorized)..................................... $19.59 ====== Class IB Net asset value per share ($672,078 / 34,078 shares outstanding) (1,000,000 shares authorized)..................................... $19.72 ======
* Non-income producing during the period. + All or a portion of this security was on loan as of December 31, 2002 (See Note 2(i)). @ Securities exempt from registration under Rule 144A of the Securities Act of 1933. Rule 144A. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the market value of these securities amounted to $187,277 or 1.9% of net assets. @@ Due to the presentation of the financial statements in thousands, the number of shares and market value rounds to zero. V The bond ratings are unaudited.
The accompanying notes are an integral part of this financial statement. 19 HARTFORD BOND HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- COLLATERALIZED MORTGAGE OBLIGATIONS V -- 0.6% $ 4,000 California Infrastructure & Economic Development Bank Pacific Gas and Electric Co., Series 1997-1, Class A8 (Aaa Moodys) 6.48% due 12/26/09.............................. $ 4,510 1,100 Citibank Credit Card Master Trust l, Series 1999-7, Class B (A2 Moodys) 6.90% due 11/15/06.............................. 1,192 7,600 Comed Transitional Funding Trust, Series 1998-1, Class A5 (Aaa Moodys) 5.44% due 03/25/07.............................. 7,986 825 PP&L Transition Bond Co., LLC, Series 1999-1, Class A5 (Aaa Moodys) 6.83% due 03/25/07.............................. 885 ---------- 14,573 ---------- Total collateralized mortgage obligations......... $ 14,573 ========== SHARES - ---------- COMMON STOCKS -- 0.0% COMMUNICATIONS -- 0.0% +26 WilTel Communications, Inc. ...................... $ 403 ---------- Total common stocks............................... $ 403 ========== PRINCIPAL AMOUNT - ---------- CORPORATE NOTES V -- 35.5% BANKS -- 0.6% $ +14,450 Ford Motor Credit Corp. (A3 Moodys) 6.875% due 02/01/06............................. $ 14,475 500 St Paul Bancorp, Inc. (A3 Moodys) 7.125% due 02/15/04............................. 524 ---------- 14,999 ---------- BUSINESS SERVICES -- 0.0% 500 Interpool, Inc. (BBB- Fitch) 7.20% due 08/01/07.............................. 453 ---------- CHEMICALS -- 2.7% 4,560 ARCO Chemical Co. (Ba3 Moodys) 9.80% due 02/01/20.............................. 3,602 +2,000 Dow Chemical Co. (The) (A+ Fitch) 5.75% due 12/15/08.............................. 2,087 3,255 Equistar Chemicals LP (BBB- S&P) 7.55% due 02/15/26.............................. 2,506 @11,208 FMC Corp. (Baa1 Moodys) 10.25% due 11/01/09............................. 12,105 4,080 Ferro Corp. (Baa3 Moodys) 7.125% due 04/01/28............................. 3,448
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CHEMICALS -- (CONTINUED) $ 500 Lyondell Chemical Co. (BB S&P) 9.875% due 05/01/07............................. $ 480 +3,510 Millennium America, Inc. (BBB- S&P) 7.00% due 11/15/06.............................. 3,392 3,025 Millennium America, Inc. (BBB- S&P) 7.625% due 11/15/26............................. 2,515 5,370 Olin Corp. (BBB+ Fitch) 9.125% due 12/15/11............................. 6,099 1,700 Pollyone Corp. (Baa3 Moodys) 6.875% due 12/01/04............................. 1,621 2,125 PolyOne Corp. (Baa3 Moodys) 8.875% due 05/01/12............................. 1,806 13,125 Praxair, Inc. (AAA Fitch) 4.75% due 07/15/07.............................. 13,806 15,810 Solutia, Inc. (Ba3 Moodys) 11.25% due 07/15/09............................. 13,300 +2,000 du Pont (E.I.) de Nemours & Co. (Aa3 Moodys) 6.75% due 09/01/07.............................. 2,310 ---------- 69,077 ---------- COMMUNICATIONS -- 6.4% 27,180 AT&T Corp. (Baa2 Moodys) 8.50% due 11/15/31.............................. 29,959 +8,600 AT&T Wireless Services, Inc. (Baa2 Moodys) 7.50% due 05/01/07.............................. 8,858 3,150 Columbia/HCA Healthcare Corp. (BBB- S&P) 7.50% due 11/15/95.............................. 2,938 1,000 Continental Cablevision, Inc. (BBB+ S&P) 9.50% due 08/01/13.............................. 1,158 24,296 Lucent Technologies, Inc. (B+ S&P) 6.45% due 03/15/29.............................. 10,690 2,510 Lucent Technologies, Inc. (B+ S&P) 6.50% due 01/15/28.............................. 1,104 300 NTL, Inc. (Default) 0.00% due 02/01/06.............................. 29 750 Nextel Communications, Inc. (Default) 0.00% due 10/01/08.............................. 56 1,235 PanAmSat Corp. (Ba2 Moodys) 6.375% due 01/15/08............................. 1,186 3,485 PanAmSat Corp. (Ba2 Moodys) 6.875% due 01/15/28............................. 2,893 400 Psinet, Inc. (Default) 11.00% due 08/01/09............................. 12 +4,250 Qwest Corp. (A Fitch) 6.625% due 09/15/05............................. 3,953 +22,465 Qwest Corp. (A Fitch) 6.875% due 09/15/33............................. 17,298 910 Qwest Corp. (A Fitch) 7.25% due 10/15/35.............................. 673
The accompanying notes are an integral part of this financial statement. 20 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) COMMUNICATIONS -- (CONTINUED) x$ 8,835 Qwest Corp. (AA- Fitch) 7.20% due 11/01/04.............................. $ 8,393 15,140 Sprint Capital Corp. (BBB+ S&P) 7.90% due 03/15/05.............................. 15,291 12,700 Sprint Capital Corp. (BBB Fitch) 8.75% due 03/15/32.............................. 12,065 33,500 Verizon New York, Inc. (A1 Moodys) 6.875% due 04/01/12............................. 37,633 ##@@17 Voicestream Wireless Corp. (A- S&P) 0.00% due 11/15/09.............................. -- ##@@0 Voicestream Wireless Corp. (Baa2 Moodys) 10.375% due 11/15/09............................ -- 35,656 WorldCom, Inc. (Default) 8.25% due 05/15/31.............................. 8,379 ##600 XO Communications, Inc. (Default) 0.00% due 12/01/09.............................. 1 ##@@300 XO Communications, Inc. (Default) 10.50% due 12/01/09............................. -- ---------- 162,569 ---------- COMPUTERS & OFFICE EQUIPMENT -- 0.4% +9,075 Hewlett-Packard Co. (A3 Moodys) 5.75% due 12/15/06.............................. 9,752 ---------- CONSTRUCTION -- 0.1% 1,500 Chesapeake & Potomac Telephone Co. (Aa2 Moodys) 8.30% due 08/01/31.............................. 1,898 ---------- CONSUMER DURABLES -- 0.5% @12,500 Owens-Illinois, Inc. (Baa2 Moodys) 8.75% due 11/15/12.............................. 12,688 ---------- CONSUMER NON-DURABLES -- 0.2% @6,545 Xerox Corp. (BB- Fitch) 9.75% due 01/15/09.............................. 6,283 ---------- ELECTRICAL EQUIPMENT -- 0.9% @8,125 Perkinelmer, Inc. (Ba3 Moodys) 8.875% due 01/15/13............................. 8,003 8,230 Rockwell International Corp. (A S&P) 5.20% due 01/15/98.............................. 6,974 6,000 Rockwell International Corp. (A S&P) 6.70% due 01/15/28.............................. 6,632 ---------- 21,609 ---------- ENERGY & SERVICES -- 4.3% 12,910 Conoco, Inc. (Baa1 Moodys) 6.35% due 10/15/11.............................. 14,416 16,575 Consumers Energy Co. (Baa3 Moodys) 6.25% due 09/15/06.............................. 16,302
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- ENERGY & SERVICES -- (CONTINUED) $ +12,000 El Paso CGP Co. (Baa2 Moodys) 7.625% due 09/01/08............................. $ 9,480 5,000 Lasmo (USA), Inc. (AA S&P) 7.50% due 06/30/06.............................. 5,680 6,800 Occidental Petroleum Corp. (Baa2 Moodys) 7.375% due 11/15/08............................. 7,947 6,740 Ocean Energy, Inc. (Baa3 Moodys) 7.25% due 10/01/11.............................. 7,686 1,000 Pioneer Natural Resources Co. (BB Fitch) 6.50% due 01/15/08.............................. 1,027 13,525 Pioneer Natural Resources Co. (BB Fitch) 7.20% due 01/15/28.............................. 13,028 250 Pioneer Natural Resources Co. (BB Fitch) 9.625% due 04/01/10............................. 297 +400 Swift Energy Co. (B3 Moodys) 10.25% due 08/01/09............................. 400 +810 Tesoro Petroleum Corp. (B2 Moodys) 9.00% due 07/01/08.............................. 535 1,000 Tosco Corp. (A3 Moodys) 8.125% due 02/15/30............................. 1,275 2,500 Union Oil Co. of California (Baa1 Moodys) 9.375% due 02/15/11............................. 3,140 6,500 Valero Energy Corp. (Baa2 Moodys) 6.125% due 04/15/07............................. 6,718 +8,300 Valero Energy Corp. (Baa2 Moodys) 6.875% due 04/15/12............................. 8,644 +1,750 Valero Energy Corp. (Baa2 Moodys) 8.375% due 06/15/05............................. 1,870 +8,500 Valero Energy Corp. (Baa2 Moodys) 8.75% due 06/15/30.............................. 9,761 ---------- 108,206 ---------- FINANCIAL SERVICES -- 1.0% 12,150 Capital One Bank (A- Fitch) 8.25% due 06/15/05.............................. 12,281 @2,885 ERAC USA Finance Co. (Baa1 Moodys) 8.25% due 05/01/05.............................. 3,179 @9,250 TIAA Global Markets (Aaa Moodys) 4.125% due 11/15/07............................. 9,568 ---------- 25,028 ---------- FOOD, BEVERAGE & TOBACCO -- 1.2% 8,120 Archer-Daniels-Midland Co. (A1 Moodys) 6.95% due 12/15/97.............................. 9,113 3,750 ConAgra Foods, Inc. (Baa1 Moodys) 7.00% due 10/01/28.............................. 4,270 10,110 ConAgra Foods, Inc. (Baa1 Moodys) 7.50% due 09/15/05.............................. 11,332
The accompanying notes are an integral part of this financial statement. 21 HARTFORD BOND HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) FOOD, BEVERAGE & TOBACCO -- (CONTINUED) x$ 5,350 Dole Food Co. (BBB- S&P) 7.25% due 05/01/09.............................. $ 5,181 250 Hercules, Inc. (BB- S&P) 11.125% due 11/15/07............................ 279 ---------- 30,175 ---------- FOREST & PAPER PRODUCTS -- 3.9% 11,400 Boise Cascade Corp. (Baa3 Moodys) 7.50% due 02/01/08.............................. 11,857 2,350 Bowater Canada Finance (BBB S&P) 7.95% due 11/15/11.............................. 2,483 +8,950 Bowater, Inc. (AA- S&P) 9.00% due 08/01/09.............................. 10,124 1,895 Champion International Corp. (Baa2 Moodys) 7.20% due 11/01/26.............................. 2,156 6,405 Georgia-Pacific Corp. (BBB- S&P) 7.25% due 06/01/28.............................. 4,932 12,890 Georgia-Pacific Corp. (BBB- S&P) 8.875% due 05/15/31............................. 11,085 +3,020 International Paper Co. (BBB+ Fitch) 6.75% due 09/01/11.............................. 3,360 5,600 International Paper Co. (Baa2 Moodys) 6.875% due 04/15/29............................. 5,928 4,500 Mead Corp. (The) (Baa2 Moodys) 7.55% due 03/01/47.............................. 4,843 12,100 Potlatch Corp. (Baa3 Moodys) 9.425% due 12/01/09............................. 13,386 12,075 Weyerhaeuser Co. (A Fitch) 5.50% due 03/15/05.............................. 12,640 7,900 Weyerhaeuser Co. (A Fitch) 5.95% due 11/01/08.............................. 8,433 6,300 Weyerhaeuser Co. (A Fitch) 7.25% due 07/01/13.............................. 7,127 ---------- 98,354 ---------- HEALTH SERVICES -- 1.8% 4,400 HCA, Inc. (BBB- S&P) 6.95% due 05/01/12.............................. 4,637 14,645 HCA, Inc. (BBB- S&P) 7.125% due 06/01/06............................. 15,520 6,540 Manor Care, Inc. (BBB S&P) 7.50% due 06/15/06.............................. 6,793 +1,120 Manor Care, Inc. (BBB S&P) 8.00% due 03/01/08.............................. 1,182 +19,700 Tenet Healthcare Corp. (BBB S&P) 5.375% due 11/15/06............................. 18,026 ---------- 46,158 ----------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- HOTELS & GAMING -- 1.0% $ +7,405 MGM Mirage, Inc. (BBB- S&P) 8.50% due 09/15/10.............................. $ 8,183 @18,150 Starwood Hotels & Resorts Worldwide, Inc. (BBB- S&P) 7.375% due 05/01/07............................. 17,832 ---------- 26,015 ---------- INSURANCE -- 1.3% 700 Aetna, Inc. (BBB+ Fitch) 7.375% due 03/01/06............................. 759 16,300 Aetna, Inc. (BBB+ Fitch) 7.875% due 03/01/11............................. 18,315 5,400 Humana, Inc. (BBB S&P) 7.25% due 08/01/06.............................. 5,799 500 Reliastar Financial Corp. (Aa3 Moodys) 8.00% due 10/30/06.............................. 571 ##4,300 Trenwick Group, Inc. (BB S&P) 6.70% due 04/01/03.............................. 1,032 5,815 Wellpoint Health Networks, Inc. (A- S&P) 6.375% due 06/15/06............................. 6,344 ---------- 32,820 ---------- MEDIA & ENTERTAINMENT -- 1.0% 6,200 Clear Channel Communications, Inc. (Baa3 Moodys) 6.00% due 11/01/06.............................. 6,593 4,165 Clear Channel Communications, Inc. (Baa2 Moodys) 7.25% due 09/15/03.............................. 4,249 +500 Comcast Cable Communications (BBB+ Fitch) 8.50% due 05/01/27.............................. 521 12,935 USA Networks, Inc. (Baa3 Moodys) 6.75% due 11/15/05.............................. 13,546 ---------- 24,909 ---------- MEDICAL INSTRUMENTS & SUPPLIES -- 0.4% 3,600 Apogent Technologies, Inc. (Baa3 Moodys) 8.00% due 04/01/11.............................. 4,130 6,000 Bausch & Lomb, Inc. (Baa2 Moodys) 6.95% due 11/15/07.............................. 6,102 ---------- 10,232 ---------- METALS, MINERALS & MINING -- 1.8% 2,765 Newmont Mining Corp. (BBB S&P) 8.625% due 05/15/11............................. 3,230 @2,000 Oregon Steel Mills, Inc. (Ba2 Moodys) 10.00% due 07/15/09............................. 2,030 2,790 Phelps Dodge Corp. (BBB+ Fitch) 8.75% due 06/01/11.............................. 2,887
The accompanying notes are an integral part of this financial statement. 22 - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- CORPORATE NOTES V -- (CONTINUED) METALS, MINERALS & MINING -- (CONTINUED) x$ +25,200 Phelps Dodge Corp. (BBB+ Fitch) 9.50% due 06/01/31.............................. $ 26,136 4,650 Santa Fe Pacific Gold Corp. (BBB S&P) 8.375% due 07/01/05............................. 5,041 7,530 United States Steel LLC (A Fitch) 10.75% due 08/01/08............................. 7,417 ---------- 46,741 ---------- RESEARCH & TESTING FACILITIES -- 0.2% +4,285 Quest Diagnostics, Inc. (Baa3 Moodys) 6.75% due 07/12/06.............................. 4,669 ---------- RETAIL -- 0.0% 1,115 Crompton Corp. (Ba1 Moodys) 8.50% due 03/15/05.............................. 1,133 ---------- SOFTWARE & SERVICES -- 1.2% 10,440 AOL Time Warner, Inc. (Baa1 Moodys) 6.15% due 05/01/07.............................. 10,845 +7,800 CRH America, Inc. (A- Fitch) 6.95% due 03/15/12.............................. 8,738 +10,000 Computer Sciences Corp. (A2 Moodys) 6.75% due 06/15/06.............................. 10,837 ---------- 30,420 ---------- TRANSPORTATION -- 1.5% 1,550 American Airlines, Inc. (AA+ S&P) 7.858% due 10/01/11............................. 1,504 +250 Boeing Capital Corp. (A+ S&P) 6.10% due 03/01/11.............................. 259 +12,750 DaimlerChrysler North America Holding Corp. (A3 Moodys) 7.30% due 01/15/12.............................. 14,307 +1,150 Delta Air Lines, Inc. (Ba3 Moodys) 7.90% due 12/15/09.............................. 794 5,200 Delta Air Lines, Inc. (Ba3 Moodys) 8.30% due 12/15/29.............................. 3,068 1,300 Delta Air Lines, Inc. (Baa2 Moodys) 10.50% due 04/30/16............................. 929 4,500 FedEx Corp. (Baa2 Moodys) 6.625% due 02/12/04............................. 4,695 +5,300 General Motors Acceptance Corp. (A2 Moodys) 6.125% due 09/15/06............................. 5,385 2,400 Sequa Corp. (BB+ Fitch) 8.875% due 04/01/08............................. 2,292 4,348 US Airways Group, Inc. (A+ S&P) 6.76% due 04/15/08.............................. 3,698 +3,885 United Air Lines, Inc. (Default) 9.75% due 08/15/21.............................. 369 ---------- 37,300 ----------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- UTILITIES -- 3.1% $ @13,600 Allied Waste North America, Inc. (Ba3 Moodys) 9.25% due 09/01/12.............................. $ 13,940 4,725 Appalachian Power Co. (BBB+ Fitch) 2.12% due 08/20/03.............................. 4,733 1,750 Cleveland Electric Illuminating Co. (Aaa Moodys) 7.13% due 07/01/07.............................. 1,975 8,225 Consolidated Natural Gas Co. (A3 Moodys) 5.375% due 11/01/06............................. 8,695 3,875 Detroit Edison Co. (The) (A3 Moodys) 6.125% due 10/01/10............................. 4,268 @10,000 Entergy Gulf States, Inc. (Baa3 Moody's) 2.626% due 06/02/03............................. 10,007 2,850 Mission Energy Holding Co. (BBB- Fitch) 13.50% due 07/15/08............................. 656 3,100 PacifiCorp. (A S&P) 6.12% due 01/15/06.............................. 3,389 4,000 Public Service Electric & Gas Co. (Aaa Moodys) 7.00% due 09/01/24.............................. 4,128 850 Tennessee Gas Pipeline Co. (Baa1 Moodys) 7.00% due 10/15/28.............................. 655 500 Tennessee Gas Pipeline Co. (Baa1 Moodys) 7.50% due 04/01/17.............................. 418 +7,590 Transcontinental Gas Pipe LN (Ba2 Moodys) 6.125% due 01/15/05............................. 7,248 4,500 Transcontinental Gas Pipe LN (Ba2 Moodys) 7.25% due 12/01/26.............................. 3,780 @11,000 Transcontinental Gas Pipe LN (Ba2 Moodys) 8.875% due 07/15/12............................. 11,000 2,340 Westar Energy, Inc. (BBB- S&P) 7.875% due 05/01/07............................. 2,369 ---------- 77,261 ---------- Total corporate notes............................. $ 898,749 ========== FOREIGN/YANKEE BONDS & NOTES V -- 18.8% FOREIGN CORPORATIONS -- 10.5% $ 10,510 AT&T Canada, Inc. (Default) 7.625% due 03/15/05............................. $ 1,787 2,750 Abitibi-Consolidated, Inc. (Baa3 Moodys) 8.30% due 08/01/05.............................. 2,931 250 Abitibi-Consolidated, Inc. (Baa3 Moodys) 8.85% due 08/01/30.............................. 269
The accompanying notes are an integral part of this financial statement. 23 HARTFORD BOND HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL Market AMOUNTI Value - ---------- ---------- FOREIGN/YANKEE BONDS & NOTES V -- (CONTINUED) FOREIGN CORPORATIONS -- (CONTINUED) x$ 125 Asia Global Crossing Ltd. (Default) 13.375% due 10/15/10............................ $ 14 @@1,008 Australis Media Ltd. (Not Rated) 15.75% due 05/15/03............................. -- 19,700 BT Group PLC (A- S&P) 8.875% due 12/15/30............................. 25,116 +4,425 Bank of Tokyo-Mitsubishi Ltd. (The) (A3 Moodys) 8.40% due 04/15/10.............................. 5,236 800 British Sky Broadcasting Group PLC (Ba1 Moodys) 8.20% due 07/15/09.............................. 864 11,725 Deutsche Telekom International Finance BV (Baa1 Moodys) 9.25% due 06/01/32.............................. 14,874 8,330 Domtar, Inc. (Baa3 Moodys) 7.875% due 10/15/11............................. 9,736 25,500 EnCana Corp. (A- S&P) 6.30% due 11/01/11.............................. 27,884 500 EnCana Corp. (A- S&P) 7.20% due 11/01/31.............................. 579 8,500 EnCana Corp. (A- S&P) 7.20% due 11/01/31.............................. 9,840 11,650 France Telecom S.A. (BBB+ Fitch) 8.70% due 03/01/06.............................. 12,755 12,750 France Telecom S.A. (BBB+ Fitch) 9.25% due 03/01/11.............................. 14,742 ##3,160 Global Crossing Holdings Ltd. (Default) 8.70% due 08/01/07.............................. 95 ##20,891 Global Crossing Holdings Ltd. (Default) 9.50% due 11/15/09.............................. 627 ##2,700 Global Crossing Holdings Ltd. (Default) 9.625% due 05/15/08............................. 81 7,200 Inco Ltd. (Baa3 Moodys) 7.75% due 05/15/12.............................. 8,021 AUD 21,000 International Bank for Reconstruction & Development (Aaa Moodys) 5.50% due 05/14/03.............................. 11,863 @@3,295 KPNQwest N.V. (Default) 8.125% due 06/01/09............................. -- AUD 1,326 Landesbank Baden-wurttem (Aaa Moodys) 6.25% due 12/15/04.............................. 766 +8,700 Marconi Corp. PLC (Ba1 Moodys) 7.75% due 09/15/10.............................. 1,349 30,992 Marconi Corp. PLC (Ca Moodys) 8.375% due 09/15/30............................. 4,804 3,300 Methanex Corp. (BBB Fitch) 7.75% due 08/15/05.............................. 3,300 1,040 Methanex Corp. (BBB- S&P) 8.75% due 08/15/12.............................. 1,102
PRINCIPAL Market AMOUNTI Value - ---------- ---------- FOREIGN CORPORATIONS -- (CONTINUED) $ 9,495 News America Holdings, Inc. (BBB Fitch) 7.75% due 12/01/45.............................. $ 9,332 5,250 News America Holdings, Inc. (BBB Fitch) 8.875% due 04/26/23............................. 5,825 +3,440 Noranda, Inc. (Baa3 Moodys) 7.00% due 07/15/05.............................. 3,550 @1,925 Nortel Networks Corp. (B S&P) 4.25% due 09/01/08.............................. 1,032 9,930 Nortel Networks Corp. (Ba3 Moodys) 6.125% due 02/15/06............................. 6,653 +5,935 Nortel Networks Corp. (Ba3 Moodys) 6.875% due 09/01/23............................. 3,027 +13,170 Nova Chemicals Corp. (BB+ S&P) 7.00% due 05/15/06.............................. 12,775 4,250 Nova Chemicals Corp. (BB+ S&P) 7.875% due 09/15/25............................. 3,315 5,630 Petroleum Geo-Services ASA (Ba3 Moodys) 7.125% due 03/30/28............................. 1,464 +4,515 Petroleum Geo-Services ASA (Ba3 Moodys) 8.15% due 07/15/29.............................. 1,219 3,600 Placer Dome, Inc. (BBB+ S&P) 7.125% due 05/15/03............................. 3,650 7,300 Placer Dome, Inc. (BBB+ S&P) 7.125% due 06/15/07............................. 8,038 4,235 Potash Corp. of Saskatchewan, Inc. (Baa2 Moodys) 7.125% due 06/15/07............................. 4,800 7,515 Potash Corp. of Saskatchewan, Inc. (BBB+ S&P) 7.75% due 05/31/11.............................. 8,761 3,660 Shaw Communications, Inc. (BBB S&P) 8.25% due 04/11/10.............................. 3,418 1,720 Teekay Shipping Corp. (BB+ S&P) 8.32% due 02/01/08.............................. 1,765 +9,200 Tyco International Group S.A. (BBB- S&P) 6.375% due 02/15/06............................. 8,924 +17,000 Vodafone Group PLC (A2 Moodys) 7.75% due 02/15/10.............................. 20,050 ---------- 266,233 ---------- FOREIGN GOVERNMENTS -- 8.3% EUR 34,850 Deutschland Bundesrepublik (Aaa Moodys) 6.00% due 09/15/03.............................. 37,355 EUR 31,577 France BTAN (AAA S&P) 4.50% due 07/12/03.............................. 33,413 EUR 21,650 Italy Buoni Poliennali Del Tesoro (Aa2 Moodys) 4.50% due 03/01/07.............................. 23,704
The accompanying notes are an integral part of this financial statement. 24 - --------------------------------------------------------------------------------
PRINCIPAL Market AMOUNTI Value - ---------- ---------- FOREIGN/YANKEE BONDS & NOTES V -- (CONTINUED) FOREIGN GOVERNMENTS -- (CONTINUED) xEUR 12,650 Italy Buoni Poliennali Del Tesoro (Aa2 Moodys) 4.75% due 04/15/03.............................. $ 13,346 EUR 21,450 Netherlands Government (Aaa Moodys) 6.50% due 04/15/03.............................. 22,756 AUD @42,000 New South Wales Treasury Corp. (Aaa Moodys) 7.00% due 04/01/04.............................. 24,283 AUD 15,050 Queesnland Treasury (Aaa Moodys) 8.00% due 05/14/03.............................. 8,574 EUR 33,000 Republic of Austria (Aaa Moodys) 4.30% due 07/15/03.............................. 34,891 GBP 6,434 UK Treasury Gilt (AAA S&P) 8.00% due 06/10/03.............................. 10,551 ---------- 208,873 ---------- Total foreign/yankee bonds & notes................ $ 475,106 ========== SHARES - ---------- X PREFERRED STOCKS -- 0.1% ELECTRONICS -- 0.1% @53 Xerox Corp. ...................................... $ 2,950 ---------- Total preferred stocks............................ $ 2,950 ========== PRINCIPAL AMOUNT - ---------- X U.S. TREASURIES & FEDERAL AGENCIES -- 38.6% FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 6.2% $ 117,683 6.00% due 07/01/12 -- 01/01/33.................. $ 123,080 257 6.30% due 04/01/08.............................. 286 2,752 6.48% due 12/01/05.............................. 2,985 10,472 6.50% due 11/01/14 -- 04/01/31.................. 10,932 17,918 7.50% due 10/01/22 -- 09/01/31.................. 19,031 ---------- 156,314 ---------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 16.4% 40,928 6.00% due 01/15/32 -- 01/01/33.................. 42,648 294,478 6.50% due 02/15/28 -- 06/15/32.................. 309,304 59,464 7.00% due 07/15/28 -- 01/15/32.................. 63,034 260 7.50% due 02/01/31.............................. 277 ---------- 415,263 ----------
PRINCIPAL MARKET AMOUNT VALUE - ---------- ---------- U.S. GOVERNMENT AGENCIES -- 0.1% $ 2,350 Federal Home Loan Bank (Aaa Moodys)............... $ 2,454 ---------- U.S. INFLATION-INDEXED SECURITIES -- 1.4% +31,961 4.25% due 01/15/10.............................. 36,451 ---------- U.S. TREASURY BONDS -- 5.1% +7,400 5.375% due 02/15/31............................. 8,067 +58,750 6.00% due 08/15/09.............................. 68,306 +31,220 6.25% due 05/15/30.............................. 37,360 +11,200 6.875% due 08/15/25............................. 14,166 ---------- 127,899 ---------- U.S. TREASURY NOTES -- 9.4% +34,025 3.00% due 11/15/07.............................. 34,434 +7,600 3.25% due 08/15/07.............................. 7,788 +27,400 3.50% due 11/15/06.............................. 28,513 +20,200 4.00% due 11/15/12.............................. 20,486 +39,425 4.375% due 05/15/07 -- 08/15/12................. 41,408 +30,200 4.875% due 02/15/12............................. 32,794 +35,600 5.00% due 02/15/11 -- 08/15/11.................. 39,108 +8,400 5.50% due 02/15/08.............................. 9,478 +2,150 5.50% due 05/15/09.............................. 2,439 +6,340 5.75% due 08/15/10.............................. 7,290 +11,300 6.50% due 10/15/06 -- 02/15/10.................. 13,063 +1,300 6.625% due 05/15/07............................. 1,517 ---------- 238,318 ---------- Total U.S. treasuries & federal agencies.......... $ 976,699 ========== SHARES - ---------- X WARRANTS -- 0.0% COMMUNICATIONS -- 0.0% ##@@1 Iridium World Communications, Inc. ............... $ -- @@16 Solutia, Inc. .................................... -- ---------- Total warrants.................................... $ -- ==========
The accompanying notes are an integral part of this financial statement. 25 HARTFORD BOND HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- VALUE ----------- xMarketSHARES - -------------- )X SHORT-TERM SECURITIES -- 25.9% INVESTMENT COMPANIES HELD AS COLLATERAL ON LOANED SECURITIES -- 19.6% 496,266 State Street Navigator Securities Lending Prime Portfolio....................................... $ 496,266 ----------- PRINCIPAL AMOUNT - -------------- .XREPURCHASE AGREEMENT -- 6.3% $ 159,195 Joint Repurchase Agreement (See Note 2(d)) 1.10% due 01/02/03.............................. $ 159,195 ----------- Total short-term securities....................... $ 655,461 ===========
DIVERSIFICATION OF NET ASSETS: Total collateralized mortgage obligations (cost $13,617)........................................ 0.6% $ 14,573 Total common stocks (cost $262)................... 0.0 403 Total corporate notes (cost $866,344)............. 35.5 898,749 Total foreign/yankee bonds & notes (cost $480,562)....................................... 18.8 475,106 Total preferred stocks (cost $2,670).............. 0.1 2,950 Total U.S. treasuries & federal agencies (cost $937,885)....................................... 38.6 976,699 Warrants (cost $97)............................... 0.0 -- Total short-term securities (cost $655,461)....... 25.9 655,461 ----- ---------- Total investment in securities (total cost $2,966,898) -- including $485,950 of securities loaned (See Note 2(i)).......................... 119.5 3,023,941 Cash, receivables and other assets................ 1.5 34,999 Payable for securities purchased.................. (1.3) (32,649) Payable for Fund shares redeemed.................. (0.1) (1,824) Payable for accounting services................... (0.0) (3) Securities lending collateral payable to brokers (See Note 2(i))................................. (19.6) (496,266) Other liabilities................................. (0.0) (68) ----- ---------- Net assets........................................ 100.0% $2,528,130 ===== ==========
MARKET VALUE ---------- SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 5,000,000 shares authorized; 211,759 shares outstanding.................... $ 21,176 Paid in capital............................................. 2,305,240 Accumulated net investment income........................... 121,024 Accumulated net realized gain on investments................ 13,136 Unrealized appreciation on securities....................... 67,043 Unrealized appreciation on other assets and liabilities in foreign currencies........................................ 511 ---------- Net assets.................................................. $2,528,130 ========== Class IA Net asset value per share ($2,145,266 / 179,577 shares outstanding) (4,400,000 shares authorized).............. $ 11.95 ========== Class IB Net asset value per share ($382,864 / 32,182 shares outstanding) (600,000 shares authorized)................ $ 11.90 ==========
+ All or a portion of this security was on loan as of December 31, 2002 (See Note 2(i)). @ Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the market value of these securities amounted to $134,900 or 5.3% ## Illiquid Securities. At December 31, 2002, the market value of these securities amounted to $1,836 or 0.1% of net assets. @@ Due to the presentation of the financial statements in thousands, the number of shares and/or market value rounds to zero. I All principal amounts are in U.S. dollars unless otherwise indicated. AUD = Australian Dollar EUR = Euro GBP = British Pound V The bond ratings are unaudited.
The accompanying notes are an integral part of this financial statement. 26 HARTFORD MONEY MARKET HLS FUND STATEMENT OF NET ASSETS DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - --------- ---------- COMMERCIAL PAPER -- 63.6% $ 10,000 7-Eleven, Inc. $ 9,983 1.39% due 02/13/03.............................. 10,000 7-Eleven, Inc. 9,983 1.39% due 02/14/03.............................. 4,600 7-Eleven, Inc. 4,598 1.60% due 01/09/03.............................. 20,000 7-Eleven, Inc. 19,986 1.60% due 01/17/03.............................. 31,000 Abbott Laboratories 30,991 1.27% due 01/09/03.............................. 34,000 Abbott Laboratories 33,953 1.29% due 02/11/03.............................. 50,000 American Express Credit Corp. 49,834 1.34% due 03/31/03.............................. 34,000 American General Finance Corp. 33,915 1.32% due 03/10/03.............................. 10,000 American Honda Finance Corp. 9,985 1.33% due 02/11/03.............................. 20,000 Bemis Co., Inc. 19,990 1.34% due 01/14/03.............................. 15,000 Bradford & Bingley PLC 14,976 1.53% due 02/07/03.............................. 40,000 Bradford & Bingley PLC 39,841 1.74% due 03/24/03.............................. 42,000 Cafco Holding Corp. 41,957 1.32% due 01/29/03.............................. 18,000 Cafco Holding Corp. 17,973 1.34% due 02/10/03.............................. 25,000 Cargill, Inc. 24,972 1.74% due 01/24/03.............................. 17,000 Caterpillar Financial Services 16,966 1.30% due 02/26/03.............................. 55,000 Coca-Cola Co. (The) 54,931 1.67% due 01/28/03.............................. 40,500 Diageo Capital PLC 40,398 1.29% due 03/12/03.............................. 21,000 Diageo Capital PLC 20,873 2.86% due 03/18/03.............................. 50,000 Federal Home Loan Mortgage Association 49,685 1.26% due 06/30/03.............................. 21,000 Federal Home Loan Mortgage Association 20,985 1.69% due 01/16/03.............................. 40,000 Federal National Mortgage Association 39,987 1.70% due 01/08/03.............................. 8,500 Federal National Mortgage Association 8,497 1.70% due 01/08/03.............................. 55,000 Gannett Co., Inc. 54,998 1.29% due 01/02/03.............................. 21,000 International Lease Finance Corp. 20,996 1.35% due 01/06/03.............................. 29,000 Johnson & Johnson 28,885 1.29% due 04/22/03.............................. 36,000 Johnson & Johnson 35,962 1.73% due 01/23/03.............................. 25,000 Lehman Brothers Holdings, Inc. 25,000 1.725% due 03/28/03............................. 25,000 Merck & Co., Inc. 24,988 1.30% due 01/14/03..............................
PRINCIPAL MARKET AMOUNT VALUE - --------- ---------- $ 40,000 Merck & Co., Inc. $ 39,962 1.31% due 01/27/03.............................. 10,000 Morgan (J.P.) Chase & Co. 10,001 1.935% due 01/30/03............................. 40,000 Nationwide Building Society 39,937 1.67% due 02/04/03.............................. 23,000 Nestle Capital Corp. 22,948 1.30% due 03/05/03.............................. 42,000 Nestle Capital Corp. 41,759 1.33% due 06/05/03.............................. 22,000 Nordea North America, Inc. 21,906 1.32% due 04/28/03.............................. 43,000 Nordea North America, Inc. 42,887 1.72% due 02/25/03.............................. 13,000 Northern Rock PLC 12,963 1.34% due 03/18/03.............................. 9,700 Northern Rock PLC 9,688 1.70% due 01/28/03.............................. 41,844 Northern Rock PLC 41,763 1.70% due 02/11/03.............................. 20,000 Old Line Funding Corp. 19,996 1.33% due 01/06/03.............................. 16,000 Old Line Funding Corp. 15,975 1.35% due 02/12/03.............................. 10,000 Old Line Funding Corp. 9,999 1.36% due 01/03/03.............................. 6,800 Old Line Funding Corp. 6,797 1.36% due 01/14/03.............................. 27,225 Pfizer, Inc. 27,195 1.66% due 01/24/03.............................. 20,000 Pfizer, Inc. 19,981 1.73% due 01/21/03.............................. 25,000 Procter & Gamble Co. (The) 24,856 1.67% due 05/05/03.............................. 10,000 Salomon Smith Barney Holdings, Inc. 9,977 1.34% due 03/03/03.............................. 47,000 Sara Lee Corp. 46,953 1.39% due 01/27/03.............................. 28,000 Spintab, Inc. 27,901 1.33% due 04/07/03.............................. 36,000 Spintab, Inc. 35,945 1.67% due 02/03/03.............................. 65,000 State Street Corp. 64,824 1.30% due 03/17/03.............................. 20,000 Svenska Handelsbanken, Inc. 19,918 1.33% due 04/22/03.............................. 12,000 Svenska Handelsbanken, Inc. 11,962 1.63% due 03/12/03.............................. 5,000 Svenska Handelsbanken, Inc. 4,983 1.63% due 03/18/03.............................. 18,000 Svenska Handelsbanken, Inc. 17,927 1.65% due 03/31/03.............................. 40,000 Toronto-Dominion Holdings (USA), Inc. 39,834 1.34% due 04/23/03.............................. 10,000 Toyota Motor Credit Corp. 9,990 1.32% due 01/27/03.............................. 8,050 UBS Finance (Deleware), Inc. 8,026 1.30% due 03/26/03.............................. 35,000 UBS Finance (Deleware), Inc. 34,900 1.34% due 03/19/03..............................
The accompanying notes are an integral part of this financial statement. 27 HARTFORD MONEY MARKET HLS FUND STATEMENT OF NET ASSETS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - --------- ---------- COMMERCIAL PAPER -- (CONTINUED) $ 25,000 Washington Post Co. $ 24,944 1.33% due 03/03/03.............................. 35,400 Washington Post Co. 35,382 1.55% due 01/13/03.............................. 34,000 Wyeth 33,964 1.90% due 01/21/03.............................. ---------- 1,642,131 ---------- Total commercial paper............................ $1,642,131 ========== CORPORATE NOTES -- 31.2% $ 55,000 Bank One Corp. $ 55,019 1.63% due 02/18/03.............................. 42,000 Bank of New York Co., Inc. (The) 42,035 1.848% due 10/30/03............................. 25,000 Cargill, Inc. 24,989 1.69% due 01/10/03.............................. 8,000 General Electric Capital Corp. 8,011 1.898% due 10/22/03............................. 21,500 General Electric Capital Corp. 21,524 5.375% due 01/15/03............................. 32,000 General Electric Capital Corp. 32,119 7.00% due 02/03/03.............................. 37,000 Goldman Sachs Group, Inc. (The) 37,000 1.656% due 02/03/03............................. @27,000 Honda Motor Corp. 27,000 1.81% due 01/13/03.............................. @28,000 Honda Motor Corp. 27,993 1.81% due 10/21/03.............................. 41,500 Key Bank N.A. 41,505 1.70% due 02/07/03.............................. 9,750 Lehman Brothers Holdings, Inc. 9,758 2.17% due 04/04/03.............................. 4,500 Lehman Brothers Holdings, Inc. 4,549 6.25% due 04/01/03.............................. 5,000 Lehman Brothers Holdings, Inc. 5,095 7.00% due 05/15/03.............................. 52,000 Merrill Lynch & Co., Inc. 52,023 1.55% due 06/24/03.............................. 17,000 Morgan (J.P.) Chase & Co. 17,004 1.53% due 02/20/03.............................. 32,000 Morgan (J.P.) Chase & Co. 32,008 1.53% due 03/06/03.............................. 40,000 Morgan Stanley Dean Witter & Co. 40,015 1.62% due 02/21/03.............................. 7,000 Morgan Stanley Dean Witter & Co. 7,006 1.859% due 05/05/03............................. 13,000 Morgan Stanley Dean Witter & Co. 13,026 7.125% due 01/15/03............................. 20,000 Nationwide Building Society 20,000 1.42% due 02/14/03.............................. 32,000 SBC Communications, Inc. 32,000 1.38% due 03/14/03.............................. 55,000 Salomon Smith Barney Holdings, Inc. 55,000 1.355% due 05/09/03.............................
PRINCIPAL MARKET AMOUNT VALUE - --------- ---------- $ 55,000 Toyota Motor Credit Corp. $ 55,000 1.369% due 11/24/03............................. 22,000 US Bancorp 22,042 1.65% due 09/15/03.............................. 38,000 US Bancorp 38,010 1.937% due 02/03/03............................. 55,000 Wachovia Bank N.A. 55,000 1.773% due 10/20/03............................. 30,000 Wells Fargo & Co. 30,000 1.359% due 11/24/03............................. ---------- 804,731 ---------- Total corporate notes............................. $ 804,731 ========== REPURCHASE AGREEMENT -- 5.8% $150,471 Joint Repurchase Agreement $ 150,471 (See Note 2(d)) 1.10% due 01/02/03.............................. ---------- Total repurchase agreement........................ $ 150,471 ==========
DIVERSIFICATION OF NET ASSETS: Total commercial paper (cost $1,642,131).......................... 63.6% $1,642,131 Total corporate notes (cost $804,731)............................ 31.2 804,731 Total repurchase agreements (cost $150,471)............................ 5.8 150,471 ----- ---------- Total investment in securities (total cost $2,597,333).............. 100.6 2,597,333 Cash, receivables and other assets..... 0.3 5,731 Payable for fund shares redeemed....... (0.8) (19,482) Dividends payable...................... (0.1) (2,170) Payable for accounting services........ (0.0) (3) Other liabilities...................... (0.0) (39) ----- ---------- Net assets............................. 100.0% $2,581,370 ===== ==========
SUMMARY OF NET ASSETS: Capital stock, par value 0.10 per share; 7,000,000 shares authorized; 2,581,370 shares outstanding.................................. $ 258,137 Paid in capital................................ 2,323,233 ---------- Net assets..................................... $2,581,370 ==========
Class IA Net asset value per share ($2,319,456 / 2,319,456 shares outstanding)(6,000,000 shares authorized).................................... $1.00 ===== Class IB Net asset value per share ($261,914 / 261,914 shares outstanding)(1,000,000 shares authorized).................................... $1.00 =====
@ Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the market value of these securities amounted to $54,993 or 2.1% of net assets.
The accompanying notes are an integral part of this financial statement. 28 (This page intentionally left blank) 29 HARTFORD HLS MUTUAL FUNDS STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
HARTFORD HARTFORD SMALL CAPITAL COMPANY APPRECIATION HLS FUND HLS FUND --------- ------------ INVESTMENT INCOME: Dividends................................................. $ 2,259 $ 92,035 Interest.................................................. 840 12,670 Securities lending........................................ 302 1,464 Less: Foreign tax withheld................................ (89) (2,049) --------- ----------- Total investment income................................. 3,312 104,120 --------- ----------- EXPENSES: Investment advisory fees.................................. 3,727 34,039 Administrative services fees.............................. 1,411 15,607 Accounting services....................................... 141 1,561 Custodian fees, gross..................................... 42 1,326 Board of Directors fees................................... 6 63 Shareholder reports fees.................................. 44 488 Distribution Fees -- Class IB............................. 159 1,161 Other expenses............................................ 77 844 --------- ----------- Total expenses (before waivers and offsets)............. 5,607 55,089 Custodian fees offset..................................... 4 20 Distribution Fees -- Class IB waived...................... 15 99 --------- ----------- Total expenses, net..................................... 5,588 54,970 --------- ----------- Net investment income (loss).............................. (2,276) 49,150 --------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions......... (144,508) (1,318,371) Net realized gain (loss) on forward foreign currency contracts............................................... (76) (3,643) Net realized gain (loss) on foreign currency transactions............................................ 160 866 Net unrealized appreciation (depreciation) on securities.............................................. (111,490) (568,536) Net unrealized appreciation (depreciation) on forward foreign currency contracts.............................. -- (279) Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies... 6 112 --------- ----------- Net realized and unrealized gain (loss) on investments.... (255,908) (1,889,851) --------- ----------- Net increase (decrease) in net assets resulting from operations.............................................. $(258,184) $(1,840,701) ========= ===========
The accompanying notes are an integral part of these financial statements. 30 - --------------------------------------------------------------------------------
HARTFORD HARTFORD INTERNATIONAL HARTFORD DIVIDEND AND HARTFORD HARTFORD HARTFORD OPPORTUNITIES STOCK GROWTH ADVISERS BOND MONEY MARKET HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND -------------- ----------- ------------ ----------- -------- ------------ $ 16,783 $ 94,408 $ 71,074 $ 106,049 $ 302 $ -- 1,467 2,103 2,990 221,305 123,952 43,756 747 149 208 2,567 842 -- (1,838) -- (654) -- 92 -- --------- ----------- --------- ----------- -------- ------- 17,159 96,660 73,618 329,911 125,188 43,756 --------- ----------- --------- ----------- -------- ------- 4,369 16,888 14,803 48,128 5,578 5,696 1,682 13,160 6,554 22,237 4,112 4,557 168 1,316 655 2,224 411 456 430 26 17 65 62 12 7 53 26 89 16 18 52 404 220 608 126 204 60 688 560 1,457 607 508 89 686 344 1,478 220 221 --------- ----------- --------- ----------- -------- ------- 6,857 33,221 23,179 76,286 11,132 11,672 2 1 2 (5) 14 6 5 66 42 129 39 37 --------- ----------- --------- ----------- -------- ------- 6,850 33,154 23,135 76,162 11,079 11,629 --------- ----------- --------- ----------- -------- ------- 10,309 63,506 50,483 253,749 114,109 32,127 --------- ----------- --------- ----------- -------- ------- (119,900) (235,322) (24,223) (154,706) 26,785 100 (945) -- -- -- (292) -- (743) -- 59 -- (2,514) -- (20,485) (1,765,512) (548,275) (1,855,706) 70,806 -- (61) -- -- -- -- -- 950 -- (1) -- 446 -- --------- ----------- --------- ----------- -------- ------- (141,184) (2,000,834) (572,440) (2,010,412) 95,231 100 --------- ----------- --------- ----------- -------- ------- $(130,875) $(1,937,328) $(521,957) $(1,756,663) $209,340 $32,227 ========= =========== ========= =========== ======== =======
31 HARTFORD HLS MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
HARTFORD HARTFORD CAPITAL SMALL COMPANY APPRECIATION HLS FUND HLS FUND ------------- ------------ OPERATIONS: Net investment income (loss).............................. $ (2,276) $ 49,150 Net realized gain (loss) on investments................... (144,424) (1,321,148) Net unrealized appreciation (depreciation) on investments............................................. (111,484) (568,703) --------- ----------- Net increase (decrease) in net assets resulting from operations.............................................. (258,184) (1,840,701) --------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class IA................................................ -- (43,001) Class IB................................................ -- (2,845) From net realized gain on investments Class IA................................................ -- -- Class IB................................................ -- -- --------- ----------- Total distributions..................................... -- (45,846) --------- ----------- CAPITAL SHARE TRANSACTIONS: Class IA................................................ (15,821) (712,297) Class IB................................................ 30,833 299,875 --------- ----------- Net increase (decrease) from capital share transactions... 15,012 (412,422) --------- ----------- Net increase (decrease) in net assets..................... (243,172) (2,298,969) NET ASSETS: Beginning of period....................................... 804,624 9,127,841 --------- ----------- End of period............................................. $ 561,452 $ 6,828,872 ========= =========== Accumulated net investment income (loss).................... $ (34) $ 1,931 ========= ===========
The accompanying notes are an integral part of these financial statements. 32 - --------------------------------------------------------------------------------
HARTFORD HARTFORD INTERNATIONAL HARTFORD DIVIDEND AND HARTFORD HARTFORD HARTFORD OPPORTUNITIES STOCK GROWTH ADVISERS BOND MONEY MARKET HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND ------------- ----------- ------------ ----------- ---------- ------------ $ 10,309 $ 63,506 $ 50,483 $ 253,749 $ 114,109 $ 32,127 (121,588) (235,322) (24,164) (154,706) 23,979 100 (19,596) (1,765,512) (548,276) (1,855,706) 71,252 -- --------- ----------- ---------- ----------- ---------- ---------- (130,875) (1,937,328) (521,957) (1,756,663) 209,340 32,227 --------- ----------- ---------- ----------- ---------- ---------- (15,535) (58,646) (44,489) (310,849) (71,918) (29,732) (431) (2,766) (4,542) (17,707) (9,028) (2,395) -- -- (156,583) -- (21,013) (93) -- -- (11,349) -- (2,682) (7) --------- ----------- ---------- ----------- ---------- ---------- (15,966) (61,412) (216,963) (328,556) (104,641) (32,227) --------- ----------- ---------- ----------- ---------- ---------- (151,869) (823,856) 306,692 (609,326) 505,821 451,936 8,043 107,521 225,899 258,251 215,658 109,785 --------- ----------- ---------- ----------- ---------- ---------- (143,826) (716,335) 532,591 (351,075) 721,479 561,721 --------- ----------- ---------- ----------- ---------- ---------- (290,667) (2,715,075) (206,329) (2,436,294) 826,178 561,721 964,211 8,106,118 3,344,621 12,357,769 1,701,952 2,019,649 --------- ----------- ---------- ----------- ---------- ---------- $ 673,544 $ 5,391,043 $3,138,292 $ 9,921,475 $2,528,130 $2,581,370 ========= =========== ========== =========== ========== ========== $ 1,082 $ 5,503 $ 3,506 $ 146,740 $ 121,024 $ -- ========= =========== ========== =========== ========== ==========
33 HARTFORD HLS MUTUAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001 (000'S OMITTED) - --------------------------------------------------------------------------------
HARTFORD HARTFORD SMALL CAPITAL COMPANY APPRECIATION HLS FUND HLS FUND --------- ------------ OPERATIONS: Net investment income (loss).............................. $ 129 $ 53,224 Net realized gain (loss) on investments................... (175,575) (288,833) Net unrealized appreciation (depreciation) on investments............................................. 27,855 (475,247) --------- ----------- Net increase (decrease) in net assets resulting from operations.............................................. (147,591) (710,856) --------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income Class IA................................................ -- (58,347) Class IB................................................ -- (2,187) From net realized gain on investments Class IA................................................ (55,117) (2,589,918) Class IB................................................ (3,553) (72,932) --------- ----------- Total distributions..................................... (58,670) (2,723,384) --------- ----------- CAPITAL SHARE TRANSACTIONS: Class IA................................................ 32,931 2,491,922 Class IB................................................ 28,101 352,203 --------- ----------- Net increase (decrease) from capital share transactions... 61,032 2,844,125 --------- ----------- Net increase (decrease) in net assets..................... (145,229) (590,115) NET ASSETS: Beginning of period....................................... 949,853 9,717,956 --------- ----------- End of period............................................. $804,624 $ 9,127,841 ========= =========== Accumulated undistributed net investment income (loss).... $ -- $ 5,832 ========= ===========
The accompanying notes are an integral part of these financial statements. 34 - --------------------------------------------------------------------------------
HARTFORD HARTFORD HARTFORD INTERNATIONAL HARTFORD DIVIDEND AND HARTFORD HARTFORD MONEY OPPORTUNITIES STOCK GROWTH ADVISERS BOND MARKET HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND ------------- ----------- ------------ ----------- ---------- ---------- $ 12,269 $ 68,757 $ 53,102 $ 318,895 $ 79,861 $ 60,211 (213,046) (285,529) 167,623 (306,000) 51,546 21 (21,944) (985,086) (356,245) (657,976) (23,608) -- ---------- ----------- ---------- ----------- ---------- ---------- (222,721) (1,201,858) (135,520) (645,081) 107,799 60,232 ---------- ----------- ---------- ----------- ---------- ---------- (1,384) (63,165) (49,560) (352,611) (59,005) (57,052) (67) (1,835) (2,179) (8,681) (3,698) (3,180) (154,454) (641,294) (201,137) (617,329) -- -- (3,867) (15,953) (5,550) (19,622) -- -- ---------- ----------- ---------- ----------- ---------- ---------- (159,772) (722,247) (258,426) (998,243) (62,703) (60,232) ---------- ----------- ---------- ----------- ---------- ---------- (9,160) 126,867 384,922 5,781 473,934 625,245 10,573 177,261 128,373 312,558 118,328 115,859 ---------- ----------- ---------- ----------- ---------- ---------- 1,413 304,128 513,295 318,339 592,262 741,104 ---------- ----------- ---------- ----------- ---------- ---------- (381,080) (1,619,977) 119,349 (1,324,985) 637,358 741,104 1,345,291 9,726,095 3,225,272 13,682,754 1,064,594 1,278,545 ---------- ----------- ---------- ----------- ---------- ---------- $ 964,211 $ 8,106,118 $3,344,621 $12,357,769 $1,701,952 $2,019,649 ========== =========== ========== =========== ========== ========== $ 8,428 $ 3,412 $ 2,031 $ 218,556 $ 80,851 $ -- ========== =========== ========== =========== ========== ==========
35 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 ($000'S OMITTED) - -------------------------------------------------------------------------------- 1. ORGANIZATION: The Hartford HLS Mutual Funds serve as the underlying investment vehicles for certain variable annuity and variable life insurance separate accounts and group pension contracts of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company (collectively, The Hartford Life Insurance Companies) as well as certain qualified retirement plans. The Hartford Life Insurance Companies are affiliates of the Funds. The Funds are stated below. Hartford Series Fund, Inc. (comprised of twenty-five portfolios, eight are included in these financial statements; they are Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund Hartford Advisers HLS Fund, Hartford Bond HLS Fund, and Hartford Money Market HLS Fund. Each "Fund" or together the "Funds" are organized under the laws of the State of Maryland and are registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940, as amended, as diversified open-end management investment companies. Each Fund is divided into Class IA and IB shares. Each class is offered at net asset value without a sales charge and is subject to the same expenses except that the Class IB shares are subject to distribution fees charged pursuant to a Rule 12b-1 plan. Distribution and Service Plans have been adopted in accordance with Rule 12b-1 of the Investment Company Act of 1940, as amended. Income and expenses, realized and unrealized capital gains and losses are allocated to each class of a Fund based on the ratio of prior day" net assets. 2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies of the Funds, which are in accordance with accounting principles generally accepted in the United States of America: a) Security Transactions -- Security transactions are recorded on the trade date (the day the order to buy or sell is executed). Security gains and losses are determined on the basis of identified cost. b) Security Valuation -- Equity securities are valued at the last sales price reported on principal securities exchanges on which such securities are traded (domestic or foreign) or on the principal over-the-counter market on which such securities are traded as of the close of business on the day the securities are being valued. If no sale occurred on a particular day and in the case of certain equity securities traded over-the-counter, then such securities are valued at the mean between the bid and asked prices. Securities quoted in foreign currencies are translated into U.S. dollars at the prevailing exchange rates at the end of each business day. Options are valued at the last sales price; if no sale took place on such day, then options are valued at the mean between the bid and asked prices. Securities for which market quotations are not readily available and all other assets are valued in good faith at their fair values under the direction of the Funds' Board of Directors. Debt securities (other than short-term obligations) are valued on the basis of valuations furnished by an unaffiliated pricing service which determines valuations for normal institutional size trading units of debt securities. Mortgage securities are valued at the bid price. Short-term securities held in Hartford Money Market HLS Fund are valued at amortized cost or original cost plus accrued interest receivable, both of which approximate market value. In the remaining Funds, short-term investments purchased with a maturity of 60 days or less are valued at amortized cost, which approximates market value. Short-term investments purchased with a maturity of more than 60 days are valued based on market quotations until the remaining days to maturity become less than 61 days. From such time until maturity, the investments are valued at amortized cost. c) Foreign Currency Transactions -- The accounting records of the Funds are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such 36 - -------------------------------------------------------------------------------- fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements. Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates. d) Repurchase Agreements -- A repurchase agreement is an agreement by which the seller of a security agrees to repurchase the security sold at a mutually agreed upon time and price. At the time the Funds enter into a repurchase agreement, the value of the underlying collateral security(ies), including accrued interest, will be equal to or exceed the value of the repurchase agreement. Securities which serve to collateralize the repurchase agreement are held by each Fund's custodian in book entry or physical form in the custodial account of the Fund. Repurchase agreements are valued at cost plus accrued interest receivable. All repurchase agreements are handled through the Funds' custodian, State Street Bank. Certain Funds, together with other investment management companies having investment advisory agreements with Wellington Management Company, LLP ("Wellington") have an interest in a $1,689,661 joint repurchase agreement dated 12/31/02 with State Street Bank, 1.10% due 01/02/2003. This joint repurchase agreement is collateralized by $832,024 U.S. Treasury Bonds 6.125% - 11.75% due 02/15/2010 - 11/15/2027 and $890,809 U.S. Treasury Notes 3.00% - 6.50% due 05/31/2003 - 10/15/2006. The maturity amounts are as follows:
MATURITY FUND AMOUNT ---- -------- Hartford Small Company HLS Fund............................. $ 41,233 Hartford Capital Appreciation HLS Fund...................... 576,430 Hartford International Opportunities HLS Fund............... 14,096 Hartford Stock HLS Fund..................................... 87,849 Hartford Dividend and Growth HLS Fund....................... 157,393 Hartford Advisers HLS Fund.................................. 208,831
Certain Funds, together with other investment management companies having investment advisory agreements with The Hartford Investment Management Company (HIMCO), a wholly owned subsidiary of The Hartford, have an interest in a $474,364 joint repurchase agreement dated 12/31/02 with State Street Bank, 1.10% due 01/02/2003. This joint repurchase agreement is collateralized by $324,384 U.S. Treasury Bonds 5.50% - 12.00% due 05/15/2005 - 08/15/2028, $150,009 U.S. Treasury Notes 3.625% due 03/31/2004. The maturity amounts are as follows:
MATURITY FUND AMOUNT ---- -------- Hartford Bond HLS Fund...................................... $159,205 Hartford Money Market HLS Fund.............................. 150,480
e) Joint Trading Account -- Pursuant to an exemptive order issued by the SEC, the Funds may transfer uninvested cash balances into a joint trading account managed by HIMCO or Wellington. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. As of December 31, 2002 there are no joint trading accounts. f) Futures, Options on Futures and Options Transactions -- A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. When the Funds enter into such contracts, they are required to deposit with their custodian an amount of "initial margin" of cash or U.S. Treasury bills. Subsequent payments, called maintenance margin, to and from the broker-dealer, are made on a daily basis as the price of the underlying debt security fluctuates, making the long and short positions in the futures contract more or less 37 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- valuable (i.e., mark-to-market), which results in an unrealized gain or loss to the Funds. The market value of a traded futures contract is the last sale price. In the absence of a last sale price, the last offering price is used. In the absence of either of these prices, fair value is determined according to procedures established by the Funds' Board of Directors. The variation margin on futures contracts is included in cash, receivables and other assets as applicable, in each Fund's Statement of Net Assets. At any time prior to the expiration of the futures contract, the Funds may close the position by taking an opposite position which would operate to terminate the position in the futures contract. A final determination of maintenance margin is then made, additional cash is required to be paid by or released to the Funds and the Funds realize a gain or loss. The use of futures contracts involve elements of market and counter party risk, which may exceed the amounts recognized in the Statement of Net Assets. Change in the value of the futures contracts may decrease the effectiveness of the Funds' strategies and potentially result in loss. The premium paid by a Fund for the purchase of a call or put option is included in the Fund's Statement of Net Assets and subsequently "marked-to-market" to reflect the current market value of the option purchased as of the end of the reporting period. If an option, which the Fund has purchased, expires on its stipulated expiration date, the Fund realizes a loss in the amount of the cost of the option. If the Fund enters into a closing transaction, it realizes a gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option, the cost of the security, which the Fund purchases upon exercise, will be increased by the premium originally paid to buy the call. The Funds may write covered options. "Covered" means that so long as the Fund is obligated as the writer of an option, it will own either the underlying securities or currency or an option to purchase or sell the same underlying securities or currency having an expiration date of the covered option at an exercise price equal to or less than the exercise price of the covered option, or will establish or maintain with its custodian for the term of the option a "segregated account" consisting of cash or other liquid securities having a value equal to the fluctuating market value of the option securities or currencies. The Fund receives a premium from writing a call or put option, which increases the Fund's return if the option expires unexercised or is closed out at a net profit. The Fund's had no option activity for the year ended December 31, 2002. g) Forward Foreign Currency Contracts -- As of December 31, 2002, Hartford Capital Appreciation HLS Fund and Hartford International Opportunities Fund had entered into forward foreign currency contracts that obligate the Funds to repurchase/replace or sell currencies at specified future dates. The Funds enter into forward foreign currency contracts to hedge against adverse fluctuations in exchange rates between currencies. The forward foreign currency contracts' costs are included in cash, receivables and other assets or other liabilities, as applicable, in the Fund's Statement of Net Assets. Forward foreign currency contracts involve elements of market risk in excess of the amount reflected in the Statement of Net Assets. In addition, risk may arise upon entering into these contracts from the potential inability of the counter-parties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. h) Indexed Securities -- The Funds may invest in indexed securities whose values are linked to changes in interest rates, indices, or other underlying instruments. The Funds use these securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that might be difficult to invest in through conventional securities. Indexed securities are shown at market value in the Statement of Net Assets, if applicable. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment and there is a limit to the potential appreciation of the investment. 38 - -------------------------------------------------------------------------------- i) Securities Lending -- The Funds, except for Hartford Money Market HLS Fund, may lend their securities to certain qualified brokers who pay these Funds negotiated lender fees. The loans are collateralized at all times with cash at least equal to the market value of the securities on loan. As with other extensions of credit, these Funds may bear the risk of delay in recovery of the loaned securities or even loss of rights in the collateral should the borrower of the securities fail financially. As of December 31, 2002, the market value of the securities loaned and the market value of the collateral were as follows:
MARKET VALUE MARKET VALUE FUND OF SECURITIES LOANED OF COLLATERAL ---- -------------------- ------------- Hartford Small Company HLS Fund............................. $ 45,267 $ 48,928 Hartford Capital Appreciation HLS Fund...................... 674,993 710,184 Hartford International Opportunities HLS Fund............... 84,154 88,489 Hartford Stock HLS Fund..................................... 32,720 33,787 Hartford Dividend and Growth HLS Fund....................... 28,983 32,146 Hartford Advisers HLS Fund.................................. 1,285,438 1,312,948 Hartford Bond HLS Fund...................................... 485,950 496,266
j) Federal Income Taxes -- For federal income tax purposes, the Funds intend to continue to qualify as regulated investment companies under Subchapter M of the Internal Revenue Code by distributing substantially all of their taxable net investment income and net realized capital gains to their shareholders or otherwise complying with the requirements of regulated investment companies. Accordingly, no provision for federal income taxes has been made in the accompanying financial statements. k) Fund Share Valuation and Distributions to Shareholders -- Orders for the Funds' shares are executed in accordance with the investment instructions of the contract holders. Dividend income is accrued as of the ex-dividend date, except that certain dividends for foreign securities where the ex-dividend date may have passed, are recorded as soon as the Fund is informed of the ex-dividend date in the exercise of due diligence. Interest income and expenses are accrued on a daily basis. The net asset value of each Fund's shares is determined as of the close of each business day of the New York Stock Exchange (the Exchange). Orders for the purchase of a Fund's shares received prior to the close of the Exchange on any day on which the Fund is open for business are priced at the per-share net asset value determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined per-share net asset value. Dividends are declared by the Funds' Board of Directors based upon the investment performance of the respective Funds. The policy of all Funds except the Hartford Money Market HLS Fund is to pay dividends from net investment income and distribute realized capital gains, if any, at least once a year. Hartford Money Market HLS Fund seeks to maintain a stable net asset value per share of $1.00 by declaring a daily dividend from net investment income, including net short-term capital gains and losses, and by valuing its investments using the amortized cost method. Dividends are declared daily and distributed monthly. Distributions from net investment income, realized capital gains and capital are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences include the treatment of non-taxable dividends, expiring capital loss carryforwards, foreign currency gains and losses, partnerships, losses deferred due to wash sales and excise tax regulations. Permanent book and tax basis differences relating to shareholder distributions result in reclassifications to capital accounts (see Note 5). l) Use of Estimates -- 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 as of the date of the financial statements and the reported amounts of 39 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- income and expenses during the period. Operating results in the future could vary from the amounts derived from management's estimates. m) Illiquid Securities -- Each Fund is permitted to invest up to 15% of its net assets in illiquid securities, except for Hartford Money Market HLS Fund, which may invest up to 10% in such securities. "Illiquid Securities" are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine a Fund's net asset value per share. Each Fund may also purchase certain restricted securities, which may be determined to be liquid pursuant to policies and guidelines established by the Funds' Board of Directors. For the year ended December 31, 2002, the Funds held illiquid securities as denoted in the Statement of Net Assets. 3. EXPENSES: a) Investment Management and Advisory Agreements -- HL Investment Advisors, LLC (HL Advisors) an indirect wholly-owned subsidiary of The Hartford Financial Services Group, Inc. (The Hartford), serves as investment manager to the Funds pursuant to investment management agreements approved by each Fund's Board of Directors and shareholders. The schedule below reflects the rates of compensation paid to HL Advisors for services rendered, a portion of which is used to compensate Wellington or HIMCO: HARTFORD MONEY MARKET HLS FUND
AVERAGE DAILY NET ASSETS ANNUAL RATE - ------------------------ ----------- All assets......................................................... 0.250%
HARTFORD STOCK HLS FUND AND HARTFORD BOND HLS FUND
AVERAGE DAILY NET ASSETS ANNUAL RATE - ------------------------ ----------- On first $250 million.............................................. 0.325% On next $250 million............................................... 0.300 On next $500 million............................................... 0.275 Over $1 billion.................................................... 0.250
HARTFORD SMALL COMPANY HLS FUND, HARTFORD CAPITAL APPRECIATION HLS FUND, HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, HARTFORD DIVIDEND AND GROWTH HLS FUND, AND HARTFORD ADVISERS HLS FUND
AVERAGE DAILY NET ASSETS ANNUAL RATE - ------------------------ ----------- On first $250 million.............................................. 0.575% On next $250 million............................................... 0.525 On next $500 million............................................... 0.475 Over $1 billion.................................................... 0.425
Pursuant to sub-advisory agreements between HL Advisors and Wellington, Wellington provides the day-to-day investment management services to the Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund and Hartford Advisers HLS Fund. Pursuant to investment services agreements between HL Advisors and HIMCO, HIMCO provides the day-to-day investment management services to the Hartford Bond HLS Fund and Hartford Money Market HLS Fund. Wellington and HIMCO determine the purchase and sale of portfolio securities and place such orders for execution in the name of the respective Fund. In conjunction with their investment activity, Wellington and HIMCO regularly furnish reports to the Funds' Board of Directors concerning economic forecasts, investment strategy, portfolio activity and performance of the Funds. 40 - -------------------------------------------------------------------------------- b) Administrative Services Agreement -- Under the Administrative Services Agreement between Hartford Life Insurance Company (HL) and each of the Funds, HL provides administrative services to the Funds and receives monthly compensation at the annual rate of 0.20% of each Fund's average daily net assets. The Funds assume and pay certain other expenses (including, but not limited to, accounting, custodian, state taxes and directors' fees). Directors' fees represent remuneration paid or accrued to directors not affiliated with HL or any other related company. Accounting Services Agreement -- Under the Fund Accounting Agreement between HL and each of the Funds, HL provides accounting services to the Funds and receives monthly compensation at the annual rate of 0.02% of each Fund's average daily net assets. c) Operating Expenses -- Allocable expenses of the Funds are charged to each Fund based on the ratio of the average net assets of each Fund to the combined average net assets of the Funds. Non-allocable expenses are charged to each Fund based on specific identification. d) Expense Offset -- The Funds have entered into certain expense offset arrangements with the Custodian Bank. The amount of the Funds' expense reductions is shown on the accompanying Statements of Operations as Custodian fees offset. e) Distribution Plan for Class IB shares -- Each Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act for the Class IB shares. Pursuant to the Distribution Plan, each Fund compensates the Distributor from assets attributable to the Class IB shares for services rendered and expenses borne in connection with activities primarily intended to result in the sale of the Class IB shares. Although the Distribution Plan provides that each Fund may pay annually up to 0.25% of the average daily net assets of a Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares, the Board of Directors waived 0.07% of this fee until April 30, 2002. Beginning May 1, 2002 the full 0.25% was charged. Under the terms of the Distribution Plan and the principal underwriting agreement, each Fund is authorized to make payments monthly to the Distributor which may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities' fees or expenses incurred or paid in that regard. 4. INVESTMENT TRANSACTIONS: For the year ended December 31, 2002, aggregate purchases and sales of investment securities (excluding short-term investments and U.S. government obligations) were as follows:
FUND COST OF PURCHASES SALES PROCEEDS ---- ----------------- -------------- Hartford Small Company HLS Fund............................. $1,501,716 $1,507,365 Hartford Capital Appreciation HLS Fund...................... 6,949,099 7,380,146 Hartford International Opportunities HLS Fund............... 1,235,684 1,331,380 Hartford Stock HLS Fund..................................... 2,836,934 3,557,434 Hartford Dividend and Growth HLS Fund....................... 1,653,753 1,367,846 Hartford Advisers HLS Fund.................................. 4,168,160 4,190,798 Hartford Bond HLS Fund...................................... 2,085,012 1,383,984
5. RECLASSIFICATION OF CAPITAL ACCOUNTS: In accordance with AICPA Statement of Position 93-2, Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies, the Funds have recorded several reclassifications in their capital accounts. These reclassifications had no impact on the net asset value per share of the Funds and are designed generally to present undistributed income and realized gains on a tax basis 41 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- which is considered to be more informative to the shareholder. As of December 31, 2002, the Funds recorded the following reclassifications to increase (decrease) the accounts listed below.
ACCUMULATED ACCUMULATED NET REALIZED NET INVESTMENT GAIN (LOSS) ON PAID IN FUND INCOME (LOSS) INVESTMENTS CAPITAL ---- -------------- -------------- ------- Hartford Small Company HLS Fund............................ $ 2,243 $ 304 $(2,547) Hartford Capital Appreciation HLS Fund..................... (7,204) 7,204 -- Hartford International Opportunities HLS Fund.............. (1,688) 1,688 -- Hartford Stock HLS Fund.................................... (2) 2 -- Hartford Dividend and Growth HLS Fund...................... 23 (23) -- Hartford Advisers HLS Fund................................. 2,991 (15,313) 12,322 Hartford Bond HLS Fund..................................... 7,010 (10,097) 3,087
TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS: As of December 31, 2002, the aggregate gross unrealized appreciation and depreciation of all investments, based on cost for federal income tax purposes, was as follows:
NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ FUND TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) ---- ----------- ------------ ------------ -------------- Hartford Small Company HLS Fund.............. $ 659,807 $ 32,587 $ (76,831) $ (44,244) Hartford Capital Appreciation HLS Fund....... 8,185,496 464,657 (1,068,529) (603,872) Hartford International Opportunities HLS Fund....................................... 811,186 27,761 (77,498) (49,737) Hartford Stock HLS Fund...................... 6,712,948 182,204 (1,458,355) (1,276,151) Hartford Dividend and Growth HLS Fund........ 3,617,706 119,381 (563,927) (444,546) Hartford Advisers HLS Fund................... 12,066,139 573,334 (1,457,568) (884,234) Hartford Bond HLS Fund....................... 2,861,905 145,691 (79,585) 66,106
6. CAPITAL LOSS CARRY FORWARD: At December 31, 2002, the following Funds had capital loss carry forwards for U.S. Federal Tax purposes of approximately:
YEAR OF FUND AMOUNT EXPIRATION ---- ---------- ---------- Hartford Small Company HLS Fund............................. $ 122,092 2010 Hartford Small Company HLS Fund............................. 249,531 2009 Hartford Capital Appreciation HLS Fund...................... 1,156,841 2010 Hartford Capital Appreciation HLS Fund...................... 256,285 2009 Hartford International Opportunities HLS Fund............... 133,895 2010 Hartford International Opportunities HLS Fund............... 211,154 2009 Hartford Stock HLS Fund..................................... 225,627 2010 Hartford Stock HLS Fund..................................... 287,370 2009 Hartford Advisers HLS Fund.................................. 142,186 2010 Hartford Advisers HLS Fund.................................. 291,958 2009 Hartford Advisers HLS Fund.................................. 1,126 2008
42 - -------------------------------------------------------------------------------- Based on certain provisions in the Internal Revenue code, various limitations regarding the future utilization of the Hartford Advisers HLS Fund carry forwards may apply. For the fiscal year ended December 31, 2002, the following Funds have elected to defer losses occurring between November 1, 2002 and December 31, 2002 as follows:
CAPITAL LOSS CURRENCY LOSS FUND DEFERRED DEFERRED ---- ------------ ------------- Hartford Small Company HLS Fund............................. $ 21,264 $34 Hartford Capital Appreciation HLS Fund...................... 154,525 -- Hartford International Opportunities HLS Fund............... 20,572 -- Hartford Dividend and Growth HLS Fund....................... 41,027 -- Hartford Advisers HLS Fund.................................. 17,231 --
7. DISTRIBUTION TO SHAREHOLDERS: The tax character of distributions paid during 2002 was as follows:
ORDINARY LONG-TERM RETURN FUND INCOME CAPITAL GAIN OF CAPITAL ---- -------- ------------ ---------- Hartford Capital Appreciation HLS Fund...................... $ 45,846 $ -- $-- Hartford International Opportunities HLS Fund............... 15,967 -- -- Hartford Stock HLS Fund..................................... 61,412 -- -- Hartford Dividend and Growth HLS Fund....................... 49,031 167,933 -- Hartford Advisers HLS Fund.................................. 328,556 -- -- Hartford Bond HLS Fund...................................... 95,011 9,630 -- Hartford Money Market HLS Fund.............................. 32,227 -- --
The tax character of distributions paid during 2001 was as follows:
ORDINARY LONG-TERM RETURN FUND INCOME CAPITAL GAIN OF CAPITAL ---- -------- ------------ ---------- Hartford Small Company HLS Fund............................. $ 9,067 $ 49,603 $-- Hartford Capital Appreciation HLS Fund...................... 732,016 1,991,368 -- Hartford International Opportunities HLS Fund............... 38,342 121,430 -- Hartford Stock HLS Fund..................................... 224,556 497,691 -- Hartford Dividend and Growth HLS Fund....................... 53,756 204,670 -- Hartford Advisers HLS Fund.................................. 567,094 431,149 -- Hartford Bond HLS Fund...................................... 62,703 -- -- Hartford Money Market HLS Fund.............................. 60,232 -- --
43 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- As of December 31, 2002, the components of distributable earnings on tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED UNREALIZED ORDINARY LONG-TERM APPRECIATION FUND INCOME CAPITAL GAIN (DEPRECIATION) ---- ------------- ------------- -------------- Hartford Small Company HLS Fund........................... $ -- $ -- $ (44,238) Hartford Capital Appreciation HLS Fund.................... 1,667 -- (603,816) Hartford International Opportunities HLS Fund............. 1,060 -- (49,671) Hartford Stock HLS Fund................................... 5,503 -- (1,276,151) Hartford Dividend and Growth HLS Fund..................... 3,506 23,281 (444,546) Hartford Advisers HLS Fund................................ 146,740 -- (884,234) Hartford Bond HLS Fund.................................... 128,940 6,157 66,617 Hartford Money Market HLS Fund............................ @@ -- -- --
@@Due to the presentation of the financial statements in thousands, the undistributed ordinary income rounds to zero. 8. CAPITAL SHARE TRANSACTIONS: The following information is for the year ended December 31, 2002:
HARTFORD HARTFORD CAPITAL HARTFORD INTERNATIONAL SMALL COMPANY APPRECIATION OPPORTUNITIES HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IA Shares sold.................... 288,006 $ 353,870 166,965 $ 642,585 3,291,660 $ 2,907,057 Shares issued in merger........ -- -- -- -- -- -- Shares issued on in-kind transactions................. 18,874 24,995* 12,252 11,716** Shares issued on reinvestment of distributions............. -- -- 2,847 43,001 10,217 15,535 Shares redeemed................ (322,882) (394,686) (395,688) (1,397,883) (3,352,850) (3,086,177) Shares issued in 1 for 10 stock split........................ (490,203) -- (1,774,749) -- (865,011) -- ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (506,205) $ (15,821) (2,000,625) $ (712,297) (903,732) $ (151,869) ========== =========== ========== =========== ========== ===========
- --------------- * During the year ended December 31, 2002, the Hartford Small Company HLS Fund received in-kind subscriptions of securities as noted (including unrealized appreciation of $2,151) from a shareholder of an affiliated fund offered by The Hartford in exchange for shares of the Fund noted. ** During the year ended December 31, 2002, the Hartford International Opportunities HLS Fund received in-kind subscriptions of securities as noted (including unrealized depreciation of ($547)) from a shareholder of an affiliated fund offered by The Hartford in exchange for shares of the Fund noted. 44 - --------------------------------------------------------------------------------
HARTFORD HARTFORD HARTFORD STOCK DIVIDEND AND GROWTH ADVISERS HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IA Shares sold.................... 82,040 $ 368,314 333,066 $ 644,897 207,487 $ 503,856 Shares issued in merger........ -- -- -- -- 220,049 488,111 Shares issued on in-kind transactions................. -- -- Shares issued on reinvestment of distributions............. 2,398 58,646 96,010 201,073 105,657 310,849 Shares redeemed................ (302,325) (1,250,816) (302,046) (539,278) (878,389) (1,912,142) Shares issued in 1 for 10 stock split........................ (1,292,904) -- (1,638,206) -- (4,233,249) -- ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (1,510,791) $ (823,856) (1,511,176) $ 306,692 (4,578,445) $ (609,326) ========== =========== ========== =========== ========== ===========
HARTFORD HARTFORD BOND MONEY MARKET HLS FUND HLS FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- CLASS IA Shares sold.................... 668,428 $ 815,855 7,433,161 $ 7,433,161 Shares issued in merger........ 77,738 90,378 122,443 122,443 Shares issued on in-kind transactions................. -- -- Shares issued on reinvestment of distributions............. 83,422 92,931 29,756 29,756 Shares redeemed................ (387,997) (493,343) (7,133,424) (7,133,424) Shares issued in 1 for 10 stock split........................ (1,614,335) -- -- -- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (1,172,744) $ 505,821 451,936 $ 451,936 ========== =========== ========== ===========
HARTFORD HARTFORD HARTFORD INTERNATIONAL SMALL COMPANY CAPITAL APPRECIATION OPPORTUNITIES HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IB Shares sold.................... 32,500 $ 42,028 91,808 $ 361,932 174,550 $ 151,571 Shares issued in merger........ -- -- -- -- -- -- Shares issued on reinvestment of distributions............. -- -- 172 2,845 237 431 Shares redeemed................ (9,931) (11,195) (18,914) (64,902) (161,775) (143,959) Shares issued in 1 for 10 stock split........................ (60,150) -- (153,584) -- (32,948) -- ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (37,581) $ 30,833 (80,518) $ 299,875 (19,936) $ 8,043 ========== =========== ========== =========== ========== ===========
45 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - --------------------------------------------------------------------------------
HARTFORD HARTFORD HARTFORD STOCK DIVIDEND AND GROWTH ADVISERS HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IB Shares sold.................... 30,948 $ 142,796 115,448 $ 232,771 127,755 $ 317,874 Shares issued in merger........ -- -- -- -- -- -- Shares issued on reinvestment of distributions............. 106 2,766 7,052 15,891 5,569 17,707 Shares redeemed................ (9,557) (38,041) (13,505) (22,763) (35,672) (77,330) Shares issued in 1 for 10 stock split........................ (70,496) -- (169,150) -- (284,427) -- ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (48,999) $ 107,521 (60,155) $ 225,899 (186,775) $ 258,251 ========== =========== ========== =========== ========== ===========
HARTFORD HARTFORD BOND MONEY MARKET HLS FUND HLS FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- CLASS IB Shares sold.................... 182,699 $ 240,018 390,278 $ 390,278 Shares issued in merger........ -- -- -- -- Shares issued on reinvestment of distributions............. 10,543 11,710 2,405 2,405 Shares redeemed................ (25,861) (36,070) (282,898) (282,898) Shares issued in 1 for 10 stock split........................ (268,394) -- -- -- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ (101,013) $ 215,658 109,785 $ 109,785 ========== =========== ========== ===========
The following information is for the year ended December 31, 2001:
HARTFORD HARTFORD HARTFORD SMALL COMPANY CAPITAL APPRECIATION INTERNATIONAL OPPORTUNITIES HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ---------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ------------ ------------- CLASS IA Shares sold.................... 526,268 $ 736,068 215,404 $ 1,054,902 4,445,906 $ 4,865,092 Shares issued on reinvestment of distributions............. 41,341 55,117 623,445 2,648,265 156,280 155,838 Shares redeemed................ (546,865) (758,254) (258,283) (1,211,245) (4,586,859) (5,030,090) ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 20,744 $ 32,931 580,566 $ 2,491,922 15,327 $ (9,160) ========== =========== ========== =========== ========== ===========
HARTFORD HARTFORD HARTFORD STOCK DIVIDEND AND GROWTH ADVISERS HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IA Shares sold.................... 90,735 $ 467,794 379,363 $ 756,321 219,268 $ 540,178 Shares issued on reinvestment of distributions............. 141,837 704,459 129,503 250,697 407,221 969,940 Shares redeemed................ (209,043) (1,045,386) (313,532) (622,096) (615,450) (1,504,337) ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 23,529 $ 126,867 195,334 $ 384,922 11,039 $ 5,781 ========== =========== ========== =========== ========== ===========
46 - --------------------------------------------------------------------------------
HARTFORD HARTFORD BOND MONEY MARKET HLS FUND HLS FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- CLASS IA Shares sold.................... 595,757 $ 676,049 10,370,478 $10,370,478 Shares issued on reinvestment of distributions............. 53,709 59,005 57,052 57,052 Shares redeemed................ (229,577) (261,120) (9,802,285) (9,802,285) ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 419,889 $ 473,934 625,245 $ 625,245 ========== =========== ========== ===========
HARTFORD HARTFORD HARTFORD SMALL COMPANY CAPITAL APPRECIATION INTERNATIONAL OPPORTUNITIES HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ---------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ------------ ------------- CLASS IB Shares sold.................... 39,777 $ 53,789 61,778 $ 291,591 367,347 $ 415,835 Shares issued on reinvestment of distributions............. 2,675 3,553 17,726 75,119 3,948 3,934 Shares redeemed................ (22,022) (29,241) (3,367) (14,507) (361,563) (409,196) ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 20,430 $ 28,101 76,137 $ 352,203 9,732 $ 10,573 ========== =========== ========== =========== ========== ===========
HARTFORD HARTFORD HARTFORD STOCK DIVIDEND AND GROWTH ADVISERS HLS FUND HLS FUND HLS FUND ------------------------ ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- ---------- ----------- CLASS IB Shares sold.................... 33,247 $ 171,851 63,729 $ 125,383 120,626 $ 299,224 Shares issued on reinvestment of distributions............. 3,588 17,788 4,004 7,729 11,802 28,303 Shares redeemed................ (2,605) (12,378) (2,510) (4,739) (6,313) (14,969) ---------- ----------- ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 34,230 $ 177,261 65,223 $ 128,373 126,115 $ 312,558 ========== =========== ========== =========== ========== ===========
HARTFORD HARTFORD BOND MONEY MARKET HLS FUND HLS FUND ------------------------ ------------------------ SHARES AMOUNT SHARES AMOUNT ---------- ----------- ---------- ----------- CLASS IB Shares sold.................... 110,354 $ 124,874 596,786 $ 596,786 Shares issued on reinvestment of distributions............. 3,372 3,698 3,180 3,180 Shares redeemed................ (9,042) (10,244) (484,107) (484,107) ---------- ----------- ---------- ----------- Net Increase (Decrease)........ 104,684 $ 118,328 115,859 $ 115,859 ========== =========== ========== ===========
9. LINE OF CREDIT: The Funds, except for the Hartford Money Market HLS Fund, participate in a $550,000 committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment, 47 HARTFORD HLS MUTUAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 (000'S OMITTED) - -------------------------------------------------------------------------------- which has not been utilized. During the year ended December 31, 2002, the Funds did not have any borrowings under this facility. 10. REVERSE STOCK SPLIT: a) On November 22, 2002, a reverse stock split was declared for Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund, Hartford Advisers HLS Fund and Hartford Bond HLS Fund at a ten to one ratio. b) On September 17, 1999, a reverse stock split was declared for the Class B shares of certain Funds, using the following reverse split percentages:
REVERSE SPLIT FUND PERCENTAGE ---- ------------- Hartford Small Company HLS Fund............................. 74.61% Hartford Capital Appreciation HLS Fund...................... 15.42 Hartford International Opportunities HLS Fund............... 71.63 Hartford Stock HLS Fund..................................... 9.27 Hartford Dividend and Growth HLS Fund....................... 44.38 Hartford Advisers HLS Fund.................................. 29.67 Hartford Bond HLS Fund...................................... 93.07
11. FUND MERGERS: REORGANIZATION OF CERTAIN SERIES OF HARTFORD HLS SERIES FUND II, INC. At a special meeting of shareholders, held on April 29, 2002, shareholders of Fortis Asset Allocation Series, Fortis Diversified Income Series and Fortis Money Market Series (each a "Fortis Fund") approved a proposed Agreement and Plan of Reorganization between Hartford HLS Series Fund II, Inc. and the Hartford HLS Mutual Funds (the "Plan"). Fortis Asset Allocation Series merged into Hartford Advisers HLS Fund, Inc. Fortis Diversified Income Series merged into Hartford Bond HLS Fund, Inc. Fortis Money Market Series merged into Hartford Money Market HLS Fund, Inc. Under the terms of the Plan, and pursuant to the approval by shareholders of each Fortis Fund, the assets of each Fortis Fund were acquired by a corresponding series of the Hartford HLS Mutual Funds (the "Hartford Fund") on April 30, 2002. Each Hartford Fund acquired the respective Fortis Fund's assets in exchange for the Hartford Fund's shares, which were distributed pro rata by each Fortis Fund to the holders of its shares on April 30, 2002, in complete liquidation of the Fortis Fund. The mergers were accomplished by tax free exchanges as detailed below:
HARTFORD ADVISERS HLS FUND CLASS IA CLASS IB -------------------------- ----------- ----------- Net assets of Fortis Asset Allocation on April 30, 2002..... $ 488,111 -- Fortis Asset Allocation shares exchanged.................... 34,477 -- Hartford Advisers shares issued............................. 220,049 -- Net assets of Hartford Advisers immediately before the merger.................................................... $11,086,683 588,603 Net assets of Hartford Advisers immediately after the merger.................................................... $11,574,794 588,603
48 - --------------------------------------------------------------------------------
HARTFORD BOND HLS FUND CLASS IA CLASS IB ---------------------- ---------- ---------- Net assets of Fortis Diversified Income on April 30, 2002... $ 90,378 -- Fortis Diversified Income shares exchanged.................. 9,225 -- Hartford Bond shares issued................................. 77,738 -- Net assets of Hartford Bond immediately before the merger... $1,582,247 194,002 Net assets of Hartford Bond immediately after the merger.... $1,672,625 194,002
HARTFORD MONEY MARKET HLS FUND CLASS IA CLASS IB ------------------------------ ---------- ---------- Net assets of Fortis Money Market on April 30, 2002......... $ 122,443 -- Fortis Money Market shares exchanged........................ 11,346 -- Hartford Money Market shares issued......................... 122,443 -- Net assets of Hartford Money Market immediately before the merger.................................................... $1,794,364 166,561 Net assets of Hartford Money Market immediately after the merger.................................................... $1,916,807 166,561
The Fortis Asset Allocation Series, Fortis Diversified Income Series and Fortis Money Market Series had unrealized appreciation (depreciation), accumulated net realized gains (losses) and capital stock as follows:
UNREALIZED ACCUMULATED APPRECIATION NET REALIZED FUND (DEPRECIATION) (LOSSES) CAPITAL STOCK ---- -------------- ------------ ------------- Fortis Asset Allocation Series............................ $(28,666) $(12,278) $529,055 Fortis Diversified Income Series.......................... (3,540) (8,690) 102,608 Fortis Money Market Series................................ -- -- 122,443
12. FUND MERGERS SUBSEQUENT TO DECEMBER 31, 2002 (SUBSEQUENT EVENT): REORGANIZATION OF CERTAIN SERIES OF HARTFORD HLS SERIES FUND II, INC. At a special meeting of shareholders, held on January 15, 2003 shareholders of Hartford American Leaders HLS Fund and Hartford International Stock II HLS Fund (each a "Target Fund") approved a proposed Agreement and Plan of Reorganization between Hartford HLS Series Fund II, Inc. and Hartford Series Fund, Inc. (the "Plan"). Hartford American Leaders HLS Fund merged into Hartford Stock HLS Fund Hartford International Stock HLS Fund merged into Hartford International Opportunities HLS Fund Under the terms of the Plan, and pursuant to the approval by shareholders of each Target Fund, the assets of each Target Fund were acquired by the corresponding Acquiring Fund on January 24, 2003. Each Acquiring Fund acquired the respective Target Fund's assets in exchange for the Acquiring Fund's shares, which were distributed pro rata by each Target Fund to the holders of its shares on January 24, 2003, in complete liquidation of the Target Fund. 13. CHANGE IN INDEPENDENT AUDITORS (UNAUDITED): On April 30, 2002, Ernst & Young LLP, with the approval of the Board of Directors and Audit Committee, replaced Arthur Andersen LLP as independent auditors of the Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund, Hartford Advisers HLS Fund, Hartford Bond HLS Fund and Hartford Money Market HLS Fund. The reports of Arthur Andersen LLP on the financial statements of the Funds for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the two most recent fiscal years and through April 30, 2002, there have been no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused them to make reference thereto in their report on the financial statements for such years. 49 HARTFORD HLS MUTUAL FUNDS FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
-- SELECTED PER-SHARE DATA (3) -- ----------------------------------------------------------------------- NET REALIZED AND NET ASSET NET UNREALIZED TOTAL DIVIDENDS VALUE AT INVESTMENT GAIN FROM FROM NET BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT OF PERIOD(5) (LOSS)(5) INVESTMENTS(5) OPERATIONS(5) INCOME(5) ------------ ---------- -------------- ------------- ---------- HARTFORD SMALL COMPANY HLS FUND For the Year Ended December 31, 2002 Class IA........................ $13.32 $(0.08) $(3.95) $(4.03) $ -- Class IB........................ 13.26 (0.06) (3.97) (4.03) -- For the Year Ended December 31, 2001 Class IA........................ 16.87 0.01 (2.53) (2.52) -- Class IB........................ 16.83 (0.01) (2.53) (2.54) -- For the Year Ended December 31, 2000 Class IA........................ 21.88 0.03 (2.54) (2.51) -- Class IB........................ 21.87 0.03 (2.57) (2.54) -- For the Year Ended December 31, 1999 Class IA........................ 13.21 (0.05) 8.75 8.70 -- Class IB........................ 13.23(6) (0.04)(6) 8.71(6) 8.67(6) --(6) For the Year Ended December 31, 1998 Class IA........................ 12.02 (0.02) 1.41 1.39 -- From inception April 1, 1998, through December 31, 1998 Class IB........................ 13.40(6) (0.02)(6) (0.15)(6) (0.17)(6) --(6) HARTFORD CAPITAL APPRECIATION HLS FUND For the Year Ended December 31, 2002 Class IA........................ 39.75 0.15 (8.01) (7.86) (0.19) Class IB........................ 39.68 0.12 (8.03) (7.91) (0.14) For the Year Ended December 31, 2001 Class IA........................ 59.26 0.21 (3.36) (3.15) (0.27) Class IB........................ 59.23 0.06 (3.29) (3.23) (0.23) For the Year Ended December 31, 2000 Class IA........................ 60.95 0.41 7.57 7.98 (0.39) Class IB........................ 60.98 (0.77) 8.64 7.87 (0.34) For the Year Ended December 31, 1999 Class IA........................ 47.59 0.23 16.43 16.66 (0.18) Class IB........................ 64.37(6) 1.50(6) 15.03(6) 16.53(6) (0.13)(6) For the Year Ended December 31, 1998 Class IA........................ 44.10 0.25 5.25 5.50 (0.26) From inception April 1, 1998, through December 31, 1998 Class IB........................ 64.86(6) 0.13(6) 0.94(6) 1.07(6) (1.56)(6) HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND For the Year Ended December 31, 2002 Class IA........................ 9.53 0.17 (1.94) (1.77) (0.10) Class IB........................ 9.51 0.14 (1.91) (1.77) (0.08) For the Year Ended December 31, 2001 Class IA........................ 13.64 0.12 (2.61) (2.49) (0.01) Class IB........................ 13.65 0.12 (2.63) (2.51) (0.02) For the Year Ended December 31, 2000 Class IA........................ 18.76 0.18 (3.14) (2.96) (0.23) Class IB........................ 18.76 0.25 (3.24) (2.99) (0.19) For the Year Ended December 31, 1999 Class IA........................ 13.55 0.19 5.20 5.39 (0.18) Class IB........................ 13.57(6) 0.17(6) 5.19(6) 5.36(6) (0.17)(6) For the Year Ended December 31, 1998 Class IA........................ 12.94 0.21 1.47 1.68 (0.19) From inception April 1, 1998 through December 31, 1998 Class IB........................ 13.96(6) 0.04(6) (0.21)(6) (0.17)(6) (0.22)(6) HARTFORD STOCK HLS FUND For the Year Ended December 31, 2002 Class IA........................ 47.36 0.43 (11.94) (11.51) (0.39) Class IB........................ 47.31 0.38 (11.95) (11.57) (0.32) For the Year Ended December 31, 2001 Class IA........................ 58.80 0.41 (7.42) (7.01) (0.38) Class IB........................ 58.79 0.46 (7.57) (7.11) (0.32) For the Year Ended December 31, 2000 Class IA........................ 71.47 0.39 (5.00) (4.61) (0.41) Class IB........................ 71.51 0.74 (5.47) (4.72) (0.34) For the Year Ended December 31, 1999 Class IA........................ 65.62 0.50 11.43 11.93 (0.49) Class IB........................ 118.84(6) 0.21(6) 12.00(6) 12.21(6) (0.56)(6) For the Year Ended December 31, 1998 Class IA........................ 51.23 0.51 16.22 16.73 (0.50) From inception April 1, 1998 through December 31, 1998 Class IB........................ 107.93(6) 0.43(6) 15.65(6) 16.08(6) (5.17)(6) -- SELECTED PER-SHARE DATA (3) -- ----------------------------------------------- DISTRIBUTIONS DIVIDENDS FROM IN EXCESS OF NET REALIZED DISTRIBUTIONS NET INVESTMENT GAINS ON FROM INCOME(5) INVESTMENTS(5) CAPITAL(5) -------------- -------------- ------------- HARTFORD SMALL COMPANY HLS FUND For the Year Ended December 31, 2002 Class IA........................ $ -- $ -- $ -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- (1.03) -- Class IB........................ -- (1.03) -- For the Year Ended December 31, 2000 Class IA........................ -- (2.50) -- Class IB........................ -- (2.50) -- For the Year Ended December 31, 1999 Class IA........................ -- (0.03) -- Class IB........................ --(6) (0.03)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (0.20) -- From inception April 1, 1998, through December 31, 1998 Class IB........................ --(6) --(6) --(6) HARTFORD CAPITAL APPRECIATION HLS FUND For the Year Ended December 31, 2002 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- (16.09) -- Class IB........................ -- (16.09) -- For the Year Ended December 31, 2000 Class IA........................ -- (9.28) -- Class IB........................ -- (9.28) -- For the Year Ended December 31, 1999 Class IA........................ -- (3.12) -- Class IB........................ --(6) (19.79)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (1.75) -- From inception April 1, 1998, through December 31, 1998 Class IB........................ --(6) --(6) --(6) HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND For the Year Ended December 31, 2002 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- (1.61) -- Class IB........................ -- (1.61) -- For the Year Ended December 31, 2000 Class IA........................ -- (1.93) -- Class IB........................ -- (1.93) -- For the Year Ended December 31, 1999 Class IA........................ -- -- -- Class IB........................ --(6) --(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (0.88) -- From inception April 1, 1998 through December 31, 1998 Class IB........................ --(6) --(6) --(6) HARTFORD STOCK HLS FUND For the Year Ended December 31, 2002 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- (4.05) -- Class IB........................ -- (4.05) -- For the Year Ended December 31, 2000 Class IA........................ -- (7.65) -- Class IB........................ -- (7.66) -- For the Year Ended December 31, 1999 Class IA........................ -- (5.59) -- Class IB........................ --(6) (58.98)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (1.84) -- From inception April 1, 1998 through December 31, 1998 Class IB........................ --(6) --(6) --(6)
- --------------- (1) Annualized. (2) Not annualized. (3) Information presented relates to a share of capital stock outstanding for the indicated period. (4) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Per shares amounts have been restated to reflect a reverse stock split for Class IA and IB shares effective November 22, 2002 (See Note 10(a)). (6) Per share amounts have been restated to reflect a reverse stock split for Class B shares effective September 17, 1999 (See Note 10(b)). See Notes to Financial Statements. 50 - --------------------------------------------------------------------------------
-- RATIOS AND SUPPLEMENTAL DATA -- - -------------------------------------------------------------------------------------------------- RATIO OF NET INCREASE NET ASSETS EXPENSES (DECREASE) IN NET ASSET AT END OF TO AVERAGE TOTAL NET ASSETS VALUE AT TOTAL PERIOD NET ASSETS DISTRIBUTIONS(5) VALUE(5) END OF PERIOD(5) RETURN (000'S OMITTED) AFTER WAIVERS ---------------- ------------- ---------------- ------ --------------- ------------- $ -- $ (4.03) $ 9.29 (30.23)% $ 495,074 0.77% -- (4.03) 9.23 (30.39) 66,378 1.00 (1.03) (3.55) 13.32 (14.92) 745,253 0.76 (1.03) (3.57) 13.26 (15.07) 59,371 0.94 (2.50) (5.01) 16.87 (13.12) 908,886 0.74 (2.50) (5.04) 16.83 (13.28) 40,967 0.92 (0.03) 8.67 21.88 65.83 757,302 0.78 (0.03)(6) 8.64(6) 21.87(6) 65.54 10,200 0.96 (0.20) 1.19 13.21 11.62 350,734 0.77 --(6) (0.17)(6) 13.23(6) (1.30)(2) 696 0.95(1) (0.19) (8.05) 31.70 (19.70) 6,240,859 0.69 (0.14) (8.05) 31.63 (19.88) 588,013 0.92 (16.36) (19.51) 39.75 (6.94) 8,734,600 0.68 (16.32) (19.55) 39.68 (7.10) 393,241 0.86 (9.67) (1.69) 59.26 13.22 9,581,897 0.66 (9.62) (1.75) 59.23 13.02 136,058 0.84 (3.30) 13.36 60.95 37.46 7,963,003 0.66 (19.92)(6) (3.39)(6) 60.98(6) 37.21 22,993 0.84 (2.01) 3.49 47.59 15.48 5,807,480 0.64 (1.56)(6) (0.49)(6) 64.37(6) 1.65(2) 5,942 0.82(1) (0.10) (1.87) 7.66 (17.93) 646,903 0.81 (0.08) (1.85) 7.66 (18.12) 26,641 1.04 (1.62) (4.11) 9.53 (18.73) 941,934 0.81 (1.63) (4.14) 9.51 (18.88) 22,277 0.99 (2.16) (5.12) 13.64 (17.10) 1,326,609 0.78 (2.12) (5.11) 13.65 (17.25) 18,682 0.96 (0.18) 5.21 18.76 39.86 1,574,836 0.78 (0.17)(6) 5.19(6) 18.76(6) 39.61 3,203 0.96 (1.07) 0.61 13.55 13.16 1,196,694 0.77 (0.22)(6) (0.39)(6) 13.57(6) (1.13)(2) 663 0.94(1) (0.39) (11.90) 35.46 (24.25) 5,094,276 0.49 (0.32) (11.89) 35.42 (24.42) 296,767 0.72 (4.43) (11.44) 47.36 (12.23) 7,834,643 0.49 (4.37) (11.48) 47.31 (12.39) 271,475 0.67 (8.06) (12.67) 58.80 (7.04) 9,590,018 0.48 (8.00) (12.72) 58.79 (7.21) 136,077 0.66 (6.08) 0.59 71.47 19.78 9,400,385 0.48 (59.54)(6) (4.73)(6) 71.51(6) 19.57 47,439 0.66 (2.34) 14.39 65.62 33.47 7,183,046 0.46 (5.17)(6) 10.91(6) 118.84(6) 14.91(2) 10,167 0.65(1) -- RATIOS AND SUPPLEMENTAL DATA -- - --- --------------------------------------- RATIO OF RATIO OF NET EXPENSES INVESTMENT TO AVERAGE INCOME PORTFOLIO NET ASSETS TO AVERAGE TURNOVER BEFORE WAIVERS NET ASSETS RATE(4) -------------- ---------- --------- 0.77% (0.30)% 222% 1.02 (0.53) 222 0.76 0.03 227 1.01 (0.15) 227 0.74 -- 195 0.99 (0.18) 195 0.78 (0.45) 181 1.03 (0.63) 181 0.77 (0.24) 236 0.95(1) (0.46)(1) 236 0.69 0.64 94 0.94 0.41 94 0.68 0.57 92 0.93 0.39 92 0.66 0.64 108 0.91 0.46 108 0.66 0.46 66 0.91 0.28 66 0.64 0.59 51 0.82(1) 0.30(1) 51 0.81 1.23 161 1.06 1.00 161 0.81 1.10 144 1.06 0.92 144 0.78 1.16 159 1.03 0.98 159 0.78 1.20 133 1.03 1.02 133 0.77 1.51 157 0.94(1) 0.71(1) 157 0.49 0.97 44 0.74 0.75 44 0.49 0.80 39 0.74 0.62 39 0.48 0.64 40 0.73 0.46 40 0.48 0.80 39 0.73 0.62 39 0.46 0.95 27 0.65(1) 0.73(1) 27
51 HARTFORD HLS MUTUAL FUNDS FINANCIAL HIGHLIGHTS -- (CONTINUED) - --------------------------------------------------------------------------------
-- SELECTED PER-SHARE DATA (3) -- ----------------------------------------------------------------------- NET REALIZED AND NET ASSET NET UNREALIZED TOTAL DIVIDENDS VALUE AT INVESTMENT GAIN FROM FROM NET BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT OF PERIOD(5) (LOSS)(5) INVESTMENTS(5) OPERATIONS(5) INCOME(5) ------------ ---------- -------------- ------------- ---------- HARTFORD DIVIDEND AND GROWTH HLS FUND For the Year Ended December 31, 2002 Class IA........................ $18.80 $ 0.25 $(3.64) $(3.39) $(0.23) Class IB........................ 18.79 0.24 (3.66) (3.42) (0.21) For the Year Ended December 31, 2001 Class IA........................ 21.24 0.31 (1.14) (0.83) (0.30) Class IB........................ 21.24 0.39 (1.25) (0.86) (0.28) For the Year Ended December 31, 2000 Class IA........................ 21.49 0.35 1.78 2.13 (0.34) Class IB........................ 21.51 0.40 1.69 2.09 (0.32) For the Year Ended December 31, 1999 Class IA........................ 21.60 0.34 0.75 1.09 (0.35) Class IB........................ 22.67(6) 0.24(6) 0.77 1.01(6) (0.34)(6) For the Year Ended December 31, 1998 Class IA........................ 19.52 0.33 2.80 3.13 (0.35) From inception April 1, 1998, through December 31, 1998 Class IB........................ 22.53(6) 0.16(6) 0.68(6) 0.84(6) (0.70)(6) HARTFORD ADVISERS HLS FUND For the Year Ended December 31, 2002 Class IA........................ 23.44 0.51 (4.10) (3.59) (0.26) Class IB........................ 23.60 0.46 (4.10) (3.64) (0.24) For the Year Ended December 31, 2001 Class IA........................ 26.65 0.64 (1.85) (1.21) (0.73) Class IB........................ 26.63 0.50 (1.77) (1.27) (0.49) For the Year Ended December 31, 2000 Class IA........................ 29.65 0.68 (0.88) (0.20) (0.23) Class IB........................ 29.66 0.74 (0.98) (0.24) (0.22) For the Year Ended December 31, 1999 Class IA........................ 29.85 0.68 2.21 2.89 (0.63) Class IB........................ 35.77(6) 0.61(6) 2.21 2.82(6) (0.64)(6) For the Year Ended December 31, 1998 Class IA........................ 25.27 0.61 5.46 6.07 (0.60) From inception April 1, 1998 through December 31, 1998 Class IB........................ 33.71(6) 0.34(6) 3.67(6) 4.01(6) (1.95)(6) For the Year Ended December 31 HARTFORD BOND HLS FUND For the Year Ended December 31, 2002 Class IA........................ 11.46 0.56 (0.01) 0.55 (0.05) Class IB........................ 11.43 0.46 0.07 0.53 (0.05) For the Year Ended December 31, 2001 Class IA........................ 11.08 0.46 0.48 0.94 (0.56) Class IB........................ 11.07 0.41 0.50 0.91 (0.55) For the Year Ended December 31, 2000 Class IA........................ 9.94 0.69 0.50 1.19 (0.05) Class IB........................ 9.95 0.61 0.56 1.17 (0.05) For the Year Ended December 31, 1999 Class IA........................ 10.81 0.62 (0.84) (0.22) (0.58) Class IB........................ 10.83(6) 0.61(6) (0.84) (0.23)(6) (0.57)(6) For the Year Ended December 31, 1998 Class IA........................ 10.50 0.53 0.32 0.85 (0.54) From inception April 1, 1998 through December 31, 1998 Class IB........................ 10.75(6) 0.23(6) 0.40 0.63(6) 0.55(6) HARTFORD MONEY MARKET HLS FUND, INC. For the Year Ended December 31, 2002 Class IA........................ 1.00 0.01 -- 0.01 (0.01) Class IB........................ 1.00 0.01 -- 0.01 (0.01) For the Year Ended December 31, 2001 Class IA........................ 1.00 0.04 -- 0.04 (0.04) Class IB........................ 1.00 0.04 -- 0.04 (0.04) For the Year Ended December 31, 2000 Class IA........................ 1.00 0.06 -- 0.06 (0.06) Class IB........................ 1.00 0.06 -- 0.06 (0.06) For the Year Ended December 31, 1999 Class IA........................ 1.00 0.07 -- 0.07 (0.07) Class IB........................ 1.00 0.07 -- 0.07 (0.07) For the Year Ended December 31, 1998 Class IA........................ 1.00 0.05 -- 0.05 (0.05) From inception April 1, 1998 through December 31, 1998 Class IB........................ 1.00 0.04 -- 0.04 (0.04) -- SELECTED PER-SHARE DATA (3) -- ----------------------------------------------- DISTRIBUTIONS DIVIDENDS FROM IN EXCESS OF NET REALIZED DISTRIBUTIONS NET INVESTMENT GAINS ON FROM INCOME(5) INVESTMENTS(5) CAPITAL(5) -------------- -------------- ------------- HARTFORD DIVIDEND AND GROWTH HLS FUND For the Year Ended December 31, 2002 Class IA........................ $ -- $(0.09) $ -- Class IB........................ -- (0.09) -- For the Year Ended December 31, 2001 Class IA........................ -- (1.31) -- Class IB........................ -- (1.31) -- For the Year Ended December 31, 2000 Class IA........................ -- (2.04) -- Class IB........................ -- (2.04) -- For the Year Ended December 31, 1999 Class IA........................ -- (0.85) -- Class IB........................ --(6) (1.83)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (0.70) -- From inception April 1, 1998, through December 31, 1998 Class IB........................ --(6) --(6) --(6) HARTFORD ADVISERS HLS FUND For the Year Ended December 31, 2002 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- (1.27) -- Class IB........................ -- (1.27) -- For the Year Ended December 31, 2000 Class IA........................ -- (2.57) -- Class IB........................ -- (2.57) -- For the Year Ended December 31, 1999 Class IA........................ -- (2.46) -- Class IB........................ --(6) (8.29)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- (0.89) -- From inception April 1, 1998 through December 31, 1998 Class IB........................ --(6) --(6) --(6) For the Year Ended December 31 HARTFORD BOND HLS FUND For the Year Ended December 31, 2002 Class IA........................ -- (0.01) -- Class IB........................ -- (0.01) -- For the Year Ended December 31, 2001 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2000 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 1999 Class IA........................ -- (0.07) -- Class IB........................ --(6) (0.08)(6) --(6) For the Year Ended December 31, 1998 Class IA........................ -- -- -- From inception April 1, 1998 through December 31, 1998 Class IB........................ --(6) --(6) --(6) HARTFORD MONEY MARKET HLS FUND, INC. For the Year Ended December 31, 2002 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2001 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 2000 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 1999 Class IA........................ -- -- -- Class IB........................ -- -- -- For the Year Ended December 31, 1998 Class IA........................ -- -- -- From inception April 1, 1998 through December 31, 1998 Class IB........................ -- -- --
- --------------- (1) Annualized. (2) Not annualized. (3) Information presented relates to a share of capital stock outstanding for the indicated period. (4) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (5) Per shares amounts have been restated to reflect a reverse stock split for Class IA and IB shares, excluding Hartford Money Market HLS Fund, effective November 22, 2002 (See Note 10(a)). (6) Per share amounts have been restated to reflect a reverse stock split for Class B shares effective September 17, 1999 (See Note 10(b)). See Notes to Financial Statements. 52 - --------------------------------------------------------------------------------
-- RATIOS AND SUPPLEMENTAL DATA -- - -------------------------------------------------------------------------------------------------- RATIO OF NET INCREASE NET ASSETS EXPENSES (DECREASE) IN NET ASSET AT END OF TO AVERAGE TOTAL NET ASSETS VALUE AT TOTAL PERIOD NET ASSETS DISTRIBUTIONS(5) VALUE(5) END OF PERIOD(5) RETURN (000'S OMITTED) AFTER WAIVERS ---------------- ------------- ---------------- ------ --------------- ------------- (0.32) $ $(3.71) $15.09 (14.23)% $2,810,675 0.69% (0.30) (3.72) 15.07 (14.42) 327,617 0.92 (1.61) (2.44) 18.80 (4.04) 3,190,773 0.68 (1.59) (2.45) 18.79 (4.21) 153,848 0.86 (2.38) (0.25) 21.24 10.95 3,189,857 0.68 (2.36) (0.27) 21.24 10.75 35,415 0.86 (1.20) (0.11) 21.49 5.31 3,207,733 0.68 (2.17)(6) (1.16)(6) 21.51(6) 5.12 16,087 0.86 (1.05) 2.08 21.60 16.42 3,031,293 0.66 (0.70)(6) 0.14(6) 22.67(6) 3.67(2) 8,600 0.85(1) (0.26) (3.85) 19.59 (13.79) 9,249,397 0.67 (0.24) (3.88) 19.72 (13.99) 672,078 0.90 (2.00) (3.21) 23.44 (4.64) 11,836,564 0.66 (1.76) (3.03) 23.60 (4.81) 521,205 0.84 (2.80) (3.00) 26.65 (0.75) 13,430,507 0.66 (2.79) (3.03) 26.63 (0.92) 252,247 0.84 (3.09) (0.20) 29.65 10.59 14,082,895 0.65 (8.93)(6) (6.11)(6) 29.66(6) 10.39 137,318 0.83 (1.49) 4.58 29.85 24.66 11,805,411 0.63 )(6) (1.95 2.06(6) 35.77(6) 11.96(2) 34,714 0.83(1) ) (0.06 0.49 11.95 10.08 2,145,266 0.51 (0.06) 0.47 11.90 9.83 382,864 0.75 (0.56) 0.38 11.46 8.68 1,549,698 0.51 (0.55) 0.36 11.43 8.49 152,254 0.69 (0.05) 1.14 11.08 11.99 1,033,043 0.52 (0.05) 1.12 11.07 11.79 31,551 0.70 (0.65) (0.87) 9.94 (2.02) 978,861 0.52 (0.65)(6) (0.88)(6) 9.95(6) (2.19) 15,818 0.70 (0.54) 0.31 10.81 8.15 902,480 0.50 (0.55)(6) 0.08(6) 10.83(6) 5.89(2) 5,285 0.69(1) (0.01) -- 1.00 1.47 2,319,456 0.49 (0.01) -- 1.00 1.24 261,914 0.72 (0.04) -- 1.00 3.87 1,867,520 0.48 (0.04) -- 1.00 3.68 152,129 0.66 (0.06) -- 1.00 6.10 1,242,275 0.48 (0.06) -- 1.00 5.91 36,270 0.66 (0.07) -- 1.00 4.89 1,257,436 0.47 (0.07) -- 1.00 4.71 8,804 0.65 (0.05) -- 1.00 5.25 872,486 0.45 ) (0.04 -- 1.00 3.76(2) 2,179 0.64(1) -- RATIOS AND SUPPLEMENTAL DATA -- - --- --------------------------------------- RATIO OF RATIO OF NET EXPENSES INVESTMENT TO AVERAGE INCOME PORTFOLIO NET ASSETS TO AVERAGE TURNOVER BEFORE WAIVERS NET ASSETS RATE(4) -------------- ---------- --------- 0.69% 1.56% 43% 0.94 1.33 43 0.68 1.66 61 0.93 1.48 61 0.68 1.70 59 0.93 1.52 59 0.68 1.60 56 0.93 1.42 56 0.66 1.81 48 0.85(1) 1.57(1) 48 0.67 2.29 47 0.92 2.07 47 0.66 2.51 34 0.91 2.33 34 0.66 2.47 40 0.91 2.29 40 0.66 2.46 38 0.91 2.28 38 0.63 2.40 37 0.83(1) 2.22(1) 37 0.51 5.58 108 0.76 5.34 108 0.51 5.87 185 0.76 5.69 185 0.52 6.54 169 0.77 6.36 169 0.52 6.09 111 0.77 5.91 111 0.50 5.86 122 0.69(1) 5.54(1) 122 0.49 1.43 -- 0.74 1.20 -- 0.48 3.58 -- 0.73 3.40 -- 0.48 5.91 -- 0.73 5.73 -- 0.47 4.81 -- 0.72 4.63 -- 0.45 5.12 -- 0.64(1) 4.81(1) --
53 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF HARTFORD SERIES FUND, INC. - -------------------------------------------------------------------------------- We have audited the accompanying statements of net assets of the Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund Hartford Advisers HLS Fund, Hartford Bond HLS Fund, and Hartford Money Market HLS Fund (eight of the portfolios comprising Hartford Series Fund, Inc.) (collectively, the "Funds") as of December 31, 2002, and the related statements of operations and changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The statement of changes in net assets for the year then ended December 31, 2001 and the financial highlights for each of the four years in the period ended December 31, 2001 for the Hartford Series Fund, Inc. were audited by other auditors who have ceased operations and whose report, dated February 6, 2002 expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by the Funds' management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Hartford Small Company HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford International Opportunities HLS Fund, Hartford Stock HLS Fund, Hartford Dividend and Growth HLS Fund Hartford Advisers HLS Fund, Hartford Bond HLS Fund, and Hartford Money Market HLS Fund at December 31, 2002, the results of their operations, the changes in their net assets and financial highlights of the year then ended, in conformity with accounting principles generally accepted in the United States of America. Ernst & Young LLP Logo Boston, Massachusetts February 5, 2003 54 HARTFORD HLS MUTUAL FUNDS DECEMBER 31, 2002 ($000'S OMITTED) - -------------------------------------------------------------------------------- TAX INFORMATION NOTICE: (UNAUDITED) For the year ended December 31, 2002, the following Funds distributed long-term capital gains dividends as follows: Hartford Dividend and Growth HLS Fund....................... $167,933 Hartford Bond HLS Fund...................................... 9,630
55 HARTFORD HLS MUTUAL FUNDS BOARD OF DIRECTORS AND OFFICER INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- The Board of Directors ("Board") is responsible for overall management of the Funds. The Board may exercise all powers of the Funds, except those powers which are conferred solely upon or reserved to the shareholders. The Funds' Statement of Additional Information (SAI) includes additional information about the Board and is available without charge, upon request, by calling 1-800-862-6668. The following table provides information about the members of the Board, as well as officers of the Funds.
NON-INTERESTED DIRECTORS - ----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF TERM OF PORTFOLIOS IN POSITION HELD OFFICE* AND FUND COMPLEX OTHER WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, AGE AND ADDRESS COMPANY TIME SERVED DURING PAST 5 YEARS DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- WINIFRED E. COLEMAN Director Since Ms. Coleman has served as President 75 None (age 70) 1995 of Saint Joseph College since 1991 c/o Hartford Mutual Funds and President of Cashel House, Ltd. P.O. Box 2999 (retail) since 1985. Hartford, CT 06104-2999 - ----------------------------------------------------------------------------------------------------------------------------------- DR. ROBERT M. GAVIN Director Since Dr. Gavin is an educational 75 Dr. Gavin is a (age 62) 2002 consultant. Prior to September 1, Director of Systems c/o Hartford Mutual Funds 2001, he was President of Cranbrook & Computer P.O. Box 2999 Education Community, and prior to Technology Hartford, CT 06104-2999 July 1996, he was President of Corporation. Macalester College, St. Paul, Minnesota. - ----------------------------------------------------------------------------------------------------------------------------------- DUANE E. HILL Director Since Mr. Hill is Partner Emeritus and a 75 None (age 57) 2001 founding partner of TSG Capital c/o Hartford Mutual Funds Group, a private equity investment P.O. Box 2999 firm that serves as sponsor and lead Hartford, CT 06104-2999 investor in leveraged buyouts of middle market companies. Mr. Hill is also a Partner of TSG Ventures L.P., a private equity investment company that invests primarily in minority-owned small businesses. - ----------------------------------------------------------------------------------------------------------------------------------- PHILLIP O. PETERSON Director Since Mr. Peterson is a mutual fund 75 N/A (age 58) 2002 industry consultant. He was a partner c/o Hartford Mutual Funds of KPMG LLP until July 1999. P.O. Box 2999 Hartford, CT 06104-2999 - ----------------------------------------------------------------------------------------------------------------------------------- MILLARD H. PRYOR, JR. Director Since Mr. Pryor has served as Managing 75 Mr. Pryor is a (age 69) 1977 Director of Pryor & Clark Company Director of Infodata c/o Hartford Mutual Funds (real estate investment), Hartford, Systems, Inc. P.O. Box 2999 Connecticut, since June 1992. (software company), Hartford, CT 06104-2999 CompuDyne Corporation (security products and services) and Corcap, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- JOHN K. SPRINGER Director Since Mr. Springer served as Chairman of 75 None (age 71) 1978 Medspan, Inc. (health maintenance c/o Hartford Mutual Funds organization) until March 2002. P.O. Box 2999 Hartford, CT 06104-2999 - -----------------------------------------------------------------------------------------------------------------------------------
* Term of Office: Each director may serve until his or her successor is elected and qualifies. 56 HARTFORD HLS MUTUAL FUNDS BOARD OF DIRECTORS AND OFFICER INFORMATION (UNAUDITED) -- (CONTINUED) - --------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS - ----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF TERM OF PORTFOLIOS IN POSITION HELD OFFICE* AND FUND COMPLEX OTHER WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, AGE AND ADDRESS COMPANY TIME SERVED DURING PAST 5 YEARS DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- THOMAS M. MARRA** Director and Since 2002 Mr. Marra is President and Chief 75 Mr. Marra is a (age 44) Chairman of Operating Officer of Hartford Life, member of the Board c/o Hartford Mutual Funds the Board Inc. He is also a member of the of Directors of The P.O. Box 2999 Board of Directors and a member of Hartford Financial Hartford, CT 06104-2999 the Office of the Chairman for The Services Group, Inc. Hartford Financial Services Group, Inc., the parent company of Hartford Life. Mr. Marra was named President of Hartford Life in 2001 and COO in 2000, and served as Executive Vice President and Director of Hartford Life's Investment Products Division from 1998 to 2000. He was head of Hartford Life's Individual Life and Annuities Division from 1994 to 1998 after being promoted to Senior Vice President in 1994 and Executive Vice President in 1996. Mr. Marra is also a Managing Member and President of Hartford Investment Financial Services, LLC ("HIFSCO") and HL Investment Advisors, LLC ("HL Advisors"). - ----------------------------------------------------------------------------------------------------------------------------------- LOWNDES A. SMITH** Director Since 1996 Mr. Smith served as Vice Chairman of 75 None (age 62) Hartford Financial Services Group, c/o Hartford Mutual Funds Inc. from February 1997 to January P.O. Box 2999 2002, as President and Chief Hartford, CT 06104-2999 Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. - ----------------------------------------------------------------------------------------------------------------------------------- DAVID M. ZNAMIEROWSKI** President and Since 1999 Mr. Znamierowski currently serves as 51 None (age 41) Director President of Hartford Investment c/o Hartford Mutual Funds Management Company ("HIMCO") and P.O. Box 2999 Senior Vice President, Chief Hartford, CT 06104-2999 Investment Officer and Director of Investment Strategy for Hartford Life, Inc. Mr. Znamierowski is also a Managing Member and Senior Vice President of HIFSCO and HL Investment Advisors. - ----------------------------------------------------------------------------------------------------------------------------------- ROBERT W. BELTZ, JR. Vice President Since 2002 Mr. Beltz currently serves as Vice N/A N/A (age 53) President, Securities Operations of 500 Bielenberg Drive Hartford Administrative Services Woodbury, MN 55125 Company ("HASCO"). He also has served as Assistant Vice President of Hartford Life Insurance Company since December 2001. - ----------------------------------------------------------------------------------------------------------------------------------- KEVIN J. CARR Vice President Since 1996 Mr. Carr has served as Assistant N/A N/A (age 48) and Secretary General Counsel since 1999, Counsel c/o Hartford Mutual Funds since November 1996 and Associate P.O. Box 2999 Counsel since November 1995, of The Hartford, CT 06104-2999 Hartford Financial Services Group, Inc. Mr. Carr is also Counsel and Assistant Secretary of HL Advisors and HIFSCO and Assistant Secretary of HIMCO. - -----------------------------------------------------------------------------------------------------------------------------------
57 HARTFORD HLS MUTUAL FUNDS BOARD OF DIRECTORS AND OFFICER INFORMATION (UNAUDITED) -- (CONTINUED) - --------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS - ----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF TERM OF PORTFOLIOS IN POSITION HELD OFFICE* AND FUND COMPLEX OTHER WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, AGE AND ADDRESS COMPANY TIME SERVED DURING PAST 5 YEARS DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- WILLIAM H. DAVISON, JR. Vice President Since 2002 Mr. Davison is a Managing Director N/A N/A (age 45) and Director of Funds Management c/o Hartford Mutual Funds Group of Hartford Investment P.O. Box 2999 Management Company. Hartford, CT 06104-2999 - ----------------------------------------------------------------------------------------------------------------------------------- TAMARA L. FAGELY Vice President Since 2002 Ms. Fagely has been Vice President N/A N/A (age 44) of HASCO since 1998. Prior to 1998, 500 Bielenberg Drive she was Second Vice President of Woodbury, MN 55125 HASCO. She also has served as Assistant Vice President of Hartford Life Insurance Company since December 2001. - ----------------------------------------------------------------------------------------------------------------------------------- BRUCE FERRIS Vice President Since 2002 Mr. Ferris serves as Vice President N/A N/A (age 47) and a director of sales and P.O. Box 2999 marketing in the Investment Products Hartford, CT 06104-2999 Division of Hartford Life Insurance Company. - ----------------------------------------------------------------------------------------------------------------------------------- GEORGE R. JAY Vice Since 1996 Mr. Jay has served as Secretary and N/A N/A (age 49) President, Director, Life and Equity Accounting c/o Hartford Mutual Funds Controller and and Financial Control, of Hartford P.O. Box 2999 Treasurer Life Insurance Company since 1987. Hartford, CT 06104-2999 - ----------------------------------------------------------------------------------------------------------------------------------- RYAN JOHNSON Vice President Since 2002 Mr. Johnson has served as Vice N/A N/A (age 42) President and a director of sales P.O. Box 2999 and marketing in the Investment Hartford, CT 06104-2999 Products Division of Hartford Life Insurance Company since 1999. Previously he was with Guardian Insurance Company in New York City. - ----------------------------------------------------------------------------------------------------------------------------------- STEPHEN T. JOYCE Vice President Since 2000 Mr. Joyce currently serves as Senior N/A N/A (age 43) Vice President and director of c/o Hartford Mutual Funds investment products management for P.O. Box 2999 Hartford Life Insurance Company. Hartford, CT 06104-2999 Previously he served as Vice President (1997-1999) and Assistant Vice President (1994-1997) of Hartford Life Insurance Company. - ----------------------------------------------------------------------------------------------------------------------------------- DAVID N. LEVENSON Vice President Since 2000 Mr. Levenson serves as Senior Vice N/A N/A (age 36) President of Hartford Life Insurance c/o Hartford Mutual Funds Company and is responsible for the P.O. Box 2999 Company's mutual funds line of Hartford, CT 06104-2999 business. Mr. Levenson joined The Hartford in 1995. Mr. Levenson is also a senior vice president of HIFSCO. - -----------------------------------------------------------------------------------------------------------------------------------
58 HARTFORD HLS MUTUAL FUNDS BOARD OF DIRECTORS AND OFFICER INFORMATION (UNAUDITED) -- (CONTINUED) - --------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS - ----------------------------------------------------------------------------------------------------------------------------------- NUMBER OF TERM OF PORTFOLIOS IN POSITION HELD OFFICE* AND FUND COMPLEX OTHER WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS NAME, AGE AND ADDRESS COMPANY TIME SERVED DURING PAST 5 YEARS DIRECTOR HELD BY DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- JOHN C. WALTERS Vice President Since 2000 Mr. Walters serves as Executive Vice N/A N/A (age 40) President and Director of the c/o Hartford Mutual Funds Investment Products Division of P.O. Box 2999 Hartford Life Insurance Company. Hartford, CT 06104-2999 Previously Mr. Walters was with First Union Securities. Mr. Walters is also a Managing Member and Executive Vice President of HIFSCO and HL Advisors. - -----------------------------------------------------------------------------------------------------------------------------------
* Term of Office: Each officer and director may serve until his or her successor is elected and qualifies. ** "Interested person," as defined in the 1940 Act, of the Company because of the person's affiliation with or equity ownership of Hartford Investment Financial Services, LLC or affiliated companies. 59 HARTFORD HLS MUTUAL FUNDS SHAREHOLDER MEETING RESULTS (UNAUDITED) - -------------------------------------------------------------------------------- The following proposals were addressed and approved at a special meeting of shareholders held on July 16, 2002. 1. Proposal to elect the individuals listed in the following two tables as directors.
WINIFRED E. DR. ROBERT DUANE E. WILLIAM A. FUND COLEMAN M. GAVIN HILL O'NEILL ---- ----------- ---------- -------- ---------- Hartford Small Company HLS Fund For 599,830,408 599,332,981 599,673,432 596,477,904 Withheld 25,576,315 26,073,742 25,733,291 28,928,819 Hartford Capital Appreciation HLS Fund For 2,223,836,613 2,226,768,337 2,227,388,892 2,220,369,590 Withheld 83,724,572 80,792,848 80,172,293 87,191,595 Hartford International Opportunities HLS Fund For 930,558,249 931,490,064 930,905,106 929,447,403 Withheld 31,131,618 30,199,803 30,784,761 32,242,464 Hartford Stock HLS Fund For 1,608,832,795 1,610,997,826 1,610,538,509 1,607,152,444 Withheld 57,352,848 55,187,817 55,647,133 59,033,199 Hartford Dividend and Growth HLS Fund For 1,817,535,650 1,818,312,011 1,818,126,123 1,812,142,341 Withheld 60,337,628 59,561,266 59,747,154 65,730,936 Hartford Advisers HLS Fund For 5,273,413,334 5,278,551,818 5,278,161,555 5,267,615,753 Withheld 172,354,129 167,215,646 167,605,908 178,151,711 Hartford Bond HLS Fund For 1,523,595,322 1,526,289,821 1,526,733,427 1,521,864,499 Withheld 64,669,175 61,974,675 61,531,069 66,399,998 Hartford Money Market HLS Fund For 1,919,859,527 1,925,919,664 1,923,538,505 1,921,233,261 Withheld 113,222,920 107,162,783 109,543,942 111,849,185 PHILLIP O. FUND PETERSON ---- ---------- Hartford Small Company HLS Fund 599,760,386 25,646,337 Hartford Capital Appreciation HLS Fund 2,228,078,789 79,482,396 Hartford International Opportunities HLS Fund 932,022,740 29,667,127 Hartford Stock HLS Fund 1,611,305,747 54,879,896 Hartford Dividend and Growth HLS Fund 1,819,098,592 58,774,685 Hartford Advisers HLS Fund 5,280,554,600 165,212,864 Hartford Bond HLS Fund 1,527,149,644 61,114,852 Hartford Money Market HLS Fund 1,924,161,061 108,921,386
MILLARD H. LOWNDES A. JOHN K. DAVID M. FUND PRYOR, JR. SMITH SPRINGER ZNAMIEROWSKI ---- ---------- ---------- -------- ------------ Hartford Small Company HLS Fund For 599,113,137 599,857,712 597,378,545 599,618,623 Withheld 26,293,586 25,549,011 28,028,178 25,788,100 Hartford Capital Appreciation HLS Fund For 2,223,990,434 2,227,938,451 2,223,222,682 2,226,760,941 Withheld 83,570,751 79,622,734 84,338,503 80,800,244 Hartford International Opportunities HLS Fund For 931,187,489 931,880,610 932,471,093 930,810,694 Withheld 30,502,377 29,809,256 29,218,774 30,879,172 Hartford Stock HLS Fund For 1,610,028,552 1,610,983,688 1,609,551,025 1,611,160,059 Withheld 56,157,090 55,201,955 56,634,618 55,025,584 Hartford Dividend and Growth HLS Fund For 1,816,707,354 1,818,051,694 1,814,855,617 1,817,587,984 Withheld 61,165,923 59,821,584 63,017,661 60,285,293 Hartford Advisers HLS Fund For 5,275,181,796 5,282,257,583 5,272,162,758 5,277,345,726 Withheld 170,585,668 163,509,881 173,604,706 168,421,738 Hartford Bond HLS Fund For 1,527,456,126 1,527,686,691 1,525,646,112 1,527,472,035 Withheld 60,808,371 60,577,806 62,618,384 60,792,461 Hartford Money Market HLS Fund For 1,919,311,293 1,922,112,400 1,922,280,881 1,922,426,487 Withheld 113,771,154 110,970,046 110,801,566 110,655,960 FUND ---- Hartford Small Company HLS Fund Hartford Capital Appreciation HLS Fund Hartford International Opportunities HLS Fund Hartford Stock HLS Fund Hartford Dividend and Growth HLS Fund Hartford Advisers HLS Fund Hartford Bond HLS Fund Hartford Money Market HLS Fund
2. Proposals to Adopt, Eliminate or Revise Certain Fundamental Investment Policies. A. Proposal to revise the fundamental policy regarding the issuing of senior securities.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 563,423,829 26,001,873 35,981,021 Hartford Capital Appreciation HLS Fund 2,090,100,004 98,927,013 118,534,168 Hartford International Opportunities HLS Fund 864,636,940 39,746,509 57,306,418 Hartford Stock HLS Fund 1,512,424,059 66,779,902 86,981,681 Hartford Dividend and Growth HLS Fund 1,691,516,080 82,232,674 104,124,523 Hartford Advisers HLS Fund 4,936,390,893 198,871,917 310,504,654 Hartford Bond HLS Fund 1,409,326,555 73,105,993 105,831,949 Hartford Money Market HLS Fund 1,753,766,636 133,764,648 145,551,162
B. Proposal to revise the fundamental policy regarding the borrowing of money.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 560,377,999 28,360,066 36,668,658 Hartford Capital Appreciation HLS Fund 2,073,721,606 113,628,247 120,211,332 Hartford International Opportunities HLS Fund 861,491,572 42,169,478 58,028,818 Hartford Stock HLS Fund 1,504,651,408 74,129,507 87,404,728 Hartford Dividend and Growth HLS Fund 1,678,789,605 92,521,015 106,562,657
60 HARTFORD HLS MUTUAL FUNDS SHAREHOLDER MEETING RESULTS (UNAUDITED) -- (CONTINUED) - --------------------------------------------------------------------------------
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Advisers HLS Fund 4,902,988,807 227,287,851 315,490,806 Hartford Bond HLS Fund 1,405,159,782 78,783,684 104,321,031 Hartford Money Market HLS Fund 1,740,020,933 147,810,824 145,250,690
C. Proposal to revise the fundamental policy regarding investment concentrations within a particular industry.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 569,115,168 20,421,459 35,870,096 Hartford Capital Appreciation HLS Fund 2,104,788,338 84,857,602 117,915,245 Hartford International Opportunities HLS Fund 872,652,671 31,974,989 57,062,207 Hartford Stock HLS Fund 1,528,302,486 52,026,942 85,856,214 Hartford Dividend and Growth HLS Fund 1,705,147,584 66,864,810 105,860,884 Hartford Advisers HLS Fund 4,958,023,406 172,624,163 315,119,894 Hartford Bond HLS Fund 1,424,237,592 64,231,494 99,795,411 Hartford Money Market HLS Fund 1,760,344,558 126,788,712 145,949,177
D. Proposal to revise the fundamental policy regarding the making of loans.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 563,602,622 24,456,426 37,347,675 Hartford Capital Appreciation HLS Fund 2,085,278,699 102,256,982 120,025,505 Hartford International Opportunities HLS Fund 866,211,458 38,151,109 57,327,300 Hartford Stock HLS Fund 1,516,165,264 62,666,265 87,354,113 Hartford Dividend and Growth HLS Fund 1,692,622,048 79,550,667 105,700,562 Hartford Advisers HLS Fund 4,925,106,640 207,038,688 313,622,136 Hartford Bond HLS Fund 1,415,689,582 72,462,513 100,112,402 Hartford Money Market HLS Fund 1,741,122,110 146,176,498 145,783,839
E. Proposal to revise the fundamental policy regarding the underwriting of securities.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 565,498,104 21,349,847 38,558,773 Hartford Capital Appreciation HLS Fund 2,100,065,726 87,262,877 120,232,582 Hartford International Opportunities HLS Fund 868,677,291 35,054,333 57,958,242 Hartford Stock HLS Fund 1,522,500,119 56,281,928 87,403,596 Hartford Dividend and Growth HLS Fund 1,701,218,769 68,506,017 108,148,492 Hartford Advisers HLS Fund 4,947,273,501 176,766,718 321,727,245 Hartford Bond HLS Fund 1,422,591,498 65,626,791 100,046,207 Hartford Money Market HLS Fund 1,755,444,875 135,132,148 142,505,424
F. Proposal to revise the fundamental policy regarding investments in real estate and interests therein.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 568,820,108 20,050,313 36,536,302 Hartford Capital Appreciation HLS Fund 2,102,551,742 85,332,622 119,676,821 Hartford International Opportunities HLS Fund 871,796,148 32,748,357 57,145,362 Hartford Stock HLS Fund 1,526,203,163 52,818,061 87,164,418 Hartford Dividend and Growth HLS Fund 1,702,824,511 68,604,583 106,444,184 Hartford Advisers HLS Fund 4,956,039,892 176,929,632 312,797,939 Hartford Bond HLS Fund 1,423,980,882 61,833,389 102,450,226 Hartford Money Market HLS Fund 1,759,088,936 130,803,139 143,190,372
G. Proposal to revise the fundamental policy regarding purchases and sales of commodities and commodities contracts.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 562,193,196 26,239,949 36,973,579 Hartford Capital Appreciation HLS Fund 2,080,964,567 105,799,573 120,797,044 Hartford International Opportunities HLS Fund 864,123,020 39,827,351 57,739,496 Hartford Stock HLS Fund 1,507,022,839 67,901,565 91,261,238 Hartford Dividend and Growth HLS Fund 1,684,668,760 86,957,948 106,246,569 Hartford Advisers HLS Fund 4,916,823,584 214,025,903 314,917,976 Hartford Bond HLS Fund 1,407,096,821 80,909,708 100,257,968 Hartford Money Market HLS Fund 1,732,349,081 155,622,876 145,110,490
61 HARTFORD HLS MUTUAL FUNDS SHAREHOLDER MEETING RESULTS (UNAUDITED) -- (CONTINUED) - -------------------------------------------------------------------------------- H. Proposal to eliminate the fundamental policy regarding the diversification of investments.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 559,986,374 28,682,248 36,738,102 Hartford Capital Appreciation HLS Fund 2,069,411,622 116,469,705 121,679,858 Hartford International Opportunities HLS Fund 862,661,094 41,090,181 57,938,592 Hartford Stock HLS Fund 1,500,787,775 75,871,920 89,525,947 Hartford Dividend and Growth HLS Fund 1,679,697,376 92,953,610 105,222,291 Hartford Advisers HLS Fund 4,887,855,155 237,883,717 320,028,592 Hartford Bond HLS Fund 1,398,189,511 86,333,520 103,741,466 Hartford Money Market HLS Fund 1,728,370,441 161,131,100 143,580,906
3. Proposal to convert the investment objectives of certain funds from fundamental to non-fundamental.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 554,675,531 30,973,811 39,757,381 Hartford Capital Appreciation HLS Fund 2,050,417,395 129,376,515 127,767,275 Hartford International Opportunities HLS Fund 851,854,188 49,175,680 60,659,998 Hartford Stock HLS Fund 1,491,882,686 81,289,554 93,013,402 Hartford Dividend and Growth HLS Fund 1,660,639,278 100,571,476 116,662,523 Hartford Advisers HLS Fund 4,841,453,040 261,501,206 342,813,218 Hartford Bond HLS Fund 1,392,946,026 85,319,925 109,998,545 Hartford Money Market HLS Fund 1,713,118,982 164,274,437 155,689,028
4. Proposal to reorganize certain funds from Maryland corporations into new series of Hartford Series Fund, Inc.
FUND FOR AGAINST ABSTAIN ---- --- ------- ------- Hartford Small Company HLS Fund 566,493,505 20,658,335 38,254,883 Hartford Capital Appreciation HLS Fund 2,104,029,556 79,973,279 123,558,349 Hartford International Opportunities HLS Fund 874,812,009 30,195,770 56,682,088 Hartford Stock HLS Fund 1,523,218,595 52,077,292 90,889,755 Hartford Dividend and Growth HLS Fund 1,707,213,583 63,490,644 107,169,051 Hartford Advisers HLS Fund 4,963,034,753 162,452,872 320,279,838 Hartford Bond HLS Fund 1,430,633,955 56,137,806 101,492,736 Hartford Money Market HLS Fund 1,770,203,936 120,912,942 141,965,568
62 PRIVACY POLICY AND PRACTICES OF THE HARTFORD FINANCIAL SERVICES GROUP, INC. AND ITS AFFILIATES (herein called "we, our, and us") This Privacy Policy applies to our United States Operations We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of PERSONAL INFORMATION. This notice describes how we collect, disclose, and protect PERSONAL INFORMATION. We collect PERSONAL INFORMATION to: a) service your TRANSACTIONS with us; and b) support our business functions. We may obtain PERSONAL INFORMATION from: A) YOU; b) your TRANSACTIONS with us; and c) third parties such as a consumer-reporting agency. Based on the type of product or service YOU apply for or get from us, PERSONAL INFORMATION such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, TRANSACTIONS, and consumer reports. To serve YOU and service our business, we may share certain PERSONAL INFORMATION. We will share PERSONAL INFORMATION, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators. As allowed by law, we may share PERSONAL FINANCIAL INFORMATION with our affiliates to: a) market our products; or b) market our services; to YOU without providing YOU with an option to prevent these disclosures. We may also share PERSONAL INFORMATION, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve YOU and service our business. When allowed by law, we may share certain PERSONAL FINANCIAL INFORMATION with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions. We will not sell or share your PERSONAL FINANCIAL INFORMATION with anyone for purposes unrelated to our business functions without offering YOU the opportunity to: a) "opt-out;" or b) "opt-in;" as required by law. We only disclose PERSONAL HEALTH INFORMATION with: a) your proper written authorization; or b) as otherwise allowed or required by law. Our employees have access to PERSONAL INFORMATION in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; PERSONAL INFORMATION that we have. We use these procedures to guard against unauthorized access. Some techniques we use to protect PERSONAL INFORMATION include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software. We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties. Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us. 63 At the start of our business relationship, we will give YOU a copy of our current Privacy Policy. We will also give YOU a copy of our current Privacy Policy once a year if YOU maintain a continuing business relationship with us. We will continue to follow our Privacy Policy regarding PERSONAL INFORMATION even when a business relationship no longer exists between us. As used in this Privacy Notice: APPLICATION means your request for our product or service. PERSONAL FINANCIAL INFORMATION means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information. PERSONAL HEALTH INFORMATION means health information such as: a) your medical records; or b) information about your illness, disability or injury. PERSONAL INFORMATION means information that identifies YOU personally and is not otherwise available to the public. It includes: a) PERSONAL FINANCIAL INFORMATION; and b) PERSONAL HEALTH INFORMATION. TRANSACTION means your business dealings with us, such as: a) your APPLICATION; b) your request for us to pay a claim; and c) your request for us to take an action on your account. YOU means an individual who has given us PERSONAL INFORMATION in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.: American Maturity Life Insurance Company; Capstone Risk Management, LLC; First State Insurance Company; Hart Life Insurance Company; Hartford Accident & Indemnity Company; Hartford Administrative Services Company; Hartford Casualty Insurance Company; Hartford Equity Sales Company, Inc.; Hartford Fire Insurance Company; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford International Life Reassurance Corporation; Hartford Investment Financial Services, LLC; Hartford Investment Management Company; Hartford Life & Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Lloyd's Insurance Company; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Company; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; International Corporate Marketing Group, LLC; New England Insurance Company; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Nutmeg Life Insurance Company; Omni General Agency, Inc.; Omni Indemnity Company; Omni Insurance Company; P2P Link, LLC; Pacific Insurance Company, Limited; Planco Financial Services, Inc.; Property and Casualty Insurance Company of Hartford; Sentinel Insurance Company, Ltd.; Servus Life Insurance Company; Specialty Risk Services, Inc.; The Hartford Income Shares Fund, Inc.; The Hartford Mutual Funds II, Inc.; The Hartford Mutual Funds, Inc.; Trumbull Insurance Company; Trumbull Services, L.L.C.; Twin City Fire Insurance Company; Woodbury Financial Services, Inc. 64 NATIONS FUNDS Nations Separate Account Trust -- Marsico International Opportunities Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 86.4% BRAZIL -- 4.1% 9,518 Banco Itau SA, ADR.......................................... $ 226,528 18,444 Tele Norte Leste Participacoes SA, ADR...................... 135,563 23,036 Unibanco - Uniao de Bancos Brasileiros SA................... 252,244 ----------- 614,335 ----------- CANADA -- 9.5% 9,898 Mega Blocks Inc.!!+......................................... 147,236 31,332 Molson Inc. ................................................ 663,410 10,052 Shoppers Drug Mart Corporation.............................. 156,080 43,261 Westjet Airlines Ltd. ...................................... 442,249 ----------- 1,408,975 ----------- CHINA -- 2.0% 11,198 CNOOC Ltd., ADR............................................. 291,708 ----------- FINLAND -- 3.7% 15,698 Nokia Oyj................................................... 249,580 50,788 Sonera Oyj.................................................. 293,141 ----------- 542,721 ----------- FRANCE -- 4.2% 16,796 France Telecom SA........................................... 294,005 26,956 JC Decaux SA!!.............................................. 325,316 ----------- 619,321 ----------- GERMANY -- 5.1% 24,693 Bayerische Motoren Werke (BMW) AG........................... 750,197 ----------- HONG KONG -- 0.7% 35,000 Television Broadcasts Ltd. ................................. 110,407 ----------- IRELAND -- 5.7% 21,693 Ryanair Holdings plc, ADR!!................................. 849,498 ----------- ITALY -- 1.9% 24,722 Banco Popolare di Vernoa e Novara Scrl...................... 275,784 ----------- JAPAN -- 6.8% 82,500 Nissan Motor Company, Ltd. ................................. 643,760 11,000 Shiseido Company, Ltd. ..................................... 143,027 78,000 The Seiyu, Ltd.!!........................................... 228,078 ----------- 1,014,865 ----------- MEXICO -- 0.9% 59,344 Wal-Mart de Mexico SA de CV, Series V....................... 134,976 ----------- NETHERLANDS -- 12.3% 28,303 Heineken Holding NV 'A'..................................... 821,259 6,462 Royal Dutch Petroleum Company............................... 284,457
SHARES VALUE - ---------------------------------------------------------------------------------------- NETHERLANDS -- (CONTINUED) 5,938 Unilever NV................................................. $ 364,855 13,094 VNU NV...................................................... 341,469 ----------- 1,812,040 ----------- RUSSIA -- 1.5% 1,572 YUKOS, ADR.................................................. 221,541 ----------- SOUTH KOREA -- 3.2% 5,850 POSCO, ADR.................................................. 144,671 1,270 Samsung Electronics Company, Ltd. .......................... 336,225 ----------- 480,896 ----------- SPAIN -- 4.8% 6,640 Banco Popular Espanol SA.................................... 271,551 26,088 Corporacion Mapfre, SA...................................... 211,628 9,728 Industria de Diseno Textil, SA.............................. 229,801 ----------- 712,980 ----------- SWITZERLAND -- 5.0% 15,254 UBS AG!!.................................................... 741,353 ----------- UNITED KINGDOM -- 15.0% 13,848 British Sky Broadcasting Group plc!!........................ 142,448 25,424 Diageo plc.................................................. 276,259 27,742 HSBC Holdings plc........................................... 306,582 16,560 Northern Rock plc........................................... 175,943 30,428 Royal Bank of Scotland plc+................................. 728,862 50,630 Standard Chartered plc...................................... 575,416 ----------- 2,205,510 ----------- TOTAL COMMON STOCKS (Cost $11,839,075)........................................ 12,787,107 ----------- PREFERRED STOCKS -- 7.4% BRAZIL -- 2.0% 19,186 Companhia de Bebidas das Americas, ADR...................... 298,534 ----------- GERMANY -- 5.4% 1,936 Porsche AG.................................................. 804,550 ----------- TOTAL PREFERRED STOCKS (Cost $933,202)........................................... 1,103,084 ----------- PRINCIPAL AMOUNT - ---------- SHORT TERM INVESTMENTS -- 9.4% (Cost $1,399,971) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) $1,400,000 Discount note 01/02/03...................................... 1,399,942 ----------- SHARES - ---------- INVESTMENT COMPANIES -- 0.6% (Cost $85,000) 85,000 Nations Cash Reserves, Capital Class Shares#................ 85,000 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 1 NATIONS FUNDS Nations Separate Account Trust -- Marsico International Opportunities Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
VALUE - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $14,257,248*)............................. 103.8% $15,375,133 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (3.8)% Cash........................................................ $ 584 Foreign currency (cost $508,773)............................ 511,339 Receivable for investment securities sold................... 21,897 Receivable for Fund shares sold............................. 106,197 Dividends receivable........................................ 25,116 Unamortized organization costs.............................. 903 Payable for Fund shares redeemed............................ (8,973) Investment advisory fee payable............................. (4,767) Administration fee payable.................................. (2,621) Payable for investment securities purchased................. (1,116,968) Accrued Trustees' fees and expenses......................... (39,039) Accrued expenses and other liabilities...................... (49,601) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (555,933) ----------- NET ASSETS........................................ 100.0% $14,819,200 =========== NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 4,962 Accumulated net realized loss on investments sold........... (4,524,814) Net unrealized appreciation of investments and foreign currency translations..................................... 1,117,383 Paid-in capital............................................. 18,221,669 ----------- NET ASSETS.................................................. $14,819,200 =========== Net asset value per share ($14,819,200 / 1,532,947 shares of common stock outstanding)................................. $9.67 ===========
- --------------- *Federal income tax information (see Note 8). +Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 2 NATIONS FUNDS Nations Separate Account Trust -- Marsico International Opportunities STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002 At December 31, 2002, sector diversification was as follows:
% OF NET SECTOR DIVERSIFICATION ASSETS VALUE - ----------------------------------------------------------------------------------------------- Commercial banking.......................................... 15.9% $ 2,361,183 Automotive.................................................. 9.4 1,393,957 Airlines.................................................... 8.7 1,291,747 Beverages................................................... 6.3 939,669 Commercial services......................................... 5.5 821,259 Integrated oil.............................................. 5.4 797,706 Investment services......................................... 5.0 741,353 Telecommunications services................................. 4.9 722,709 Publishing and advertising.................................. 4.5 666,785 Food and drug stores........................................ 2.6 384,158 Food products............................................... 2.5 364,855 Semiconductors.............................................. 2.3 336,225 Banking..................................................... 1.9 275,784 Broadcasting and cable...................................... 1.7 252,855 Networking and telecommunications equipment................. 1.7 249,580 Apparel and textiles........................................ 1.6 229,801 Insurance................................................... 1.4 211,628 Consumer credit and mortgages............................... 1.2 175,943 Specialty stores............................................ 1.0 147,236 Metals and mining........................................... 1.0 144,671 Other....................................................... 1.9 278,003 ----- --------------- TOTAL COMMON STOCKS......................................... 86.4 12,787,107 PREFERRED STOCKS............................................ 7.4 1,103,084 SHORT-TERM INVESTMENTS...................................... 9.4 1,399,942 INVESTMENT COMPANIES........................................ 0.6 85,000 ----- --------------- TOTAL INVESTMENTS........................................... 103.8 15,375,133 OTHER ASSETS AND LIABILITIES (NET).......................... (3.8) (555,933) ----- --------------- NET ASSETS.................................................. 100.0% $ 14,819,200 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 3 NATIONS FUNDS Nations Separate Account Trust -- International Value Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ------------------------------------------------------------------------------------- COMMON STOCKS -- 99.3% BERMUDA -- 3.3% 37,600 Tyco International Ltd. .................................... $ 642,208 ----------- BRAZIL -- 3.2% 53,700 Centrais Eletricas Brasileiras SA, ADR...................... 178,998 20,910 Petroleo Brasileiro SA, ADR................................. 280,194 21,100 Tele Norte Leste Participacoes SA, ADR...................... 155,085 ----------- 614,277 ----------- CANADA -- 1.9% 225,000 Nortel Networks Corporation!!............................... 362,250 ----------- FRANCE -- 8.4% 106,210 Alcatel SA, ADR............................................. 471,572 30,500 Axa, ADR.................................................... 410,225 4,550 Compagnie Generale des Etablissements Michelin.............. 156,903 21,600 European Aeronautic Defence and Space Company............... 223,276 5,500 Nexans SA................................................... 87,848 5,900 Renault SA.................................................. 277,261 ----------- 1,627,085 ----------- GERMANY -- 6.7% 6,000 BASF AG, ADR................................................ 229,320 17,630 Bayerische Hypo-und Vereinsbank AG, ADR..................... 273,797 42,890 Deutsche Telekom AG, ADR.................................... 544,704 6,390 E.On AG, ADR................................................ 261,415 ----------- 1,309,236 ----------- HONG KONG -- 0.6% 30,020 Swire Pacific, Ltd. 'A', ADR................................ 114,715 ----------- ITALY -- 3.5% 131,200 Banca Intesa SpA!!.......................................... 276,747 5,400 Telecom Italia SpA, ADR..................................... 410,292 ----------- 687,039 ----------- JAPAN -- 18.6% 8,800 Daiichi Pharmaceutical Company, Ltd. ....................... 126,286 32,000 Daiwa House Industry Company, Ltd. ......................... 180,130 4,810 Hitachi, Ltd., ADR.......................................... 179,173 61 Japan Tobacco, Inc. ........................................ 408,140 6,010 Komatsu Ltd., ADR........................................... 78,398 43,200 Matsushita Electric Industrial Company Ltd., ADR............ 414,720 7,400 Millea Holdings, Inc., ADR.................................. 260,480 45,000 Mitsubishi Heavy Industries, Ltd. .......................... 109,969 51,380 Mitsubishi Tokyo Financial Group Inc. ...................... 274,883 81,000 Nippon Mitsubishi Oil Corporation........................... 367,220 14,700 Nippon Telegraph and Telephone Corporation, ADR............. 259,602 5,000 Ono Pharmaceutical Company, Ltd. ........................... 151,260 24,000 Sankyo Company, Ltd. ....................................... 301,138
SHARES VALUE - ------------------------------------------------------------------------------------- JAPAN -- (CONTINUED) 56,900 Sumitomo Mitsui Banking Corporation, ADR.................... $ 177,887 8,500 TDK Corporation, ADR........................................ 333,624 ----------- 3,622,910 ----------- MEXICO -- 6.1% 32,160 America Movil SA de CV 'L', ADR............................. 461,818 11,000 Cemex SA de CV, ADR......................................... 236,610 15,290 Telefonos de Mexico SA de CV 'L', ADR....................... 488,975 ----------- 1,187,403 ----------- NETHERLANDS -- 8.1% 11,314 ABN AMRO Holding NV, ADR.................................... 183,061 6,120 Akzo Nobel NV, ADR.......................................... 195,167 25,200 ING Groep NV, ADR........................................... 424,368 29,000 Koninklijke Ahold NV, ADR................................... 369,170 10,300 Koninklijke Numico NV....................................... 129,709 15,750 Wolters Kluwer NV, ADR...................................... 274,349 ----------- 1,575,824 ----------- NEW ZEALAND -- 1.0% 9,760 Telecom Corporation of New Zealand Ltd., ADR................ 186,611 ----------- PORTUGAL -- 1.5% 41,292 Portugal Telecommunications, SGPS, SA, ADR.................. 282,024 ----------- RUSSIA -- 0.9% 2,900 LUKOIL, ADR................................................. 178,178 ----------- SINGAPORE -- 1.8% 3,410 DBS Group Holdings Ltd., ADR+............................... 86,502 46,000 Overseas-Chinese Banking Corporation Ltd. .................. 255,924 ----------- 342,426 ----------- SOUTH AFRICA -- 1.7% 45,840 SABMiller plc, ADR+......................................... 324,813 ----------- SOUTH KOREA -- 3.1% 25,280 Korea Electric Power Corporation, ADR....................... 214,880 12,280 KT Corporation, ADR......................................... 264,634 4,810 POSCO, ADR.................................................. 118,951 ----------- 598,465 ----------- SPAIN -- 9.6% 44,870 Banco Bilbao Vizcaya Argentaria SA, ADR..................... 435,688 78,900 Repsol YPF SA, ADR.......................................... 1,032,013 14,988 Telefonica SA, ADR!!........................................ 398,231 ----------- 1,865,932 ----------- SWITZERLAND -- 4.8% 11,330 Swisscom AG, ADR............................................ 323,018 64,900 Zurich Financial Services AG, ADR+.......................... 605,491 ----------- 928,509 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 4 NATIONS FUNDS Nations Separate Account Trust -- International Value Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ------------------------------------------------------------------------------------- UNITED KINGDOM -- 13.8% 25,120 BAE Systems plc, ADR........................................ $ 200,586 17,000 Boots Company plc, ADR...................................... 320,755 8,780 British American Tobacco plc, ADR........................... 172,966 3,912 BT Group plc, ADR........................................... 122,563 9,930 Corus Group plc, ADR!!...................................... 41,408 91,700 Friends Provident plc....................................... 178,248 11,390 Glaxosmithkline plc - ADR................................... 426,669 5,630 HSBC Holdings plc, ADR...................................... 309,537 45,050 Invensys plc, ADR........................................... 76,513 5,164 Marks & Spencer Group plc, ADR.............................. 157,125 15,830 Reuters Group plc........................................... 272,276 107,900 Royal & Sun Alliance Insurance Group plc.................... 209,738 60,700 Safeway plc................................................. 208,375 ----------- 2,696,759 ----------- VENEZUELA -- 0.7% 11,443 Cia Anonima Nacional Telefonos de Venezuela, ADR............ 144,182 ----------- TOTAL COMMON STOCKS (Cost $24,230,376)........................................ 19,290,846 ----------- PREFERRED STOCKS -- 0.2% (Cost $105,544) BRAZIL -- 0.2% 2,080 Telecomunicacoes Brasileiras SA - Telebras, ADR........................................ 38,792 ----------- INVESTMENT COMPANIES -- 0.4% (Cost $70,000) 70,000 Nations Cash Reserves, Capital Class Shares#................ 70,000 -----------
VALUE - ------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $24,405,920*)............................. 99.9% $19,399,638 ----------- OTHER ASSETS AND LIABILITIES (NET)................ 0.1% Cash........................................................ $ 246 Receivable for Fund shares sold............................. 140,158 Dividends receivable........................................ 80,160 Payable for Fund shares redeemed............................ (110,354) Investment advisory fee payable............................. (14,993) Administration fee payable.................................. (3,666) Accrued Trustees' fees and expenses......................... (28,939) Accrued expenses and other liabilities...................... (39,574) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... 23,038 ----------- NET ASSETS........................................ 100.0% $19,422,676 =========== NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 18,074 Accumulated net realized gain on investments sold........... 3,319 Net unrealized depreciation of investments and foreign currency translations..................................... (5,005,939) Paid-in capital............................................. 24,407,222 ----------- NET ASSETS.................................................. $19,422,676 =========== Net asset value per share ($19,422,676 / 2,834,415 shares of common stock outstanding).............................................. $6.85 ===========
- --------------- *Federal income tax information (see Note 8). +Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 5 NATIONS FUNDS Nations Separate Account Trust -- International Value Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002 At December 31, 2002, sector diversification was as follows:
% OF NET SECTOR DIVERSIFICATION ASSETS VALUE - ----------------------------------------------------------------------------------------------- Telecommunications services................................. 20.7% $ 4,041,739 Oil and gas................................................. 9.5 1,857,605 Commercial banking.......................................... 8.9 1,723,482 Financial services.......................................... 5.9 1,144,574 Insurance................................................... 5.4 1,058,691 Pharmaceuticals............................................. 5.2 1,005,353 Networking and telecommunications equipment................. 4.3 833,822 Conglomerates............................................... 4.0 752,177 Food and drug stores........................................ 3.4 658,839 Electrical equipment........................................ 3.1 600,645 Housing and furnishing...................................... 3.1 594,850 Tobacco..................................................... 3.0 581,106 Banking..................................................... 2.8 550,544 Electric power -- Non nuclear............................... 2.3 440,413 Automotive.................................................. 2.2 434,164 Chemicals -- Specialty...................................... 2.2 424,487 Aerospace and defense....................................... 2.2 423,862 Food products............................................... 1.9 369,170 Beverages................................................... 1.7 324,813 Media....................................................... 1.4 274,349 Other....................................................... 6.1 1,196,161 ----- --------------- TOTAL COMMON STOCKS......................................... 99.3 19,290,846 PREFERRED STOCKS............................................ 0.2 38,792 INVESTMENT COMPANIES........................................ 0.4 70,000 ----- --------------- TOTAL INVESTMENTS........................................... 99.9 19,399,638 OTHER ASSETS AND LIABILITIES (NET).......................... 0.1 23,038 ----- --------------- NET ASSETS.................................................. 100.0% $ 19,422,676 ===== ===============
SEE NOTES TO FINANCIAL STATEMENTS. 6 NATIONS FUNDS Nations Separate Account Trust -- Marsico Focused Equities Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ----------------------------------------------------------------------------------------- COMMON STOCKS -- 93.4% AEROSPACE AND DEFENSE -- 4.2% 20,586 General Dynamics Corporation................................ $ 1,633,911 46,124 Lockheed Martin Corporation................................. 2,663,661 ------------ 4,297,572 ------------ AUTOMOTIVE -- 2.9% 96,136 Bayerische Motoren Werke (BMW) AG (a)....................... 2,920,702 ------------ BEVERAGES -- 1.6% 33,159 Anheuser-Busch Companies, Inc. ............................. 1,604,896 ------------ BROADCASTING AND CABLE -- 4.8% 45,128 Clear Channel Communications, Inc.++........................ 1,682,823 79,134 Viacom Inc., Class B++...................................... 3,225,502 ------------ 4,908,325 ------------ COMMERCIAL BANKING -- 4.7% 86,150 Citigroup Inc. ............................................. 3,031,619 71,126 J.P. Morgan Chase & Company................................. 1,707,024 ------------ 4,738,643 ------------ COMPUTERS AND OFFICE EQUIPMENT -- 2.1% 80,564 Dell Computer Corporation++................................. 2,154,281 ------------ CONSUMER CREDIT AND MORTGAGES -- 3.7% 58,142 Fannie Mae.................................................. 3,740,275 ------------ DEPARTMENT AND DISCOUNT STORES -- 3.0% 60,325 Wal-Mart Stores, Inc. ...................................... 3,047,016 ------------ FINANCE -- MISCELLANEOUS -- 6.7% 65,768 SLM Corporation............................................. 6,830,664 ------------ HEALTH SERVICES -- 14.4% 58,538 HCA Inc. ................................................... 2,429,327 86,120 Quest Diagnostics Inc.++.................................... 4,900,228 86,956 UnitedHealth Group Inc. .................................... 7,260,825 ------------ 14,590,380 ------------ HOUSEHOLD PRODUCTS -- 4.5% 29,494 Colgate-Palmolive Company................................... 1,546,370 35,140 Procter & Gamble Company.................................... 3,019,932 ------------ 4,566,302 ------------ HOUSING AND FURNISHING -- 2.1% 40,977 Lennar Corporation.......................................... 2,114,413 ------------
SHARES VALUE - ----------------------------------------------------------------------------------------- INVESTMENT SERVICES -- 2.8% 53,704 Lehman Brothers Holdings Inc. .............................. $ 2,861,886 ------------ LODGING AND RECREATION -- 2.8% 47,167 Four Seasons Hotels Inc.##.................................. 1,332,468 46,034 MGM Mirage Inc.++........................................... 1,517,741 ------------ 2,850,209 ------------ MEDICAL DEVICES AND SUPPLIES -- 2.1% 39,646 Johnson & Johnson........................................... 2,129,387 ------------ NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 7.9% 268,210 Cisco Systems, Inc.++....................................... 3,513,550 109,315 Nokia Corporation........................................... 1,694,383 76,212 QUALCOMM Inc.++............................................. 2,773,355 ------------ 7,981,288 ------------ PHARMACEUTICALS -- 4.9% 81,956 Amgen Inc.++................................................ 3,961,753 29,474 IDEC Pharmaceuticals Corporation++##........................ 977,653 ------------ 4,939,406 ------------ RAILROADS, TRUCKING AND SHIPPING -- 2.4% 44,120 FedEx Corporation........................................... 2,392,186 ------------ SOFTWARE -- 6.0% 35,160 Electronic Arts Inc.++...................................... 1,749,913 84,494 Microsoft Corporation++..................................... 4,368,340 ------------ 6,118,253 ------------ SPECIALTY STORES -- 7.4% 81,624 Lowe's Companies, Inc. ..................................... 3,060,900 186,853 Tiffany & Company........................................... 4,467,655 ------------ 7,528,555 ------------ TELECOMMUNICATIONS SERVICES -- 2.4% 211,630 Nextel Communications, Inc., Class A++...................... 2,444,327 ------------ TOTAL COMMON STOCKS (Cost $93,043,192)........................................ 94,758,966 ------------ PREFERRED STOCKS -- 1.5% (Cost $1,360,385) AUTOMOTIVE -- 1.5% 3,640 Porsche AG##(a)............................................. 1,512,688 ------------
SEE NOTES TO FINANCIAL STATEMENTS. 7 NATIONS FUNDS Nations Separate Account Trust -- Marsico Focused Equities Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 4.6% (Cost $4,699,902) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 4.6% $4,700,000 Discount note 01/02/03...................................... $ 4,699,804 ------------ SHARES - ---------- INVESTMENT COMPANIES -- 3.7% (Cost $3,796,357) 3,796,357 Nations Cash Reserves, Capital Class Shares#................ 3,796,357 ------------ TOTAL INVESTMENTS (Cost $102,899,836*)............................ 103.2% 104,767,815 ------------ OTHER ASSETS AND LIABILITIES (NET)................ (3.2)% Cash........................................................ $ 486 Receivable for investment securities sold................... 643,987 Receivable for Fund shares sold............................. 287,019 Dividends receivable........................................ 24,115 Interest receivable......................................... 1,988 Unamortized organization costs.............................. 903 Collateral on securities loaned............................. (3,767,357) Payable for Fund shares redeemed............................ (50,814) Investment advisory fee payable............................. (65,697) Administration fee payable.................................. (20,147) Payable for investment securities purchased................. (203,393) Accrued Trustees' fees and expenses......................... (38,974) Accrued expenses and other liabilities...................... (63,880) ------------ TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (3,251,764) ------------ NET ASSETS........................................ 100.0% $101,516,051 ============
VALUE - ----------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold........... $(39,138,688) Net unrealized appreciation of investments and foreign currency translations..................................... 1,868,119 Paid-in capital............................................. 138,786,620 ------------ NET ASSETS.................................................. $101,516,051 ============ Net asset value per share ($101,516,051 / 8,915,125 shares of common stock outstanding).............................. $11.39 ============
- --------------- *Federal income tax information (see Note 8). !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $3,767,357. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31 2002 is $4,832,007 and $3,602,150, respectively. (a) Foreign security. SEE NOTES TO FINANCIAL STATEMENTS. 8 NATIONS FUNDS Nations Separate Account Trust -- Small Company Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 80.5% AEROSPACE AND DEFENSE -- 1.1% 5,495 Triumph Group, Inc.!!....................................... $ 175,510 ----------- AIRLINES -- 0.8% 9,800 SkyWest, Inc. .............................................. 128,086 ----------- APPAREL AND TEXTILES -- 1.0% 3,725 Columbia Sportswear Company!!............................... 165,465 ----------- BEVERAGES -- 1.3% 9,194 Constellation Brands, Inc.!!................................ 217,990 ----------- BROADCASTING AND CABLE -- 1.4% 4,735 Entercom Communications Corporation!!....................... 222,166 ----------- CHEMICALS -- BASIC -- 2.1% 14,900 Agrium Inc. ................................................ 168,519 8,375 Delta and Pine Land Company................................. 170,934 ----------- 339,453 ----------- COMMERCIAL BANKING -- 5.1% 9,225 City National Corporation................................... 405,808 7,953 F.N.B. Corporation.......................................... 218,946 8,300 National Commerce Financial Corporation..................... 197,955 ----------- 822,709 ----------- COMMERCIAL SERVICES -- 2.2% 4,640 Catalina Marketing Corporation!!##.......................... 85,840 6,175 Iron Mountain Inc.!!........................................ 203,837 7,246 Trammell Crow Company!!..................................... 65,214 ----------- 354,891 ----------- COMPUTER SERVICES -- 2.5% 12,750 Pegasus Solutions Inc.!!.................................... 127,883 477 Syntel, Inc.!!.............................................. 10,022 11,350 Tier Technologies, Inc., Class B!!.......................... 181,599 8,399 Virage Logic Corporation!!.................................. 84,242 ----------- 403,746 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 1.3% 8,000 Avocent Corporation!!....................................... 177,760 4,434 Plexus Corporation!!........................................ 38,931 ----------- 216,691 ----------- CONSUMER SERVICES -- 1.2% 1,925 Rent-A-Center, Inc.!!....................................... 96,154 7,169 ValueVision Media, Inc., Class A!!.......................... 107,391 ----------- 203,545 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- DIVERSIFIED ELECTRONICS -- 3.3% 19,150 Aeroflex, Inc.!!............................................ $ 132,135 13,554 Anaren Microwave, Inc.!!.................................... 119,275 5,556 Dionex Corporation!!........................................ 165,069 11,447 Sypris Solutions, Inc. ..................................... 116,874 16 Vialta, Inc.!!.............................................. 5 ----------- 533,358 ----------- DIVERSIFIED MANUFACTURING -- 1.4% 3,150 Actuant Corporation, Class A!!.............................. 146,317 2,818 Mueller Industries, Inc.!!.................................. 76,791 ----------- 223,108 ----------- EDUCATION -- 2.5% 6,400 Career Education Corporation!!.............................. 256,000 3,822 Education Management Corporation!!.......................... 143,707 ----------- 399,707 ----------- FINANCE -- MISCELLANEOUS -- 4.1% 7,350 Affiliated Managers Group, Inc.!!........................... 369,705 9,600 Boston Private Financial Holdings, Inc. .................... 190,656 4,934 Investment Technology Group, Inc.!!......................... 110,324 ----------- 670,685 ----------- FOOD AND DRUG STORES -- 0.1% 2,975 Fleming Companies, Inc.##................................... 19,546 ----------- FOOD PRODUCTS -- 0.5% 2,615 Corn Products International, Inc. .......................... 78,790 ----------- HEALTH SERVICES -- 7.2% 2,600 Centene Corporation!!##..................................... 87,334 11,175 Orthodontic Centers of America, Inc.!!...................... 121,919 19,100 Province Healthcare Company!!............................... 185,843 3,575 Stericycle, Inc.!!.......................................... 115,755 8,647 Triad Hospitals, Inc.!!..................................... 257,940 4,190 Unilab Corporation!!........................................ 76,677 17,865 US Oncology, Inc.!!......................................... 154,890 11,315 VCA Antech, Inc.!!.......................................... 169,725 498 WellChoice Inc.!!........................................... 11,927 ----------- 1,182,010 ----------- HOUSING AND FURNISHING -- 0.8% 3,850 Ethan Allen Interiors Inc. ................................. 132,325 ----------- INSURANCE -- 2.2% 4,675 Delphi Financial Group, Inc., Class A....................... 177,464 3,062 IPC Holdings, Ltd.!!........................................ 96,575 5,500 The Phoenix Companies, Inc.##............................... 41,800 1,011 Triad Guaranty Inc.!!....................................... 37,265 ----------- 353,104 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 9 NATIONS FUNDS Nations Separate Account Trust -- Small Company Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- INTEGRATED OIL -- 0.5% 5,260 Remington Oil & Gas Corporation!!........................... $ 86,317 ----------- LODGING AND RECREATION -- 2.2% 8,846 Ameristar Casinos, Inc.!!................................... 124,729 12,516 Shuffle Master, Inc.!!##.................................... 239,180 ----------- 363,909 ----------- MEDICAL DEVICES AND SUPPLIES -- 3.4% 10,525 Cooper Companies, Inc.##.................................... 263,336 10,740 Endocare, Inc.!!##(a)....................................... 26,850 5,240 Exact Sciences Corporation!!................................ 56,749 2,675 Vital Signs Inc. ........................................... 79,929 7,665 Wright Medical Group, Inc.!!................................ 133,823 ----------- 560,687 ----------- NATURAL GAS DISTRIBUTION -- 1.1% 6,100 Energen Corporation......................................... 177,510 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.3% 9,000 AudioCodes Ltd.!!##......................................... 23,220 26,800 C-COR.Net Corporation!!..................................... 88,976 11,418 REMEC, Inc.!!............................................... 44,302 4,125 Tollgrade Communications, Inc.!!............................ 48,386 ----------- 204,884 ----------- OILFIELD SERVICES -- 5.6% 3,075 Atwood Oceanics, Inc.!!..................................... 92,558 6,950 Cal Dive International Inc.!!............................... 163,325 5,050 Patterson-UTI Energy, Inc.!!................................ 152,359 3,225 Precision Drilling Corporation!!............................ 104,942 14,907 Pride International, Inc.!!................................. 222,113 8,500 Varco International, Inc.!!................................. 147,900 2,137 W-H Energy Services, Inc.!!................................. 31,179 ----------- 914,376 ----------- PHARMACEUTICALS -- 7.3% 11,300 Allos Therapeutics Inc.!!##................................. 84,976 12,750 Alpharma Inc., Class A##.................................... 151,853 7,885 Array BioPharma Inc.!!...................................... 43,762 1,275 Cephalon, Inc.!!............................................ 62,052 10,875 Martek Biosciences Corporation!!##.......................... 273,614 4,300 Medicis Pharmaceutical Corporation, Class A!!............... 213,580 5,443 NPS Pharmaceuticals, Inc.!!................................. 137,000 8,600 Shire Pharmaceuticals Group plc, ADR!!...................... 162,454 16,191 Women First Healthcare, Inc.!!.............................. 73,847 ----------- 1,203,138 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- RAILROADS, TRUCKING AND SHIPPING -- 1.9% 2,661 Heartland Express, Inc.!!................................... $ 60,966 3,705 Knight Transportation, Inc.!!............................... 77,805 15,800 RailAmerica, Inc.!!......................................... 113,286 2,000 UTI Worldwide, Inc. ........................................ 52,500 ----------- 304,557 ----------- RESTAURANTS -- 3.1% 6,891 CEC Entertainment Inc.!!.................................... 211,554 5,925 Jack in the Box Inc.!!...................................... 102,443 6,650 RARE Hospitality International, Inc.!!...................... 183,673 ----------- 497,670 ----------- SEMICONDUCTORS -- 2.4% 4,200 Cymer, Inc.!!............................................... 135,449 8,260 LTX Corporation!!........................................... 49,808 5,525 MKS Instruments Inc.!!...................................... 90,776 11,150 Oak Technology, Inc.!!...................................... 29,548 14,458 Sipex Corporation!!......................................... 53,495 8,039 TriQuint Semiconductor, Inc.!!.............................. 34,085 ----------- 393,161 ----------- SOFTWARE -- 3.9% 12,275 Borland Software Corporation!!.............................. 150,983 2,650 EPIQ Systems, Inc.!!........................................ 40,598 7,675 Hyperion Solutions Corporation!!............................ 197,017 8,280 Lawson Software, Inc.!!..................................... 47,610 6,150 Manhattan Associates, Inc.!!................................ 145,509 9,756 TTI Team Telecom International Ltd.!!##..................... 53,170 ----------- 634,887 ----------- SPECIALTY STORES -- 3.9% 9,430 American Eagle Outfitters, Inc.!!........................... 129,945 15,650 Cato Corporation............................................ 337,884 7,066 Too Inc.!!.................................................. 166,192 ----------- 634,021 ----------- TELECOMMUNICATIONS SERVICES -- 1.8% 7,985 Commonwealth Telephone Enterprises, Inc.!!.................. 286,182 ----------- TOTAL COMMON STOCKS (Cost $15,380,034)........................................ 13,104,184 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 10 NATIONS FUNDS Nations Separate Account Trust -- Small Company Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 35.8% 14,707 iShares Russell 2000 Growth Index Fund##.................... $ 586,074 8,000 iShares Russell 2000 Index Fund##........................... 606,480 4,639,165 Nations Cash Reserves, Capital Class Shares#................ 4,639,165 ----------- TOTAL INVESTMENT COMPANIES (Cost $5,939,482)......................................... 5,831,719 ----------- TOTAL INVESTMENTS (Cost $21,319,516*)............................. 116.3% 18,935,903 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (16.3)% Cash........................................................ $ 665 Receivable for Fund shares sold............................. 74,980 Dividends receivable........................................ 7,443 Interest receivable......................................... 537 Unamortized organization costs.............................. 903 Collateral on securities loaned............................. (2,565,165) Payable for Fund shares redeemed............................ (938) Investment advisory fee payable............................. (10,509) Administration fee payable.................................. (3,094) Shareholder servicing and distribution fees payable......... (53,691) Accrued Trustees' fees and expenses......................... (39,040) Accrued expenses and other liabilities...................... (60,093) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (2,648,002) ----------- NET ASSETS........................................ 100.0% $16,287,901 ===========
VALUE - ---------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold........... $(1,015,438) Net unrealized depreciation of investments.................. (2,383,613) Paid-in capital............................................. 19,686,952 ----------- NET ASSETS.................................................. $16,287,901 =========== Net asset value per share ($16,287,901 / 2,277,879 shares of common stock outstanding)................................. $7.15 ===========
- --------------- *Federal income tax information (see Note 8). !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $2,565,165. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $3,021,028 and $2,466,830, respectively. (a) Fair valued security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 11 NATIONS FUNDS Nations Separate Account Trust -- Marsico 21st Century Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - -------------------------------------------------------------------------------------- COMMON STOCKS -- 85.5% AEROSPACE AND DEFENSE -- 2.2% 2,122 Lockheed Martin Corporation................................. $ 122,546 ----------- AIRLINES -- 2.3% 3,234 Ryanair Holdings plc, ADR!!##............................... 126,643 ----------- AUTOMOTIVE -- 2.3% 4,106 Bayerische Motoren Werke (BMW) AG(a)........................ 124,744 ----------- BROADCASTING AND CABLE -- 7.4% 3,358 Clear Channel Communications, Inc.!!........................ 125,220 5,928 Cox Communications, Inc., Class A!!##....................... 168,356 2,798 Viacom Inc., Class B!!...................................... 114,046 ----------- 407,622 ----------- COMMERCIAL BANKING -- 2.3% 3,658 Citigroup Inc. ............................................. 128,725 ----------- CONSUMER CREDIT AND MORTGAGES -- 4.1% 3,532 Fannie Mae.................................................. 227,214 ----------- DEPARTMENT AND DISCOUNT STORES -- 2.2% 2,392 Wal-Mart Stores, Inc. ...................................... 120,820 ----------- DIVERSIFIED ELECTRONICS -- 3.0% 2,616 Analogic Corporation........................................ 131,553 1,426 Leapfrog Enterprises Inc!!##................................ 35,864 ----------- 167,417 ----------- FINANCE -- MISCELLANEOUS -- 8.8% 4,300 Chicago Mercantile Exchange##............................... 187,738 2,900 SLM Corporation............................................. 301,194 ----------- 488,932 ----------- HEALTH SERVICES -- 11.6% 6,774 HCA Inc. ................................................... 281,121 4,240 UnitedHealth Group Inc. .................................... 354,040 ----------- 635,161 ----------- HOUSEHOLD PRODUCTS -- 1.4% 914 Procter & Gamble Company.................................... 78,549 ----------- HOUSING AND FURNISHING -- 5.1% 6,017 Aaon, Inc.!!................................................ 110,893 1,378 Lennar Corporation.......................................... 71,105 2,663 M.D.C. Holdings, Inc. ...................................... 101,886 ----------- 283,884 -----------
SHARES VALUE - -------------------------------------------------------------------------------------- INVESTMENT SERVICES -- 1.3% 1,363 Lehman Brothers Holdings Inc. .............................. $ 72,634 ----------- LODGING AND RECREATION -- 1.6% 3,142 Four Seasons Hotels Inc. ................................... 88,762 ----------- MEDICAL DEVICES AND SUPPLIES -- 2.3% 5,046 InterMune Inc.!!............................................ 128,723 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 6.8% 14,404 Cisco Systems, Inc.!!....................................... 188,692 5,172 QUALCOMM Inc.!!............................................. 188,209 ----------- 376,901 ----------- PHARMACEUTICALS -- 7.3% 3,238 Genentech, Inc.!!........................................... 107,372 5,168 Genzyme Corporation!!....................................... 152,817 2,374 IDEC Pharmaceuticals Corporation!!##........................ 78,746 6,932 Inspire Pharmaceuticals Inc.!!.............................. 64,745 ----------- 403,680 ----------- SOFTWARE -- 7.7% 6,468 BEA Systems, Inc.!!......................................... 74,188 2,596 Electronic Arts Inc.!!...................................... 129,203 4,280 Microsoft Corporation!!..................................... 221,276 ----------- 424,667 ----------- TELECOMMUNICATIONS SERVICES -- 3.6% 17,174 Nextel Communications, Inc., Class A!!...................... 198,360 ----------- UTILITIES -- MISCELLANEOUS -- 2.2% 5,968 Philadelphia Suburban Corporation........................... 122,941 ----------- TOTAL COMMON STOCKS (Cost $4,513,725)......................................... 4,728,925 ----------- PREFERRED STOCKS -- 1.1% (Cost $62,621) AUTOMOTIVE -- 1.1% 150 Porsche AG(a)............................................... 62,336 ----------- PRINCIPAL AMOUNT - --------- SHORT TERM INVESTMENTS -- 10.9% (Cost $599,988) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 10.9% $600,000 Discount note 01/02/03...................................... 599,975 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 12 NATIONS FUNDS Nations Separate Account Trust -- Marsico 21st Century Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - -------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 12.7% (Cost $700,538) 700,538 Nations Cash Reserves, Capital Class Shares#................ $ 700,538 ----------- TOTAL INVESTMENTS (Cost $5,876,872*).............................. 110.2% 6,091,774 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (10.2)% Cash........................................................ $ 866 Receivable for Fund shares sold............................. 107,274 Dividends receivable........................................ 544 Interest receivable......................................... 77 Unamortized organization costs.............................. 920 Collateral on securities loaned............................. (604,538) Payable for Fund shares redeemed............................ (1,147) Administration fee payable.................................. (1,050) Accrued Trustees' fees and expenses......................... (39,039) Accrued expenses and other liabilities...................... (28,945) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (565,038) ----------- NET ASSETS........................................ 100.0% $ 5,526,736 =========== NET ASSETS CONSIST OF: Accumulated net investment loss............................. $ (52) Accumulated net realized loss on investments sold........... (3,058,813) Net unrealized appreciation of investments.................. 214,902 Paid-in capital............................................. 8,370,699 ----------- NET ASSETS.................................................. $ 5,526,736 =========== Net asset value per share ($5,526,736 / 968,252 shares of common stock outstanding)................................. $5.71 ===========
- --------------- *Federal income tax information (see Note 8). !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $604,538. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $639,599 and $597,346 respectively. (a) Foreign security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 13 NATIONS FUNDS Nations Separate Account Trust -- Marsico Growth Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 97.2% AEROSPACE AND DEFENSE -- 4.2% 11,553 General Dynamics Corporation................................ $ 916,962 25,906 Lockheed Martin Corporation................................. 1,496,071 ------------ 2,413,033 ------------ AIRLINES -- 1.9% 27,059 Ryanair Holdings plc, ADR!!##............................... 1,059,630 ------------ AUTOMOTIVE -- 2.9% 55,006 Bayerische Motoren Werke (BMW) AG(a)........................ 1,671,134 ------------ BEVERAGES -- 3.2% 12,890 Anheuser-Busch Companies, Inc. ............................. 623,876 9,134 Heineken NV................................................. 356,580 20,300 PepsiCo, Inc. .............................................. 857,066 ------------ 1,837,522 ------------ BROADCASTING AND CABLE -- 4.6% 25,962 Clear Channel Communications, Inc.!!........................ 968,123 40,450 Viacom Inc., Class B!!...................................... 1,648,742 ------------ 2,616,865 ------------ COMMERCIAL BANKING -- 3.6% 7,916 Citigroup Inc. ............................................. 278,564 39,914 J.P. Morgan Chase & Company................................. 957,936 17,802 Wells Fargo & Company....................................... 834,380 ------------ 2,070,880 ------------ COMPUTERS AND OFFICE EQUIPMENT -- 2.0% 42,054 Dell Computer Corporation!!................................. 1,124,524 ------------ CONSTRUCTION -- 0.2% 3,166 Jacobs Engineering Group Inc.!!............................. 112,710 ------------ CONSUMER CREDIT AND MORTGAGES -- 2.2% 19,634 Fannie Mae.................................................. 1,263,055 ------------ DEPARTMENT AND DISCOUNT STORES -- 3.0% 33,900 Wal-Mart Stores, Inc. ...................................... 1,712,289 ------------ FINANCE -- MISCELLANEOUS -- 7.2% 39,378 SLM Corporation............................................. 4,089,799 ------------ FOOD PRODUCTS -- 3.0% 44,596 Kraft Foods, Inc.##......................................... 1,736,122 ------------ HEALTH SERVICES -- 12.5% 32,792 HCA Inc. ................................................... 1,360,868 34,632 Quest Diagnostics Inc.!!.................................... 1,970,561 45,472 UnitedHealth Group Inc. .................................... 3,796,913 ------------ 7,128,342 ------------
SHARES VALUE - ---------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 4.5% 16,546 Colgate-Palmolive Company................................... $ 867,507 19,718 Procter & Gamble Company.................................... 1,694,565 ------------ 2,562,072 ------------ HOUSING AND FURNISHING -- 4.0% 28,497 D.R. Horton, Inc. .......................................... 494,423 21,838 Lennar Corporation.......................................... 1,126,841 16,531 M.D.C. Holdings, Inc. ...................................... 632,476 ------------ 2,253,740 ------------ INVESTMENT SERVICES -- 2.0% 21,712 Lehman Brothers Holdings Inc. .............................. 1,157,032 ------------ LODGING AND RECREATION -- 3.7% 20,027 Four Seasons Hotels Inc.##.................................. 565,763 6,302 Harley-Davidson, Inc. ...................................... 291,152 25,956 MGM Mirage Inc.!!........................................... 855,769 32,000 Wynn Resorts, Ltd.!!........................................ 419,520 ------------ 2,132,204 ------------ MEDICAL DEVICES AND SUPPLIES -- 3.9% 19,018 Johnson & Johnson........................................... 1,021,457 29,220 Zimmer Holdings, Inc.!!..................................... 1,213,214 ------------ 2,234,671 ------------ NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 6.4% 96,254 Cisco Systems, Inc.!!....................................... 1,260,927 59,070 Nokia Corporation........................................... 915,585 39,674 QUALCOMM Inc.!!............................................. 1,443,737 ------------ 3,620,249 ------------ PHARMACEUTICALS -- 4.9% 40,238 Amgen Inc.!!................................................ 1,945,105 1,902 Forest Laboratories, Inc.!!................................. 186,814 19,830 IDEC Pharmaceuticals Corporation!!##........................ 657,761 ------------ 2,789,680 ------------ RAILROADS, TRUCKING AND SHIPPING -- 2.4% 24,836 FedEx Corporation........................................... 1,346,608 ------------ RESTAURANTS -- 0.8% 21,254 Starbucks Corporation!!..................................... 433,157 ------------ SOFTWARE -- 3.9% 19,036 Electronic Arts Inc.!!...................................... 947,422 24,840 Microsoft Corporation!!..................................... 1,284,228 ------------ 2,231,650 ------------ SPECIALTY STORES -- 8.0% 28,614 Bed Bath & Beyond Inc.!!.................................... 988,041 45,870 Lowe's Companies, Inc. ..................................... 1,720,125 76,311 Tiffany & Company........................................... 1,824,596 ------------ 4,532,762 ------------
SEE NOTES TO FINANCIAL STATEMENTS. 14 NATIONS FUNDS Nations Separate Account Trust -- Marsico Growth Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- 2.2% 107,328 Nextel Communications, Inc., Class A++...................... $ 1,239,638 ------------ TOTAL COMMON STOCKS (Cost $53,332,932)........................................ 55,369,368 ------------ PRINCIPAL AMOUNT ------ CORPORATE BONDS AND NOTES -- 0.2% (Cost $97,751) HOUSING AND FURNISHING -- 0.2% $ 100,000 M.D.C. Holdings, Inc., 8.375% 02/01/08........................................... 103,500 ------------ SHARES - ---------- PREFERRED STOCKS -- 1.6% (Cost $786,400) AUTOMOTIVE -- 1.6% 2,174 Porsche AG##(a)............................................. 903,457 ------------ PRINCIPAL AMOUNT - ---------- SHORT TERM INVESTMENTS -- 0.5% (Cost $299,994) FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 0.5% $ 300,000 Discount note 01/02/03...................................... 299,988 ------------ SHARES - ---------- INVESTMENT COMPANIES -- 8.8% (Cost $5,011,449) 5,011,449 Nations Cash Reserves, Capital Class Shares#................ 5,011,449 ------------ VALUE - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $59,528,526*)............................. 108.3% $ 61,687,762 ------------ OTHER ASSETS AND LIABILITIES (NET)............................... (8.3)% Cash........................................................ $ 971 Receivable for investment securities sold................... 261,020 Receivable for Fund shares sold............................. 170,944 Dividends receivable........................................ 18,557 Interest receivable......................................... 4,803 Unamortized organization costs.............................. 903 Collateral on securities loaned............................. (4,932,449) Payable for Fund shares redeemed............................ (13,890) Investment advisory fee payable............................. (36,805) Administration fee payable.................................. (11,288) Payable for investment securities purchased................. (114,143) Accrued Trustees' fees and expenses......................... (39,033) Accrued expenses and other liabilities...................... (49,703) ------------ TOTAL OTHER ASSETS AND LIABILITIES (NET)......................................... (4,740,113) ------------ NET ASSETS........................................ 100.0% $ 56,947,649 ============ NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold........... $(22,136,343) Net unrealized appreciation of investments and foreign currency translations..................................... 2,159,395 Paid-in capital............................................. 76,924,597 ------------ NET ASSETS.................................................. $ 56,947,649 ============ Net asset value per share ($56,947,649 / 5,046,477 shares of common stock outstanding)................................. $11.28 ============
- --------------- *Federal income tax information (see Note 8). ++ Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $4,932,449. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $4,613,204 and $4,793,733, respectively. (a) Foreign security. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 15 NATIONS FUNDS Nations Separate Account Trust -- Capital Growth Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 87.7% AEROSPACE AND DEFENSE -- 2.3% 1,200 General Dynamics Corporation................................ $ 95,244 1,050 Lockheed Martin Corporation................................. 60,638 2,125 United Technologies Corporation............................. 131,622 ----------- 287,504 ----------- BEVERAGES -- 3.5% 1,225 Anheuser-Busch Companies, Inc. ............................. 59,290 4,550 Coca-Cola Company........................................... 199,381 4,200 PepsiCo, Inc. .............................................. 177,324 ----------- 435,995 ----------- BROADCASTING AND CABLE -- 5.9% 10,525 AOL Time Warner Inc.!!...................................... 137,878 4,500 Clear Channel Communications, Inc.!!........................ 167,805 6,400 Cox Communications, Inc., Class A!!......................... 181,759 3,175 Univision Communications, Inc., Class A!!................... 77,788 4,150 Viacom Inc., Class B!!...................................... 169,153 ----------- 734,383 ----------- COMMERCIAL BANKING -- 3.9% 2,917 Charter One Financial, Inc. ................................ 83,805 5,125 Citigroup Inc. ............................................. 180,349 1,075 Fifth Third Bancorp......................................... 62,941 3,750 FleetBoston Financial Corporation........................... 91,125 1,375 Wells Fargo & Company....................................... 64,446 ----------- 482,666 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 3.2% 6,175 Dell Computer Corporation!!................................. 165,120 2,250 International Business Machines Corporation................. 174,375 950 Lexmark International, Inc.!!............................... 57,475 ----------- 396,970 ----------- CONGLOMERATES -- 0.5% 2,350 Fluor Corporation........................................... 65,800 ----------- CONSTRUCTION -- 0.6% 1,950 Jacobs Engineering Group Inc.!!............................. 69,420 ----------- CONSUMER CREDIT AND MORTGAGES -- 1.0% 1,850 Fannie Mae.................................................. 119,011 ----------- DEPARTMENT AND DISCOUNT STORES -- 5.7% 4,445 Kohl's Corporation!!........................................ 248,698 2,375 Target Corporation.......................................... 71,250 7,800 Wal-Mart Stores, Inc. ...................................... 393,977 ----------- 713,925 ----------- DIVERSIFIED MANUFACTURING -- 4.7% 24,103 General Electric Company.................................... 586,907 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- 1.5% 53 Berkshire Hathaway Inc., Class B!!.......................... $ 128,419 575 SLM Corporation............................................. 59,720 ----------- 188,139 ----------- FOOD AND DRUG STORES -- 1.8% 7,725 Walgreen Company............................................ 225,493 ----------- HEALTH SERVICES -- 3.0% 1,525 HCA Inc..................................................... 63,288 3,025 Quest Diagnostics Inc.!!.................................... 172,122 1,725 UnitedHealth Group Inc. .................................... 144,038 ----------- 379,448 ----------- HOUSEHOLD PRODUCTS -- 2.1% 2,325 Colgate-Palmolive Company................................... 121,900 1,600 Procter & Gamble Company.................................... 137,504 ----------- 259,404 ----------- INSURANCE -- 2.7% 2,850 American International Group, Inc. ......................... 164,873 2,275 XL Capital Ltd., Class A.................................... 175,743 ----------- 340,616 ----------- INTEGRATED OIL -- 1.8% 575 Apache Corporation.......................................... 32,769 5,600 Exxon Mobil Corporation..................................... 195,664 ----------- 228,433 ----------- INVESTMENT SERVICES -- 2.8% 2,750 Goldman Sachs Group, Inc. .................................. 187,275 3,150 Lehman Brothers Holdings Inc. .............................. 167,864 ----------- 355,139 ----------- LODGING AND RECREATION -- 1.4% 1,250 Harley-Davidson, Inc. ...................................... 57,750 5,025 Starwood Hotels & Resorts Worldwide, Inc. .................. 119,294 ----------- 177,044 ----------- MEDIA -- 0.5% 2,450 Fox Entertainment Group Inc. !!............................. 63,529 ----------- MEDICAL DEVICES AND SUPPLIES -- 5.8% 4,400 Abbott Laboratories......................................... 176,000 4,275 Baxter International Inc. .................................. 119,700 1,250 Cardinal Health, Inc. ...................................... 73,988 5,075 Johnson & Johnson........................................... 272,577 1,925 Medtronic, Inc. ............................................ 87,780 ----------- 730,045 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 3.2% 24,450 Cisco Systems, Inc.!!....................................... 320,295 2,125 QUALCOMM Inc.!!............................................. 77,329 ----------- 397,624 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 16 NATIONS FUNDS Nations Separate Account Trust -- Capital Growth Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- PHARMACEUTICALS -- 12.1% 5,650 Amgen Inc.!!................................................ $ 273,121 4,050 Eli Lilly and Company....................................... 257,175 650 Forest Laboratories, Inc.!!................................. 63,843 5,475 Genentech, Inc.!!........................................... 181,551 17,100 Pfizer Inc. ................................................ 522,746 4,650 Pharmacia Corporation....................................... 194,370 ----------- 1,492,806 ----------- RAILROADS, TRUCKING AND SHIPPING -- 1.7% 2,150 Union Pacific Corporation................................... 128,721 1,375 United Parcel Service, Inc., Class B........................ 86,735 ----------- 215,456 ----------- RESTAURANTS -- 0.5% 1,850 The Cheesecake Factory, Inc.!!.............................. 66,878 ----------- SEMICONDUCTORS -- 3.5% 18,950 Intel Corporation........................................... 295,051 2,275 Maxim Integrated Products, Inc. ............................ 75,166 4,375 Texas Instruments Inc. ..................................... 65,669 ----------- 435,886 ----------- SOFTWARE -- 7.9% 6,300 BEA Systems, Inc.!!......................................... 72,261 9,775 Citrix Systems, Inc.!!...................................... 120,428 1,075 Electronic Arts Inc.!!...................................... 53,503 11,800 Microsoft Corporation!!..................................... 610,059 10,900 Oracle Corporation!!........................................ 117,720 ----------- 973,971 ----------- SPECIALTY STORES -- 1.7% 2,825 Abercrombie & Fitch Company!!............................... 57,800 2,250 Lowe's Companies, Inc. ..................................... 84,375 2,775 Tiffany & Company........................................... 66,350 ----------- 208,525 ----------- TELECOMMUNICATIONS SERVICES -- 1.7% 12,025 Liberty Media Corporation!!................................. 107,503 5,650 Motorola, Inc. ............................................. 48,873 5,350 Nextel Communications, Inc., Class A!!...................... 61,793 ----------- 218,169 ----------- TOBACCO -- 0.7% 2,275 Philip Morris Companies Inc. ............................... 92,206 ----------- TOTAL COMMON STOCKS (Cost $10,839,184)........................................ 10,941,392 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 11.9% 6,750 iShares Russell 1000 Growth Index Fund...................... $ 246,713 1,242,000 Nations Cash Reserves, Capital Class Shares#................ 1,242,000 ----------- TOTAL INVESTMENT COMPANIES (Cost $1,502,446)......................................... 1,488,713 ----------- TOTAL INVESTMENTS (Cost $12,341,630*)............................. 99.6% 12,430,105 ----------- OTHER ASSETS AND LIABILITIES (NET)................ 0.4% Cash........................................................ $ 728 Receivable for Fund shares sold............................. 252,230 Dividends receivable........................................ 16,630 Unamortized organization costs.............................. 903 Payable for Fund shares redeemed............................ (289) Investment advisory fee payable............................. (6,243) Administration fee payable.................................. (2,408) Shareholder servicing and distribution fees payable......... (124,534) Accrued Trustees' fees and expenses......................... (39,117) Accrued expenses and other liabilities...................... (41,906) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... 55,994 ----------- NET ASSETS........................................ 100.0% $12,486,099 =========== NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 5,504 Accumulated net realized loss on investments sold........... (7,643,285) Net unrealized appreciation of investments.................. 88,475 Paid-in capital............................................. 20,035,405 ----------- NET ASSETS.................................................. $12,486,099 =========== Net asset value per share ($12,486,099 / 1,774,050 shares of common stock outstanding)................................. $7.04 ===========
- --------------- *Federal income tax information (see Note 8). !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. SEE NOTES TO FINANCIAL STATEMENTS. 17 NATIONS FUNDS Nations Separate Account Trust -- MidCap Growth Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 85.7% AEROSPACE AND DEFENSE -- 0.6% 3,045 Rockwell Collins, Inc. ..................................... $ 70,827 ----------- AUTOMOTIVE -- 0.5% 3,350 Carmax Inc.++............................................... 59,898 ----------- BEVERAGES -- 1.0% 4,680 Pepsi Bottling Group, Inc. ................................. 120,276 ----------- BROADCASTING AND CABLE -- 2.2% 3,990 Adelphia Communications Corporation, Class A++.............. 339 12,875 Charter Communications, Inc., Class A++..................... 15,193 9,555 Radio One, Inc., Class D++.................................. 137,878 5,305 Univision Communications, Inc., Class A++................... 129,973 ----------- 283,383 ----------- BUILDING MATERIALS -- 1.0% 1,855 American Standard Companies Inc.++.......................... 131,965 ----------- CHEMICALS -- BASIC -- 2.2% 1,925 Air Products and Chemicals, Inc. ........................... 82,294 1,330 Avery Dennison Corporation.................................. 81,236 2,194 Ecolab, Inc. ............................................... 108,603 ----------- 272,133 ----------- COMMERCIAL BANKING -- 2.4% 5,267 Charter One Financial, Inc. ................................ 151,321 3,540 Commerce Bancorp, Inc. ..................................... 152,893 ----------- 304,214 ----------- COMMERCIAL SERVICES -- 1.0% 4,021 Manpower Inc. .............................................. 128,270 ----------- COMPUTER SERVICES -- 4.3% 9,185 Concord EFS, Inc.++......................................... 144,572 8,810 Convergys Corporation++..................................... 133,472 12,430 CSG Systems International, Inc.++........................... 169,669 5,195 Internet Security Systems, Inc.++........................... 95,224 ----------- 542,937 ----------- CONGLOMERATES -- 1.6% 4,145 Pentair, Inc. .............................................. 143,210 1,635 SPX Corporation++........................................... 61,231 ----------- 204,441 ----------- CONSTRUCTION -- 1.1% 3,830 Jacobs Engineering Group Inc.++............................. 136,348 ----------- CONSUMER CREDIT AND MORTGAGES -- 0.4% 6,975 AmeriCredit Corporation++................................... 53,987 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- DEPARTMENT AND DISCOUNT STORES -- 0.7% 1,505 Kohl's Corporation++........................................ $ 84,205 ----------- DIVERSIFIED ELECTRONICS -- 2.7% 4,445 Amphenol Corporation, Class A++............................. 168,910 20,495 Symbol Technologies, Inc. .................................. 168,469 ----------- 337,379 ----------- DIVERSIFIED MANUFACTURING -- 1.0% 3,610 Kennametal Inc. ............................................ 124,473 ----------- ELECTRICAL EQUIPMENT -- 0.3% 2,480 Celestica Inc.++............................................ 34,968 ----------- EXPLORATION AND PRODUCTION -- 0.7% 2,230 EOG Resources, Inc. ........................................ 89,022 ----------- FINANCE -- MISCELLANEOUS -- 1.4% 2,025 Affiliated Managers Group, Inc.++........................... 101,858 1,755 H & R Block, Inc. .......................................... 70,551 ----------- 172,409 ----------- HEALTH SERVICES -- 8.3% 4,785 Community Health Systems++.................................. 98,523 4,795 Express Scripts, Inc.++..................................... 230,351 5,195 First Health Group Corporation++............................ 126,498 12,060 Health Management Associates, Inc., Class A................. 215,873 3,595 Health Net Inc.++........................................... 94,908 3,575 HEALTHSOUTH Corporation++................................... 15,015 4,735 Lincare Holdings Inc.++..................................... 149,721 2,375 Quest Diagnostics Inc.++.................................... 135,138 ----------- 1,066,027 ----------- HOUSING AND FURNISHING -- 0.9% 2,100 Masco Corporation........................................... 44,205 1,290 Mohawk Industries Inc.++.................................... 73,466 ----------- 117,671 ----------- INSURANCE -- 3.2% 3,400 Ace Ltd..................................................... 99,756 3,290 Ambac Financial Group, Inc. ................................ 185,030 4,150 Arthur J. Gallagher & Company............................... 121,927 ----------- 406,713 ----------- INTEGRATED OIL -- 0.9% 2,100 Apache Corporation.......................................... 119,679 ----------- INVESTMENT SERVICES -- 2.0% 5,205 Legg Mason, Inc. ........................................... 252,651 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 18 NATIONS FUNDS Nations Separate Account Trust -- MidCap Growth Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- LODGING AND RECREATION -- 1.6% 12,685 Park Place Entertainment Corporation++...................... $ 106,554 4,160 Starwood Hotels & Resorts Worldwide, Inc. .................. 98,758 ----------- 205,312 ----------- MEDICAL DEVICES AND SUPPLIES -- 2.8% 5,850 Biomet, Inc. ............................................... 167,661 3,725 DENTSPLY International Inc. ................................ 138,570 6,290 Inhale Therapeutic Systems, Inc.++.......................... 50,823 ----------- 357,054 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.3% 4,245 Comverse Technology, Inc.++................................. 42,535 11,505 Tekelec++................................................... 120,227 ----------- 162,762 ----------- OIL REFINING AND MARKETING -- 0.8% 2,840 Noble Corporation++......................................... 99,826 ----------- OILFIELD SERVICES -- 5.9% 3,800 BJ Services Company++....................................... 122,778 3,920 ENSCO International Inc. ................................... 115,444 4,795 GlobalSantaFe Corporation................................... 116,614 6,375 Grant Prideco Inc.++........................................ 74,205 3,260 Nabors Industries, Ltd.++................................... 114,980 3,720 National-Oilwell, Inc.++.................................... 81,245 3,540 Smith International, Inc.++................................. 115,475 ----------- 740,741 ----------- PHARMACEUTICALS -- 8.2% 2,810 Barr Laboratories, Inc.++................................... 182,902 4,560 Biovail Corporation++....................................... 120,430 3,345 Gilead Sciences, Inc.++..................................... 113,730 2,815 IDEC Pharmaceuticals Corporation++.......................... 93,374 2,625 MedImmune, Inc.++........................................... 71,321 10,240 Millennium Pharmaceuticals, Inc.++.......................... 81,306 5,190 Myriad Genetics, Inc.++..................................... 75,774 6,950 Shire Pharmaceuticals Group plc, ADR++...................... 131,285 4,325 Taro Pharmaceutical Industries Ltd.++....................... 162,619 ----------- 1,032,741 ----------- PUBLISHING AND ADVERTISING -- 1.2% 4,510 Lamar Advertising Company++................................. 151,762 ----------- RAILROADS, TRUCKING AND SHIPPING -- 1.0% 3,780 Expeditors International of Washington, Inc. ............... 123,417 ----------- RESTAURANTS -- 0.9% 5,745 Darden Restaurants, Inc. ................................... 117,485 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- SEMICONDUCTORS -- 6.5% 4,555 Altera Corporation++........................................ $ 56,163 2,050 Analog Devices, Inc.++...................................... 48,934 5,255 Broadcom Corporation, Class A++............................. 79,140 4,175 Linear Technology Corporation............................... 107,381 3,675 Maxim Integrated Products, Inc. ............................ 121,422 4,325 MKS Instruments Inc.++...................................... 71,060 5,410 Novellus Systems, Inc.++.................................... 151,912 9,110 RF Micro Devices, Inc.++.................................... 66,776 4,690 Teradyne, Inc.++............................................ 61,017 2,605 Xilinx, Inc.++.............................................. 53,663 ----------- 817,468 ----------- SOFTWARE -- 8.2% 4,170 Affiliated Computer Services, Inc., Class A++............... 219,550 10,880 BEA Systems, Inc.++......................................... 124,794 15,000 Citrix Systems, Inc.++...................................... 184,799 1,100 Electronic Arts Inc.++...................................... 54,747 3,905 Intuit Inc.++............................................... 183,222 6,975 Network Associates, Inc.++.................................. 112,228 12,720 Quest Software, Inc.++...................................... 131,143 4,585 Siebel Systems, Inc.++...................................... 34,296 ----------- 1,044,779 ----------- SPECIALTY STORES -- 5.3% 5,135 Bed Bath & Beyond Inc.++.................................... 177,312 12,400 Circuit City Stores - Circuit City Group.................... 92,008 7,410 Limited Brands.............................................. 103,221 3,545 Ross Stores, Inc. .......................................... 150,273 6,375 Tiffany & Company........................................... 152,426 ----------- 675,240 ----------- TOBACCO -- 0.7% 1,990 R.J. Reynolds Tobacco Holdings, Inc. ....................... 83,799 ----------- UTILITIES -- MISCELLANEOUS -- 0.9% 5,243 Republic Services, Inc.++................................... 109,998 ----------- TOTAL COMMON STOCKS (Cost $12,302,148)........................................ 10,836,260 ----------- INVESTMENT COMPANIES -- 14.0% 1,400 iShares Nasdaq Biotechnology Index Fund..................... 69,090 6,725 iShares Russell Midcap Growth Index Fund.................... 347,683 1,260,400 Nations Cash Reserves, Capital Class Shares#................ 1,260,400 1,185 S&P Mid-Cap 400 Depositary Receipts......................... 93,200 ----------- TOTAL INVESTMENT COMPANIES (Cost $1,767,469)......................................... 1,770,373 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 19 NATIONS FUNDS Nations Separate Account Trust -- MidCap Growth Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
VALUE - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS (Cost $14,069,617*)............................. 99.7% $12,606,633 ----------- OTHER ASSETS AND LIABILITIES (NET)............................... 0.3% Cash........................................................ $ 852 Receivable for Fund shares sold............................. 70,540 Dividends receivable........................................ 10,721 Payable for Fund shares redeemed............................ (5,402) Investment advisory fee payable............................. (2,459) Administration fee payable.................................. (2,342) Accrued Trustees' fees and expenses......................... (11,305) Accrued expenses and other liabilities...................... (25,962) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET)......................................... 34,643 ----------- NET ASSETS........................................ 100.0% $12,641,276 =========== NET ASSETS CONSIST OF: Accumulated net realized loss on investments sold........... $(1,233,671) Net unrealized depreciation of investments.................. (1,462,984) Paid-in capital............................................. 15,337,931 ----------- NET ASSETS.................................................. $12,641,276 =========== Net asset value per share ($12,641,276 / 2,268,847 shares of common stock outstanding)................................. $5.57 ===========
- --------------- *Federal income tax information (see Note 8). ++ Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 20 NATIONS FUNDS Nations Separate Account Trust -- Value Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 91.8% AEROSPACE AND DEFENSE -- 4.4% 2,100 Lockheed Martin Corporation................................. $ 121,275 1,400 Northrop Grumman Corporation##.............................. 135,800 8,500 Raytheon Company............................................ 261,375 5,550 United Technologies Corporation............................. 343,767 ----------- 862,217 ----------- AUTOMOTIVE -- 0.8% 17,400 Ford Motor Company##........................................ 161,820 ----------- BEVERAGES -- 2.4% 358 Brown-Forman Corporation, Class B........................... 23,399 5,800 Diageo plc, ADR............................................. 254,040 4,718 PepsiCo, Inc. .............................................. 199,194 ----------- 476,633 ----------- BROADCASTING AND CABLE -- 3.0% 4,000 Clear Channel Communications, Inc.!!........................ 149,160 11,800 Comcast Corporation, Class A!!##............................ 266,562 10,000 Walt Disney Company......................................... 163,100 ----------- 578,822 ----------- CHEMICALS -- BASIC -- 1.7% 4,700 PPG Industries, Inc. ....................................... 235,705 1,800 Praxair, Inc. .............................................. 103,986 ----------- 339,691 ----------- COMMERCIAL BANKING -- 14.5% 7,140 Charter One Financial, Inc. ................................ 205,132 22,200 Citigroup Inc. ............................................. 781,217 6,500 Comerica Inc. .............................................. 281,060 17,175 FleetBoston Financial Corporation........................... 417,353 9,637 US Bancorp.................................................. 204,497 15,900 Wachovia Corporation........................................ 579,396 7,800 Wells Fargo & Company....................................... 365,586 ----------- 2,834,241 ----------- COMMERCIAL SERVICES -- 0.8% 7,200 Waste Management, Inc. ..................................... 165,024 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 1.7% 4,200 International Business Machines Corporation................. 325,500 ----------- CONSUMER CREDIT AND MORTGAGES -- 3.3% 9,000 American Express Company.................................... 318,150 3,950 Freddie Mac................................................. 233,248 3,400 Household International, Inc. .............................. 94,554 ----------- 645,952 ----------- DIVERSIFIED MANUFACTURING -- 1.9% 15,900 Honeywell International Inc. ............................... 381,600 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- ELECTRIC POWER -- NUCLEAR -- 2.5% 6,800 Dominion Resources, Inc. ................................... $ 373,320 5,700 Duke Energy Corporation..................................... 111,378 ----------- 484,698 ----------- ELECTRICAL EQUIPMENT -- 0.7% 89,100 Agere Systems Inc., Class A!!............................... 128,304 ----------- EXPLORATION AND PRODUCTION -- 1.1% 4,600 Anadarko Petroleum Corporation.............................. 220,340 ----------- FOOD PRODUCTS -- 1.3% 7,200 Kellogg Company............................................. 246,744 ----------- HOUSEHOLD PRODUCTS -- 1.0% 7,440 The Estee Lauder Companies Inc., Class A.................... 196,416 ----------- INSURANCE -- 5.6% 8,600 Ace Ltd. ................................................... 252,324 5,700 American International Group, Inc. ......................... 329,746 7,435 Prudential Financial, Inc. ................................. 235,987 18,676 Travelers Property Casualty Corporation, Class A!!.......... 273,603 568 Travelers Property Casualty Corporation, Class B!!.......... 8,321 ----------- 1,099,981 ----------- INTEGRATED OIL -- 6.6% 3,800 ChevronTexaco Corporation................................... 252,624 21,800 Exxon Mobil Corporation..................................... 761,691 9,925 Occidental Petroleum Corporation............................ 282,366 ----------- 1,296,681 ----------- INVESTMENT SERVICES -- 2.5% 7,025 Merrill Lynch & Company, Inc. .............................. 266,599 5,700 Morgan Stanley.............................................. 227,544 ----------- 494,143 ----------- LODGING AND RECREATION -- 2.2% 9,700 Carnival Corporation##...................................... 242,015 8,000 Starwood Hotels & Resorts Worldwide, Inc. .................. 189,920 ----------- 431,935 ----------- MEDICAL DEVICES AND SUPPLIES -- 1.1% 5,400 Abbott Laboratories......................................... 216,000 ----------- METALS AND MINING -- 1.3% 7,850 Phelps Dodge Corporation!!.................................. 248,453 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.7% 8,700 Nokia Corporation........................................... 134,850 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 21 NATIONS FUNDS Nations Separate Account Trust -- Value Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- OIL REFINING AND MARKETING -- 1.3% 5,400 ConocoPhillips.............................................. $ 261,306 ----------- OILFIELD SERVICES -- 2.9% 10,400 ENSCO International Inc. ................................... 306,280 7,600 Nabors Industries, Ltd.!!................................... 268,052 ----------- 574,332 ----------- PAPER AND FOREST PRODUCTS -- 3.3% 8,600 Bowater Inc.##.............................................. 360,770 7,900 International Paper Company................................. 276,263 ----------- 637,033 ----------- PHARMACEUTICALS -- 1.6% 4,300 Bristol-Myers Squibb Company................................ 99,545 5,000 Pharmacia Corporation....................................... 209,000 ----------- 308,545 ----------- RAILROADS, TRUCKING AND SHIPPING -- 2.6% 8,600 CSX Corporation............................................. 243,466 4,600 Union Pacific Corporation................................... 275,402 ----------- 518,868 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 2.9% 5,500 Boston Properties, Inc. .................................... 202,730 11,200 Equity Office Properties Trust.............................. 279,776 3,500 ProLogis Trust.............................................. 88,025 ----------- 570,531 ----------- RESTAURANTS -- 0.9% 11,084 McDonald's Corporation...................................... 178,231 ----------- SEMICONDUCTORS -- 3.5% 14,600 Agilent Technologies, Inc.!!................................ 262,216 5,300 KLA-Tencor Corporation!!##.................................. 187,461 18,775 Teradyne, Inc.!!##.......................................... 244,263 ----------- 693,940 ----------- SOFTWARE -- 1.0% 15,800 Cadence Design Systems, Inc.!!.............................. 186,282 ----------- SPECIALTY STORES -- 2.2% 7,400 Gap, Inc.##................................................. 114,848 15,400 Limited, Inc. .............................................. 214,522 10,549 Toys R Us, Inc.!!........................................... 105,490 ----------- 434,860 ----------- TELECOMMUNICATIONS SERVICES -- 6.6% 12,300 BellSouth Corporation....................................... 318,201 21,100 Motorola, Inc. ............................................. 182,515 17,200 SBC Communications Inc. .................................... 466,291 8,400 Verizon Communications Inc. ................................ 325,500 ----------- 1,292,507 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- TOBACCO -- 1.9% 9,100 Philip Morris Companies Inc. ............................... $ 368,823 ----------- TOTAL COMMON STOCKS (Cost $19,427,861)........................................ 17,995,303 ----------- PRINCIPAL AMOUNT - ---------- CONVERTIBLE BONDS AND NOTES -- 0.4% (Cost $57,000) SPECIALTY STORES -- 0.4% $ 57,000 Gap, Inc., 5.750% 03/15/09+.......................................... 71,108 ----------- SHARES - ---------- INVESTMENT COMPANIES -- 18.0% 15,600 iShares Russell 1000 Value Index Fund##..................... 718,380 2,808,829 Nations Cash Reserves, Capital Class Shares#................ 2,808,829 ----------- TOTAL INVESTMENT COMPANIES (Cost $3,478,154)......................................... 3,527,209 ----------- TOTAL INVESTMENTS (Cost $22,963,015*)............................. 110.2% 21,593,620 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (10.2)% Cash........................................................ $ 843 Receivable for Fund shares sold............................. 299,008 Dividends receivable........................................ 41,739 Interest receivable......................................... 1,186 Unamortized organization costs.............................. 903 Collateral on securities loaned............................. (2,250,829) Payable for Fund shares redeemed............................ (3,525) Investment advisory fee payable............................. (8,976) Administration fee payable.................................. (3,655) Accrued Trustees' fees and expenses......................... (37,585) Accrued expenses and other liabilities...................... (34,848) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET)......................................... (1,995,739) ----------- NET ASSETS........................................ 100.0% $19,597,881 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 22 NATIONS FUNDS Nations Separate Account Trust -- Value Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
VALUE - ---------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 7,020 Accumulated net realized loss on investments sold........... (2,202,604) Net unrealized depreciation of investments.................. (1,369,395) Paid-in capital............................................. 23,162,860 ----------- NET ASSETS.................................................. $19,597,881 =========== Net asset value per share ($19,597,881 / 2,405,071 shares of common stock outstanding)................................. $8.15 ===========
- --------------- *Federal income tax information (see Note 8). !! Non-income producing security. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $2,250,829. +Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $2,440,708 and $2,187,180, respectively. ABBREVIATION: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 23 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 44.9% AEROSPACE AND DEFENSE -- 1.7% 650 General Dynamics Corporation................................ $ 51,591 925 Lockheed Martin Corporation&&............................... 53,419 1,175 United Technologies Corporation&&........................... 72,779 ----------- 177,789 ----------- AUTOMOTIVE -- 0.3% 875 Lear Corporation!!.......................................... 29,120 ----------- BEVERAGES -- 1.7% 525 Anheuser-Busch Companies, Inc. ............................. 25,410 1,725 Coca-Cola Company........................................... 75,590 1,830 PepsiCo, Inc.&&............................................. 77,262 ----------- 178,262 ----------- BROADCASTING AND CABLE -- 2.8% 3,600 AOL Time Warner Inc.!!...................................... 47,160 2,325 Clear Channel Communications, Inc.!!........................ 86,698 3,450 Comcast Corporation, Class A!!.............................. 77,936 1,650 Viacom Inc., Class B!!...................................... 67,254 1,150 Walt Disney Company......................................... 18,757 ----------- 297,805 ----------- CHEMICALS -- BASIC -- 0.7% 1,200 Air Products and Chemicals, Inc. ........................... 51,300 625 E.I. duPont de Nemours and Company.......................... 26,500 ----------- 77,800 ----------- COMMERCIAL BANKING -- 2.6% 700 Bank One Corporation........................................ 25,585 1,351 Charter One Financial, Inc.&&............................... 38,814 3,150 Citigroup Inc.&&............................................ 110,848 1,875 FleetBoston Financial Corporation&&......................... 45,563 1,200 US Bancorp.................................................. 25,464 575 Wells Fargo & Company....................................... 26,950 ----------- 273,224 ----------- COMPUTER SERVICES -- 0.2% 600 Automatic Data Processing, Inc. ............................ 23,550 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 1.5% 1,725 Dell Computer Corporation!!................................. 46,127 1,575 Hewlett-Packard Company&&................................... 27,342 1,175 International Business Machines Corporation&&............... 91,062 ----------- 164,531 ----------- CONSUMER CREDIT AND MORTGAGES -- 1.8% 825 American Express Company.................................... 29,164 1,500 Fannie Mae&&................................................ 96,495 3,212 MBNA Corporation&&.......................................... 61,092 ----------- 186,751 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- DEPARTMENT AND DISCOUNT STORES -- 2.1% 625 Kohl's Corporation!!........................................ $ 34,969 1,700 Target Corporation&&........................................ 51,000 2,700 Wal-Mart Stores, Inc.&&..................................... 136,377 ----------- 222,346 ----------- DIVERSIFIED MANUFACTURING -- 1.5% 4,775 General Electric Company&&.................................. 116,271 1,625 Honeywell International Inc. ............................... 39,000 ----------- 155,271 ----------- ELECTRIC POWER -- NUCLEAR -- 0.5% 950 FPL Group, Inc. ............................................ 57,124 ----------- FINANCE -- MISCELLANEOUS -- 0.5% 500 SLM Corporation............................................. 51,930 ----------- HEALTH SERVICES -- 1.3% 825 Quest Diagnostics Inc.!!.................................... 46,943 550 UnitedHealth Group Inc. .................................... 45,925 650 Wellpoint Health Networks Inc.!!............................ 46,254 ----------- 139,122 ----------- HOUSEHOLD PRODUCTS -- 1.2% 750 Colgate-Palmolive Company................................... 39,323 1,025 Procter & Gamble Company.................................... 88,088 ----------- 127,411 ----------- HOUSING AND FURNISHING -- 0.9% 4,675 Masco Corporation........................................... 98,409 ----------- INSURANCE -- 3.3% 3,350 Ace Ltd.&&.................................................. 98,289 1,025 AFLAC, Inc. ................................................ 30,873 1,744 American International Group, Inc.&&........................ 100,890 1,500 XL Capital Ltd., Class A&&.................................. 115,875 ----------- 345,927 ----------- INTEGRATED OIL -- 2.7% 500 Apache Corporation.......................................... 28,495 700 BP Amoco plc, ADR........................................... 28,455 1,683 ChevronTexaco Corporation&&................................. 111,886 3,525 Exxon Mobil Corporation&&................................... 123,163 ----------- 291,999 ----------- INVESTMENT SERVICES -- 1.3% 350 Goldman Sachs Group, Inc. .................................. 23,835 2,226 Merrill Lynch & Company, Inc. .............................. 84,477 725 Morgan Stanley.............................................. 28,942 ----------- 137,254 ----------- LODGING AND RECREATION -- 0.7% 3,066 Starwood Hotels & Resorts Worldwide, Inc. .................. 72,787 ----------- MEDICAL DEVICES AND SUPPLIES -- 2.8% 1,175 Abbott Laboratories&&....................................... 47,000 1,775 Baxter International Inc. .................................. 49,700
SEE NOTES TO FINANCIAL STATEMENTS. 24 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
SHARES VALUE - ---------------------------------------------------------------------------------------- MEDICAL DEVICES AND SUPPLIES -- (CONTINUED) 2,225 Johnson & Johnson&&......................................... $ 119,505 1,850 Medtronic, Inc. ............................................ 84,360 ----------- 300,565 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 0.9% 3,700 Cisco Systems, Inc.!!....................................... 48,470 1,275 QUALCOMM Inc.!!............................................. 46,397 ----------- 94,867 ----------- OILFIELD SERVICES -- 0.4% 1,125 Nabors Industries, Ltd.!!................................... 39,679 ----------- PHARMACEUTICALS -- 3.4% 1,450 Amgen Inc.!!................................................ 70,093 675 Eli Lilly and Company....................................... 42,863 700 Merck & Company, Inc. ...................................... 39,627 2,675 Pfizer Inc. ................................................ 81,774 2,450 Pharmacia Corporation....................................... 102,409 725 Wyeth....................................................... 27,115 ----------- 363,881 ----------- PUBLISHING AND ADVERTISING -- 0.2% 325 McGraw-Hill Companies, Inc. ................................ 19,643 ----------- RAILROADS, TRUCKING AND SHIPPING -- 0.3% 425 United Parcel Service, Inc., Class B........................ 26,809 ----------- SEMICONDUCTORS -- 1.8% 7,100 Intel Corporation........................................... 110,547 950 Linear Technology Corporation............................... 24,434 950 Maxim Integrated Products, Inc. ............................ 31,388 1,675 Texas Instruments Inc. ..................................... 25,142 ----------- 191,511 ----------- SOFTWARE -- 2.8% 875 Electronic Arts Inc.!!...................................... 43,549 4,475 Microsoft Corporation!!..................................... 231,357 2,475 Oracle Corporation!!........................................ 26,730 ----------- 301,636 ----------- SPECIALTY STORES -- 0.9% 2,144 Home Depot, Inc. ........................................... 51,370 3,275 Limited, Inc. .............................................. 45,621 ----------- 96,991 ----------- TELECOMMUNICATIONS SERVICES -- 1.0% 2,600 SBC Communications Inc. .................................... 70,486 1,025 Verizon Communications Inc. ................................ 39,719 ----------- 110,205 -----------
SHARES VALUE - ---------------------------------------------------------------------------------------- TOBACCO -- 1.1% 2,825 Philip Morris Companies Inc. ............................... $ 114,497 ----------- TOTAL COMMON STOCKS (Cost $5,304,139)......................................... 4,768,696 ----------- PRINCIPAL AMOUNT - ---------- ASSET-BACKED SECURITIES -- 0.5% ASSET-BACKED -- AUTO LOANS -- 0.3% $ 30,000 AmeriCredit Automobile Receivables Trust, Series 2001-B, Class A4, 5.370% 06/12/08........................................... 31,710 ----------- ASSET-BACKED -- HOME EQUITY LOANS -- 0.2% 25,996 Fannie Mae Whole Loan, Series 2001-W1, Class AF3, 5.690% 06/25/29........................................... 26,373 ----------- TOTAL ASSET-BACKED SECURITIES (Cost $55,995)............................................ 58,083 ----------- CORPORATE BONDS AND NOTES -- 10.6% AEROSPACE AND DEFENSE -- 0.1% 6,000 Boeing Capital Corporation, 5.650% 05/15/06........................................... 6,287 5,000 Northrop Grumman Corporation, 7.125% 02/15/11........................................... 5,683 ----------- 11,970 ----------- AIRLINES -- 0.3% 13,000 American Airlines, Series 2001-2, Class A-2, 7.858% 10/01/11........................................... 12,611 23,000 U.S. Airways, Inc., Series 2002-G, 8.020% 02/05/19........................................... 24,058 ----------- 36,669 ----------- AUTOMOTIVE -- 1.3% 8,000 Delphi Automotive Systems Corporation, 6.125% 05/01/04........................................... 8,252 32,000 Ford Motor Company, 7.450% 07/16/31........................................... 27,836 24,000 Ford Motor Credit Company, 7.375% 10/28/09........................................... 23,781 2,000 General Motors Acceptance Corporation, 6.125% 09/15/06........................................... 2,032 8,000 General Motors Acceptance Corporation, 6.150% 04/05/07........................................... 8,139 20,000 General Motors Acceptance Corporation, 6.875% 09/15/11........................................... 19,945
SEE NOTES TO FINANCIAL STATEMENTS. 25 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- AUTOMOTIVE -- (CONTINUED) $ 15,000 General Motors Acceptance Corporation, 8.000% 11/01/31........................................... $ 15,082 30,000 Toyota Motor Credit Corporation, 5.625% 11/13/03........................................... 30,996 ----------- 136,063 ----------- BEVERAGES -- 0.0%+ 5,000 Anheuser-Busch Companies, Inc., 5.950% 01/15/33........................................... 5,238 ----------- BROADCASTING AND CABLE -- 0.5% 9,000 AOL Time Warner Inc., 6.150% 05/01/07........................................... 9,348 4,000 AOL Time Warner Inc., 7.625% 04/15/31........................................... 4,111 4,000 Clear Channel Communications, Inc., 6.000% 11/01/06........................................... 4,254 6,000 Comcast Cable Communications, Inc., 7.125% 06/15/13........................................... 6,386 1,000 Lenfest Communications, Inc., 8.375% 11/01/05........................................... 1,082 6,000 Tele-Communications, Inc., Class A, 9.875% 06/15/22........................................... 6,815 7,000 Time Warner Inc., 8.110% 08/15/06........................................... 7,535 7,000 Viacom Inc., Class B, 6.625% 05/15/11........................................... 7,912 6,000 Viacom Inc., Class B, 7.875% 07/30/30........................................... 7,469 ----------- 54,912 ----------- CHEMICALS -- BASIC -- 0.1% 4,000 The Dow Chemical Company, 6.125% 02/01/11........................................... 4,122 3,000 The Dow Chemical Company, 7.375% 11/01/29........................................... 3,246 ----------- 7,368 ----------- CHEMICALS -- DIVERSIFIED -- 0.0%+ 4,000 E.I. du Pont de Nemours and Company, 3.375% 11/15/07........................................... 4,044 ----------- CHEMICALS -- SPECIALTY -- 0.1% 3,000 Praxair, Inc., 4.750% 07/15/07........................................... 3,156 3,000 Praxair, Inc., 6.500% 03/01/08........................................... 3,381 ----------- 6,537 ----------- COMMERCIAL BANKING -- 1.9% 23,000 Bank One Corporation, 6.000% 08/01/08........................................... 25,378 22,000 Citigroup Inc., 7.250% 10/01/10........................................... 25,539 9,000 Citigroup Inc., 6.000% 02/21/12........................................... 9,877
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- COMMERCIAL BANKING -- (CONTINUED) $ 9,000 FleetBoston Financial Corporation, 7.250% 09/15/05........................................... $ 9,966 7,000 Golden West Financial Corporation, 4.750% 10/01/12........................................... 7,039 11,000 J.P. Morgan Chase & Company, 5.250% 05/30/07........................................... 11,629 5,000 Key Bank N.A., 7.000% 02/01/11........................................... 5,727 4,000 Mellon Funding Corporation, 4.875% 06/15/07........................................... 4,225 3,000 Mellon Funding Corporation, 6.700% 03/01/08........................................... 3,409 11,000 PNC Funding Corporation, 7.000% 09/01/04........................................... 11,700 12,000 PNC Funding Corporation, 5.750% 08/01/06........................................... 12,845 11,000 Popular North America Inc., Series E, 6.125% 10/15/06........................................... 11,902 4,000 Regions Financial Corporation, 7.750% 09/15/24........................................... 4,740 14,000 US Bank N.A., Minnesota, 6.375% 08/01/11........................................... 15,702 20,000 Wachovia Corporation, 4.950% 11/01/06........................................... 21,341 10,000 Washington Mutual, Inc., 7.500% 08/15/06........................................... 11,245 12,000 Wells Fargo Financial, Inc., 4.875% 06/12/07........................................... 12,769 ----------- 205,033 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 0.1% 3,000 International Business Machines Corporation, 6.500% 01/15/28........................................... 3,213 2,000 International Business Machines Corporation, 5.875% 11/29/32........................................... 1,979 6,000 Pitney Bowes Inc., 4.625% 10/01/12........................................... 5,974 ----------- 11,166 ----------- CONGLOMERATES -- 0.1% 8,000 Waste Management, Inc., 7.375% 08/01/10........................................... 8,753 ----------- CONSUMER CREDIT AND MORTGAGES -- 0.3% 3,000 American Express Company, 3.750% 11/20/07........................................... 3,037 23,000 Countrywide Home Loans, Inc., Series J, 5.500% 08/01/06........................................... 24,456 ----------- 27,493 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 26 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- DEPARTMENT AND DISCOUNT STORES -- 0.2% $ 1,000 Kohl's Corporation, 6.000% 01/15/33........................................... $ 1,005 4,000 Sears Roebuck Acceptance Corporation, 6.750% 08/15/11........................................... 3,814 5,000 Target Corporation, 5.875% 03/01/12........................................... 5,421 13,000 Wal-Mart Stores, Inc., 5.450% 08/01/06........................................... 14,207 ----------- 24,447 ----------- ELECTRIC POWER -- NON NUCLEAR -- 0.1% 8,000 Cinergy Corporation, 6.250% 09/01/04........................................... 8,273 6,000 DPL Inc., 6.875% 09/01/11*.......................................... 5,028 ----------- 13,301 ----------- ELECTRIC POWER -- NUCLEAR -- 0.4% 11,000 Constellation Energy Group, Inc., 7.600% 04/01/32........................................... 11,243 2,000 Duquesne Light Company, Series O, 6.700% 04/15/12........................................... 2,278 1,000 Energy East Corporation, 6.750% 06/15/12........................................... 1,093 9,000 Exelon Generation Company LLC, 6.950% 06/15/11........................................... 9,729 6,000 FirstEnergy Corporation, Series B, 6.450% 11/15/11........................................... 5,969 6,000 Southern Company Capital Funding, Series A, 5.300% 02/01/07........................................... 6,354 4,000 Southern Power Company, Series B, 6.250% 07/15/12........................................... 4,226 6,000 Virginia Electric and Power Company, Series A, 5.375% 02/01/07........................................... 6,357 ----------- 47,249 ----------- EXPLORATION AND PRODUCTION -- 0.2% 4,000 Anadarko Finance Company, Series B, 6.750% 05/01/11........................................... 4,507 10,000 Anadarko Finance Company, Series B, 7.500% 05/01/31........................................... 11,891 ----------- 16,398 ----------- PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- FINANCE -- MISCELLANEOUS -- 0.4% $ 9,000 General Electric Capital Corporation, Series A, 4.250% 01/15/08##......................................... $ 9,230 3,000 General Electric Capital Corporation, Series A, 4.625% 09/15/09........................................... 3,073 19,000 General Electric Capital Corporation, Series A, 6.750% 03/15/32........................................... 21,006 7,000 Household Finance Corporation, 5.875% 02/01/09........................................... 7,185 2,000 Household Finance Corporation, 6.375% 11/27/12........................................... 2,084 1,000 Household Finance Corporation, 7.350% 11/27/32........................................... 1,078 ----------- 43,656 ----------- FOOD AND DRUG STORES -- 0.1% 10,000 Fred Meyer, Inc., 7.450% 03/01/08........................................... 11,366 ----------- FOOD PRODUCTS -- 0.6% 11,000 Kellogg Company, Series B, 6.000% 04/01/06........................................... 11,923 4,000 Kraft Foods Inc., 5.250% 06/01/07........................................... 4,320 18,000 Sara Lee Corporation, 6.250% 09/15/11........................................... 20,188 4,000 Tyson Foods Inc., Class A, 7.250% 10/01/06........................................... 4,445 7,000 Unilever Capital Corporation, 6.875% 11/01/05........................................... 7,849 16,000 Unilever Capital Corporation, 7.125% 11/01/10........................................... 18,885 ----------- 67,610 ----------- HEALTH SERVICES -- 0.2% 4,000 Cardinal Health, Inc., 6.750% 02/15/11........................................... 4,568 8,000 Wellpoint Health Networks Inc., 6.375% 06/15/06........................................... 8,726 6,000 Wellpoint Health Networks Inc., 6.375% 01/15/12........................................... 6,512 ----------- 19,806 ----------- HEAVY MACHINERY -- 0.1% 6,000 Caterpillar Finance Services Corporation, 5.950% 05/01/06........................................... 6,488 ----------- HOUSEHOLD PRODUCTS -- 0.0%+ 4,000 Proctor & Gamble Company, 4.750% 06/15/07........................................... 4,289 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 27 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- INSURANCE -- 0.2% $ 4,000 Metlife, Inc., 6.500% 12/15/32........................................... $ 4,152 3,000 Progressive Corporation, 6.250% 12/01/32........................................... 3,078 13,000 Prudential Funding LLC, 6.600% 05/15/08+.......................................... 14,387 ----------- 21,617 ----------- INTEGRATED OIL -- 0.4% 2,000 Amerada Hess Corporation, 6.650% 08/15/11........................................... 2,185 5,000 Amerada Hess Corporation, 7.875% 10/01/29........................................... 5,781 10,000 Conoco Funding Company, 6.350% 10/15/11........................................... 11,167 7,000 PEMEX Master Trust, 7.375% 12/15/14........................................... 7,175 12,000 PEMEX Master Trust, 8.625% 02/01/22+.......................................... 12,659 ----------- 38,967 ----------- INVESTMENT SERVICES -- 0.8% 3,000 Bear Stearns Companies, Inc., 5.700% 01/15/07........................................... 3,239 9,000 Bear Stearns Companies, Inc., 7.800% 08/15/07........................................... 10,533 8,000 Credit Suisse First Boston USA, Inc., 5.875% 08/01/06........................................... 8,568 9,000 Credit Suisse First Boston USA, Inc., 6.125% 11/15/11........................................... 9,391 8,000 Goldman Sachs Group, Inc., 6.875% 01/15/11........................................... 8,930 5,000 Lehman Brothers Holdings Inc., 7.000% 02/01/08........................................... 5,653 6,000 Merrill Lynch & Company, Inc., 6.000% 02/17/09........................................... 6,519 12,000 Morgan Stanley, 6.100% 04/15/06........................................... 13,072 15,000 Morgan Stanley, 6.750% 04/15/11........................................... 16,670 ----------- 82,575 ----------- METALS AND MINING -- 0.1% 7,000 Alcoa Inc., 7.375% 08/01/10........................................... 8,274 ----------- NATURAL GAS PIPELINES -- 0.1% 12,000 Kinder Morgan, Inc., 6.650% 03/01/05........................................... 12,751 ----------- OIL REFINING AND MARKETING -- 0.1% 11,000 USX Corporation, 6.650% 02/01/06........................................... 12,027 -----------
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- PHARMACEUTICALS -- 0.2% $ 12,000 Eli Lilly and Company, 6.000% 03/15/12........................................... $ 13,409 4,000 Pharmacia Corporation, 6.600% 12/01/28........................................... 4,519 ----------- 17,928 ----------- PUBLISHING AND ADVERTISING -- 0.2% 5,000 Gannett Company, Inc., 6.375% 04/01/12........................................... 5,681 5,000 KNIGHT-RIDDER Inc., 7.125% 06/01/11........................................... 5,785 7,000 News America Holdings, 8.150% 10/17/36........................................... 7,170 ----------- 18,636 ----------- RAILROADS, TRUCKING AND SHIPPING -- 0.2% 9,000 Burlington Northern Santa Fe Corporation, 6.750% 07/15/11........................................... 10,216 15,000 FedEx Corporation, 6.625% 02/12/04........................................... 15,648 ----------- 25,864 ----------- REAL ESTATE -- 0.1% 5,000 EOP Operating LP, 7.000% 07/15/11........................................... 5,448 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1% 4,000 Health Care Property Investors, Inc., 7.480% 04/05/04........................................... 4,221 4,000 Health Care Property Investors, Inc., 6.450% 06/25/12........................................... 4,030 ----------- 8,251 ----------- TELECOMMUNICATIONS SERVICES -- 0.8% 10,000 BellSouth Telecommunications Inc., 6.375% 06/01/28........................................... 10,569 6,000 Cingular Wireless LLC, 7.125% 12/15/31........................................... 6,372 10,000 Cox Communications, Inc., Class A, 7.750% 11/01/10........................................... 11,390 1,000 GTE North, Inc., Series H, 5.650% 11/15/08........................................... 1,072 13,000 SBC Communications Inc., 6.250% 03/15/11........................................... 14,332 2,000 Sprint Capital Corporation, 6.125% 11/15/08........................................... 1,820 3,000 Sprint Capital Corporation, 8.375% 03/15/12........................................... 2,985 8,000 Sprint Capital Corporation, 6.900% 05/01/19........................................... 6,560
SEE NOTES TO FINANCIAL STATEMENTS. 28 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) $ 20,000 Verizon New England Inc., 6.500% 09/15/11........................................... $ 22,082 4,000 Verizon Pennsylvania Inc., Series A, 5.650% 11/15/11........................................... 4,194 ----------- 81,376 ----------- TOBACCO -- 0.2% 19,000 R.J. Reynolds Tobacco Holdings, Inc., 7.375% 05/15/03........................................... 19,232 ----------- TOTAL CORPORATE BONDS AND NOTES (Cost $1,059,686)......................................... 1,122,802 ----------- FOREIGN BONDS AND NOTES -- 0.9% 16,000 AT&T Canada Inc., (0.000)% due 06/15/08 9.950% beginning 06/15/03(b).............................. 2,320 7,000 Canadian National Railway Company, 6.900% 07/15/28........................................... 7,980 10,000 Government of Canada, 5.250% 11/05/08........................................... 11,052 5,000 Hanson Overseas B.V., 6.750% 09/15/05........................................... 5,427 9,000 Hellenic Republic, 6.950% 03/04/08........................................... 10,392 11,000 Quebec (Province of), 7.500% 09/15/29........................................... 13,719 7,000 Region of Lombardy, 5.804% 10/25/32........................................... 7,280 11,000 Republic of Italy, 6.000% 02/22/11........................................... 12,250 9,000 Republic of Italy, 6.875% 09/27/23........................................... 10,733 9,000 Republic of Korea, 8.875% 04/15/08........................................... 11,172 7,000 United Mexican States, 8.375% 01/14/11........................................... 7,910 ----------- TOTAL FOREIGN BONDS AND NOTES (Cost $105,571)........................................... 100,235 ----------- MORTGAGE-BACKED SECURITIES -- 15.5% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.5% 15,281 Fannie Mae Strip, Series 319, Class 2, 6.500% 02/01/32........................................... 2,184 49,437 PNC Mortgage Acceptance Corporation, Series 2001-C1, Class A1, 5.910% 03/12/34........................................... 53,524 ----------- 55,708 -----------
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES -- 14.7% $ 250,000 6.000% 03/01/17(a)........................................ $ 261,250 118,000 6.000% 11/01/17(a)........................................ 123,396 255,000 5.500% 01/01/32(a)........................................ 260,020 685,000 5.500% 05/01/32(a)........................................ 695,488 215,000 7.000% 05/01/32(a)........................................ 226,086 ----------- 1,566,240 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES -- 0.3% 28,000 7.000% 06/15/32........................................... 29,684 ----------- TOTAL MORTGAGE-BACKED SECURITIES (Cost $1,634,541)......................................... 1,651,632 ----------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 5.1% FEDERAL HOME LOAN BANK (FHLB) -- 0.5% 50,000 4.500% 11/15/12........................................... 50,811 ----------- FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -- 1.2% 60,000 7.000% 07/15/05........................................... 67,308 50,000 5.750% 01/15/12........................................... 55,635 ----------- 122,943 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 3.4% 175,000 2.875% 10/15/05##......................................... 178,324 75,000 5.375% 11/15/11........................................... 81,316 50,000 6.125% 03/15/12........................................... 56,999 40,000 6.625% 11/15/30........................................... 46,926 ----------- 363,565 ----------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $520,484)........................................... 537,319 ----------- U.S. TREASURY OBLIGATIONS -- 20.2% U.S. TREASURY NOTES -- 7.2% 750,000 3.000% 01/31/04........................................... 763,946 ----------- U.S. TREASURY STRIPS -- 13.0% 635,000 Interest only, 3.024%** 05/15/07......................................... 564,252 460,000 Principal only, 1.754%** 11/15/04......................................... 446,644 200,000 Principal only, 2.199%** 08/15/05......................................... 190,176 50,000 Principal only, 5.520%** 05/15/21......................................... 19,022 143,000 Principal only, 5.514%** 11/15/21......................................... 53,186 86,000 Principal only, 5.504%** 11/15/27##....................................... 23,300
SEE NOTES TO FINANCIAL STATEMENTS. 29 NATIONS FUNDS Nations Separate Account Trust -- Asset Allocation Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------- U.S. TREASURY STRIPS -- (CONTINUED) $ 100,000 TIGR Receipts, 4.446%** 05/15/12##....................................... $ 67,674 40,000 TIGR Receipts, 5.212% 05/15/17........................................... 19,670 ----------- 1,383,924 ----------- TOTAL U.S. TREASURY OBLIGATIONS (Cost $2,121,042)......................................... 2,147,870 ----------- SHARES - ---------- INVESTMENT COMPANIES -- 19.7% 2,050,470 Nations Cash Reserves, Capital Class Shares#................ 2,050,470 550 Standard & Poor's Depositary Receipts....................... 48,527 ----------- TOTAL INVESTMENT COMPANIES (Cost $2,102,073)......................................... 2,098,997 ----------- TOTAL INVESTMENTS (Cost $12,903,531*)............................. 117.4% 12,485,634 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (17.4)% Cash........................................................ $ 332 Receivable for investment securities sold................... 1,175,736 Receivable for Fund shares sold............................. 32,667 Dividends receivable........................................ 12,429 Interest receivable......................................... 43,155 Unamortized organization costs.............................. 903 Collateral on securities loaned............................. (224,470) Payable for Fund shares redeemed............................ (34,363) Investment advisory fee payable............................. (3,371) Administration fee payable.................................. (2,039) Payable for investment securities purchased................. (2,764,958) Accrued Trustees' fees and expenses......................... (39,039) Accrued expenses and other liabilities...................... (46,776) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (1,849,794) ----------- NET ASSETS........................................ 100.0% $10,635,840 ===========
VALUE - ---------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Undistributed net investment income......................... $ 2,970 Accumulated net realized loss on investments sold........... (1,528,822) Net unrealized depreciation of investments.................. (417,897) Paid-in capital............................................. 12,579,589 ----------- NET ASSETS.................................................. $10,635,840 =========== Net asset value per share ($10,635,840 / 1,321,875 shares of common stock outstanding)................................. $8.05 ===========
- --------------- *Federal Income Tax Information (see Note 8). ** Rate represents annualized yield to maturity at December 31, 2002. +Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. !! Non-income producing security. && All or a portion of security segregated as collateral for TBA securities. +Amount represents less than 0.1%. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $224,470. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $215,908 and $219,881, respectively. (a) TBA -- Securities purchased on a forward commitment basis. (b) Issue in default. ABBREVIATIONS: ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. 30 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS DECEMBER 31, 2002
SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCKS -- 2.3% BROADCASTING AND CABLE -- 0.0%+ 1,205 Charter Communications, Inc., Class A++##................... $ 1,422 ----------- ELECTRIC POWER -- NON NUCLEAR -- 0.0%+ 120,000 AES Corporation(a)(f)....................................... 2,160 ----------- FOOD PRODUCTS -- 0.1% 2,235 Chiquita Brands International, Inc.++....................... 29,636 ----------- HEALTH SERVICES -- 0.4% 5,935 Apria Healthcare Group Inc.++............................... 131,994 ----------- METALS AND MINING -- 0.3% 777 Joy Global Inc.++........................................... 8,749 9,215 Placer Dome Inc.##.......................................... 105,973 ----------- 114,722 ----------- PACKAGING AND CONTAINERS -- 0.2% 4,000 Owens-Illinois, Inc.++...................................... 58,320 ----------- PAPER AND FOREST PRODUCTS -- 0.2% 8,000 Abitibi-Consolidated Inc. .................................. 61,680 ----------- STEEL -- 0.1% 11,288 Algoma Steel Inc.++(g)...................................... 23,936 ----------- TELECOMMUNICATIONS SERVICES -- 1.0% 2,350 BellSouth Corporation....................................... 60,795 2,758 Call-Net Enterprises, Inc., Class B++....................... 1,710 5,619 Globix Corporation++(f)..................................... 5,619 28,615 Minorplanet Systems USA, Inc.++............................. 24,609 15,061 NII Holdings, Inc., Class B++(f)............................ 176,966 2,300 SBC Communications Inc. .................................... 62,353 1,800 Verizon Communications Inc. ................................ 69,750 ----------- 401,802 ----------- TOTAL COMMON STOCKS (Cost $833,437)........................................... 825,672 ----------- PRINCIPAL AMOUNT - --------- CONVERTIBLE BONDS AND NOTES -- 6.0% BROADCASTING AND CABLE -- 0.4% $ 170,000 Adelphia Communications Corporation, Class A, 6.000% 02/15/06(b)........................................ 14,025 315,000 Cox Communications, Inc., Class A, 0.426% 04/19/20.......... 143,325 ----------- 157,350 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 0.3% 110,000 Quantum Corporation, 7.000% 08/01/04........................................... 97,350 -----------
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- CONSTRUCTION -- 0.2% $ 100,000 Shaw Group Inc., 2.971%*** 05/01/21........................................ $ 57,250 ----------- FINANCE -- MISCELLANEOUS -- 0.3% 120,000 Providian Financial Corporation, 3.250% 08/15/05............ 89,250 ----------- HEALTH SERVICES -- 0.4% 60,000 CuraGen Corporation, 6.000% 02/02/07........................................... 38,175 55,000 Incyte Genomics, Inc., 5.500% 02/01/07........................................... 38,019 90,000 QuadraMed Corporation, 5.250% 05/01/05........................................... 54,562 ----------- 130,756 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.4% 190,000 Brocade Communications Systems, Inc., 2.000% 01/01/07........................................... 133,238 145,000 CIENA Corporation, 3.750% 02/01/08........................................... 100,775 70,000 Comverse Technology, Inc., 1.500% 12/01/05........................................... 58,888 180,000 Juniper Networks, Inc., 4.750% 03/15/07........................................... 139,499 80,000 Riverstone Networks, Inc., 3.750% 12/01/06+.......................................... 53,900 ----------- 486,300 ----------- OILFIELD SERVICES -- 0.2% 90,000 Parker Drilling Company, 5.500% 08/01/04........................................... 83,588 ----------- PHARMACEUTICALS -- 0.8% 200,000 ICN Pharmaceuticals, Inc., 6.500% 07/15/08........................................... 161,500 160,000 Vertex Pharmaceuticals, Inc., 5.000% 09/19/07........................................... 119,800 ----------- 281,300 ----------- PUBLISHING AND ADVERTISING -- 0.2% 75,000 Interpublic Group of Companies, Inc., 1.800% 09/16/04........................................... 65,344 ----------- SEMICONDUCTORS -- 1.5% 165,000 Advanced Micro Devices, Inc., 4.750% 02/01/22##............. 102,713 400,000 LSI Logic Corporation, 4.000% 02/15/05##......................................... 355,999 95,000 PMC-Sierra, Inc., 3.750% 08/15/06##......................................... 71,250 50,000 Vitesse Semiconductor Corporation, 4.000% 03/15/05##......................................... 41,750 ----------- 571,712 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 31 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- 0.3% $ 296,350 At Home Corporation, 4.750% 12/15/06(b)(c)..................................... $ 40,007 90,000 PTEK Holdings, Inc., 5.750% 07/01/04........................................... 78,300 ----------- 118,307 ----------- TOTAL CONVERTIBLE BONDS AND NOTES (Cost $2,283,117)......... 2,138,507 ----------- SHARES - --------- CONVERTIBLE PREFERRED STOCKS -- 0.4% AEROSPACE AND DEFENSE -- 0.2% 1,750 Titan Capital Trust......................................... 76,563 ----------- NATURAL GAS DISTRIBUTION -- 0.2% 4,280 El Paso Energy Capital Trust I.............................. 77,896 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $221,938).......... 154,459 ----------- PRINCIPAL AMOUNT - --------- CORPORATE BONDS AND NOTES -- 73.3% AEROSPACE AND DEFENSE -- 1.4% $ 195,000 K & F Industries Inc., 9.625% 12/15/10+.......................................... 198,413 185,000 Sequa Corporation, 9.000% 08/01/09........................................... 177,600 110,000 Sequa Corporation, Series B, 8.875% 04/01/08........................................... 105,050 ----------- 481,063 ----------- AIRLINES -- 2.8% 90,709 American Airlines, Inc., 7.377% 05/23/19........................................... 62,830 50,000 Delta Air Lines, Inc., 10.375% 12/15/22.......................................... 32,500 440,000 Delta Air Lines, Inc., 8.300% 12/15/29........................................... 259,600 125,000 Delta Air Lines, Inc., Series C, 6.650% 03/15/04##......................................... 105,000 235,000 Northwest Airlines Inc., 8.375% 03/15/04........................................... 197,400 250,000 Northwest Airlines Inc., 8.520% 04/07/04##......................................... 211,250 120,000 Northwest Airlines Inc., 9.875% 03/15/07........................................... 76,800 79,942 Northwest Airlines Inc., Series 2001, Class C, 7.626% 04/01/10........................................... 50,752 ----------- 996,132 ----------- AUTOMOTIVE -- 0.4% 345,000 Hayes Lemmerz International, Inc., Series B 9.125% 07/15/07(b)(c)..................................... 7,763 180,000 Mark IV Industries, Inc., 7.500% 09/01/07........................................... 144,000 ----------- 151,763 -----------
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- BROADCASTING AND CABLE -- 6.1% $ 15,000 Adelphia Communications Corporation, Class A, 9.250% 10/01/49(b)........................................ $ 5,550 90,000 Adelphia Communications Corporation, Class A, 10.250% 11/01/06##(b)..................................... 33,750 135,000 Adelphia Communications Corporation, Class A, 10.250% 06/15/11(b)....................................... 51,975 220,000 Belo Corporation, Class A, 8.000% 11/01/08........................................... 251,878 120,000 Charter Communications Holdings LLC, 8.625% 04/01/09##......................................... 53,400 25,000 Charter Communications Holdings LLC, 9.625% 11/15/09........................................... 11,125 35,000 Charter Communications Holdings LLC, 10.250% 01/15/10.......................................... 15,575 65,000 Charter Communications Holdings LLC, 10.000% 05/15/11.......................................... 28,925 115,000 Charter Communications Holdings LLC, (0.000)% due 05/15/11 11.750% beginning 05/15/06................................ 28,750 25,000 Comcast Cable Communications, Inc., 8.125% 05/01/04........................................... 26,332 25,000 Comcast Cable Communications, Inc., 6.200% 11/15/08........................................... 25,884 170,000 Comcast Corporation, 8.875% 04/01/07........................................... 181,583 65,000 Continental Cablevision, Inc., 8.625% 08/15/03........................................... 66,608 15,000 Continental Cablevision, Inc., 8.875% 09/15/05........................................... 16,326 55,000 Continental Cablevision, Inc., 9.000% 09/01/08........................................... 62,708 70,000 Frontiervision Operating Partners LP, 11.000% 10/15/06##(b)............................................. 54,950 215,000 Frontiervision Operating Partners LP, 11.875% 09/15/07##(b)............................................. 120,400 45,000 Frontiervision Operating Partners LP, Series B, 11.875% 09/15/07(b)....................................... 25,200 105,000 Liberty Media Corporation, Class A, 8.250% 02/01/30##......................................... 110,431 50,000 LIN Television Corporation, 8.000% 01/15/08........................................... 52,938 120,000 NTL Communications Corporation, Series B, 11.875% 10/01/10##(b)..................................... 11,400 30,000 NTL Inc., Series B, 11.500% 02/01/06(b)....................................... 2,850 390,000 Paxon Communications Corporation, (0.000)% due 01/15/09 12.250% beginning 01/15/06(d)............................. 247,650 160,000 Radio Unica Corporation, 11.750% 08/01/06.......................................... 82,600
SEE NOTES TO FINANCIAL STATEMENTS. 32 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- BROADCASTING AND CABLE -- (CONTINUED) $ 105,000 Renaissance Media Group LLC, (0.000)% due 04/15/08 10.000% beginning 4/15/03................................. $ 82,950 30,000 Time Warner Entertainment Company LP, 7.250% 09/01/08........................................... 32,542 255,000 Time Warner Entertainment Company LP, 8.375% 03/15/23........................................... 286,948 10,000 Time Warner Entertainment Company LP, 8.375% 07/15/33........................................... 11,323 120,000 Time Warner Inc., 6.625% 05/15/29........................................... 110,331 210,000 UIH Australia/Pacific Inc., Series B, 14.000% 05/15/06(b)....................................... 10,500 ----------- 2,103,382 ----------- CHEMICALS -- BASIC -- 0.7% 240,000 Terra Capital Inc., 12.875% 10/15/08.......................................... 258,000 ----------- CHEMICALS -- SPECIALTY -- 2.1% 240,000 Equistar Chemicals, LP, 7.550% 02/15/26........................................... 184,800 150,000 FMC Corporation, 10.250% 11/01/09+##....................................... 162,000 65,000 General Chemical Industrial Products, 10.625% 05/01/09##........................................ 40,950 115,000 Huntsman International LLC, 9.875% 03/01/09........................................... 115,000 120,000 Millennium America Inc., 7.625% 11/15/26........................................... 99,750 175,000 Sovereign Specialty Chemicals, Inc., 11.875% 03/15/10.......................................... 157,500 ----------- 760,000 ----------- COMMERCIAL SERVICES -- 0.9% 235,000 Protection One, Inc., 7.375% 08/15/05........................................... 192,700 120,000 Synagro Technologies, Inc., 9.500% 04/01/09........................................... 125,100 ----------- 317,800 ----------- COMPUTERS AND OFFICE EQUIPMENT -- 1.9% 220,000 Unisys Corporation, 7.250% 01/15/05........................................... 222,200 60,000 Unisys Corporation, 8.125% 06/01/06........................................... 62,550 310,000 Xerox Corporation, 5.500% 11/15/03##......................................... 302,250 20,000 Xerox Corporation, MTN, 5.250% 12/15/03........................................... 19,350 80,000 Xerox Corporation, 9.750% 01/15/09+##........................................ 76,800 ----------- 683,150 ----------- CONSTRUCTION -- 0.6% 230,000 URS Corporation, 11.500% 09/15/09+......................................... 204,700 -----------
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- CONSUMER SERVICES -- 1.5% $ 190,000 Alderwoods Group, Inc., 11.000% 01/02/07.......................................... $ 190,000 80,000 Alderwoods Group, Inc., 12.250% 01/02/09##........................................ 72,800 40,000 Jafra Cosmetics International, Inc., 11.750% 05/01/08.......................................... 41,400 50,000 Service Corporation International, 7.200% 06/01/06........................................... 47,500 115,000 Service Corporation International, 6.875% 10/01/07........................................... 105,225 70,000 Service Corporation International, 7.700% 04/15/09........................................... 65,800 ----------- 522,725 ----------- DIVERSIFIED ELECTRONICS -- 0.5% 130,000 Knowles Electronics Inc., 13.125% 10/15/09##........................................ 75,400 100,000 Thomas & Betts Corporation, MTN, 6.290% 02/13/03........................................... 100,009 ----------- 175,409 ----------- DIVERSIFIED MANUFACTURING -- 1.4% 105,000 Dresser, Inc., 9.375% 04/15/11........................................... 105,525 245,000 Foamex L.P., 10.750% 04/01/09+......................................... 171,500 165,000 National Waterworks Inc., 10.500% 12/01/12+......................................... 172,219 25,000 Neenah Foundry Company, Series B, 11.125% 05/01/07.......... 7,875 115,000 Neenah Foundry Company, Series D, 11.125% 05/01/07.......... 36,225 50,000 Neenah Foundry Company, Series F, 11.125% 05/01/07.......................................... 15,750 ----------- 509,094 ----------- ELECTRIC POWER -- NON NUCLEAR -- 5.1% 120,000 AES Corporation, 10.000% 07/15/05+......................................... 114,000 15,000 AES Corporation, 8.750% 06/15/08........................................... 8,775 75,000 AES Corporation, 9.500% 06/01/09##......................................... 45,938 20,000 AES Eastern Energy, Series 1999-A, 9.000% 01/02/17........................................... 18,418 150,000 AES Eastern Energy, Series 1999-B, 9.670% 01/02/29........................................... 130,103 116,019 Caithness Coso Funding Corporation, Series B, 9.050% 12/15/09........................................... 113,698 70,000 Calpine Corporation, 8.500% 02/15/11##......................................... 30,450 320,613 Cedar Brakes II LLC, 9.875% 09/01/13........................................... 237,253 70,000 Consumers Energy Company, 6.250% 09/15/06........................................... 68,849 139,000 ESI Tractebel Acquisition Corporation, Series B, 7.990% 12/30/11........................................... 125,182 170,000 Mirant Americas Generation Inc., 8.300% 05/01/11........................................... 80,750 130,000 Mirant Americas Generation LLC, 9.125% 05/01/31........................................... 57,850
SEE NOTES TO FINANCIAL STATEMENTS. 33 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- ELECTRIC POWER -- NON NUCLEAR -- (CONTINUED) $ 135,000 Pacific Gas and Electric Company Bank Debt A, 8.000%** 12/30/06(e)(f)............................................ $ 128,925 720,000 PG&E National Energy Group, 10.375% 05/16/11(b)............. 273,599 29,822 Salton Sea Funding, Series B, 7.370% 05/30/05............... 29,059 105,000 Tiverton/Rumford Power Association, 9.000% 07/15/18+........ 55,650 30,000 Westar Energy, Inc., 6.250% 08/15/03........................ 28,800 140,000 Westar Energy, Inc., 6.875% 08/01/04........................ 127,400 80,000 Westar Energy, Inc., 7.875% 05/01/07........................ 81,000 60,000 Xcel Energy, Inc., 7.000% 12/01/10........................................... 51,600 ----------- 1,807,299 ----------- EXPLORATION AND PRODUCTION -- 3.3% 145,000 Comstock Resources, Inc., 11.250% 05/01/07.......................................... 153,700 125,000 Continental Resources, Inc., 10.250% 08/01/08.......................................... 111,250 130,000 Encore Acquisition Company, 8.375% 06/15/12-.......................................... 135,200 160,000 Energy Corporation of America, Series A, 9.500% 05/15/07........................................... 99,200 130,000 Plains Exploration & Production Company, 8.750% 07/01/12-.......................................... 135,200 80,000 Stone Energy Corporation, 8.250% 12/15/11........................................... 83,200 105,000 Vintage Petroleum, Inc., 7.875% 05/15/11........................................... 102,375 335,000 Vintage Petroleum, Inc., 8.250% 05/01/12........................................... 348,400 ----------- 1,168,525 ----------- FINANCE -- MISCELLANEOUS -- 0.3% 295,000 The FINOVA Group Inc., 7.500% 11/15/09........................................... 101,775 ----------- FOOD PRODUCTS -- 2.8% 310,000 Chiquita Brands International, Inc., 10.560% 03/15/09.......................................... 317,363 25,000 Dole Food Company, Inc., 7.875% 07/15/13........................................... 24,127 85,000 Herbalife International, Inc., 11.750% 07/15/10-......................................... 84,894 25,000 Smithfield Foods, Inc., 7.625% 02/15/08........................................... 24,375 135,000 Smithfield Foods, Inc., Series B, 8.000% 10/15/09........................................... 137,700 435,000 Swift & Company, 10.125% 10/01/09-......................................... 411,075 ----------- 999,534 -----------
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- HEALTH SERVICES -- 4.2% $ 380,000 Express Scripts, Inc., 9.625% 06/15/09........................................... $ 410,400 115,000 Fountain View Inc., Series B, 11.250% 04/15/08(b)....................................... 69,000 165,000 HCA Inc., 8.360% 04/15/24........................................... 174,701 235,000 HCA Inc., 7.500% 11/15/95........................................... 219,192 110,000 Manor Care, Inc., 7.500% 06/15/06........................................... 114,248 145,000 Manor Care, Inc., 8.000% 03/01/08........................................... 152,975 105,000 Team Health Inc., Series B, 12.000% 03/15/09.......................................... 108,675 210,000 Unilab Finance Corporation, 12.750% 10/01/09.......................................... 244,650 ----------- 1,493,841 ----------- HEAVY MACHINERY -- 0.6% 75,000 Thermadyne Bank Debt Term A, 4.170%** 05/22/04(e)(f)................................... 62,250 82,500 Thermadyne Bank Debt Term B, 4.420%** 05/22/05(e)(f)................................... 68,475 82,500 Thermadyne Bank Debt Term C, 4.670%** 05/22/06(e)(f)................................... 68,475 ----------- 199,200 ----------- LODGING AND RECREATION -- 6.5% 65,000 AMC Entertainment Inc., 9.500% 03/15/09........................................... 64,350 60,000 AMC Entertainment Inc., 9.875% 02/01/12........................................... 59,100 110,000 Bally Total Fitness Holding Corporation, Series D, 9.875% 10/15/07##......................................... 95,700 145,000 Harrahs Operating Company, Inc., 8.000% 02/01/11........................................... 167,236 60,000 Hilton Hotels Corporation, 7.625% 05/15/08........................................... 61,389 60,000 Hilton Hotels Corporation, 8.250% 02/15/11........................................... 62,763 245,000 ITT Corporation, 7.375% 11/15/15........................................... 225,400 50,000 ITT Corporation, 7.750% 11/15/25........................................... 45,500 80,000 Jacobs Entertainment Corporation, 11.875% 02/01/09.......................................... 82,800 50,000 Mandalay Resort Group, 9.500% 08/01/08........................................... 55,375 195,000 Park Place Entertainment Corporation, 7.875% 12/15/05##......................................... 198,413 400,000 Park Place Entertainment Corporation, 8.875% 09/15/08........................................... 425,031 37,000 President Casinos, Inc., 13.000% 09/15/03(a)(b)(f)................................. 17,575 245,000 Trump Atlantic City Associates, 11.250% 05/01/06.......................................... 191,100 190,000 Vail Resorts, Inc., 8.750% 05/15/09........................................... 194,750
SEE NOTES TO FINANCIAL STATEMENTS. 34 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- LODGING AND RECREATION -- (CONTINUED) $ 270,000 Venetian Casino Resort LLC, 11.000% 06/15/10.......................................... $ 282,149 80,000 Wheeling Island Gaming Inc., 10.125% 12/15/09.......................................... 82,400 ----------- 2,311,031 ----------- MEDICAL DEVICES AND SUPPLIES -- 2.1% 225,000 Alaris Medical Systems, Inc., 9.750% 12/01/06##......................................... 225,000 165,000 Alaris Medical Systems, Inc., (0.000)% due 08/01/08 11.125% beginning 08/01/03................................ 151,800 204,000 DJ Orthopedics LLC, 12.625% 06/15/09.......................................... 201,960 185,000 Per-Se Technologies, Inc., Series B, 9.500% 02/15/05........................................... 178,525 ----------- 757,285 ----------- METALS AND MINING -- 1.2% 145,000 Commonwealth Industries, Inc., 10.750% 10/01/06.......................................... 145,181 75,000 Ormet Corporation, 11.000% 08/15/08+......................................... 39,000 290,000 UCAR Finance Inc., 10.250% 02/15/12.......................................... 230,550 ----------- 414,731 ----------- NATURAL GAS DISTRIBUTION -- 0.8% 270,000 Ferrellgas Partners LP, 8.750% 06/15/12........................................... 279,450 ----------- NATURAL GAS PIPELINES -- 1.0% 105,000 EL Paso Corporation, MTN, 7.800% 08/01/31........................................... 65,100 220,000 EL Paso Energy Partners, 10.625% 12/01/12-##....................................... 224,950 30,000 Texas Gas Transmission Corporation, 8.625% 04/01/04........................................... 29,850 40,000 Transcontinental Gas Pipeline, 8.875% 07/15/12-.......................................... 40,000 ----------- 359,900 ----------- NETWORKING AND TELECOMMUNICATIONS EQUIPMENT -- 1.7% 220,000 Avaya Inc., 11.125% 04/01/09##........................................ 199,100 210,000 IPC Acquisition Corporation, 11.500% 12/15/09.......................................... 180,600 95,000 Lucent Technologies Inc., 7.250% 07/15/06##......................................... 53,675 80,000 Lucent Technologies Inc., 6.500% 01/15/28........................................... 35,200 310,000 Lucent Technologies Inc., 6.450% 03/15/29........................................... 136,400 ----------- 604,975 ----------- OILFIELD SERVICES -- 1.5% 115,000 Grant Prideco, Inc., Series B, 9.625% 12/01/07........................................... 121,900 65,000 Halliburton Company, 8.750% 02/15/21........................................... 65,000
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- OILFIELD SERVICES -- (CONTINUED) $ 85,000 Parker Drilling Company, Series B, 10.125% 11/15/09.......................................... $ 87,550 175,000 Parker Drilling Company, Series D, 9.750% 11/15/06##......................................... 177,625 80,000 Pride International, Inc., 9.375% 05/01/07##......................................... 83,600 ----------- 535,675 ----------- PACKAGING AND CONTAINERS -- 1.5% 94,221 Owens Corning Bank Debt, 6.750% 06/26/03(b)(c)(e)(f)............................... 56,886 255,000 Owens-Brockway Glass Containers, 8.875% 02/15/09##......................................... 262,650 250,000 Owens-Illinois, Inc., 7.800% 05/15/18........................................... 212,500 ----------- 532,036 ----------- PAPER AND FOREST PRODUCTS -- 2.1% 115,000 Fort James Corporation, 6.625% 09/15/04........................................... 111,550 85,000 Georgia-Pacific Corporation, 9.875% 11/01/21........................................... 76,925 165,000 Georgia-Pacific Corporation, 9.625% 03/15/22........................................... 147,675 230,000 Georgia-Pacific Corporation, 9.500% 05/15/22........................................... 203,549 80,000 Georgia-Pacific Corporation, 7.375% 12/01/25........................................... 62,400 160,000 Pope and Talbot, Inc., 8.375% 06/01/13........................................... 138,801 ----------- 740,900 ----------- PHARMACEUTICALS -- 1.0% 330,000 Caremark Rx, Inc., 7.375% 10/01/06........................................... 336,600 ----------- PUBLISHING AND ADVERTISING -- 3.5% 220,000 American Color Graphics, 12.750% 08/01/05.......................................... 216,700 70,000 Dex Media East LLC, 9.875% 11/15/09-.......................................... 74,900 85,000 Dex Media East LLC, 12.125% 11/15/12-......................................... 94,138 120,000 Garden State Newspapers, Inc., Series B, 8.750% 10/01/09........................................... 121,800 55,000 Houghton Mifflin Company, 7.125% 04/01/04........................................... 57,475 325,000 Houghton Mifflin Company, 7.200% 03/15/11........................................... 321,749 85,000 Key3Media Group, Inc., 11.250% 06/15/11(b)....................................... 5,100 110,000 Phoenix Color Corporation, 10.375% 02/01/09.......................................... 93,500 315,000 Quebecor Media Inc., (0.000)% due 07/15/11 13.750% beginning 07/16/06................................ 178,369 48,866 Ziff Davis Media Inc. Bank Debt Term B, 6.180%** 03/31/07(e)(f)................................... 40,559 81,700 Ziff Davis Media Inc., Series B, 12.000% 08/12/09.......................................... 29,514 ----------- 1,233,804 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 35 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- RAILROADS, TRUCKING AND SHIPPING -- 0.2% $ 20,138 Ermis Maritime Holdings Ltd., 12.500% 12/31/04(a)(d)(f)................................. $ 17,150 1,584 Pegasus Promissory Note, .000% 01/31/04(a)(b)(f)................................... -- 80,000 Sea Containers Ltd., Series B, 7.875% 02/15/08........................................... 52,000 ----------- 69,150 ----------- REAL ESTATE -- 1.1% 170,000 CB Richard Ellis Services Inc., 11.250% 06/15/11.......................................... 156,400 13,543 DR Structured Finance Corporation, Series A-1, 7.600% 08/15/07........................................... 7,449 62,227 DR Structured Finance Corporation, Series A-1, 6.660% 08/15/10........................................... 34,225 75,000 DR Structured Finance Corporation, Series A-2, 8.375% 08/15/15........................................... 36,750 20,000 DR Structured Finance Corporation, Series A-3, 8.550% 08/15/19........................................... 9,800 75,422 Kmart Corporation, 8.540% 01/02/15(b)(c)..................................... 28,660 135,000 LNR Property Corporation, Series B, 9.375% 03/15/08......... 132,300 ----------- 405,584 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 2.6% 90,000 BF Saul, Series B, 9.750% 04/01/08........................................... 89,325 5,000 Crescent Real Estate Equities LP, 7.500% 09/15/07........................................... 4,850 300,000 Crescent Real Estate Equities LP, 9.250% 04/15/09........................................... 312,749 90,000 Healthcare Realty Trust, Inc., 8.125% 05/01/11........................................... 96,918 130,000 MeriStar Hospitality Corporation, 9.000% 01/15/08........................................... 114,400 240,000 OMEGA Healthcare Investors, Inc., 6.950% 08/01/07........................................... 204,450 100,000 Senior Housing Properties Trust, 8.625% 01/15/12........................................... 98,500 ----------- 921,192 ----------- SEMICONDUCTORS -- 0.3% 155,000 ON Semiconductor Corporation, 12.000% 05/15/08-##....................................... 113,925 ----------- SOFTWARE -- 0.5% 180,000 Computer Associates International, Inc., Series B, 6.250% 04/15/03##......................................... 179,550 ----------- SPECIALTY STORES -- 1.4% 195,000 The Gap, Inc., 5.625% 05/01/03........................................... 195,488 315,000 The Gap, Inc., 6.900% 09/15/07##......................................... 307,125 ----------- 502,613 -----------
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- STEEL -- 0.7% $ 245,000 United States Steel LLC, 10.750% 08/01/08.......................................... $ 241,325 ----------- TELECOMMUNICATIONS SERVICES -- 7.0% 105,000 AirGate PCS, Inc., (0.000)% due 10/01/09 13.500% beginning 10/01/04##.............................. 11,550 105,000 Alamosa Delaware Inc., 12.500% 02/01/11.......................................... 31,500 175,000 Alamosa Holdings, Inc., (0.000)% due 02/15/10 12.875% beginning 02/15/05................................ 31,500 185,000 AT&T Wireless Services Inc., 8.125% 05/01/12........................................... 185,925 125,000 COLO.COM, 13.875% 03/15/10-(a)(b)(c)................................ 5,000 110,000 Dobson Communications Corporation, Class A, 10.875% 07/01/10##........................................ 92,950 48,196 Globix Corporation, 11.000% 05/01/08-(a)(d)(f)................................ 34,701 40,825 GT Telecom Racers Notes Trust, Series A, .000%** 06/30/08(b)(c)(f)................................. 2,858 29,175 GT Telecom Racers Notes Trust, Series B, .000%** 02/03/03(b)(c)(f)................................. 2,042 85,000 IMPSAT Fiber Networks, Inc., 13.750% 02/15/05(b)....................................... 2,550 81,000 Loral Cyberstar Inc., 10.000% 07/15/06.......................................... 29,970 595,000 NEON Communications, Inc., 12.750% 08/15/08(b)....................................... 41,650 169,961 Nextel Notes, (0.000%) due 11/01/09 13.000% beginning 11/01/04##(f)........................... 125,771 80,000 Pagemart Nationwide, 15.000% 02/01/05(a)(b)(c)(f).............................. 8 55,000 PSINet, Inc., 11.500% 11/01/08(b)....................................... 1,650 100,000 PSINet, Inc., 11.000% 08/01/09(b)....................................... 3,000 270,000 Qwest Capital Funding, Inc., 5.875% 08/03/04##......................................... 226,800 185,000 Qwest Capital Funding, Inc., 7.750% 02/15/31##......................................... 103,600 125,000 Qwest Corporation, 7.625% 06/09/03........................................... 122,500 110,000 Qwest Corporation, 7.200% 11/01/04........................................... 104,500 10,000 Qwest Corporation, 5.625% 11/15/08........................................... 8,500 235,000 Qwest Corporation, 8.875% 03/15/12-.......................................... 227,949 210,000 Qwest Corporation, 8.875% 06/01/31........................................... 189,000 68,000 Qwest Services Corporation, 13.000% 12/15/07-......................................... 70,040 89,000 Qwest Services Corporation, 13.500% 12/15/10-......................................... 92,560 29,000 Qwest Services Corporation, 14.000% 12/15/14+......................................... 31,030
SEE NOTES TO FINANCIAL STATEMENTS. 36 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- TELECOMMUNICATIONS SERVICES -- (CONTINUED) $ 150,000 Sprint Capital Corporation, 5.875% 05/01/04........................................... $ 148,500 140,000 Sprint Capital Corporation, 8.750% 03/15/32........................................... 133,000 243,440 TSI Telecommunication Services Inc., 6.240%** 12/31/06(e)(f)................................... 226,806 155,000 TSI Telecommunication Services Inc., Series B, 12.750% 02/01/09.......................................... 137,950 170,000 US Unwired Inc., Series B, (0.000)% due 11/01/09 13.375% beginning 11/01/04................................ 10,200 ----------- 2,435,560 ----------- TOTAL CORPORATE BONDS AND NOTES (Cost $27,522,617)........................................ 25,908,678 ----------- FOREIGN BONDS AND NOTES -- 8.6% 75,000 360networks Inc., 13.000% 05/01/08(b)....................................... 8 205,000 Abitibi-Consolidated, Inc. 8.850% 08/01/30........................................... 220,449 140,000 Acetex Corporation, 10.875% 08/01/09.......................................... 148,400 105,000 AES Drax Holdings Ltd., Series B, 10.410% 12/31/20.......................................... 56,700 111,000 Algoma Steel Inc., 11.000% 12/31/09(b)....................................... 83,389 45,000 Baytex Energy Ltd., 10.500% 02/15/11.......................................... 47,250 210,000 British Sky Broadcasting Group plc, 6.875% 02/23/09........................................... 214,725 75,000 Cablevision SA, 12.500% 03/02/03-(b)...................................... 18,000 160,000 Cablevision SA, 13.750% 04/30/07(b)....................................... 38,400 75,000 Cablevision SA, 13.750% 05/01/09(b)....................................... 18,000 57,411 Call-Net Enterprises Inc., 10.625% 12/31/08.......................................... 31,002 240,000 Calpine Canada Energy Finance, 8.500% 05/01/08........................................... 104,400 125,000 CanWest Media Inc., 10.625% 05/15/11##........................................ 133,438 210,000 Comcast UK Cable Partners Ltd., Class A, 11.200% 11/15/07.......................................... 148,050 130,000 Compton Petroleum Corporation, 9.900% 05/15/09........................................... 135,200 225,000 Doman Industries Ltd., Class A, 12.000% 07/01/04.......................................... 207,281 100,000 Grupo Transportacion Ferroviaria Mexicana, SA de CV, 11.750% 06/15/09.......................................... 98,000 155,000 Grupo Transportacion Ferroviaria Mexicana, SA de CV, 12.500% 06/15/12+##....................................... 156,550 115,000 Maconi Corporation plc, 7.750% 09/15/10........................................... 17,825 170,000 Marconi Corporation plc, 8.375% 09/15/30........................................... 26,350 575,000 Millicom International Cellular SA, 13.500% 06/01/06.......................................... 281,749
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- FOREIGN BONDS AND NOTES -- (CONTINUED) $ 35,000 Nortel Networks Corporation, 6.000% 09/01/03##......................................... $ 33,250 170,000 Nortel Networks Ltd., 6.125% 02/15/06##......................................... 113,900 105,000 Petroleum Geo-Services ASA, 6.250% 11/19/03........................................... 38,850 25,000 Petroleum Geo-Services ASA, 7.500% 03/31/07##......................................... 7,500 225,000 Petroleum Geo-Services ASA, 7.125% 03/30/28........................................... 58,500 15,000 Petroleum Geo-Services ASA, 8.150% 07/15/29........................................... 4,050 120,000 Quebecor Media Inc., 11.125% 07/15/11.......................................... 110,550 35,000 Rogers Cable Inc., 11.000% 12/01/15.......................................... 36,225 245,000 Rogers Cantel Inc., 9.750% 06/01/16........................................... 221,113 5,000 Telesystem International Wireless Inc., 14.000% 12/30/03-......................................... 4,250 61,000 Telesystem International Wireless Inc., 14.000% 12/30/03.......................................... 51,850 60,000 TV Azteca, SA de CV, Series B, 10.500% 02/15/07.......................................... 54,225 260,000 United Pan-Europe Communications N.V., Class A, (0.000)% due 02/01/10 13.750% beginning 02/01/05(b)............................. 15,600 105,000(h) United Pan-Europe Communications N.V., Series B, 11.250% 02/01/10(b)....................................... 8,264 235,000 United Pan-Europe Communications N.V., Series B, 11.250% 02/01/10(b)....................................... 17,625 200,000 United Pan-Europe Communications N.V., Series B, 11.500% 02/01/10(b)....................................... 15,000 360,000 United Pan-Europe Communications N.V., Series B, (0.000)% due 08/01/09 12.500% beginning 08/01/04(b)............................. 21,600 40,000 United Pan-Europe Communications N.V., Series B, (0.000)% due 11/01/09 13.375% beginning 11/01/04(b)............................. 2,400 40,000 Xerox Capital (Europe) plc, 5.875% 05/15/04........................................... 38,200 ----------- TOTAL FOREIGN BONDS AND NOTES (Cost $3,999,093)......................................... 3,038,118 ----------- FOREIGN CONVERTIBLE BONDS AND NOTES -- 0.9% 35,000 Algoma Steel Inc., 1.000% 12/31/30(b)........................................ 11,725 115,000(h) Colt Telecom Group plc, 2.000% 03/29/06+.......................................... 54,610 100,000(h) Colt Telecom Group plc, 2.000% 12/16/06-.......................................... 45,912 115,000(h) Colt Telecom Group plc, 2.000% 04/03/07-.......................................... 51,291
SEE NOTES TO FINANCIAL STATEMENTS. 37 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- FOREIGN CONVERTIBLE BONDS AND NOTES -- (CONTINUED) $ 15,000(h) KPNQwest NV, 10.000% 03/15/12(b)....................................... $ 39 260,000 Nortel Networks Corporation, 4.250% 09/01/08........................................... 135,850 ----------- TOTAL FOREIGN CONVERTIBLE BONDS AND NOTES (Cost $346,161)........................................... 299,427 ----------- MORTGAGE-BACKED SECURITIES -- 0.1% COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.1% (Cost $57,273) 100,000 Commercial Trust I, Series 1993-KA, Class A2, 7.630% 12/15/13........................................... 32,000 ----------- SHARES - --------- PREFERRED STOCKS -- 1.1% BROADCASTING AND CABLE -- 0.3% 3,870 MediaOne Financing Trust.................................... 95,589 500 Paxon Communications Corporation++.......................... 26,000 ----------- 121,589 ----------- PUBLISHING AND ADVERTISING -- 0.0%+ 25 Ziff Davis Holdings Inc., Series E-1++(a)................... -- ----------- RAILROADS, TRUCKING AND SHIPPING -- 0.0%+ 524 Ermis Maritime Holding Ltd.(a)(f)........................... 5 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.6% 1,750 Sovereign REIT-............................................. 194,251 ----------- TELECOMMUNICATIONS SERVICES -- 0.2% 3,477 NEON Communications, Inc.(a)(f)............................. 39,116 990 Rural Cellular Corporation, Series B(d)..................... 24,750 ----------- 63,866 ----------- TOTAL PREFERRED STOCKS (Cost $409,052)........................................... 379,711 ----------- SHARES VALUE - --------------------------------------------------------------------------------------- WARRANTS -- 0.0%+ 125 COLO.COM Expires 03/15/10++-....................................... $ 1 803 Loral Space & Communications Expires 1/15/07++(f)........... 40 20,868 NEON Communications, Inc. Expires 12/02/12++(a)(f).......... 209 17,391 NEON Communications, Inc., Class A Expires 12/02/12++(a)(f).......................... 174 105 Ono Finance plc Expires 03/16/11+++(f)...................... 1 4,730 Ziff Davis Holdings Inc. Expires 08/12/12++................. 47 ----------- TOTAL WARRANTS (Cost $28,005)............................................ 472 ----------- INVESTMENT COMPANIES -- 18.1% (Cost $6,381,345) 6,381,345 Nations Cash Reserves, Capital Class Shares#................ 6,381,345 ----------- TOTAL INVESTMENTS (Cost $42,082,038*)............................. 110.8% 39,158,389 ----------- OTHER ASSETS AND LIABILITIES (NET)................ (10.8)% Cash........................................................ $ 25,805 Receivable for Fund shares sold............................. 69,206 Dividends receivable........................................ 8,130 Interest receivable......................................... 696,858 Collateral on securities loaned............................. (4,357,345) Payable for Fund shares redeemed............................ (131,715) Investment advisory fee payable............................. (15,909) Administration fee payable.................................. (6,654) Accrued Trustees' fees and expenses......................... (28,943) Accrued expenses and other liabilities...................... (64,212) ----------- TOTAL OTHER ASSETS AND LIABILITIES (NET).................... (3,804,779) ----------- NET ASSETS........................................ 100.0% $35,353,610 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 38 NATIONS FUNDS Nations Separate Account Trust -- High Yield Bond Portfolio STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2002
VALUE - --------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Accumulated net investment loss............................. $ (75,336) Accumulated net realized loss on investments sold........... (235,638) Net unrealized depreciation of investments.................. (2,923,649) Paid-in capital............................................. 38,588,233 ----------- NET ASSETS.................................................. $35,353,610 =========== Net asset value per share ($35,353,610 / 4,185,810 shares of common stock outstanding)................................. $8.45 ===========
- --------------- *Federal income tax information (see Note 8). ** Variable rate note. The interest rate shown reflects the rate in effect at December 31, 2002. *** Zero coupon security. The rate shown reflects the yield to maturity at December 31, 2002. +Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ++ Non-income producing security. +Amount represents less than 0.1%. #Money market mutual fund registered under the Investment Company Act of 1940, as amended, and sub-advised by Banc of America Capital Management, LLC. A portion of this amount represents cash collateral received from securities lending activity (Note 7). The portion that represents cash collateral is $4,357,345. ##All or a portion of security was on loan at December 31, 2002. The aggregate cost and market value of securities on loan at December 31, 2002 is $4,420,801 and $4,136,978 respectively. (a) Fair valued security. (b) Issue in default. (c) Issuer in bankruptcy. (d) PIK ("Payment in Kind"). Interest or dividend payment is made with additional securities. (e) Loan participation agreement. (f) Restricted security. (g) Foreign security. (h) Principal amount denominated in Euro. ABBREVIATIONS: MTN -- Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS. 39 NATIONS FUNDS STATEMENTS OF OPERATIONS For the year ended December 31, 2002
INTERNATIONAL INTERNATIONAL FOCUSED SMALL OPPORTUNITIES VALUE EQUITIES COMPANY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------------------------------------------------- INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $18,439, $40,615, $22,418, $221, $1,254, $11,629, $0, $0, $898, $87 and $351, respectively)........ $ 156,925 $ 520,608 $ 693,964 $ 58,168 Dividend income from affiliated funds.............. 1,399 10,630 934 20,129 Interest........................................... 6,506 -- 53,320 -- Securities lending................................. -- -- 13,441 4,870 -------------- -------------- -------------- -------------- Total investment income........................ 164,830 531,238 761,659 83,167 -------------- -------------- -------------- -------------- EXPENSES: Investment advisory fee............................ 94,078 160,620 835,561 125,351 Administration fee................................. 25,871 39,263 256,239 32,034 Transfer agent fees................................ 3,079 5,601 31,740 3,978 Custodian fees..................................... 43,556 5,655 18,247 5,810 Trustees' fees and expenses........................ 15,464 15,457 15,464 15,464 Shareholder servicing and distribution fees........ 29,399 44,617 278,520 34,820 Legal and audit fees............................... 37,053 32,179 50,238 34,913 Printing expense................................... 15,570 18,198 14,925 10,426 Amortization of organization costs................. 3,836 -- 3,836 3,836 Interest expense................................... 71 -- 56 -- Other.............................................. 1,898 1,792 118 962 -------------- -------------- -------------- -------------- Total expenses................................. 269,875 323,382 1,504,944 267,594 Fees waived and expenses reimbursed by investment advisor and/or distributor....................... (122,695) (102,243) (289,250) (94,659) Fees reduced by credits allowed by the custodian... (113) (158) (62) (46) -------------- -------------- -------------- -------------- Net expenses................................... 147,067 220,981 1,215,632 172,889 -------------- -------------- -------------- -------------- NET INVESTMENT INCOME/(LOSS)....................... 17,763 310,257 (453,973) (89,722) -------------- -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS: Net realized gain/(loss) from: Security transactions............................ (516,868) 257,253 (7,701,217) (991,286) Foreign currency and net other assets............ (8,281) (2,758) (2,435) -- -------------- -------------- -------------- -------------- Net realized gain/(loss) on investments............ (525,149) 254,495 (7,703,652) (991,286) -------------- -------------- -------------- -------------- Change in unrealized appreciation/(depreciation) of: Securities....................................... (371,377) (4,330,998) (9,578,843) (3,302,604) Foreign currency and net other assets............ (1,168) 332 140 -- -------------- -------------- -------------- -------------- Net change in unrealized appreciation/(depreciation) of investments....... (372,545) (4,330,666) (9,578,703) (3,302,604) -------------- -------------- -------------- -------------- Net realized and unrealized gain/(loss) on investments...................................... (897,694) (4,076,171) (17,282,355) (4,293,890) -------------- -------------- -------------- -------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................. $ (879,931) $ (3,765,914) $ (17,736,328) $ (4,383,612) ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 40 NATIONS FUNDS STATEMENTS OF OPERATIONS (CONTINUED)
CAPITAL MIDCAP ASSET HIGH YIELD 21ST CENTURY GROWTH GROWTH GROWTH VALUE ALLOCATION BOND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------ 29,691 $ 450,670 $ 139,323 $ 26,858 $ 340,779 $ 79,900 $ 63,959 $ 819 971 14,089 16,269 13,321 27,186 35,170 6,056 36,556 -- 128 2,708 156,576 2,439,717 336 8,932 -- -- 1,707 682 7,767 -------------- -------------- -------------- -------------- -------------- -------------- -------------- 36,902 497,129 153,412 43,255 358,515 264,344 2,546,613 -------------- -------------- -------------- -------------- -------------- -------------- -------------- 37,877 500,418 93,859 45,476 101,643 63,311 137,594 11,616 153,462 33,212 16,092 35,966 22,402 57,539 1,364 18,622 3,937 1,795 4,377 2,812 7,044 6,462 12,823 3,576 8,550 4,967 4,259 7,868 15,464 15,464 15,464 15,457 15,464 15,464 15,461 12,626 166,806 36,100 17,491 39,094 24,350 62,542 26,733 57,917 35,398 22,854 35,208 34,043 37,772 12,300 15,431 6,665 12,302 6,663 20,803 31,291 3,836 3,836 3,836 -- 3,836 3,836 -- -- 44 9 -- 14 -- -- 716 134 524 879 797 870 1,840 -------------- -------------- -------------- -------------- -------------- -------------- -------------- 128,994 944,957 232,580 140,896 248,029 192,150 358,951 (73,687) (182,115) (89,770) (70,909) (92,577) (95,549) (109,020) (99) (55) (18) (23) (18) (24) (88) -------------- -------------- -------------- -------------- -------------- -------------- -------------- 55,208 762,787 142,792 69,964 155,434 96,577 249,843 -------------- -------------- -------------- -------------- -------------- -------------- -------------- (18,306) (265,658) 10,620 (26,709) 203,081 167,767 2,296,770 -------------- -------------- -------------- -------------- -------------- -------------- -------------- (325,799) (5,899,546) (4,541,634) (1,174,942) (1,623,203) (1,149,095) (196,988) 164 (2,464) -- -- -- -- (7,601) -------------- -------------- -------------- -------------- -------------- -------------- -------------- (325,635) (5,902,010) (4,541,634) (1,174,942) (1,623,203) (1,149,095) (204,589) -------------- -------------- -------------- -------------- -------------- -------------- -------------- (130,891) (5,071,304) (872,808) (1,422,200) (2,109,751) (469,219) (1,344,444) -- 159 -- -- -- -- (5,718) -------------- -------------- -------------- -------------- -------------- -------------- -------------- (130,891) (5,071,145) (872,808) (1,422,200) (2,109,751) (469,219) (1,350,162) -------------- -------------- -------------- -------------- -------------- -------------- -------------- (456,526) (10,973,155) (5,414,442) (2,597,142) (3,732,954) (1,618,314) (1,554,751) -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ (474,832) $ (11,238,813) $ (5,403,822) $ (2,623,851) $ (3,529,873) $ (1,450,547) $ 742,019 ============== ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 41 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS
INTERNATIONAL OPPORTUNITIES INTERNATIONAL VALUE PORTFOLIO PORTFOLIO --------------------------------- -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/02 12/31/01 12/31/02 12/31/01 ---------------------------------------------------------------------- Net investment income/(loss)........................ $ 17,763 $ 69,235 $ 310,257 $ 75,957 Net realized gain/(loss) on investments............. (525,149) (3,982,093) 254,495 61,576 Net change in unrealized appreciation/(depreciation) of investments.................................... (372,545) 1,949,247 (4,330,666) (653,949) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations........................................ (879,931) (1,963,611) (3,765,914) (516,416) Distributions to shareholders from net investment income............................................ (4,520) (25,031) (293,076) (71,488) Distributions to shareholders from net realized gain on investments.................................... -- (3,715) (256,485) (56,301) Net increase/(decrease) in net assets from Fund share transactions................................ 4,373,767 (615,151) 12,231,954 10,028,858 -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets............... 3,489,316 (2,607,508) 7,916,479 9,384,653 NET ASSETS: Beginning of period................................. 11,329,884 13,937,392 11,506,197 2,121,544 -------------- -------------- -------------- -------------- End of period....................................... $ 14,819,200 $ 11,329,884 $ 19,422,676 $ 11,506,197 ============== ============== ============== ============== Undistributed net investment income/(accumulated net investment loss) at end of period................. $ 4,962 $ -- $ 18,074 $ 3,651 ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 42 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOCUSED EQUITIES PORTFOLIO SMALL COMPANY PORTFOLIO 21ST CENTURY PORTFOLIO ------------------------------- ------------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/02 12/31/01 12/31/02 12/31/01 12/31/02 12/31/01 - ------------------------------------------------------------------------------------------------------- $ (453,973) $ (95,435) $ (89,722) $ (30,864) $ (18,306) $ (17,881) (7,703,652) (25,604,152) (991,286) 152,452 (325,635) (2,092,170) (9,578,703) (1,239,264) (3,302,604) 403,036 (130,891) 726,986 -------------- -------------- -------------- -------------- -------------- -------------- (17,736,328) (26,938,851) (4,383,612) 524,624 (474,832) (1,383,065) -- -- -- -- -- -- -- -- (13,203) (50,371) -- -- 2,512,933 (5,035,818) 8,106,055 2,776,206 1,176,086 1,101,301 -------------- -------------- -------------- -------------- -------------- -------------- (15,223,395) (31,974,669) 3,709,240 3,250,459 701,254 (281,764) 116,739,446 148,714,115 12,578,661 9,328,202 4,825,482 5,107,246 -------------- -------------- -------------- -------------- -------------- -------------- $ 101,516,051 $ 116,739,446 $ 16,287,901 $ 12,578,661 $ 5,526,736 $ 4,825,482 ============== ============== ============== ============== ============== ============== $ -- $ -- $ -- $ -- $ (52) $ -- ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 43 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
GROWTH PORTFOLIO CAPITAL GROWTH PORTFOLIO --------------------------------- -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/02 12/31/01 12/31/02 12/31/01 ---------------------------------------------------------------------- Net investment income/(loss)........................ $ (265,658) $ (110,360) $ 10,620 $ 34,173 Net realized gain/(loss) on investments............. (5,902,010) (15,634,755) (4,541,634) (1,840,992) Net change in unrealized appreciation/(depreciation) of investments.................................... (5,071,145) (685,767) (872,808) (853,840) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets resulting from operations........................................ (11,238,813) (16,430,882) (5,403,822) (2,660,659) Distributions to shareholders from net investment income............................................ -- (1,084) (16,833) (27,347) Distributions to shareholders from net realized gain on investments.................................... -- -- -- -- Net increase/(decrease) in net assets from Fund share transactions................................ (4,363,811) (1,808,695) (438,973) (1,508,624) -------------- -------------- -------------- -------------- Net increase/(decrease) in net assets............... (15,602,624) (18,240,661) (5,859,628) (4,196,630) NET ASSETS: Beginning of period................................. 72,550,273 90,790,934 18,345,727 22,542,357 -------------- -------------- -------------- -------------- End of period....................................... $ 56,947,649 $ 72,550,273 $ 12,486,099 $ 18,345,727 ============== ============== ============== ============== Undistributed net investment income/(accumulated net investment loss) at end of period................. $ -- $ -- $ 5,504 $ 11,569 ============== ============== ============== ==============
- --------------- (a)MidCap Growth commenced operations on May 1, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 44 NATIONS FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MIDCAP GROWTH PORTFOLIO VALUE PORTFOLIO ASSET ALLOCATION PORTFOLIO - ----------------------------------- ------------------------------- ------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/02 12/31/01(A) 12/31/02 12/31/01 12/31/02 12/31/01 - ------------------------------------------------------------------------------------------------------- $ (26,709) $ (2,277) $ 203,081 $ 114,690 $ 167,767 $ 199,320 (1,174,942) (58,729) (1,623,203) (398,209) (1,149,095) (115,531) (1,422,200) (40,784) (2,109,751) (484,545) (469,219) (496,276) -------------- -------------- -------------- -------------- -------------- -------------- (2,623,851) (101,790) (3,529,873) (768,064) (1,450,547) (412,487) -- -- (196,629) (112,446) (166,471) (199,217) -- -- -- -- -- -- 11,705,397 3,661,520 9,307,816 3,824,205 2,167,770 3,375,363 -------------- -------------- -------------- -------------- -------------- -------------- 9,081,546 3,559,730 5,581,314 2,943,695 550,752 2,763,659 3,559,730 -- 14,016,567 11,072,872 10,085,088 7,321,429 -------------- -------------- -------------- -------------- -------------- -------------- $ 12,641,276 $ 3,559,730 $ 19,597,881 $ 14,016,567 $ 10,635,840 $ 10,085,088 ============== ============== ============== ============== ============== ============== $ -- $ -- $ 7,020 $ 5,889 $ 2,970 $ 1,674 ============== ============== ============== ============== ============== ============== HIGH YIELD BOND PORTFOLIO - --- ------------------------------- YEAR ENDED YEAR ENDED 12/31/02 12/31/01 - --- ------------------------------- <$i <$d $ 2,296,770 $ 1,468,103 (204,589) 180,211 <$i <$d (1,350,162) (707,440) -------------- -------------- 742,019 940,874 (2,388,785) (1,470,381) <$i <$d -- -- <$i <$d 19,724,013 7,962,790 -------------- -------------- 18,077,247 7,433,283 <$i <$d 17,276,363 9,843,080 -------------- -------------- $ 35,353,610 $ 17,276,363 ============== ============== <$i <$d $ (75,336) $ (7,501) ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS. 45 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY
INTERNATIONAL OPPORTUNITIES PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 644,302 $ 6,422,328 161,376 $ 1,798,873 Issued as reinvestment of dividends.................. 474 4,520 2,956 28,746 Repurchased.......................................... (196,803) (2,053,081) (224,887) (2,442,770) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 447,973 $ 4,373,767 (60,555) $ (615,151) ========== ============ ========== ============
INTERNATIONAL VALUE PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 1,888,271 $ 15,418,628 1,171,946 $ 10,245,391 Issued as reinvestment of dividends.................. 81,427 549,561 15,461 127,789 Repurchased.......................................... (505,453) (3,736,235) (42,276) (344,322) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 1,464,245 $ 12,231,954 1,145,131 $ 10,028,858 ========== ============ ========== ============
FOCUSED EQUITIES PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 1,935,374 $ 24,407,029 766,343 $ 10,758,974 Issued as reinvestment of dividends.................. -- -- -- -- Repurchased.......................................... (1,721,976) (21,894,096) (1,185,194) (15,794,792) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 213,398 $ 2,512,933 (418,851) $ (5,035,818) ========== ============ ========== ============
SMALL COMPANY PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 1,231,272 $ 9,974,637 395,691 $ 3,620,955 Issued as reinvestment of dividends.................. 1,779 13,203 5,204 50,371 Repurchased.......................................... (248,712) (1,881,785) (100,538) (895,120) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 984,339 $ 8,106,055 300,357 $ 2,776,206 ========== ============ ========== ============
SEE NOTES TO FINANCIAL STATEMENTS. 46 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
21ST CENTURY PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 557,168 $ 3,382,754 371,831 $ 2,350,052 Issued as reinvestment of dividends.................. -- -- -- -- Repurchased.......................................... (364,272) (2,206,668) (199,609) (1,248,751) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 192,896 $ 1,176,086 172,222 $ 1,101,301 ========== ============ ========== ============
GROWTH PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 885,766 $ 11,077,534 590,033 $ 8,260,911 Issued as reinvestment of dividends.................. -- -- 94 1,084 Repurchased.......................................... (1,233,283) (15,441,345) (754,951) (10,070,690) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. (347,517) $ (4,363,811) (164,824) $ (1,808,695) ========== ============ ========== ============
CAPITAL GROWTH PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 378,133 $ 2,887,275 207,181 $ 2,172,665 Issued as reinvestment of dividends.................. 2,334 16,833 2,793 27,347 Repurchased.......................................... (427,026) (3,343,081) (356,918) (3,708,636) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. (46,559) $ (438,973) (146,944) $ (1,508,624) ========== ============ ========== ============
MIDCAP GROWTH PORTFOLIO YEAR ENDED PERIOD ENDED DECEMBER 31, 2002 DECEMBER 31, 2001(A) -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 2,121,733 $ 13,322,240 440,309 $ 3,804,357 Issued as reinvestment of dividends.................. -- -- -- -- Repurchased.......................................... (274,831) (1,616,843) (18,364) (142,837) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 1,846,902 $ 11,705,397 421,945 $ 3,661,520 ========== ============ ========== ============
- --------------- (a)MidCap Growth commenced operations on May 1, 2001. SEE NOTES TO FINANCIAL STATEMENTS. 47 NATIONS FUNDS SCHEDULES OF CAPITAL STOCK ACTIVITY (CONTINUED)
VALUE PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 1,526,476 $ 13,643,237 472,360 $ 4,901,271 Issued as reinvestment of dividends.................. 24,283 196,629 10,946 112,446 Repurchased.......................................... (495,040) (4,532,050) (114,606) (1,189,512) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 1,055,719 $ 9,307,816 368,700 $ 3,824,205 ========== ============ ========== ============
ASSET ALLOCATION PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 589,978 $ 5,040,512 421,173 $ 4,136,852 Issued as reinvestment of dividends.................. 20,778 166,471 21,128 199,217 Repurchased.......................................... (354,856) (3,039,213) (98,914) (960,706) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 255,900 $ 2,167,770 343,387 $ 3,375,363 ========== ============ ========== ============
HIGH YIELD BOND PORTFOLIO YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------- -------------------------- SHARES DOLLARS SHARES DOLLARS ---------------------------------------------------------- Sold................................................. 2,375,310 $ 20,983,295 726,456 $ 6,897,927 Issued as reinvestment of dividends.................. 283,374 2,388,785 166,177 1,470,381 Repurchased.......................................... (421,679) (3,648,067) (42,850) (405,518) ---------- ------------ ---------- ------------ Net increase/(decrease).............................. 2,237,005 $ 19,724,013 849,783 $ 7,962,790 ========== ============ ========== ============
SEE NOTES TO FINANCIAL STATEMENTS. 48 [This page intentionally left blank] 49 NATIONS FUNDS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period.
NET ASSET NET NET REALIZED NET INCREASE/ DIVIDENDS VALUE INVESTMENT AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INCOME/ GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD (LOSS) INVESTMENTS FROM OPERATIONS INCOME ---------------------------------------------------------------------- INTERNATIONAL OPPORTUNITIES PORTFOLIO Year ended 12/31/2002#.................... $10.44 $ 0.02 $(0.79) $(0.77) $(0.00)*** Year ended 12/31/2001#.................... 12.17 0.06 (1.77) (1.71) (0.02) Year ended 12/31/2000..................... 14.35 0.02 (1.99) (1.97) (0.02) Year ended 12/31/1999#.................... 10.28 0.06 4.35 4.41 (0.05) Period ended 12/31/1998*.................. 10.00 0.06 0.25 0.31 (0.03)## INTERNATIONAL VALUE PORTFOLIO Year ended 12/31/2002#.................... $ 8.40 $ 0.14 $(1.49) $(1.35) $(0.11) Year ended 12/31/2001#.................... 9.43 0.11 (1.05) (0.94) (0.05) Period ended 12/31/2000**................. 10.00 0.04 (0.57) (0.53) (0.04) FOCUSED EQUITIES PORTFOLIO Year ended 12/31/2002#.................... $13.42 $(0.05) $(1.98) $(2.03) $ -- Year ended 12/31/2001#.................... 16.31 (0.01) (2.88) (2.89) -- Year ended 12/31/2000#.................... 19.71 0.01 (3.09) (3.08) (0.01) Year ended 12/31/1999#.................... 13.00 (0.03) 6.90 6.87 -- Period ended 12/31/1998*.................. 10.00 0.02 3.00 3.02 (0.02)## SMALL COMPANY PORTFOLIO Year ended 12/31/2002#.................... $ 9.72 $(0.05) $(2.51) $(2.56) $ -- Year ended 12/31/2001#.................... 9.39 (0.03) 0.40 0.37 -- Year ended 12/31/2000#.................... 9.55 0.03 1.03 1.06 (0.44) Year ended 12/31/1999#.................... 9.03 0.01 0.52 0.53 (0.01) Period ended 12/31/1998*.................. 10.00 0.03 (0.97) (0.94) (0.03)## 21ST CENTURY PORTFOLIO Year ended 12/31/2002#.................... $ 6.22 $(0.02) $(0.49) $(0.51) $ -- Year ended 12/31/2001#.................... 8.47 (0.03) (2.22) (2.25) -- Year ended 12/31/2000..................... 11.63 (0.03) (3.13) (3.16) -- Year ended 12/31/1999#.................... 10.62 0.02 1.02 1.04 (0.03) Period ended 12/31/1998*.................. 10.00 0.02 0.62 0.64 (0.02)## DISTRIBUTIONS FROM NET REALIZED GAINS ----------------- INTERNATIONAL OPPORTUNITIES PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... (0.00)*** Year ended 12/31/2000..................... (0.19) Year ended 12/31/1999#.................... (0.29) Period ended 12/31/1998*.................. -- INTERNATIONAL VALUE PORTFOLIO Year ended 12/31/2002#.................... $(0.09) Year ended 12/31/2001#.................... (0.04) Period ended 12/31/2000**................. -- FOCUSED EQUITIES PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000#.................... (0.31) Year ended 12/31/1999#.................... (0.16) Period ended 12/31/1998*.................. -- SMALL COMPANY PORTFOLIO Year ended 12/31/2002#.................... $(0.01) Year ended 12/31/2001#.................... (0.04) Year ended 12/31/2000#.................... (0.44) Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. -- 21ST CENTURY PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000..................... -- Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. --
- --------------- * Portfolio commenced operations on March 27, 1998. Shares were offered to the public on April 6, 1998. ** International Value commenced operations on July 7, 2000. ***Amount represents less than $0.01 per share. + Annualized. ++ Total return represents aggregate total return for the period indicated and assumes reinvestment of all distributions. # Per share net investment income has been calculated using the monthly average shares method. ## Includes distributions in excess of net investment income or from net realized gains which amounted to less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 50 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING DISTRIBUTIONS DIVIDENDS VALUE END OF EXPENSES TO INCOME/(LOSS) PORTFOLIO EXPENSES FROM PAID AND END OF TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER TO AVERAGE IN CAPITAL DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------ $ -- $(0.00)*** $ 9.67 (7.35)% $ 14,819 1.25%(a)(b) 0.15% 175% 2.29%(a) -- (0.02) 10.44 (13.98) 11,330 1.25(a)(b) 0.57 304 2.52(a) -- (0.21) 12.17 (13.81) 13,937 1.25 0.20 30 2.20 -- (0.34) 14.35 43.05 5,898 1.25 0.43 24 2.64 -- (0.03)## 10.28 3.11 2,310 1.25+ 1.09+ 16 4.09+ $ -- $(0.20) $ 6.85 (16.04)% $ 19,423 1.25%(a) 1.74% 15% 1.81%(a) -- (0.09) 8.40 (9.87) 11,506 1.25 1.25 10 3.04 -- (0.04) 9.43 (5.35) 2,122 1.25+ 1.32+ 2 7.59+(a) $ -- $ -- $11.39 (15.13)% $101,516 1.09%(a)(b) (0.41)% 119% 1.35%(a) -- -- 13.42 (17.72) 116,739 1.10(a) (0.08) 128 1.38(a) -- (0.32)## 16.31 (15.82) 148,714 1.10(a)(b) 0.06 141 1.36(a) -- (0.16) 19.71 53.28 113,115 1.10(a) (0.17) 134 1.38(a) -- (0.02)## 13.00 30.16 24,521 1.10+(a) 0.33+ 236 1.94+(a) $ -- $(0.01) $ 7.15 (26.37)% $ 16,288 1.25%(a) (0.64)% 48% 1.92%(a) -- (0.04) 9.72 3.93 12,579 1.07(a)(b) (0.31) 70 2.14(a) (0.34) (1.22) 9.39 10.84 9,328 0.68(a) 0.31 94 1.92(a) -- (0.01) 9.55 5.92 7,187 0.75 0.14 55 1.21 -- (0.03)## 9.03 (9.35) 6,098 0.75+(a) 0.49+ 44 1.70+(a) $ -- $ -- $ 5.71 (8.20)% $ 5,527 1.10%(a) (0.36)% 352% 2.55%(a) -- -- 6.22 (26.56) 4,825 1.07(a) (0.42) 373 3.45(a) -- -- 8.47 (27.17) 5,107 1.00(a) (0.25) 140 2.25(a) -- (0.03) 11.63 9.75 7,684 1.00(a)(b) 0.22 50 1.81(a) -- (0.02)## 10.62 6.44 4,796 1.00+(a) 0.44+ 40 2.41+(a)
SEE NOTES TO FINANCIAL STATEMENTS. 51 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) For a share outstanding throughout each period.
NET ASSET NET REALIZED NET INCREASE/ DIVIDENDS VALUE NET AND UNREALIZED (DECREASE) IN FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON NET ASSET VALUE INVESTMENT OF PERIOD INCOME/(LOSS) INVESTMENTS FROM OPERATIONS INCOME ------------------------------------------------------------------------- GROWTH PORTFOLIO Year ended 12/31/2002#.................... $13.45 $(0.05) $(2.12) $(2.17) $ -- Year ended 12/31/2001#.................... 16.33 (0.02) (2.86) (2.88) (0.00)*** Year ended 12/31/2000#.................... 18.86 0.00*** (2.34) (2.34) (0.00)*** Year ended 12/31/1999#.................... 12.16 (0.03) 6.73 6.70 -- Period ended 12/31/1998*.................. 10.00 0.02 2.16 2.18 (0.02)## CAPITAL GROWTH PORTFOLIO Year ended 12/31/2002#.................... $10.08 $ 0.01 $(3.04) $(3.03) $(0.01) Year ended 12/31/2001#.................... 11.46 0.02 (1.38) (1.36) (0.02) Year ended 12/31/2000..................... 13.03 0.07 (1.57) (1.50) (0.07) Year ended 12/31/1999#.................... 11.06 0.08 1.95 2.03 (0.06) Period ended 12/31/1998*.................. 10.00 0.06 1.07 1.13 (0.07)## MIDCAP GROWTH PORTFOLIO Year ended 12/31/2002#.................... $ 8.44 $(0.02) $(2.85) $(2.87) $ -- Period ended 12/31/2001**#................ 10.00 (0.02) (1.54) (1.56) -- VALUE PORTFOLIO Year ended 12/31/2002#.................... $10.39 $ 0.12 $(2.27) $(2.15) $(0.09) Year ended 12/31/2001#.................... 11.29 0.10 (0.91) (0.81) (0.09) Year ended 12/31/2000#.................... 10.61 0.12 0.67 0.79 (0.11) Year ended 12/31/1999#.................... 10.41 0.07 0.19 0.26 (0.06) Period ended 12/31/1998*.................. 10.00 0.04 0.41 0.45 (0.04)## ASSET ALLOCATION PORTFOLIO Year ended 12/31/2002#.................... $ 9.46 $ 0.15 $(1.43) $(1.28) $(0.13) Year ended 12/31/2001#.................... 10.13 0.22 (0.70) (0.48) (0.19) Year ended 12/31/2000..................... 9.65 0.31 0.48 0.79 (0.31) Year ended 12/31/1999#.................... 9.68 0.20 (0.06) 0.14 (0.17) Period ended 12/31/1998*.................. 10.00 0.09 (0.31) (0.22) (0.10)## HIGH YIELD BOND PORTFOLIO Year ended 12/31/2002#.................... $ 8.87 $ 0.80 $(0.61) $ 0.19 $(0.61) Year ended 12/31/2001#.................... 8.96 1.07 (0.33) 0.74 (0.83) Period ended 12/31/2000**................. 10.00 0.50 (1.03) (0.53) (0.51) DISTRIBUTIONS FROM NET REALIZED CAPITAL GAINS ------------- GROWTH PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000#.................... (0.19) Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. -- CAPITAL GROWTH PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000..................... -- Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. -- MIDCAP GROWTH PORTFOLIO Year ended 12/31/2002#.................... $ -- Period ended 12/31/2001**#................ -- VALUE PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000#.................... -- Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. -- ASSET ALLOCATION PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Year ended 12/31/2000..................... -- Year ended 12/31/1999#.................... -- Period ended 12/31/1998*.................. -- HIGH YIELD BOND PORTFOLIO Year ended 12/31/2002#.................... $ -- Year ended 12/31/2001#.................... -- Period ended 12/31/2000**................. --
- --------------- * Portfolio commenced operations on March 27, 1998. Shares were offered to the public on April 6, 1998. ** High Yield Bond and MidCap Growth commenced operations on July 7, 2000 and May 1, 2001, respectively. ***Amount represents less than $0.01 per share. + Annualized. ++ Total return represents aggregate total return for the period indicated and assumes reinvestment of all distributions. # Per share net investment income has been calculated using the monthly average shares method. ## Includes distributions in excess of net investment income or from net realized gains which amounted to less than $0.01 per share. (a)The effect of the custodial expense offset (Note 2) on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b)The effect of interest expense on the operating expense ratio was less than 0.01%. SEE NOTES TO FINANCIAL STATEMENTS. 52 NATIONS FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS --------------- RATIO OF RATIO OF RATIO OF TOTAL NET ASSET NET ASSETS OPERATING NET INVESTMENT OPERATING DIVIDENDS VALUE END OF EXPENSES TO INCOME TO PORTFOLIO EXPENSES TO AND END OF TOTAL PERIOD AVERAGE AVERAGE TURNOVER AVERAGE DISTRIBUTIONS PERIOD RETURN++ (000) NET ASSETS NET ASSETS RATE NET ASSETS - -------------------------------------------------------------------------------------------------------------------- $ -- $11.28 (16.13)% $56,948 1.14%(a)(b) (0.40)% 107% 1.42%(a) (0.00)*** 13.45 (17.63) 72,550 1.10(a) (0.14) 113 1.43(a) (0.19) 16.33 (12.42) 90,791 1.10(a)(b) 0.01 122 1.39(a) -- 18.86 55.10 64,049 1.10(a) (0.20) 110 1.41(a) (0.02)## 12.16 21.80 15,576 1.10+(a) 0.40+ 184 1.99+(a) $(0.01) $ 7.04 (30.06)% $12,486 1.00%(a)(b) 0.07% 153% 1.61%(a) (0.02) 10.08 (11.91) 18,346 0.89(a)(b) 0.17 167 1.51(a) (0.07) 11.46 (11.51) 22,542 0.75(a) 0.63 80 1.28(a) (0.06) 13.03 18.27 20,680 0.75(a) 0.64 76 1.07(a) (0.07)## 11.06 11.39 9,931 0.75+(a) 1.04+ 16 1.62+(a) $ -- $ 5.57 (34.00)% $12,641 1.00%(a) (0.38)% 49% 2.02%(a) -- 8.44 (15.60) 3,560 1.00+(a) (0.19)+ 20 5.73+(a) $(0.09) $ 8.15 (20.73)% $19,598 1.00%(a)(b) 1.30% 89% 1.59%(a) (0.09) 10.39 (7.20) 14,017 1.00(a) 1.00 168 2.00(a) (0.11) 11.29 7.47 11,073 1.00(a)(b) 1.12 174 1.87(a) (0.06) 10.61 2.50 10,645 1.00(a) 0.67 82 1.68(a) (0.04)## 10.41 4.48 5,645 1.00+(a) 0.83+ 27 2.32+(a) $(0.13) $ 8.05 (13.54)% $10,636 1.00%(a) 1.72% 372% 1.97%(a) (0.19) 9.46 (4.72) 10,085 1.00(a) 2.31 273 2.34(a) (0.31) 10.13 8.14 7,321 1.00(a) 3.38 210 2.21(a) (0.17) 9.65 1.44 6,548 1.00(a) 2.01 75 1.79(a) (0.10)## 9.68 (2.23) 3,823 1.00+(a) 2.36+ 94 2.71+(a) $(0.61) $ 8.45 2.18% $35,354 1.00%(a) 9.19% 62% 1.44%(a) (0.83) 8.87 8.32 17,276 1.00(a) 11.43 64 2.13(a) (0.51) 8.96 (5.34) 9,843 1.00+ 10.68+ 74 1.78+
SEE NOTES TO FINANCIAL STATEMENTS. 53 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Nations Separate Account Trust (the "Trust"), was organized as a Delaware business trust on February 5, 1998 and commenced operations March 27, 1998. The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company whose shares are offered in the following eleven portfolios: Nations Marsico International Opportunities Portfolio, Nations International Value Portfolio, Nations Marsico Focused Equities Portfolio, Nations Small Company Portfolio, Nations Marsico 21st Century Portfolio, Nations Marsico Growth Portfolio, Nations Capital Growth Portfolio, Nations MidCap Growth Portfolio, Nations Value Portfolio, Nations Asset Allocation Portfolio and Nations High Yield Bond Portfolio (individually, a "Portfolio", collectively the "Portfolios"). International Value Portfolio is no longer accepting new investments from current or prospective investors. Please see the Portfolio's current prospectus for more information. The Portfolios are made available only to variable annuity and variable life separate accounts issued by participating life insurance companies. Each Portfolio has distinct investment objectives as follows: International Opportunities -- Seeks long-term growth of capital. International Value -- Seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging market countries. Focused Equities -- Seeks long-term growth of capital. Small Company -- Seeks long-term capital growth by investing primarily in equity securities. 21st Century -- Seeks long-term growth of capital. Growth -- Seeks long-term growth of capital. Capital Growth -- Seeks growth of capital by investing in companies that are believed to have superior earnings growth potential. MidCap Growth -- Seeks capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. Value -- Seeks growth of capital by investing in companies that are believed to be undervalued. Asset Allocation -- Seeks to obtain long-term growth from capital appreciation, and dividend and interest income. High Yield Bond -- Seeks maximum income by investing in a diversified portfolio of high yield debt securities.
1. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolios in the preparation of their financial statements. Securities valuation: Securities, including futures contracts, traded on a recognized exchange or on NASDAQ are valued at the last sale price on the exchange or market on which such securities are primarily traded. Securities traded only over-the-counter are valued at the last sale price, or if no sale occurred on such day, at the mean of the current bid and asked prices. Certain securities may be valued using broker quotations or on the basis of prices provided by pricing services. Certain prices provided by broker-dealers or the pricing service may be based on a matrix pricing system, which considers such factors as security prices, yields and maturities. Restricted securities, securities for which market quotations are not readily available, and certain other assets may be valued under procedures adopted by the Board of Trustees. Short-term investments that mature in 60 days or less are valued at amortized cost, which approximates current market value. Investments in other Nations Funds are valued at their net asset value as determined by the Fund's prospectus. Futures contracts: All Portfolios may invest in futures contracts for the purposes of hedging against changes in values of the Portfolio's securities or changes in the prevailing levels of interest rates or currency exchange rates or to gain exposure to the equity market. Upon entering into a futures contract, a Portfolio is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by the Portfolio each day, depending on the daily fluctuation of the value of the contract. 54 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gain or loss by "marking-to-market" on a daily basis to reflect changes in the market value of the contract. When the contract is closed, a Portfolio records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts, that a change in the value of the contract may not correlate with a change in the value of the underlying securities, or that the counterparty to a contract may default on its obligation to perform. Foreign currency transactions: The books and records of the Portfolios are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of a Portfolio and the amounts actually received. The effects of changes in foreign currency exchange rates on securities are not separately identified in the Statements of operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on securities. Forward foreign currency transactions: Generally, each Portfolio may enter into forward currency exchange contracts only under two circumstances: (i) when the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, to "lock in" the U.S. exchange rate of the transaction, with such period being a short-dated contract covering the period between transaction date and settlement date; or (ii) when the investment adviser or sub-adviser believes that the currency of a particular foreign country may experience a substantial movement against the U.S. dollar. Forward foreign currency contracts are valued at the forward rate and are marked-to-market daily. The change in market value is recorded by a Portfolio as an unrealized gain or loss. When the contract is closed or offset with the same counterparty, a Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or offset. Forward foreign currency contracts will be used primarily to protect the Portfolios from adverse currency movements and will generally not be entered into for terms greater than one year. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Portfolio's investment securities; however, it does establish a rate of exchange that can be achieved in the future. The use of forward foreign currency contracts involves the risk that anticipated currency movements will not be accurately predicted. A forward foreign currency contract would limit the risk of loss due to a decline in the value of a particular currency; however, it also would limit any potential gain that might result should the value of the currency increase instead of decrease. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Statement of net assets. In addition, the Portfolios could be exposed to risks if counterparties to the contracts are unable to meet the terms of their contracts. The counterparty risk exposure is, therefore, closely monitored and contracts are only executed with high credit quality financial institutions. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of net assets. When-issued/delayed delivery securities: Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after trade date; interest income is not accrued until settlement date. At the time a Portfolio enters into such transactions, it instructs the custodian to segregate assets with a current value at least equal to the amount of its when-issued or delayed-delivery purchase commitments. Loan Participations: The High Yield Bond Portfolio may invest in Loan Participations. When the Portfolio purchases a Loan Participation, the Portfolio typically enters into a contractual relationship with the lender or third party selling such Participations ("Selling Participant"), but not the Borrower. As a result, the Portfolio assumes the credit risk of the Borrower, the Selling Participant and any other persons interpositioned between the Portfolio and the Borrower 55 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 ("Intermediate Participants"). The Portfolio may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the Loan Participation. Securities transactions and investment income: Securities transactions are recorded on trade date. Realized gains and losses are computed based on the specific identification of securities sold. Interest income, adjusted for accretion of discounts and amortization of premiums, is earned from settlement date and recorded on an accrual basis. Dividend income is recorded on ex-dividend date. Dividends and distributions to shareholders: Distributions from net investment income are declared and paid annually by the Portfolios. Each Portfolio will distribute net realized capital gains (including net short-term capital gains) annually after the fiscal year in which the capital gains were earned, unless offset by any available capital loss carryforward. Income distributions and capital gain distributions are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. Federal income tax: Each Portfolio intends to continue to qualify as a regulated investment company by complying with the applicable requirements of the Internal Revenue Code of 1986, as amended, and by distributing substantially all of its earnings to its shareholders. Therefore, no provision is made for federal income or excise taxes. The Portfolios may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Portfolios accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. Expenses: General expenses of the Trust are allocated to the Portfolios based upon their relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to a Portfolio are charged to such Portfolio. The Portfolios, with the exception of International Value, MidCap Growth and High Yield Bond, bear all costs in connection with their organization, including the fees and expenses of registering and qualifying their shares for distribution under federal and state securities regulations. All such costs are being amortized on a straight line basis over a period of five years from commencement of operations. 2. INVESTMENT ADVISORY FEE, SUB-ADVISORY FEE, ADMINISTRATION FEE AND RELATED PARTY TRANSACTIONS The Trust has entered into an investment advisory agreement (the "Investment Advisory Agreement") with Banc of America Advisors, LLC ("BA Advisors"), a wholly-owned subsidiary of Bank of America, N.A. ("Bank of America"), which in turn is a wholly-owned banking subsidiary of Bank of America Corporation, a bank holding company organized as a Delaware corporation, pursuant to which BA Advisors provides investment advisory services to the Portfolios. Under the terms of the Investment Advisory Agreement, BA Advisors is entitled to receive an advisory fee, calculated daily and payable monthly, based on the following maximum annual rates multiplied by the average daily net assets of each Portfolio:
PORTFOLIO ANNUAL RATE - ------------------------------------------------------------------------ International Value, Small Company.......................... 0.90% International Opportunities................................. 0.80% Focused Equities, 21st Century, Growth...................... 0.75% Capital Growth, MidCap Growth, Value, Asset Allocation...... 0.65% High Yield Bond............................................. 0.55%
The Trust has, on behalf of the Small Company, Capital Growth, MidCap Growth, Value and Asset Allocation Portfolios, entered into a sub-advisory agreement with BA Advisors and Banc of America Capital Management, LLC ("BACAP"), a wholly-owned subsidiary of Bank of America, pursuant to which BACAP is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.25% of each Portfolio's average daily net assets. The Trust has, on behalf of the International Opportunities, Focused Equities, 21st Century and Growth Portfolios, entered into a sub-advisory agreement with BA Advisors and Marsico Capital Management, LLC ("Marsico"), a wholly-owned subsidiary of Bank of America, pursuant to which Marsico is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.45% of each Portfolio's average daily net assets. 56 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 The Trust has, on behalf of the International Value Portfolio, entered into a sub-advisory agreement with BA Advisors and Brandes Investment Partners, LLC ("Brandes"), pursuant to which Brandes is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.50% of the Portfolio's average daily net assets. The Trust has, on behalf of the High Yield Bond Portfolio, entered into a sub-advisory agreement with BA Advisors and MacKay Shields LLC ("MacKay Shields") pursuant to which MacKay Shields is entitled to receive a sub-advisory fee from BA Advisors at the maximum annual rate of 0.40% of the Portfolio's average daily net assets up to and including $100 million; 0.375% over $100 million and up to and including $200 million and 0.35% in excess of $200 million. Stephens Inc. ("Stephens") and BA Advisors serve as co-administrators of the Trust. Under the co-administration agreements, Stephens and BA Advisors are currently entitled to receive a combined fee, computed daily and paid monthly, at the maximum annual rate of 0.22% of the average daily net assets of the International Opportunities and International Value Portfolios and 0.23% of the average daily net assets of all other Portfolios of the Trust. The Bank of New York ("BNY") serves as sub-administrator of the Trust pursuant to an agreement with BA Advisors. For the year ended December 31, 2002, Stephens and BA Advisors earned 0.06% and 0.11% respectively, of the Portfolio's average daily net assets for their co-administration services. BA Advisors and/or the sub-advisers and/or Stephens may, from time to time, reduce their fees payable by each Portfolio. During the year ended December 31, 2002 and until April 30, 2003, BA Advisors and/or the sub-advisers and/or Stephens have agreed to reimburse expenses and/or waive their fees to the extent that total expenses (excluding shareholder servicing and distribution fees), as a percentage of the respective Portfolio's average daily net assets, exceeded the following annual rates: 1.00% for the Capital Growth Portfolio, MidCap Growth Portfolio, Value Portfolio, Asset Allocation Portfolio and High Yield Bond Portfolio, 1.10% for the 21st Century Portfolio and 1.25% for the International Opportunities Portfolio, International Value Portfolio and Small Company Portfolio. For the period January 1, 2002 through April 30, 2002, BA Advisors and/or the sub-advisors and/or Stephens agreed to reimburse expenses and/or waive their fees to the extent that total expenses (excluding shareholder servicing and distribution fees), as a percentage of the respective Portfolio's average daily net assets, exceeded an annual rate of 1.10% for the Focused Equities Portfolio and Growth Portfolio. Effective May 1, 2002, the expense limitations were discontinued for the Focused Equities Portfolio and Growth Portfolio. PFPC Inc. ("PFPC") serves as the transfer agent for the Portfolios' shares. BNY serves as the custodian of the Trust's assets. For the year ended December 31, 2002, expenses of the Trust were reduced by $704 under expense offset arrangements with BNY. The Trust could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if they had not entered into such arrangements. Stephens also serves as distributor of the Portfolios' shares. For the year ended December 31, 2002, the Focused Equities Portfolio, 21st Century Portfolio and the Growth Portfolio paid commissions of $13,945, $1,014 and $7,361, respectively, to certain affiliates of BA Advisors in connection with the execution of various portfolio transactions. No officer, director or employee of Bank of America, BA Advisors or BACAP, or any affiliate thereof, receives any compensation from the Trust for serving as Trustee or Officer of the Trust. The Trust's eligible Trustees may participate in a non-qualified deferred compensation plan which may be terminated at any time. All benefits provided under this plan are unfunded and any payments to plan participants are paid solely out of the Portfolios' assets. Income earned on the plan participant's deferral account is based on the rate of return of the eligible mutual funds selected by the participants or, if no portfolios are selected, on the rate of return of Nations Treasury Reserves, a portfolio of Nations Funds Trust, another registered investment company advised by BA Advisors. The expense for the deferred compensation plan is included in "Trustees' fees and expenses" in the Statements of operations. The liability for the deferred compensation plan is included in "Accrued Trustees' fees and expenses" in each Portfolio's Statement of net assets. The Trust previously offered a retirement plan to the Trustees, which was terminated on January 1, 2002. The Trust's eligible Trustees had the option of a rollover into the deferred compensation 57 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 plan on January 1, 2002 or a lump sum distribution, including interest, on January 1, 2003. The liability for the retirement plan is included in "Accrued Trustees' fees and expenses" in each Portfolio's Statement of net assets. The Portfolios have made daily investments of cash balances in Nations Cash Reserves, a portfolio of Nations Funds Trust, pursuant to an exemptive order received from the Securities and Exchange Commission. The income earned by each Portfolio from such investments is included in its Statement of operations as "Dividend income from affiliated funds". 3. SHAREHOLDER SERVICING AND DISTRIBUTION PLAN The Trust has adopted a Shareholder Servicing and Distribution Plan (the "Servicing and Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act. Payments under the Servicing and Distribution Plan are calculated daily and paid monthly at a rate not exceeding 0.25% (on an annualized basis) of the average daily net asset value of the shares beneficially owned through the ownership of contracts by customers with whom the selling and servicing agents have a selling or servicing relationship. For the year ended December 31, 2002 and until April 30, 2003, Stephens agreed to voluntarily waive 100% of the Portfolios' shareholder servicing and distribution fees. 4. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, excluding long-term U.S. government securities and short-term investments, for the year ended December 31, 2002, were as follows:
PORTFOLIO PURCHASES SALES - -------------------------------------------------------------------------------------------- International Opportunities................................. $ 23,926,059 $ 20,238,002 International Value......................................... 14,979,805 2,562,442 Focused Equities............................................ 129,117,904 127,969,094 Small Company............................................... 12,340,968 6,232,149 21st Century................................................ 17,896,270 16,664,098 Growth...................................................... 69,231,127 72,356,307 Capital Growth.............................................. 21,444,511 22,417,452 MidCap Growth............................................... 13,852,603 3,080,571 Value....................................................... 22,801,852 13,509,368 Asset Allocation............................................ 9,722,809 9,779,279 High Yield Bond............................................. 32,744,526 13,837,205
The aggregate cost of purchases and proceeds from sales of long-term U.S. government securities for the year ended December 31, 2002, were as follows:
PORTFOLIO PURCHASES SALES - ------------------------------------------------------------------------------------------ Asset Allocation............................................ $ 28,444,329 $ 26,360,858 High Yield Bond............................................. 256,838 272,911
5. SHARES OF BENEFICIAL INTEREST At December 31, 2002, an unlimited number of shares of beneficial interest without par value were authorized for the Trust. At December 31, 2002, Hartford Life Insurance Company owned the following percentage of shares outstanding:
PORTFOLIO % OF SHARES HELD - ------------------------------------------------------------------------------ Small Company............................................... 27.9% Capital Growth.............................................. 27.3 High Yield Bond............................................. 41.3
6. LINES OF CREDIT The Trust participates with other Nations Funds in a $1 billion uncommitted line of credit provided by BNY under a line of credit agreement (the "Agreement"). Advances under the Agreement are taken primarily for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of 58 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 securities. Interest on borrowings is payable at a specified Federal Funds rate plus 0.50% on an annualized basis. Each participating Portfolio maintains a ratio of net assets (not including amounts borrowed pursuant to the Agreement) to the aggregate amount of indebtedness pursuant to the Agreement of no less than 4 to 1. At December 31, 2002, there were no loans outstanding under this Agreement. For the year ended December 31, 2002, borrowings by the Portfolios under the Agreement were as follows:
AVERAGE AMOUNT AVERAGE PORTFOLIO OUTSTANDING INTEREST RATE - ------------------------------------------------------------------------------------------ International Opportunities................................. $ 283,000 2.25% Focused Equities............................................ 1,366,167 2.22 Growth...................................................... 286,250 2.23 Capital Growth.............................................. 51,000 2.21 Value....................................................... 114,500 2.21
The average amount outstanding was calculated based on daily balances in the period. 7. SECURITIES LENDING Under an agreement with BNY, the Portfolios can lend their securities to approved brokers, dealers and other financial institutions. Loans are collateralized by cash, in an amount at least equal to the market value of the securities loaned. The cash collateral received is invested in Nations Cash Reserves. A portion of the income generated by the investment of the collateral, net of any rebates paid by BNY to borrowers, is remitted to BNY as lending agent, and the remainder is paid to the Portfolio. Generally, in the event of counterparty default, the Portfolio has the right to use the collateral to offset losses incurred. There would be a potential loss to the Portfolio in the event the Portfolio is delayed or prevented from exercising its right to dispose of the collateral. The Portfolio bears the risk of loss with respect to the investment of collateral. At December 31, 2002, the following Portfolios had securities on loan:
MARKET VALUE OF MARKET VALUE PORTFOLIO LOANED SECURITIES OF COLLATERAL - ------------------------------------------------------------------------------------------------ Focused Equities............................................ $3,602,150 $3,767,357 Small Company............................................... 2,466,830 2,565,165 21st Century................................................ 597,346 604,538 Growth...................................................... 4,793,733 4,932,449 Value....................................................... 2,187,180 2,250,829 Asset Allocation............................................ 219,881 224,470 High Yield Bond............................................. 4,136,978 4,357,345
59 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 8. INCOME TAXES Information on the tax components of capital is as follows:
NET TAX UNREALIZED APPRECIATION/ NET TAX (DEPRECIATION) ON UNREALIZED DERIVATIVES AND UNDISTRIBUTED COST OF GROSS TAX GROSS TAX APPRECIATION/ FOREIGN CURRENCY ORDINARY INCOME/ INVESTMENTS UNREALIZED UNREALIZED (DEPRECIATION) OF AND NET (ACCUMULATED PORTFOLIO FOR TAX PURPOSES APPRECIATION DEPRECIATION INVESTMENTS OTHER ASSETS ORDINARY LOSS) - -------------------------------------------------------------------------------------------------------------------------------- International Opportunities...... $ 14,765,401 $1,041,497 $ (431,765) $ 609,732 $(502) $ 4,962 International Value.............. 24,405,920 337,470 (5,343,752) (5,006,282) 343 18,074 Focused Equities..... 103,186,450 6,820,797 (5,239,432) 1,581,365 140 -- Small Company........ 21,333,938 712,962 (3,110,997) (2,398,035) -- -- 21st Century......... 5,887,359 377,722 (173,307) 204,415 -- (52) Growth............... 59,622,090 5,134,465 (3,068,793) 2,065,672 159 -- Capital Growth....... 12,558,139 497,556 (625,590) (128,034) -- 5,504 MidCap Growth........ 14,146,961 258,959 (1,799,287) (1,540,328) -- -- Value................ 23,034,727 421,521 (1,862,628) (1,441,107) -- 7,020 Asset Allocation..... 13,130,034 215,228 (859,628) (644,400) -- 2,970 High Yield Bond...... 42,219,724 1,454,130 (4,515,465) (3,061,335) -- -- UNDISTRIBUTED LONG-TERM GAINS/ (ACCUMULATED PORTFOLIO CAPITAL LOSS) - --------------------- ---------------- International Opportunities...... $ (4,016,661) International Value.............. 3,319 Focused Equities..... (38,852,074) Small Company........ (1,001,016) 21st Century......... (3,048,326) Growth............... (22,042,779) Capital Growth....... (7,426,776) MidCap Growth........ (1,156,327) Value................ (2,130,892) Asset Allocation..... (1,302,319) High Yield Bond...... (173,288)
At December 31, 2002, the following Portfolios had available for Federal income tax purposes unused capital losses as follows:
EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN EXPIRING IN PORTFOLIO 2006 2007 2008 2009 2010 - -------------------------------------------------------------------------------------------------------------------------- International Opportunities......................... $ -- $ -- $ -- $ 3,416,389 $ 582,100 Focused Equities.................................... -- -- 5,660,894 23,143,672 10,047,508 Small Company....................................... -- -- -- -- 876,808 21st Century........................................ 78,483 -- 530,720 2,092,294 237,966 Growth.............................................. -- -- 262,272 13,882,689 7,897,818 Capital Growth...................................... 36,966 221,488 517,769 1,966,000 4,631,508 MidCap Growth....................................... -- -- -- 57,066 1,091,297 Value............................................... -- 169,864 -- 397,152 1,490,211 Asset Allocation.................................... 178,334 74,210 -- -- 872,757 High Yield.......................................... -- -- -- -- 173,288
Under current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended December 31, 2002, the following Portfolios have elected to defer losses occurring between November 1, 2002 and December 31, 2002 under these rules, as follows:
CAPITAL LOSSES CURRENCY LOSSES PORTFOLIO DEFERRED DEFERRED - ---------------------------------------------------------------------------------------------- International Opportunities................................. $ 18,172 $ -- International Value......................................... -- 228 Small Company............................................... 124,208 -- 21st Century................................................ 108,863 52 Capital Growth.............................................. 53,045 -- MidCap Growth............................................... 7,964 -- Value....................................................... 73,665 -- Asset Allocation............................................ 177,018 --
Such deferred losses will be treated as arising on the first day of the fiscal year ending December 31, 2003. 60 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002 The tax composition of distributions (other than return of capital dividends for the years) were as follows:
2002 2001 ------------------------------- ------------------------------- LONG-TERM LONG-TERM PORTFOLIO ORDINARY INCOME CAPITAL GAINS ORDINARY INCOME CAPITAL GAINS - ------------------------------------------------------------------------------------------------------------------------------- International Opportunities................................. $ 4,520 $ -- $ 28,746 $ -- International Value......................................... 517,360 32,201 127,789 -- Focused Equities............................................ -- -- -- -- Small Company............................................... -- 13,203 -- 50,371 21st Century................................................ -- -- -- -- Growth...................................................... -- -- 1,084 -- Capital Growth.............................................. 16,833 -- 27,347 -- MidCap Growth............................................... -- -- -- -- Value....................................................... 196,629 -- 112,446 -- Asset Allocation............................................ 166,471 -- 199,217 -- High Yield Bond............................................. 2,388,785 -- 1,470,831 --
Certain reclassifications are made to each Portfolio's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. These reclassifications are due primarily to different book and tax accounting for net operating losses and foreign currency gains and losses. 9. COMMITMENTS AND CONTINGENCIES As of December 31, 2002, the High Yield Bond Portfolio had unfunded loan commitments pursuant to the following loan agreements:
BORROWER UNFUNDED COMMITMENT - --------------------------------------------------------------------------------- Owens Corning, Inc.......................................... $ 6,201 Qwest Services Corporation.................................. 45,900
10. RESTRICTED SECURITIES Certain securities may have been subject to legal restrictions and may be difficult to sell. No Portfolio will invest more than 10% of the value of its net assets in securities that are considered restricted. The following securities are considered restricted as to resale at December 31, 2002 for the High Yield Bond Portfolio. 61 NATIONS FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2002
PRINCIPAL PERCENTAGE AMOUNT/ VALUE OF NET SECURITY ACQUISITION DATE SHARES COST 12/31/02 ASSETS - ----------------------------------------------------------------------------------------------------------------------- AES Corporation Common Stock(g)................... 12/12/02 120,000 $ 2,160 $ 2,160 0.0%* Ermis Maritime Holdings Ltd., 12.500% due 12/31/04(c)(g).................................. 02/22/01 20,138 18,374 17,150 0.0* Ermis Maritime Holding Ltd., Preferred Stock(g)... 02/22/01 524 -- 5 0.0* Globix Corporation, 11.000% due 05/01/08(c)(d)(g)............................... 10/15/01-04/08/02 48,196 52,360 34,701 0.1 Globix Corporation, Common Stock.................. 10/15/01-04/08/02 5,619 -- 5,619 0.0* GT Telecom Racers Notes Trust, Series A, 0.000% due 06/30/08(a)(b)(e)........................... 12/13/01 40,825 20,235 2,858 0.0* GT Telecom Racers Notes Trust, Series B, 0.000% due 02/03/03(a)(b)(e)........................... 12/13/01 29,175 19,316 2,042 0.0* Loral Space & Communications Warrants............. 12/31/01 803 -- 40 0.0* NII Holdings, Inc., Class B, Common Stock......... 11/14/01-11/13/02 15,061 143,467 176,966 0.5 Nextel Notes, 13.000% due 11/01/09................ 09/13/02-11/12/02 169,961 95,329 125,771 0.4 NEON Communications, Inc., Preferred Stock(g)..... 12/04/02 3,477 39,115 39,116 0.1 NEON Communications, Inc. Warrants(g)............. 12/04/02 20,868 -- 209 0.0* NEON Communications, Inc. Warrants(g)............. 12/04/02 17,391 -- 174 0.0* Ono Finance plc Warrants(d)....................... 02/09/01 105 14,486 1 0.0* Owens Corning Bank Debt, 6.750% due 06/26/03(a)(b)(f)............................... 08/15/01-10/14/02 94,221 63,181 56,886 0.2 Pacific Gas and Electric Company Bank Debt A, 8.000% due 12/30/06(e)(f)....................... 07/10/02 135,000 129,332 128,925 0.4 Pagemart Nationwide, 15.000% due 02/01/05(a)(b)(g)............................... 03/01/01 80,000 76,810 8 0.0* Pegasus Promissory Note(a)(g)..................... 08/24/01 1,584 -- -- -- President Casinos, Inc., 13.000% due 09/15/03(a)(g).................................. 08/20/01 37,000 17,575 17,575 0.0* Thermadyne Holding Corporation: Bank Debt Term A, 4.170% due 05/22/04(e)(f)..... 03/08/02 75,000 66,522 62,250 0.2 Bank Debt Term B, 4.420% due 05/22/05(e)(f)..... 01/28/02-01/29/02 82,500 73,741 68,475 0.2 Bank Debt Term C, 4.670% due 05/22/06(e)(f)..... 01/28/02-01/29/02 82,500 73,092 68,475 0.2 TSI Telecommunication Services Inc., 6.240% due 12/31/06(e)(f).................................. 11/27/02 243,440 226,798 226,806 0.6 Ziff Davis Media Inc. Bank Debt Term B, 6.180% due 03/31/07(e)(f).................................. 11/06/01 48,866 35,701 40,559 0.1 ---------- ---------- --- Total............................................. $1,167,594 $1,076,771 3.0% ========== ========== ===
- --------------- * Amount represents less than 0.1%. (a) Issue in default. (b) Issuer in bankruptcy. (c) PIK ("Payment in kind"). Interest or dividend payment is made with additional securities. (d) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. (e) Variable rate note. The interest rate shown reflects the rate in effect at December 31, 2002. (f) Loan participation agreement. (g) Fair valued security. 11. SUBSEQUENT EVENT On October 8, 2002, the Board of Trustees of each Portfolio approved the replacement of Stephens with BA Advisors as the exclusive distributor of the shares of the Portfolios. In addition, on November 21, 2002, the Board of Trustees approved the termination of Stephens as the co-administrator with BA Advisors (which will result in BA Advisors being the sole administrator to the Portfolios) and approved the assumption by BACAP of BA Advisors' role as the primary investment adviser to the Portfolios. The transition in service providers occurred on January 1, 2003. Also, BA Advisors changed its name to BACAP Distributors, LLC on January 1, 2003. Effective February 1, 2003, Mr. Thomas F. Marsico and Mr. James A. Hillary co-manage Nations Marsico Focused Equities Portfolio and Nations Marsico Growth Portfolio. Effective February 1, 2003, Mr. Hillary no longer manages Nations Marsico 21st Century Portfolio. Mr. Corydon J. Gilchrist is the portfolio manager of Nations Marsico 21st Century Portfolio. 62 REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND TRUSTEES OF NATIONS SEPARATE ACCOUNT TRUST In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Nations Marsico International Opportunities Portfolio, Nations International Value Portfolio, Nations Marsico Focused Equities Portfolio, Nations Small Company Portfolio, Nations Marsico 21st Century Portfolio, Nations Marsico Growth Portfolio (formerly Nations Marsico Growth & Income Portfolio), Nations Capital Growth Portfolio, Nations MidCap Growth Portfolio, Nations Value Portfolio, Nations Asset Allocation Portfolio and Nations High Yield Bond Portfolio (constituting the eleven portfolios of Nations Separate Account Trust, hereafter referred to as the "Trust") at December 31, 2002, the results of each of their operations for the year then ended, and the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York February 14, 2003 63 NATIONS SEPARATE ACCOUNT TRUST FUND GOVERNANCE (UNAUDITED) The Board of Trustees (the "Board") of Nations Separate Account Trust (the "Trust") oversees the Trust's series ("Funds") to ensure that they are managed and operated in the interests of shareholders. A majority of the trustees ("Trustees") are "independent," meaning that they have no affiliation with Bank of America, N.A., its affiliates, or the Funds, apart from the personal investments that most Trustees have made in certain of the funds as private individuals. The Trustees bring distinguished backgrounds in government, business, academia and public service to their task of working with Trust officers ("Officers") to establish the policies and oversee the activities of the Funds. Although all Trustees are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Trust, the independent Trustees have particular responsibilities for assuring that the Trust's Funds are managed in the best interests of shareholders. The following table provides basic information about the Trustees and Officers of the Trust. The mailing address of each Trustee is c/o Nations Funds, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina 28255. Each Trustee and Officer serves an indefinite term, subject to retirement from service as required (pursuant to the Trust's retirement policy) at the end of the calendar year in which a Trustee turns 72, provided that any Trustee who served on any of the Boards as of February 22, 2001, and who reached the age of 72 no later than the end of that calendar year, may continue to serve until the end of the calendar year in which such Trustee reaches age 75 and may continue to serve for successive annual periods thereafter upon the vote of a majority of the other Trustees.
NUMBER OF FUNDS IN FUND COMPLEX POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN NAME AND AGE WITH THE TRUST LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS BY TRUSTEE - ---------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES William P. Carmichael Trustee Indefinite term; Senior Managing Director 84 Age: 58 Trustee since 1999 of The Succession Fund (a company formed to advise and buy family owned companies) from 1998 through April 2001. William H. Grigg Age: Trustee Indefinite term; Retired; Chairman Emeritus 88 70 Trustee since 1997 since July 1997, Chairman and Chief Executive Officer through July 1997 -- Duke Power Co. Thomas F. Keller Trustee Indefinite term; R.J. Reynolds Industries 88 Age: 71 Trustee since 1997 Professor of Business Administration, Fuqua School of Business, Duke University, since July 1974; Dean, Fuqua School of Business Europe, Duke University, July 1999 through June 2001 NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ---------------------- ----------------------------------- INDEPENDENT TRUSTEES William P. Carmichael Director, Cobra Electronics Age: 58 Corporation (electronic equipment manufacturer), Opta Food Ingredients, Inc. (food ingredients manufacturer) and Golden Rule Insurance Company since May, 1994; Trustee, Nations Funds Family (2 other registered investment companies) William H. Grigg Age: Director, The Shaw Group, Inc.; and 70 Director and Vice Chairman, Aegis Insurance Services, Ltd. (a mutual fund insurance company in Bermuda); Trustee, Nations Funds Family (6 other registered investment companies) Thomas F. Keller Director, Wendy's International, Age: 71 Inc. (restaurant operating and franchising); Director, Dimon, Inc. (tobacco); and Director, Biogen, Inc. (pharmaceutical biotechnology); Trustee, Nations Funds Family (6 other registered investment companies)
64 NATIONS SEPARATE ACCOUNT TRUST FUND GOVERNANCE (CONTINUED) (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN NAME AND AGE WITH THE TRUST LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS BY TRUSTEE - ---------------------------------------------------------------------------------------------------------- Carl E. Mundy, Jr. Trustee Indefinite term; President and Chief 84 Age: 67 Trustee since 1997 Executive Officer -- USO from May 1996 to May 2000; Commandant -- United States Marine Corps from July 1991 to July 1995; Member, Board of Advisors to the Comptroller General of the United States; Chairman, Board of Trustees, Marine Corps University Foundation; Dr. Cornelius J. Pings Trustee Indefinite term; Retired; President, 84 Age: 73 Trustee since 1999 Association of American Universities through June 1998; A. Max Walker Trustee and Indefinite term; Independent Financial 88 Age: 80 Chairman of Trustee since 1997 Consultant the Board Charles B. Walker Age: Trustee Indefinite term; Vice Chairman and Chief 84 63 Trustee since 1997 Financial Officer -- Albemarle Corporation (chemical manufacturing) INTERESTED TRUSTEES(1) Edmund L. Benson, III Trustee Indefinite term; Director, President and 84 Age: 65 Trustee since 1997 Treasurer, Saunders & Benson, Inc. (insurance) Robert H. Gordon Trustee and Indefinite term; President of the Trust, 84 Age: 41 Vice Chairman Trustee since 2002 Nations Master Investment of the Board Trust ("NMIT") and Nations Funds Trust ("NFST") Oct. 2002; President of Nations Balanced Target Maturity Fund, Inc., Nations Government Income Term Trust 2004, Inc., Nations Government Income Term Trust 2003, Inc. and Hatteras Income Securities, Inc. since March 1998; President and Director, Banc of America Capital Management LLC ("BACAP") (or its predecessors) since February 1998; President, BACAP since March 2002 and Co-Chairman of the Board, since January 2000; Senior Vice-President, BACAP (or its predecessors) 1995-February 1998; Senior Vice President, Bank of America since 1993. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ---------------------- ----------------------------------- Carl E. Mundy, Jr. Director -- Shering-Plough Age: 67 (pharmaceuticals and health care products); General Dynamics Corporation (defense systems); trustee, Nations Funds Family (2 other registered investment companies) Dr. Cornelius J. Pings Director, Farmers Group, Inc. Age: 73 (insurance company); Trustee, Nations Funds Family (2 other registered investment companies) A. Max Walker Chairman and Trustee, Nations Funds Age: 80 Family (6 other registered investment companies) Charles B. Walker Age: Director -- Ethyl Corporation 63 (chemical manufacturing); Trustee, Nations Funds Family (2 other registered investment companies) INTERESTED TRUSTEES(1) Edmund L. Benson, III Director, Insurance Managers Inc. Age: 65 (insurance); Director, Insurance Managers, Inc. (insurance); Trustee, Nations Funds Family (2 other registered investment companies) Robert H. Gordon Director, BACAP; Co- Chairman of Age: 41 the Board, BACAP; and Trustee, Nations Funds Family (2 other registered investment companies)
65 NATIONS SEPARATE ACCOUNT TRUST FUND GOVERNANCE (CONTINUED) (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN NAME AND AGE WITH THE TRUST LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS BY TRUSTEE - ---------------------------------------------------------------------------------------------------------- James B. Sommers Trustee Indefinite term; Retired 84 Age: 63 Trustee since 1998 Thomas S. Word, Jr. Trustee Indefinite term; Partner -- McGuire, Woods, 84 Age: 64 Trustee since 1997 Battle & Boothe LLP (law firm) OFFICERS Robert H. Gordon Age: President Indefinite term; President of the Trust, 88 41 President since 2002 NMIT and NFST since Oct. 2002; President of Nations Balanced Target Maturity Fund, Inc., Nations Government Income Term Trust 2004, Inc., Nations Government Income Term Trust 2003, Inc. and Hatteras Income Securities, Inc. since March 1998; President and Director, BACAP (or its predecessors) since February 1998; President, BACAP since March 2002 and Co-Chairman of the Board, since January 2000; Senior Vice-President, BACAP (or its predecessors) 1995-February 1998; Senior Vice President, Bank of America since 1993. Edward D. Bedard Age: Chief Indefinite term; Chief Financial Officer of 88 44 Financial Treasurer since 2003 the Trust, NMIT and NFST Officer since Jan. 2003; Treasurer of the Trust, NMIT and NFST since Oct. 2002; Chief Financial Officer of Nations Balanced Target Maturity Fund, Inc., Nations Government Income Term Trust 2004, Inc., Nations Government Income Term Trust 2003, Inc. and Hatteras Income Securities, Inc. since March 1998; Director, BACAP (or its predecessors) since 1997; Senior Vice President and Chief Operating Officer, BACAP since 1996; and Chief Administrative Officer and Treasurer, BACAP since January 2000. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ---------------------- ----------------------------------- James B. Sommers Chairman -- Central Piedmont Age: 63 Community Director, College Foundation; Board of Commissioners, Charlotte/ Mecklenberg Hospital Authority; Trustee, Central Piedmont Community College, Mint Museum of Art; Trustee, Nations Funds Family (2 other registered investment companies) Thomas S. Word, Jr. Director -- Vaughan-Bassett Age: 64 Furniture Company, Inc. (furniture); Trustee, Nations Funds Family (2 other registered investment companies) OFFICERS Robert H. Gordon Age: Director, BACAP; Co- Chairman of 41 the Board, BACAP. Edward D. Bedard Age: None 44
66 NATIONS SEPARATE ACCOUNT TRUST FUND GOVERNANCE (CONTINUED) (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN NAME AND AGE WITH THE TRUST LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS BY TRUSTEE - ---------------------------------------------------------------------------------------------------------- OFFICERS Gerald Murphy Treasurer Indefinite term; Treasurer of the Trust, 88 Age: 42 Treasurer since 2003 NMIT and NFST since Jan. 2003; Treasurer of Nations Balanced Target Maturity Fund, Inc., Nations Government Income Term Trust 2004, Inc., Nations Government Income Term Trust 2003, Inc. and Hatteras Income Securities, Inc. since 1999; Senior Vice President, BACAP (or its predecessors) since 1998; Vice President, Citibank 1997-December 1998. Robert B. Carroll Age: Secretary Indefinite term; Secretary of the Trust, 88 43 Secretary since 2003 NMIT and NFST since Jan. 2003; Secretary of Nations Balanced Target Maturity Fund, Inc. Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Hatteras Income Securities, Inc. since 1997; Associate General Counsel, Bank of America Corporation since 1999; Assistant General Counsel, Bank of America Corporation 1996-1999. Brian Smith Assistant Indefinite term; Asst. Treasurer of the 88 Age: 33 Treasurer Assistant Treasurer Trust, NMIT, NFST and since 2003 Nations Balanced Target Maturity Fund, Inc. Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Hatteras Income Securities, Inc. since Jan. 2003; Vice President, BACAP (or its predecessors) since 1999; Assistant Vice President, BACAP (or its predecessors) 1998-1999; Sr. Investment Officer, PFPC, Inc 1997-1998. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ---------------------- ----------------------------------- OFFICERS Gerald Murphy None Age: 42 Robert B. Carroll Age: None 43 Brian Smith None Age: 33
67 NATIONS SEPARATE ACCOUNT TRUST FUND GOVERNANCE (CONTINUED) (UNAUDITED)
NUMBER OF FUNDS IN FUND COMPLEX POSITION HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN NAME AND AGE WITH THE TRUST LENGTH OF TIME SERVED DURING THE PAST FIVE YEARS BY TRUSTEE - ---------------------------------------------------------------------------------------------------------- OFFICERS Paul Caldarelli Assistant Indefinite term; Assistant Secretary of the 88 Age: 51 Secretary Assistant Secretary Trust, NMIT, NFST and since 2003 Nations Balanced Target Maturity Fund, Inc. Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Hatteras Income Securities, Inc. since Jan. 2003; Assistant General Counsel, Bank of America Corporation since 2000; Associate, Kirkpatrick & Lockhart LLP 1998-2000; Associate, LeBoeuf, Lamb, Greene & MacRAE, L.L.P. 1996-1998. NAME AND AGE OTHER DIRECTORSHIPS HELD BY TRUSTEE - ---------------------- ----------------------------------- OFFICERS Paul Caldarelli None Age: 51
- --------------- (1) Basis of Interestedness. Mr. Benson's step-son is an employee of Bank of America, the parent of BACAP. Mr. Sommers own securities of Bank of America Corporation, the parent holding company of BACAP. Mr. Word is affiliated with a law firm which provides services to Bank of America and certain of its affiliates. 68 AIM V.I. CAPITAL APPRECIATION FUND Annual Report - December 31, 2002 [AIM INVESTMENTS LOGO] AIM V.I. CAPITAL APPRECIATION FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE BEAR MARKET PERSISTS THROUGHOUT FISCAL YEAR For the year ended December 31, 2002, total returns for Series I and Series II shares of AIM V.I. Capital Appreciation Fund were -24.35% and -24.52%, respectively.* Over the same period, the Lipper Multi-Cap Growth Fund Index, the Russell 1000 Growth Index and the S&P 500 returned -29.82%, -27.88% and -22.09%, respectively. From our perspective, 2002 was the most challenging and most disappointing year of the current bear market. While certain segments of the stock market had previously been spared the more drastic effects of the bear market, virtually all types of equities were negatively affected in 2002. Moreover, even the stocks of many solid companies with strong earnings sustained losses. These trends hurt the fund's performance for the fiscal year. RELEVANT MARKET CONDITIONS Concerns about the accounting practices of a number of high-profile companies, mixed economic signals, anemic company earnings, the threat of additional terrorist attacks, and the possibility of war with Iraq caused stock prices to fall. Except for scattered short-lived rallies, key stock market indexes, such as the S&P 500, plummeted until reaching their lowest levels in about five years on October 9, 2002. Markets rebounded in October and November as several major companies reported better-than-expected earnings, and the Federal Reserve Board cut the key federal funds rate to 1.25%, its lowest level since 1961. Stocks fell in December, however, as holiday sales were disappointing and tensions mounted with North Korea over its nuclear program. For the fiscal year, value stocks fared better than growth stocks, and mid- and small-cap stocks held up better than large-cap stocks, but all of these market segments sustained losses. Likewise, all market sectors posted negative returns, with consumer staples and materials sustaining the most modest losses and information technology, telecommunications and utilities sustaining the deepest. At the close of the reporting period, economic and market conditions remained uncertain. Inflation and interest rates were low. Preliminary figures indicated that the nation's gross domestic product grew at an annualized rate of 0.7% in the fourth quarter of 2002 compared to 4.0% in the third quarter of the same year. However, a weak job market threatened to put a damper on consumer spending, which accounts for about two-thirds of economic activity, as companies were reluctant to hire new employees amid concerns about the strength of the economy. In this environment, the stock market remained volatile and its direction unpredictable. While stock valuations were more attractive than they had been in several years, investors continued to be cautious because of economic and international uncertainties. FUND STRATEGIES AND TECHNIQUES In response to adverse market conditions, we continued to maintain a balance between more defensive, core-growth holdings and the stocks of earnings-momentum companies in the portfolio. Core-growth holdings represent the stocks of well-established companies, such as Procter & Gamble, a leading provider of household products. These stocks tend to be more stable in difficult market environments. On the other hand, the stocks of economically sensitive companies may provide upside potential during market rallies. Among the fund's holdings, one example of an earnings-momentum stock is Applied Materials, a leading manufacturer of complex equipment used in semiconductor production. At the close of the fiscal year, the fund had significant holdings in more defensive sectors, such as health care and industrials, as well as more economically sensitive sectors, such as consumer discretionary and information technology. Over the reporting period, we increased the portfolio's exposure to such defensive sectors as health care and consumer staples. At the same time, the portfolio's exposure to the PORTFOLIO COMPOSITION as of 12/31/02, based on total net assets
======================================================================================================= TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES - ------------------------------------------------------------------------------------------------------- 1. Microsoft Corp. 3.5% 1. Semiconductors 7.3% 2. Fiserv, Inc. 2.8 2. Pharmaceuticals 6.4 3. Pfizer Inc. 2.4 3. Diversified Financial Services 6.0 4. Lockheed Martin Corp. 2.4 4. Aerospace & Defense 4.6 5. American International Group, Inc. 1.9 5. Semiconductor Equipment 4.6 6. Microchip Technology Inc. 1.9 6. Systems Software 3.5 7. CDW Computer Centers, Inc. 1.5 7. Health Care Equipment 3.5 8. Biomet, Inc. 1.5 8. Data Processing Services 3.1 9. Dell Computer Corp. 1.5 9. Banks 3.0 10. Cisco Systems, Inc. 1.4 10. Managed Health Care 3.0 The fund's portfolio is subject to change, and there is no assurance that the fund will continue to hold any particular security =======================================================================================================
AIM V.I. CAPITAL APPRECIATION FUND ================================================================================ RESULTS OF A $10,000 INVESTMENT 5/5/93-12-31-02 Index data from 4/30/93-12/31/02 [LINE CHART] Source: Lipper, Inc. S&P 500 INDEX $23,972 RUSSELL 1000 GROWTH INDEX $20,103 AIM V.I. CAPITAL APPRECIATION FUND-SERIES I $19,784 LIPPER MULTI-CAP GROWTH INDEX $18,405 Past performance cannot guarantee comparable future results. This chart uses a logarithmic scale, which means the price scale (vertical axis) is structured so that a given distance always represents the same percent change in price, rather than the same absolute change in price. For example, the distance from one to 10 is the same as the distance from 10 to 100 on a logarithmic chart, but the latter distance is 10 times greater on a linear chart. A logarithmic scale better illustrates performance in the fund's early years before reinvested distributions and compounding create the potential for the original investment to grow to very large numbers. ================================================================================ FUND RETURNS AVERAGE ANNUAL TOTAL RETURNS as of 12/31/02 SERIES I SHARES Inception (5/5/93) 7.32% 5 Years -2.26 1 Year -24.35 SERIES II SHARES* Inception 7.06% 5 Years -2.49 1 Year -24.52 *Performance shown for periods prior to the inception date of the Series II class of shares (inception date 8/21/01) reflects the historical results of the Series I class (inception date 5/5/93), adjusted to reflect the impact that the Series II class Rule 12b-1 plan would have had if the Series II class had then existed. The Series I and Series II share classes invest in the same portfolio of securities and will have substantially similar performance, except to the extent that expenses borne by each class differ. AIM V.I. Capital Appreciation Fund seeks growth of capital by investing principally in common stocks of companies likely to benefit from new or innovative products, services or processes as well as those that have experienced above-average long-term growth in earnings and have excellent prospects for future growth. AIM Variable Insurance Funds are offered through insurance company separate accounts to fund variable annuity contracts and variable life insurance policies, and through certain pension retirement programs. Performance figures given represent the fund and are not intended to reflect actual annuity values. They do not reflect expenses and fees at the separate-account level. These expenses and fees, which are determined by the product issuers, will vary and will lower the total return. Fund performance figures are historical, and they reflect fund expenses, the reinvestment of distributions and changes in net asset value. The fund's investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than their original cost. Investing in small and mid-size companies may involve greater risk and potential reward than investing in more established companies. Also, small companies may have business risk, significant stock price fluctuations and illiquidity. The unmanaged Lipper Multi-Cap Growth Fund Index represents an average of the performance of the 30 largest multi-cap growth funds tracked by Lipper, Inc., an independent mutual fund performance monitor. The unmanaged Russell 1000 Stock Index represents the performance of the stocks of large capitalization companies. The Growth segment measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500) is an index of common stocks frequently used as a general measure of U.S. stock market performance. An investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses. Performance of a market index does not. In the management discussion and in the Schedule of Investments in this report, the fund's portfolio holdings are organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and is a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE. financial sector was reduced. Many financial-service companies were negatively affected by the downturn in the stock market. Most of the fund's exposure was to large-cap stocks although mid-cap stocks were also well represented in the portfolio. Fund holdings included: o Biomet was a solid contributor to the fund's performance. The company, which manufactures replacement parts for use in orthopedic surgery, such as artificial knees and hips, reported record earnings for its most recent fiscal quarter. o Intuit, a leading provider of personal finance, small business accounting and consumer tax preparation software, also has experienced strong earnings growth, and its stock also performed well for the fund. Demand for its software has grown as the company has developed specialty products for such industries as real estate and construction. IN CLOSING We know that market conditions in recent years have been largely disappointing. We want to assure you that your management team continues to work diligently to meet the fund's investment objective of growth of capital. PORTFOLIO MANAGEMENT TEAM AS OF 12/31/02 KENNETH A. ZSCHAPPEL, LEAD MANAGER ROBERT M. KIPPES ASSISTED BY THE MULTI-CAP GROWTH TEAM Schedule of Investments December 31, 2002
MARKET SHARES VALUE - ------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-97.27% Advertising-1.38% Lamar Advertising Co.(a) 323,700 $ 10,892,505 ======================================================================== Aerospace & Defense-4.63% L-3 Communications Holdings, Inc.(a) 196,400 8,820,324 - ------------------------------------------------------------------------ Lockheed Martin Corp. 323,700 18,693,675 - ------------------------------------------------------------------------ Northrop Grumman Corp. 91,700 8,894,900 ======================================================================== 36,408,899 ======================================================================== Airlines-0.57% Southwest Airlines Co. 323,700 4,499,430 ======================================================================== Apparel Retail-2.50% Gap, Inc. (The) 426,100 6,613,072 - ------------------------------------------------------------------------ Limited Brands 323,700 4,509,141 - ------------------------------------------------------------------------ Ross Stores, Inc. 54,400 2,306,016 - ------------------------------------------------------------------------ TJX Cos., Inc. (The) 319,500 6,236,640 ======================================================================== 19,664,869 ======================================================================== Application Software-2.05% Electronic Arts Inc.(a) 118,700 5,907,699 - ------------------------------------------------------------------------ Intuit Inc.(a) 163,600 7,676,112 - ------------------------------------------------------------------------ Mercury Interactive Corp.(a) 86,700 2,570,655 ======================================================================== 16,154,466 ======================================================================== Banks-3.00% Bank of America Corp. 81,300 5,656,041 - ------------------------------------------------------------------------ Fifth Third Bancorp 138,100 8,085,755 - ------------------------------------------------------------------------ Washington Mutual, Inc. 213,000 7,354,890 - ------------------------------------------------------------------------ Wells Fargo & Co. 53,200 2,493,484 ======================================================================== 23,590,170 ======================================================================== Biotechnology-2.45% Amgen Inc.(a) 214,600 10,373,764 - ------------------------------------------------------------------------ Cephalon, Inc.(a) 54,100 2,632,939 - ------------------------------------------------------------------------ Gilead Sciences, Inc.(a) 78,300 2,662,200 - ------------------------------------------------------------------------ IDEC Pharmaceuticals Corp.(a) 108,100 3,585,677 ======================================================================== 19,254,580 ======================================================================== Broadcasting & Cable TV-1.47% Clear Channel Communications, Inc.(a) 161,300 6,014,877 - ------------------------------------------------------------------------ Hispanic Broadcasting Corp.(a) 80,900 1,662,495 - ------------------------------------------------------------------------ Univision Communications Inc.-Class A(a) 159,700 3,912,650 ======================================================================== 11,590,022 ========================================================================
MARKET SHARES VALUE - ------------------------------------------------------------------------ Casinos & Gambling-0.65% MGM Mirage Inc.(a) 155,000 $ 5,110,350 ======================================================================== Computer & Electronics Retail-1.50% CDW Computer Centers, Inc.(a) 269,000 11,795,650 ======================================================================== Computer Hardware-2.18% Dell Computer Corp.(a) 431,600 11,540,984 - ------------------------------------------------------------------------ Hewlett-Packard Co. 323,700 5,619,432 ======================================================================== 17,160,416 ======================================================================== Construction, Farm Machinery & Heavy Trucks-0.79% Deere & Co. 134,900 6,185,165 ======================================================================== Consumer Finance-0.71% MBNA Corp. 292,950 5,571,909 ======================================================================== Data Processing Services-3.12% Concord EFS, Inc.(a) 161,900 2,548,306 - ------------------------------------------------------------------------ Fiserv, Inc.(a) 647,412 21,979,637 ======================================================================== 24,527,943 ======================================================================== Department Stores-0.58% Kohl's Corp.(a) 81,600 4,565,520 ======================================================================== Derivatives-0.97% Nasdaq-100 Index Tracking Stock(a) 312,900 7,634,760 ======================================================================== Diversified Financial Services-5.95% Citigroup Inc. 129,500 4,557,105 - ------------------------------------------------------------------------ Fannie Mae 55,100 3,544,583 - ------------------------------------------------------------------------ Freddie Mac 81,400 4,806,670 - ------------------------------------------------------------------------ Goldman Sachs Group, Inc. (The) 80,900 5,509,290 - ------------------------------------------------------------------------ Merrill Lynch & Co., Inc. 162,400 6,163,080 - ------------------------------------------------------------------------ Moody's Corp. 200,300 8,270,387 - ------------------------------------------------------------------------ Morgan Stanley 155,700 6,215,544 - ------------------------------------------------------------------------ SLM Corp. 74,700 7,758,342 ======================================================================== 46,825,001 ======================================================================== Drug Retail-0.81% Walgreen Co. 217,600 6,351,744 ======================================================================== Electronic Equipment & Instruments-0.93% Molex Inc. 161,900 3,730,176 - ------------------------------------------------------------------------ Vishay Intertechnology, Inc.(a) 319,500 3,572,010 ======================================================================== 7,302,186 ========================================================================
AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE - ------------------------------------------------------------------------ Employment Services-0.66% Robert Half International Inc.(a) 323,100 $ 5,205,141 ======================================================================== Food Distributors-0.50% Sysco Corp. 133,100 3,965,049 ======================================================================== General Merchandise Stores-2.12% Family Dollar Stores, Inc. 188,800 5,892,448 - ------------------------------------------------------------------------ Wal-Mart Stores, Inc. 213,000 10,758,630 ======================================================================== 16,651,078 ======================================================================== Health Care Distributors & Services-1.40% AdvancePCS(a) 98,000 2,176,580 - ------------------------------------------------------------------------ Cardinal Health, Inc. 149,500 8,848,905 ======================================================================== 11,025,485 ======================================================================== Health Care Equipment-3.54% Biomet, Inc. 406,925 11,662,470 - ------------------------------------------------------------------------ Medtronic, Inc. 220,400 10,050,240 - ------------------------------------------------------------------------ St. Jude Medical, Inc.(a) 155,200 6,164,544 ======================================================================== 27,877,254 ======================================================================== Health Care Facilities-1.53% HCA Inc. 146,000 6,059,000 - ------------------------------------------------------------------------ Health Management Associates, Inc.-Class A 336,200 6,017,980 ======================================================================== 12,076,980 ======================================================================== Home Improvement Retail-1.16% Lowe's Cos., Inc. 242,800 9,105,000 ======================================================================== Homebuilding-1.51% Centex Corp. 64,700 3,247,940 - ------------------------------------------------------------------------ D.R. Horton, Inc. 129,500 2,246,825 - ------------------------------------------------------------------------ Lennar Corp. 64,700 3,338,520 - ------------------------------------------------------------------------ Pulte Homes, Inc. 63,900 3,058,893 ======================================================================== 11,892,178 ======================================================================== Household Products-1.70% Clorox Co. (The) 80,900 3,337,125 - ------------------------------------------------------------------------ Procter & Gamble Co. (The) 117,100 10,063,574 ======================================================================== 13,400,699 ======================================================================== Housewares & Specialties-0.75% Newell Rubbermaid Inc. 194,200 5,890,086 ======================================================================== Industrial Conglomerates-0.68% 3M Co. 43,200 5,326,560 ======================================================================== Industrial Machinery-0.45% Danaher Corp. 54,000 3,547,800 ========================================================================
MARKET SHARES VALUE - ------------------------------------------------------------------------ Integrated Oil & Gas-0.44% Exxon Mobil Corp. 98,000 $ 3,424,120 ======================================================================== Internet Retail-0.47% eBay Inc.(a) 54,000 3,662,280 ======================================================================== IT Consulting & Services-1.05% Affiliated Computer Services, Inc.-Class A(a) 47,400 2,495,610 - ------------------------------------------------------------------------ SunGard Data Systems Inc.(a) 244,000 5,748,640 ======================================================================== 8,244,250 ======================================================================== Life & Health Insurance-0.39% AFLAC Inc. 102,500 3,087,300 ======================================================================== Managed Health Care-2.99% Caremark Rx, Inc.(a) 539,500 8,766,875 - ------------------------------------------------------------------------ UnitedHealth Group Inc. 71,400 5,961,900 - ------------------------------------------------------------------------ WellPoint Health Networks Inc.(a) 123,400 8,781,144 ======================================================================== 23,509,919 ======================================================================== Motorcycle Manufacturers-1.42% Harley-Davidson, Inc. 241,400 11,152,680 ======================================================================== Movies & Entertainment-0.24% Viacom Inc.-Class B(a) 47,000 1,915,720 ======================================================================== Multi-Line Insurance-1.94% American International Group, Inc. 263,400 15,237,690 ======================================================================== Networking Equipment-1.44% Cisco Systems, Inc.(a) 863,200 11,307,920 ======================================================================== Oil & Gas Drilling-1.36% Nabors Industries, Ltd. (Bermuda)(a) 107,900 3,805,633 - ------------------------------------------------------------------------ Noble Corp. (Cayman Islands)(a) 107,900 3,792,685 - ------------------------------------------------------------------------ Transocean Inc. 133,100 3,087,920 ======================================================================== 10,686,238 ======================================================================== Oil & Gas Equipment & Services-0.80% Smith International, Inc.(a) 95,800 3,124,996 - ------------------------------------------------------------------------ Weatherford International Ltd. (Bermuda)(a) 79,900 3,190,407 ======================================================================== 6,315,403 ======================================================================== Oil & Gas Exploration & Production-0.39% Apache Corp. 54,000 3,077,460 ======================================================================== Packaged Foods & Meats-0.54% General Mills, Inc. 54,000 2,535,300 - ------------------------------------------------------------------------ Unilever PLC (United Kingdom) 177,400 1,689,814 ======================================================================== 4,225,114 ======================================================================== Personal Products-0.52% Gillette Co. (The) 134,900 4,095,564 ========================================================================
AIM V.I. CAPITAL APPRECIATION FUND
MARKET SHARES VALUE - ------------------------------------------------------------------------ Pharmaceuticals-6.41% Forest Laboratories, Inc.(a) 76,800 $ 7,543,296 - ------------------------------------------------------------------------ Johnson & Johnson 77,100 4,141,041 - ------------------------------------------------------------------------ Medicis Pharmaceutical Corp.-Class A(a) 215,800 10,718,786 - ------------------------------------------------------------------------ Pfizer Inc. 616,600 18,849,462 - ------------------------------------------------------------------------ Teva Pharmaceutical Industries Ltd.-ADR (Israel) 239,000 9,227,790 ======================================================================== 50,480,375 ======================================================================== Property & Casualty Insurance-0.24% XL Capital Ltd.-Class A (Bermuda) 24,200 1,869,450 ======================================================================== Publishing-0.49% Gannett Co., Inc. 54,000 3,877,200 ======================================================================== Restaurants-2.70% Brinker International, Inc.(a) 292,500 9,433,125 - ------------------------------------------------------------------------ Darden Restaurants, Inc. 161,900 3,310,855 - ------------------------------------------------------------------------ Outback Steakhouse, Inc. 161,000 5,544,840 - ------------------------------------------------------------------------ Wendy's International, Inc. 108,500 2,937,095 ======================================================================== 21,225,915 ======================================================================== Semiconductor Equipment-4.62% Applied Materials, Inc.(a) 814,600 10,614,238 - ------------------------------------------------------------------------ KLA-Tencor Corp.(a) 187,700 6,638,949 - ------------------------------------------------------------------------ Lam Research Corp.(a) 431,600 4,661,280 - ------------------------------------------------------------------------ Novellus Systems, Inc.(a) 323,700 9,089,496 - ------------------------------------------------------------------------ Teradyne, Inc.(a) 412,800 5,370,528 ======================================================================== 36,374,491 ======================================================================== Semiconductors-7.26% Altera Corp.(a) 481,200 5,938,008 - ------------------------------------------------------------------------ Analog Devices, Inc.(a) 381,000 9,094,470 - ------------------------------------------------------------------------ Integrated Device Technology, Inc.(a) 238,600 1,997,082 - ------------------------------------------------------------------------ Intel Corp. 326,500 5,083,605 - ------------------------------------------------------------------------ Linear Technology Corp. 277,400 7,134,728 - ------------------------------------------------------------------------ Maxim Integrated Products, Inc. 215,800 7,130,032 - ------------------------------------------------------------------------ Microchip Technology Inc. 606,025 14,817,311 - ------------------------------------------------------------------------
MARKET SHARES VALUE - ------------------------------------------------------------------------ Semiconductors-(Continued) Micron Technology, Inc.(a) 323,700 $ 3,152,838 - ------------------------------------------------------------------------ Texas Instruments Inc. 185,900 2,790,359 ======================================================================== 57,138,433 ======================================================================== Soft Drinks-1.08% Coca-Cola Co. (The) 194,200 8,509,844 ======================================================================== Specialty Stores-2.88% Bed Bath & Beyond Inc.(a) 280,600 9,689,118 - ------------------------------------------------------------------------ CarMax, Inc.(a) 107,900 1,929,252 - ------------------------------------------------------------------------ Office Depot, Inc.(a) 215,800 3,185,208 - ------------------------------------------------------------------------ Staples, Inc.(a) 430,200 7,872,660 ======================================================================== 22,676,238 ======================================================================== Systems Software-3.54% Microsoft Corp.(a) 539,500 27,892,150 ======================================================================== Telecommunications Equipment-0.49% Motorola, Inc. 450,000 3,892,500 ======================================================================== Tobacco-0.50% Philip Morris Cos. Inc. 97,600 3,955,728 ======================================================================== Wireless Telecommunication Services-0.83% Nextel Communications, Inc.-Class A(a) 312,200 3,605,910 - ------------------------------------------------------------------------ Vodafone Group PLC (United Kingdom) 1,618,730 2,954,679 ======================================================================== 6,560,589 ======================================================================== Total Common Stocks & Other Equity Interests (Cost $800,418,311) 765,443,466 ======================================================================== MONEY MARKET FUNDS-3.16% STIC Liquid Assets Portfolio(b) 12,440,001 12,440,001 - ------------------------------------------------------------------------ STIC Prime Portfolio(b) 12,440,001 12,440,001 ======================================================================== Total Money Market Funds (Cost $24,880,002) 24,880,002 ======================================================================== TOTAL INVESTMENTS-100.43% (Cost $825,298,313) 790,323,468 ======================================================================== OTHER ASSETS LESS LIABILITIES-(0.43%) (3,392,591) ======================================================================== NET ASSETS-100.00% $786,930,877 ________________________________________________________________________ ========================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Non-income producing security. (b) The money market fund and the Fund are affiliated by having the same investment advisor. See Notes to Financial Statements. AIM V.I. CAPITAL APPRECIATION FUND Statement of Assets and Liabilities December 31, 2002 ASSETS: Investments, at market value (cost $825,298,313) $790,323,468 - ------------------------------------------------------------- Receivables for: Fund shares sold 295,888 - ------------------------------------------------------------- Dividends 319,087 - ------------------------------------------------------------- Amount due from advisor 10,914 - ------------------------------------------------------------- Investment for deferred compensation plan 44,480 - ------------------------------------------------------------- Other assets 4,271 ============================================================= Total assets 790,998,108 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 2,264,397 - ------------------------------------------------------------- Fund shares reacquired 1,148,789 - ------------------------------------------------------------- Deferred compensation plan 44,480 - ------------------------------------------------------------- Accrued administrative services fees 427,182 - ------------------------------------------------------------- Accrued distribution fees -- Series II 12,611 - ------------------------------------------------------------- Accrued transfer agent fees 30,955 - ------------------------------------------------------------- Accrued operating expenses 138,817 ============================================================= Total liabilities 4,067,231 ============================================================= Net assets applicable to shares outstanding $786,930,877 _____________________________________________________________ ============================================================= NET ASSETS: Series I $763,038,338 _____________________________________________________________ ============================================================= Series II $ 23,892,539 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE: Series I 46,438,631 _____________________________________________________________ ============================================================= Series II 1,459,034 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 16.43 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 16.38 _____________________________________________________________ =============================================================
Statement of Operations For the year ended December 31, 2002 INVESTMENT INCOME: Dividends (net of foreign withholding tax of $20,133) $ 4,988,342 - ------------------------------------------------------------- Dividends from affiliated money market funds 560,811 ============================================================= Total investment income 5,549,153 ============================================================= EXPENSES: Advisory fees 5,887,471 - ------------------------------------------------------------- Administrative services fees 1,965,766 - ------------------------------------------------------------- Custodian fees 139,417 - ------------------------------------------------------------- Distribution fees -- Series II 29,774 - ------------------------------------------------------------- Transfer agent fees 97,877 - ------------------------------------------------------------- Trustees' fees 13,857 - ------------------------------------------------------------- Other 98,440 ============================================================= Total expenses 8,232,602 ============================================================= Less: Fees waived (6,569) - ------------------------------------------------------------- Expenses paid indirectly (399) ============================================================= Net expenses 8,225,634 ============================================================= Net investment income (loss) (2,676,481) ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities (155,802,654) - ------------------------------------------------------------- Foreign currencies (9,494) ============================================================= (155,812,148) ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (118,601,496) - ------------------------------------------------------------- Foreign currencies 403 ============================================================= (118,601,093) ============================================================= Net gain (loss) from investment securities and foreign currencies (274,413,241) ============================================================= Net increase (decrease) in net assets resulting from operations $(277,089,722) _____________________________________________________________ =============================================================
See Notes to Financial Statements. AIM V.I. CAPITAL APPRECIATION FUND Statement of Changes in Net Assets For the years ended December 31, 2002 and 2001
2002 2001 - ---------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (2,676,481) $ (2,701,518) - ---------------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities and foreign currencies (155,812,148) (228,295,601) - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (118,601,093) (130,556,561) ============================================================================================== Net increase (decrease) in net assets resulting from operations (277,089,722) (361,553,680) ============================================================================================== Distributions to shareholders from net realized gains: Series I -- (93,353,689) - ---------------------------------------------------------------------------------------------- Series II -- (235,797) - ---------------------------------------------------------------------------------------------- Share transactions-net: Series I (123,222,717) 81,141,922 - ---------------------------------------------------------------------------------------------- Series II 23,479,493 3,556,366 ============================================================================================== Net increase (decrease) in net assets (376,832,946) (370,444,878) ============================================================================================== NET ASSETS: Beginning of year 1,163,763,823 1,534,208,701 ============================================================================================== End of year $ 786,930,877 $1,163,763,823 ______________________________________________________________________________________________ ============================================================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $1,242,488,118 $1,344,898,013 - ---------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (92,938) (73,633) - ---------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (420,489,854) (264,687,201) - ---------------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities and foreign currencies (34,974,449) 83,626,644 ============================================================================================== $ 786,930,877 $1,163,763,823 ______________________________________________________________________________________________ ==============================================================================================
Notes to Financial Statements December 31, 2002 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Capital Appreciation Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eighteen separate portfolios. The Fund currently offers two classes of shares, Series I and Series II shares, both of which are offered to insurance company separate accounts. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current SEC guidance, however, requires participating insurance companies to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio and class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is growth of capital. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued at the closing bid price furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the last sales price as of the close of the customary trading session on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the AIM V.I. CAPITAL APPRECIATION FUND pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gains, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the statement of operations. F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis; that is, the Fund will own the underlying security. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. G. EXPENSES -- Distribution expenses directly attributable to a class of shares are charged to the respective classes' operations. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets. NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market fund in which the Fund has invested. For the year ended December 31, 2002, AIM waived fees of $6,569. Pursuant to a master administrative services agreement with AIM, the Fund has agreed to pay AIM a fee for costs incurred in providing accounting services and certain administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies AIM V.I. CAPITAL APPRECIATION FUND that have agreed to provide administrative services to the Fund. For the year ended December 31, 2002, the Fund paid AIM $1,965,766 of which AIM retained $172,093 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended December 31, 2002, AFS retained $53,537 for such services. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Series II shares ("the Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Series II shares. Of this amount, the Fund may pay a service fee of up to 0.25% of the average daily net assets of the Series II shares to insurance companies who furnish continuing personal shareholder services to their customers who purchase and own Series II shares of the Fund. Pursuant to the master distribution agreement for the year ended December 31, 2002, the Series II shares paid $29,774. Certain officers and trustees of the Trust are officers of AIM, AFS and/or AIM Distributors. During the year ended December 31, 2002, the Fund paid legal fees of $4,440 services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of that firm is a trustee of the Trust. NOTE 3--INDIRECT EXPENSES For the year ended December 31, 2002, the Fund received reductions in custodian fees of $399 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $399. NOTE 4--TRUSTEES' FEES Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. NOTE 5--BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended December 31, 2002, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST Distributions to Shareholders: The tax character of distributions paid during the years ended December 31, 2002 and 2001 was as follows:
2002 2001 - -------------------------------------------------------------- Distributions paid from: Long-term capital gain $-- $93,589,486 ______________________________________________________________ ==============================================================
Tax Components of Beneficial Interest: As of December 31, 2002, the components of beneficial interest on a tax basis were as follows: Unrealized appreciation (depreciation) -- investments $ (41,070,176) - ------------------------------------------------------------- Capital loss carryforward (411,162,152) - ------------------------------------------------------------- Post-October capital loss deferral (3,231,975) - ------------------------------------------------------------- Post-October currency loss deferral (9,502) - ------------------------------------------------------------- Temporary book/tax differences (83,436) - ------------------------------------------------------------- Shares of beneficial interest 1,242,488,118 ============================================================= $ 786,930,877 _____________________________________________________________ =============================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales. The tax-basis unrealized appreciation (depreciation) on investments amount includes appreciation on foreign currencies of $396. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses. The Fund's capital loss carryforward expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD - --------------------------------------------------------- December 31, 2009 $254,717,808 - --------------------------------------------------------- December 31, 2010 156,444,344 ========================================================= $411,162,152 _________________________________________________________ =========================================================
NOTE 7--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 2002 was $625,333,312 and $726,993,216, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of December 31, 2002 is as follows: Aggregate unrealized appreciation of investment securities $ 92,934,486 - ------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (134,005,058) ============================================================= Net unrealized appreciation (depreciation) of investment securities $ (41,070,572) _____________________________________________________________ ============================================================= Cost of investments for tax purposes is $831,394,040.
AIM V.I. CAPITAL APPRECIATION FUND NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES As a result of differing book/tax treatment of net operating losses and foreign currency transactions on December 31, 2002, undistributed net investment income (loss) was increased by $2,657,176, undistributed net realized gains (losses) increased by $9,495 and shares of beneficial interest decreased by $2,666,671. This reclassification had no effect on the net assets of the Fund. NOTE 9--CALL OPTION CONTRACTS Transactions in call options written during the year ended December 31, 2002 are summarized as follows:
CALL OPTION CONTRACTS --------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ---------------------------------------------------------- Beginning of year -- $ -- - ---------------------------------------------------------- Written 154 39,577 - ---------------------------------------------------------- Exercised (154) (39,577) ========================================================== End of year -- $ -- __________________________________________________________ ==========================================================
NOTE 10--SHARE INFORMATION Changes in shares outstanding during the years ended December 31, 2002 and 2001 were as follows:
2002 2001 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Series I 10,379,924 $ 195,828,397 11,408,354 $ 289,501,205 - -------------------------------------------------------------------------------------------------------------------------- Series II* 1,386,641 24,993,930 154,482 3,376,463 ========================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 4,384,861 93,353,689 - -------------------------------------------------------------------------------------------------------------------------- Series II* -- -- 11,086 235,797 ========================================================================================================================== Reacquired: Series I (17,365,036) (319,051,114) (12,117,352) (301,712,972) - -------------------------------------------------------------------------------------------------------------------------- Series II* (90,181) (1,514,437) (2,994) (55,894) ========================================================================================================================== (5,688,652) $ (99,743,224) 3,838,437 $ 84,698,288 __________________________________________________________________________________________________________________________ ==========================================================================================================================
* Series II shares commenced sales on August 21, 2001. AIM V.I. CAPITAL APPRECIATION FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 2002 2001 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 21.72 $ 30.84 $ 35.58 $ 25.20 $ 21.75 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.05)(a) (0.05)(a) (0.05) (0.02) 0.02 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (5.24) (7.17) (3.79) 11.17 4.12 ================================================================================================================================= Total from investment operations (5.29) (7.22) (3.84) 11.15 4.14 ================================================================================================================================= Less distributions: Dividends from net investment income -- -- -- (0.02) (0.04) - --------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (1.90) (0.90) (0.75) (0.65) ================================================================================================================================= Total distributions -- (1.90) (0.90) (0.77) (0.69) ================================================================================================================================= Net asset value, end of period $ 16.43 $ 21.72 $ 30.84 $ 35.58 $ 25.20 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (24.35)% (23.28)% (10.91)% 44.61% 19.30% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $763,038 $1,160,236 $1,534,209 $1,131,217 $647,248 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.85%(c) 0.85% 0.82% 0.73% 0.67% ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.27)%(c) (0.22)% (0.17)% (0.06)% 0.11% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 67% 65% 98% 65% 83% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns do not reflect charges at the separate account level which if included would reduce total returns for all periods shown. (c) Ratios are based on average daily net assets of $948,502,072.
SERIES II ---------------------------------- AUGUST 21, 2001 (DATE SALES YEAR ENDED COMMENCED) TO DECEMBER 31, DECEMBER 31, 2002 2001 - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 21.70 $23.19 - ------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.09)(a) (0.04)(a) - ------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (5.23) 0.45 ================================================================================================ Total from investment operations (5.32) 0.41 ================================================================================================ Less distributions from net realized gains -- (1.90) ================================================================================================ Net asset value, end of period $ 16.38 $21.70 ________________________________________________________________________________________________ ================================================================================================ Total return(b) (24.52)% 1.94% ________________________________________________________________________________________________ ================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $23,893 $3,527 ________________________________________________________________________________________________ ================================================================================================ Ratio of expenses to average net assets 1.10%(c) 1.09%(d) ================================================================================================ Ratio of net investment income (loss) to average net assets (0.52)%(c) (0.46)%(d) ________________________________________________________________________________________________ ================================================================================================ Portfolio turnover rate 67% 65% ________________________________________________________________________________________________ ================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year. Total returns do not reflect charges at the separate account level which if included would reduce total returns for all periods shown. (c) Ratios are based on average daily net assets of $11,909,687. (d) Annualized. AIM V.I. CAPITAL APPRECIATION FUND Report of Independent Certified Public Accountants To the Shareholders and Board of Trustees AIM Variable Insurance Funds We have audited the accompanying statement of assets and liabilities of AIM V.I. Capital Appreciation Fund, a series of shares of beneficial interest of AIM Variable Insurance Funds including the schedule of investments as of December 31, 2002, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods in the five year 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Capital Appreciation Fund, as of December 31, 2002, 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 years or periods in the five year period then ended in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 31, 2003 AIM V.I. CAPITAL APPRECIATION FUND Trustees and Officers As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Interested Persons - ----------------------------------------------------------------------------------------------------------------------------------- Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None Trustee, Chairman and Group Inc. (financial services holding President company); and Director and Vice Chairman, AMVESCAP PLC (parent of AIM and a global investment management firm); formerly, President and Chief Executive Officer, A I M Management Group Inc.; Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); Director and Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), A I M Fund Services, Inc., (registered transfer agent), and Fund Management Company (registered broker dealer) - ----------------------------------------------------------------------------------------------------------------------------------- Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Director, Chairman, President and Trustee Officer, A I M Management Group Inc. Chief Executive Officer, INVESCO (financial services holding company); Bond Funds, Inc., INVESCO Director, Chairman and President, A I M Combination Stock & Bond Funds, Advisors, Inc. (registered investment Inc., INVESCO Counselor Series advisor); Director, A I M Capital Funds, Inc., INVESCO Global and Management, Inc. (registered investment International Funds, Inc., INVESCO advisor) and A I M Distributors, Inc. Manager Series Funds, Inc., (registered broker dealer), Director and INVESCO Money Market Funds, Inc., Chairman, A I M Fund Services, Inc. INVESCO Sector Funds, Inc., (registered transfer agent), and Fund INVESCO Stock Funds, Inc., INVESCO Management Company (registered broker Treasurer's Series Funds, Inc. and dealer); and Chief Executive Officer, INVESCO Variable Investment Funds, AMVESCAP PLC -- AIM Division (parent of Inc. AIM and a global investment management firm); formerly, Director, Chairman and Chief Executive Officer, INVESCO Funds Group, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ----------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. (registered Trustee investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee (technology consulting company) and Captaris, Inc. (unified messaging provider) - ----------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Chairman, Cortland Trust, Inc. None Trustee (registered investment company); Director, Magellan Insurance Company; Member of Advisor Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Director, The Boss Group (private equity group); formerly, Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; and director of various affiliated Volvo companies - ----------------------------------------------------------------------------------------------------------------------------------- Edward K. Dunn, Jr. -- 1935 1998 Formerly, Chairman, Mercantile Mortgage None Trustee Corp.; Vice Chairman, President and Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. - ----------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company) and Texana Timber LP - ----------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered Trustee Naftalis and Frankel LLP investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly, Chief Executive Officer, YWCA None Trustee of the USA - ----------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Louis S. Sklar -- 1939 1993 Executive Vice President, Development None Trustee and Operations, Hines Interests Limited Partnership (real estate development company) - -----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust. (2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. AIM V.I. CAPITAL APPRECIATION FUND Trustees and Officers (continued) As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Other Officers - ----------------------------------------------------------------------------------------------------------------------------------- Gary T. Crum(3) -- 1947 1993 Director, Chairman and Director of N/A Senior Vice President Investments, A I M Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC; formerly, Chief Executive Officer and President A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Carol F. Relihan -- 1954 1993 Director, Senior Vice President, General N/A Senior Vice President and Counsel and Secretary, A I M Advisors, Secretary Inc. and A I M Management Group Inc.; Director, Vice President and General Counsel, Fund Management Company; and Vice President, A I M Fund Services, Inc., A I M Capital Management, Inc. and A I M Distributors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Robert G. Alley -- 1948 1993 Managing Director and Chief Fixed Income N/A Vice President Officer, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Stuart W. Coco -- 1955 1993 Managing Director and Chief Research N/A Vice President Officer -- Fixed income, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A Vice President Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; and Vice President, A I M Fund Services, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Cash N/A Vice President Management Officer, A I M Capital Management, Inc.; Director and President, Fund Management Company; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Edgar M. Larsen(3) -- 1940 1999 Vice President, A I M Advisors, Inc. and N/A Vice President President, Chief Executive Officer and Chief Investment Officer, A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Dana R. Sutton -- 1959 1993 Vice President and Fund Treasurer, A I M N/A Vice President and Treasurer Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- (3) Information is current as of January 10, 2003. The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.347.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street Houston, TX 77046 Suite 100 Suite 100 Suite 2400 Houston, TX 77046 Houston, TX 77046 Philadelphia, PA 19103 COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN Foley & Lardner Kramer, Levin, Naftalis A I M Fund Services, State Street Bank and 3000 K N.W., Suite 500 & Frankel LLP Inc. Trust Company Washington, D.C. 20007 919 Third Avenue P.O. Box 4739 225 Franklin Street New York, NY 10022 Houston, TX 77210-4739 Boston, MA 02110
AIM V.I. CAPITAL APPRECIATION FUND AIM V.I. HIGH YIELD FUND Annual Report - December 31, 2002 [AIM INVESTMENTS LOGO] AIM V.I. HIGH YIELD FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE BEAR MARKET PERSISTS THROUGHOUT FISCAL YEAR It was another banner year for investment-grade bonds but high yield bonds, which respond more to economic conditions than interest rate changes, faced a difficult year. For the year ended December 31, 2002, AIM V.I. High Yield Fund Series I shares posted a return of -5.84%, while Series II shares returned - -6.08%.* By comparison, the Lehman High Yield Index and Lipper High Yield Bond Fund Index, returned -1.41% and -2.41%, respectively, over the same period. Underscoring investor sentiment toward higher-quality investments, the Lehman Aggregate Bond Index returned 10.25% for the year. RELEVANT MARKET CONDITIONS 2002 began favorably for the fund and the high yield market as a whole. In January, investors assumed an economic rebound was imminent and began moving back into riskier assets. There were a few other bright spots early in the year but much of the reporting period proved unsettling for the asset class as news of high-profile corporate failures sent investors in search of safer ground. Indeed, a flight to higher-rated investments combined with falling short-term interest rates provided very favorable conditions for investment-grade bonds. High yield bonds tend to benefit more from economic strength and from lower risk premiums than from general interest rate reductions. Therefore, the sluggish economy and a raft of corporate accounting concerns weighed heavily on the asset class and on the fund. While a significant fourth-quarter rally lifted high yield bond returns--the fund's Series I shares posted a return of 5.04% for the final quarter--it was not enough to offset the rest of the year. Yield spreads (the difference between yields on high yield bonds and comparable-maturity Treasuries) widened by nearly 400 basis points from the first half of the year through October, as investors fled to the safety of higher-quality bonds. Spreads contracted significantly over the fourth quarter, however, as investor appetite for risk reemerged, and the asset class rallied. High-profile defaults dominated the news this year but default rates appear to have peaked. As we have said before, defaults are "backward looking"--by the time a bond actually defaults, the bond price reflects that event. And although past performance cannot guarantee future comparable results, if history is any indicator, peaking bond defaults in both 1991 and 1995 coincided with a subsequent economic rebound and rally for high yield bonds. FUND STRATEGIES AND TECHNIQUES For more than a year, we have focused on diversifying holdings across a broad array of industries and issuers--thereby decreasing single-issuer risk. In a year in which corporate governance and accounting restatement headlines were rampant, our strategy proved particularly sound. While we still had a few holdovers from our previous strategy (somewhat larger concentrations in select industries), we believe our diversification efforts have paid off as we have been able to avoid many single-issuer blow-ups this year. Also, as the primary risk associated with any high yield fund is credit risk, we continue to place special emphasis on credit research-- PORTFOLIO COMPOSITION as of 12/31/02, based on total net assets
======================================================================================================= TOP 10 ISSUERS* % OF NET ASSETS TOP 10 INDUSTRIES - ------------------------------------------------------------------------------------------------------- 1. Acme Communications, Inc. 1.6% 1. Broadcasting & Cable TV 14.5% 2. Boyd Gaming Corp. 1.3 2. Casinos & Gaming 4.8 3. Hanger Orthopedic Group, Inc. 1.2 3. Health Care Facilities 3.4 4. El Paso Energy Partners, L.P. 1.2 4. Hotels, Resorts & Cruise Lines 3.4 5. CSC Holdings Inc. 1.1 5. Homebuilding 3.1 6. Western Gas Resources, Inc. 1.1 6. Specialty Stores 2.7 7. Intrawest Corp. (Canada) 1.1 7. Metal & Glass Containers 2.6 8. Select Medical Corp. 1.0 8. Apparel Retail 2.5 9. Pride International, Inc. 1.0 9. Wireless Telecommunication Services 2.3 10. Frontier Oil Corp. 1.0 10. Oil & Gas Exploration & Production 2.2 *excluding money market funds The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security. =======================================================================================================
AIM V.I. HIGH YIELD FUND ================================================================================ RESULTS OF A $10,000 INVESTMENT 5/1/98-12/31/02 Index data from 4/30/98-12/31/02 [LINE CHART] Source: Lipper, Inc. LEHMAN AGGREGATE BOND INDEX $14,092 LEHMAN HIGH YIELD INDEX $ 9,824 LIPPER HIGH YIELD FUND INDEX $ 8,719 AIM V.I. HIGH YIELD FUND - SERIES I $ 7,399 Past performance cannot guarantee comparable future results. ================================================================================ FUND RETURNS AVERAGE ANNUAL TOTAL RETURNS as of 12/31/02 SERIES I SHARES Inception (5/1/98) -6.25% 1 Year -5.84 SERIES II SHARES* Inception -6.49% 1 Year -6.08 *Performance shown for periods prior to the inception date of the Series II class of shares (3/26/02) reflects the historical results of the Series I class (inception date 5/1/98) adjusted to reflect the impact that the Series II class Rule 12b-1 plan would have had if the Series II class had then existed. The Series I and Series II share classes invest in the same portfolio of securities and will have substantially similar performance, except to the extent that expenses borne by each class differ. AIM Variable Insurance Funds are offered through insurance company separate accounts to fund variable annuity contracts and variable life insurance policies, and through certain pension or retirement plans. Performance figures given represent the fund and are not intended to reflect actual annuity values. They do not reflect expenses and fees at the separate-account level. These expenses and fees, which are determined by the product issuers, will vary and will lower the total return. Fund performance figures are historical, and they reflect fund expenses, the reinvestment of distributions and changes in net asset value. The fund's investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than their original cost. AIM V.I. High Yield Fund is for shareholders who seek a high level of current income. The fund invests in a portfolio consisting primarily of non-investment grade securities. Since the last reporting period, the fund has elected to use the Lehman Aggregate Bond Index as its broad-based market index since the Lehman Aggregate Bond Index is such a widely recognized gauge of fixed-income market performance. The fund will no longer use the Lehman High Yield Bond Index, the index published in previous reports to shareholders as its broad market index. Because this is the first reporting period since we have adopted the new index, SEC guidelines require that we compare the fund's performance to both the old and the new index. The fund maintains the use of the Lehman High Yield Bond Index as its style-specific index as it more closely reflects the performance of the securities in which the fund invests. In addition, the unmanaged Lipper High Yield Bond Fund Index, is included for comparison to a peer group. The unmanaged Lehman Aggregate Bond Index, which represents the U.S. investment-grade fixed-rate bond market (including government and corporate securities and asset-backed securities) is compiled by Lehman Brothers, a well-known global investment bank. The unmanaged Lehman High Yield Bond Index, which represents the performance of high-yield debt securities, is compiled by Lehman Brothers, a well-known global investment firm. The unmanaged Lipper High Yield Bond Fund Index represents an average of the 30 largest high yield funds tracked by Lipper, Inc., an independent mutual fund performance monitor. An investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not include sales charges. Performance of an index of funds reflects fund expenses. Performance of a market index does not. The fund invests in higher yielding, lower rated corporate bonds, commonly known as junk bonds, which have a greater risk of price fluctuation and loss of principal than do U.S. government securities (such as U.S. Treasury bills, notes and bonds), for which the government guarantees the repayment of principal and interest if held to maturity. In the management discussion and in the Schedule of Investments in this report, the fund's portfolio holdings are organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. DUE TO RECENT SIGNIFICANT MARKET VOLATILITY RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOU FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE. reviewing a company's financial health (such as free cash flows and funding sources) as well as its ability to weather various parts of market cycles. On a sector/industry basis, the high yield market is actually quite diversified but large losses in concentrated areas drew most of the attention this year. Our fund, like the market as a whole, is also broadly diversified, so we can't discuss all sectors, but we would like to highlight two sectors/industries that benefited performance and one that did not. o Broadcasting: Fund holding, Acme Communications--a company that owns and operates 11 television stations in mid-size markets--proved beneficial to the fund as recent changes in the industry's regulatory environment as well as improved prospects for advertising revenues helped sector performance. o Apparel retail: Despite a slowdown in consumer spending, fund holding Gap, Inc.--an international specialty retailer with nearly 4,200 stores worldwide--also helped fund performance. The company's credit quality has been enhanced by slowing aggressive expansion plans and its return to same-store sales growth after completing changes in merchandising and advertising. o Wireless communications: Our exposure to wireless communications detracted from fund performance as the sector plummeted in the middle part of the year. And although we lowered our exposure, we did not do so in time to fully prevent any negative impact on the fund. IN CLOSING We know that market conditions in recent years have been largely disappointing. We want to assure you that your fund management team continues to work diligently to meet the fund's investment objective of achieving a high level of current income by investing in non-investment grade securities. PORTFOLIO MANAGEMENT TEAM AS OF 12/31/02 ROBERT G. ALLEY, CO-MANAGER PETER EHRET, CO-MANAGER JAN H. FRIEDLI, CO-MANAGER CAROLYN L. GIBBS, CO-MANAGER CRAIG A. SMITH, CO-MANAGER ASSISTED BY THE HIGH YIELD TAXABLE TEAM Schedule of Investments December 31, 2002
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- BONDS & NOTES-90.47% Advertising-0.34% Lamar Media Corp., Sr. Sub. Notes, 7.25%, 01/01/13 (Acquired 12/17/02; Cost $20,000)(a) $ 20,000 $ 20,400 - ---------------------------------------------------------------------- RH Donnelley Finance Corp. I, Sr. Notes, 8.88%, 12/15/10 (Acquired 11/26/02; Cost $60,000)(a) 60,000 64,500 ====================================================================== 84,900 ====================================================================== Aerospace & Defense-0.59% Dunlop Standard Aerospace Holdings PLC (United Kingdom), Sr. Unsec. Sub. Yankee Notes, 11.88%, 05/15/09 145,000 148,625 ====================================================================== Airlines-0.62% Air Canada (Canada), Sr. Unsec. Yankee Notes, 10.25%, 03/15/11 95,000 53,675 - ---------------------------------------------------------------------- Northwest Airlines Inc., Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 160,000 101,600 ====================================================================== 155,275 ====================================================================== Alternative Carriers-0.15% LCI International, Inc. Sr. Notes, 7.25%, 06/15/07 75,000 37,875 ====================================================================== Apparel Retail-2.46% Big 5 Corp.-Series B, Sr. Unsec. Notes, 10.88%, 11/15/07 200,000 209,000 - ---------------------------------------------------------------------- Gap, Inc. (The), Unsec. Unsub. Notes, 9.90%, 12/15/05 225,000 238,500 - ---------------------------------------------------------------------- Mothers Work, Inc., Sr. Unsec. Gtd. Notes, 11.25%, 08/01/10 160,000 171,200 ====================================================================== 618,700 ====================================================================== Apparel, Accessories & Luxury Goods-1.58% Perry Ellis International Inc.-Series B, Sr. Sec. Notes, 9.50%, 03/15/09 40,000 41,500 - ---------------------------------------------------------------------- Russell Corp., Sr. Unsec. Gtd. Notes, 9.25%, 05/01/10 60,000 64,950 - ---------------------------------------------------------------------- Samsonite Corp., Sr. Unsec. Sub Notes, 10.75%, 06/15/08 250,000 203,750 - ---------------------------------------------------------------------- William Carter Co. (The)-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.88%, 08/15/11 80,000 87,600 ====================================================================== 397,800 ====================================================================== Auto Parts & Equipment-0.31% Dura Operating Corp.-Series B, Sr. Unsec. Gtd. Notes, 8.63%, 04/15/12 10,000 10,150 - ---------------------------------------------------------------------- Intermet Corp., Sr. Unsec. Gtd. Notes, 9.75%, 06/15/09 75,000 67,875 ====================================================================== 78,025 ======================================================================
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Banks-0.62% Western Financial Bank, Unsec. Sub. Deb., 9.63%, 05/15/12 $160,000 $ 156,000 ====================================================================== Broadcasting & Cable TV-13.59% Acme Communications, Inc.-Series B, Sr. Unsec. Unsub. Gtd. Disc. Notes, 10.88%, 09/30/04 390,000 399,750 - ---------------------------------------------------------------------- Adelphia Communications Corp. Series B, Sr. Unsec. Notes, 9.88%, 03/01/07(b) 140,000 54,250 - ---------------------------------------------------------------------- Sr. Unsec. Notes, 10.88%, 10/01/10(b) 195,000 75,562 - ---------------------------------------------------------------------- Allbritton Communications Co., Sr. Sub. Notes, 7.75%, 12/15/12 (Acquired 12/06/02; Cost $115,000)(a) 115,000 115,575 - ---------------------------------------------------------------------- Alliance Atlantis Communications Inc. (Canada), Sr. Sub. Yankee Notes, 13.00%, 12/15/09 175,000 188,125 - ---------------------------------------------------------------------- Charter Communications Holdings, LLC/Charter Communications Holdings Capital Corp., Sr. Unsec. Sub. Disc. Notes, 9.92%, 04/01/11(c) 95,000 33,725 - ---------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 10.75%, 10/01/09 95,000 43,225 - ---------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 11.13%, 01/15/11 40,000 18,200 - ---------------------------------------------------------------------- Comcast UK Cable Partners Ltd. (Bermuda), Sr. Unsec. Yankee Disc. Deb., 11.20%, 11/15/07(c) 200,000 143,000 - ---------------------------------------------------------------------- Cox Communication Inc. Unsec. Notes, 7.13%, 10/01/12 45,000 49,900 - ---------------------------------------------------------------------- CSC Holdings Inc.-Series B, Sr. Unsec. Unsub. Notes, 7.63%, 04/01/11 295,000 279,512 - ---------------------------------------------------------------------- EchoStar DBS Corp., Sr. Unsec. Notes, 10.38%, 10/01/07 95,000 102,837 - ---------------------------------------------------------------------- Granite Broadcasting Corp., Sr. Sub. Notes, 10.38%, 05/15/05 45,000 38,925 - ---------------------------------------------------------------------- Gray Television Inc., Sr. Unsec. Gtd. Sub. Notes, 9.25%, 12/15/11 60,000 64,800 - ---------------------------------------------------------------------- Insight Midwest, L.P., Sr. Unsec. Notes, 10.50%, 11/01/10 190,000 185,250 - ---------------------------------------------------------------------- Knology, Inc., Sr. Unsec. Notes, 12.00%, 11/30/09 (Acquired 04/26/00; Cost $180,312)(a) 105,000 52,762 - ---------------------------------------------------------------------- LBI Media Inc., Sr. Gtd. Sub. Notes, 10.13%, 07/15/12 (Acquired 06/28/02; Cost $140,000)(a) 140,000 147,000 - ---------------------------------------------------------------------- LIN Holdings Corp., Sr. Unsec. Disc. Notes, 10.00%, 03/01/08(c) 175,000 179,375 - ---------------------------------------------------------------------- Mediacomm LLC, Sr. Unsec. Notes, 9.50%, 01/15/13 240,000 217,200 - ---------------------------------------------------------------------- Nextmedia Operating Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 07/01/11 85,000 89,675 - ---------------------------------------------------------------------- Pegasus Communications Corp.-Series B, Sr. Notes, 9.63%, 10/15/05 320,000 180,800 - ---------------------------------------------------------------------- Radio One, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 8.88%, 07/01/11 200,000 215,500 - ----------------------------------------------------------------------
AIM V.I. HIGH YIELD FUND
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Broadcasting & Cable TV-(Continued) Salem Communications Holding Corp.-Series B, Sr. Unsec. Gtd. Sub. Notes, 9.00%, 07/01/11 $190,000 $ 199,500 - ---------------------------------------------------------------------- Sinclair Broadcast Group, Inc. Sr. Gtd. Sub. Notes, 8.00%, 03/15/12 (Acquired 10/25/02; Cost $35,175)(a) 35,000 36,487 - ---------------------------------------------------------------------- Sr. Unsec. Gtd. Sub. Notes, 8.75%, 12/15/11 95,000 102,125 - ---------------------------------------------------------------------- Spanish Broadcasting System, Inc., Sr. Unsec. Gtd. Sub. Notes, 9.63%, 11/01/09 165,000 172,012 - ---------------------------------------------------------------------- United Pan-Europe Communications N.V. (Netherlands)-Series B, Sr. Unsec. Yankee Notes, 11.25%, 02/01/10(b) 210,000 17,325 - ---------------------------------------------------------------------- 11.50%, 02/01/10(b) 150,000 12,375 ====================================================================== 3,414,772 ====================================================================== Building Products-0.44% Associated Materials Inc., Sr. Unsec. Gtd. Sub. Notes, 9.75%, 04/15/12 40,000 42,200 - ---------------------------------------------------------------------- Atrium Cos., Inc.-Series B, Sr. Gtd. Sub. Notes, 10.50%, 05/01/09 70,000 68,600 ====================================================================== 110,800 ====================================================================== Casinos & Gambling-4.77% Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 02/15/09 220,000 240,900 - ---------------------------------------------------------------------- Boyd Gaming Corp., Sr. Unsec. Gtd. Notes, 9.25%, 08/01/09 110,000 119,350 - ---------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 9.50%, 07/15/07 75,000 78,750 - ---------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 8.75%, 04/15/12 125,000 131,875 - ---------------------------------------------------------------------- Herbst Gaming, Inc.-Series B, Sr. Sec. Notes, 10.75%, 09/01/08 150,000 157,500 - ---------------------------------------------------------------------- Hollywood Casino Corp., Sr. Unsec. Gtd. Mortgage Notes, 11.25%, 05/01/07 155,000 168,950 - ---------------------------------------------------------------------- Hollywood Casino Corp./Shreveport Capital Corp., Sr. Unsec. Gtd. Mortgage Notes, 13.00%, 08/01/06 81,000 83,025 - ---------------------------------------------------------------------- Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Sub. Notes, 8.00%, 04/01/12 40,000 42,100 - ---------------------------------------------------------------------- Park Place Entertainment Corp., Sr. Unsec. Notes, 7.50%, 09/01/09 100,000 102,500 - ---------------------------------------------------------------------- Venetian Casino Resort LLC, 2nd Mortgage Notes, 11.00%, 06/15/10 (Acquired 05/22/02; Cost $70,000)(a) 70,000 73,500 ====================================================================== 1,198,450 ====================================================================== Commodity Chemicals-0.42% ISP Chemco Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.25%, 07/01/11 45,000 46,800 - ---------------------------------------------------------------------- Methanex Corp. (Canada), Sr. Unsec. Yankee Notes, 8.75%, 08/15/12 55,000 58,300 ====================================================================== 105,100 ======================================================================
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Construction & Engineering-0.70% Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%, 06/01/08 $220,000 $ 177,100 ====================================================================== Construction, Farm Machinery & Heavy Trucks-0.69% Terex Corp., Sr. Unsec. Gtd. Sub. Notes, 9.25%, 07/15/11 190,000 173,850 ====================================================================== Construction Materials-0.79% MMI Products, Inc.-Series B, Sr. Unsec. Sub. Notes, 11.25%, 04/15/07 215,000 198,875 ====================================================================== Department Stores-0.70% JC Penney Co. Inc., Unsec. Notes, 7.60%, 04/01/07 175,000 176,094 ====================================================================== Distillers & Vintners-0.83% Constellation Brands, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 200,000 208,000 ====================================================================== Distributors-0.15% AmeriGas Partners, L.P., Sr. Unsec. Notes, 8.88%, 05/20/11 35,000 36,575 ====================================================================== Diversified Chemicals-1.55% Equistar Chemicals LP/Equistar Funding Corp., Sr. Unsec. Gtd. Notes, 10.13%, 09/01/08 110,000 100,650 - ---------------------------------------------------------------------- FMC Corp., Sr. Sec. Notes, 10.25%, 11/01/09 (Acquired 10/09/02; Cost $148,158)(a) 150,000 162,750 - ---------------------------------------------------------------------- Huntsman International LLC, Sr. Unsec. Gtd. Notes, 9.88%, 03/01/09 125,000 126,250 ====================================================================== 389,650 ====================================================================== Diversified Commercial Services-0.28% United Rentals North America Inc., Sr. Notes, 10.75%, 04/15/08 (Acquired 12/17/02; Cost $67,932)(a) 70,000 69,650 ====================================================================== Drug Retail-0.66% Rite Aid Corp., Sr. Unsec. Unsub. Notes, 7.13%, 01/15/07 200,000 167,000 ====================================================================== Electric Utilities-1.21% AES Corp. (The), Sec. Notes, 10.00%, 07/15/05 (Acquired 12/13/02; Cost $82,004)(a) 87,000 83,085 - ---------------------------------------------------------------------- Calpine Canada Energy Finance ULC (Canada), Sr. Unsec. Gtd. Yankee Notes, 8.50%, 05/01/08 165,000 75,075 - ---------------------------------------------------------------------- CMS Energy Corp., Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 85,000 76,075 - ---------------------------------------------------------------------- Mission Energy Holding Co., Sr. Sec. Notes, 13.50%, 07/15/08 285,000 69,825 ====================================================================== 304,060 ====================================================================== Electrical Components & Equipment-1.02% Flextronics International Ltd. (Singapore), Sr. Unsec. Sub. Yankee Notes, 9.88%, 07/01/10 125,000 135,625 - ----------------------------------------------------------------------
AIM V.I. HIGH YIELD FUND
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Electrical Components & Equipment-(Continued) Sanmina-SCI Corp., Sr. Sec. Notes, 10.38%, 01/15/10 (Acquired 12/18/02; Cost $120,000)(a) $120,000 $ 121,500 ====================================================================== 257,125 ====================================================================== Electronic Equipment & Instruments-1.40% Fisher Scientific International Inc., Sr. Unsec. Sub. Notes, 8.13%, 05/01/12 150,000 155,625 - ---------------------------------------------------------------------- Knowles Electronics Inc., Sr. Unsec. Gtd. Sub. Notes, 13.13%, 10/15/09 140,000 79,100 - ---------------------------------------------------------------------- PerkinElmer, Inc., Sr. Sub. Notes, 8.88%, 01/15/13 (Acquired 12/13/02; Cost $59,504)(a) 60,000 59,400 - ---------------------------------------------------------------------- Solectron Corp., Sr. Unsec. Notes, 9.63%, 02/15/09 60,000 58,800 ====================================================================== 352,925 ====================================================================== Employment Services-0.28% MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.38%, 01/15/08 175,000 69,125 ====================================================================== Environmental Services-0.60% Allied Waste North America Inc.-Series B, Sr. Gtd. Sub. Notes, 8.50%, 12/01/08 150,000 151,500 ====================================================================== Fertilizers & Agricultural Chemicals-0.19% IMC Global Inc.-Series B, Sr. Unsec. Gtd. Notes, 11.25%, 06/01/11 45,000 49,050 ====================================================================== Food Distributors-0.86% Fleming Cos., Inc.-Series D, Sr. Unsec. Gtd. Sub. Notes, 10.63%, 07/31/07 115,000 76,475 - ---------------------------------------------------------------------- Roundy's, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 8.88%, 06/15/12 140,000 138,950 ====================================================================== 215,425 ====================================================================== Forest Products-1.93% Louisiana-Pacific Corp. Sr. Unsec. Notes, 8.50%, 08/15/05 130,000 134,550 - ---------------------------------------------------------------------- Sr. Unsec. Sub. Notes, 10.88%, 11/15/08 100,000 108,500 - ---------------------------------------------------------------------- Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 250,000 241,250 ====================================================================== 484,300 ====================================================================== General Merchandise Stores-0.74% Pantry, Inc. (The), Sr. Unsec. Gtd. Sub. Notes, 10.25%, 10/15/07 210,000 185,850 ====================================================================== Health Care Distributors & Services-0.57% AmerisourceBergen Corp., Sr. Notes, 7.25%, 11/15/12 (Acquired 11/12/02; Cost $70,000)(a) 70,000 72,275 - ---------------------------------------------------------------------- NDCHealth Corp., Sr. Sub. Notes, 10.50%, 12/01/12 (Acquired 11/18/02-11/21/02; Cost $69,688)(a) 70,000 70,525 ====================================================================== 142,800 ======================================================================
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Health Care Equipment-1.85% CONMED Corp., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 03/15/08 $110,000 $ 114,950 - ---------------------------------------------------------------------- Medquest Inc., Sr. Sub. Notes, 11.88%, 08/15/12 (Acquired 08/08/02; Cost $117,445)(a) 120,000 119,400 - ---------------------------------------------------------------------- Radiologix, Inc.-Series B, Sr. Unsec. Gtd. Notes, 10.50%, 12/15/08 85,000 66,725 - ---------------------------------------------------------------------- Vicar Operating, Inc., Sr. Unsec. Gtd. Notes, 9.88%, 12/01/09 150,000 164,250 ====================================================================== 465,325 ====================================================================== Health Care Facilities-3.41% Hanger Orthopedic Group, Inc. Sr. Gtd. Sub. Notes, 11.25%, 06/15/09 250,000 258,750 - ---------------------------------------------------------------------- Sr. Unsec. Gtd. Notes, 10.38%, 02/15/09 50,000 52,250 - ---------------------------------------------------------------------- Select Medical Corp., Sr. Unsec. Sub. Notes, 9.50%, 06/15/09 250,000 260,000 - ---------------------------------------------------------------------- Triad Hospitals, Inc.-Series B, Sr. Unsec. Gtd. Notes, 8.75%, 05/01/09 75,000 80,625 - ---------------------------------------------------------------------- United Surgical Partners International, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%, 12/15/11 200,000 206,000 ====================================================================== 857,625 ====================================================================== Health Care Supplies-0.65% DJ Orthopedics LLC, Sr. Unsec. Gtd. Sub. Notes, 12.63%, 06/15/09 165,000 164,175 ====================================================================== Home Furnishings-0.84% Sealy Mattress Co.-Series B, Sr. Gtd. Sub. Notes, 9.88%, 12/15/07 190,000 185,250 - ---------------------------------------------------------------------- Winsloew Furniture, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.75%, 08/15/07 30,000 24,750 ====================================================================== 210,000 ====================================================================== Homebuilding-3.14% Beazer Homes USA, Inc., Sr. Unsec. Gtd. Notes 8.38%, 04/15/12 80,000 82,800 - ---------------------------------------------------------------------- K Hovnanian Enterprises, Inc., Sr. Unsec. Gtd. Notes, 10.50%, 10/01/07 105,000 113,400 - ---------------------------------------------------------------------- Schuler Homes, Inc., Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 200,000 205,000 - ---------------------------------------------------------------------- 10.50%, 07/15/11 50,000 51,250 - ---------------------------------------------------------------------- Technical Olympic USA, Inc., Sr. Notes, 9.00%, 07/01/10 (Acquired 06/14/02; Cost $175,000)(a) 175,000 169,750 - ---------------------------------------------------------------------- WCI Communities Inc., Sr. Unsec. Gtd. Sub. Notes, 10.63%, 02/15/11 170,000 165,750 ====================================================================== 787,950 ====================================================================== Hotels, Resorts & Cruise Lines-3.37% HMH Properties Inc., Sr. Sec. Gtd. Notes, 7.88%, 08/01/08 55,000 53,350 - ----------------------------------------------------------------------
AIM V.I. HIGH YIELD FUND
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Hotels, Resorts & Cruise Lines-(Continued) Intrawest Corp. (Canada), Sr. Unsec. Yankee Notes, 10.50%, 02/01/10 $255,000 $ 266,475 - ---------------------------------------------------------------------- John Q. Hammons Hotels, Inc., Sr. 1st Mortgage Notes, 8.88%, 05/15/12 80,000 81,000 - ---------------------------------------------------------------------- Kerzner International Ltd. (Bahamas), Sr. Unsec. Gtd. Sub. Notes, 8.88%, 08/15/11 125,000 128,750 - ---------------------------------------------------------------------- Royal Caribbean Cruises Ltd. (Liberia), Sr. Unsec. Unsub. Notes, 8.75%, 02/02/11 200,000 184,000 - ---------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc., Notes, 7.88%, 05/01/12 (Acquired 04/11/02; Cost $134,302)(a) 135,000 133,988 ====================================================================== 847,563 ====================================================================== Household Appliances-0.39% Salton, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 12/15/05 100,000 98,000 ====================================================================== Industrial Gases-0.68% Constar International Inc., Sr. Sub. Notes, 11.00%, 12/01/12 170,000 169,575 ====================================================================== Industrial Machinery-0.50% Actuant Corp., Sr. Unsec. Gtd. Sub. Notes, 13.00%, 05/01/09 17,000 19,975 - ---------------------------------------------------------------------- Manitowoc Co. Inc. (The), Sr. Sub. Notes, 10.50%, 08/01/12 (Acquired 08/02/02-11/04/02; Cost $65,063)(a) 65,000 67,925 - ---------------------------------------------------------------------- National Waterworks Inc., Sr. Sub. Notes, 10.50%, 12/01/12 (Acquired 11/14/02; Cost $35,000)(a) 35,000 36,925 ====================================================================== 124,825 ====================================================================== Integrated Oil & Gas-1.22% El Paso Energy Partners, L.P., Sr. Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11 (Acquired 05/14/02-10/11/02; Cost $231,356)(a) 240,000 222,000 - ---------------------------------------------------------------------- Series B, Sr. Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11 90,000 83,250 ====================================================================== 305,250 ====================================================================== Integrated Telecommunication Services-1.25% Madison River Capital LLC/Madison River Finance Corp., Sr. Unsec. Notes, 13.25%, 03/01/10 180,000 105,300 - ---------------------------------------------------------------------- PTC International Finance II S.A. (Luxembourg), Sr. Unsec. Gtd. Sub. Yankee Notes, 11.25%, 12/01/09 195,000 207,675 ====================================================================== 312,975 ====================================================================== Leisure Facilities-1.12% Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%, 12/01/12 100,000 100,250 - ----------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Leisure Facilities-(Continued) Six Flags, Inc., Sr. Unsec. Notes, 9.50%, 02/01/09 $ 45,000 $ 43,538 - ---------------------------------------------------------------------- 9.75%, 06/15/07 140,000 137,200 ====================================================================== 280,988 ====================================================================== Marine-0.14% Stena A.B. (Sweden), Sr. Notes, 9.63%, 12/01/12 (Acquired 11/22/02; Cost $35,000)(a) 35,000 36,225 ====================================================================== Metal & Glass Containers-2.56% AEP Industries Inc., Sr. Unsec. Sub. Notes, 9.88%, 11/15/07 30,000 28,650 - ---------------------------------------------------------------------- Anchor Glass Container Corp., Sr. Sec. Sub. First Mortgage Notes, 11.25%, 04/01/05 100,000 98,500 - ---------------------------------------------------------------------- Ball Corp., Sr. Notes, 6.88%, 12/15/12 (Acquired 12/05/02; Cost $45,000)(a) 45,000 45,450 - ---------------------------------------------------------------------- Greif Brothers Corp., Sr. Unsec. Gtd. Sub. Notes, 8.88%, 08/01/12 150,000 159,750 - ---------------------------------------------------------------------- Jarden Corp., Sr. Unsec. Gtd. Sub. Notes, 9.75%, 05/01/12 110,000 112,750 - ---------------------------------------------------------------------- Owens-Brockway, Sr. Sec. Notes, 8.75%, 11/15/12 (Acquired 11/05/02; Cost $100,000)(a) 100,000 102,000 - ---------------------------------------------------------------------- Plastipak Holdings Inc., Sr. Unsec. Gtd. Notes, 10.75%, 09/01/11 85,000 90,100 - ---------------------------------------------------------------------- Stone Container Corp., Sr. Unsec. Notes, 8.38%, 07/01/12 5,000 5,150 ====================================================================== 642,350 ====================================================================== Movies & Entertainment-0.99% AMC Entertainment Inc., Sr. Unsec. Sub. Notes, 9.50%, 02/01/11 250,000 247,500 ====================================================================== Multi-Utilities & Unregulated Power-0.27% Transcontinental Gas Pipe Line, Notes, 6.13%, 01/15/05 70,000 67,200 ====================================================================== Office Services & Supplies-0.28% Falcon Products, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 11.38%, 06/15/09 100,000 70,500 ====================================================================== Oil & Gas Drilling-1.01% Pride International, Inc., Sr. Unsec. Notes, 10.00%, 06/01/09 235,000 254,975 ====================================================================== Oil & Gas Equipment & Services-1.38% Grant Prideco Escrow Corp., Sr. Notes, 9.00%, 12/15/09 (Acquired 11/25/02; Cost $50,000)(a) 50,000 52,250 - ---------------------------------------------------------------------- Hanover Equipment Trust-Series 2001-A, Sr. Sec. Notes, 8.50%, 09/01/08 (Acquired 08/05/02-10/24/02; Cost $123,425)(a) 145,000 141,375 - ---------------------------------------------------------------------- SESI, LLC, Sr. Unsec. Gtd. Notes, 8.88%, 05/15/11 150,000 153,750 ====================================================================== 347,375 ======================================================================
AIM V.I. HIGH YIELD FUND
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Oil & Gas Exploration & Production-2.22% Chesapeake Energy Corp. Sr. Notes, 7.75%, 01/15/15 (Acquired 12/13/02; Cost $59,416)(a) $ 60,000 $ 60,000 - ---------------------------------------------------------------------- Sr. Unsec. Gtd. Notes, 8.38%, 11/01/08 50,000 52,125 - ---------------------------------------------------------------------- Comstock Resources, Inc., Sr. Unsec. Gtd. Notes, 11.25%, 05/01/07 65,000 69,225 - ---------------------------------------------------------------------- Frontier Oil Corp., Sr. Unsec. Sub. Notes, 11.75%, 11/15/09 245,000 253,575 - ---------------------------------------------------------------------- Swift Energy Co., Sr. Unsec. Sub. Notes, 9.38%, 05/01/12 50,000 48,750 - ---------------------------------------------------------------------- Westport Resources Corp., Sr. Sub. Notes, 8.25%, 11/01/11 (Acquired 12/11/02; Cost $72,100)(a) 70,000 73,500 ====================================================================== 557,175 ====================================================================== Oil & Gas Refining, Marketing & Transportation-1.51% Tesoro Petroleum Corp., Sr. Unsec. Sub. Notes, 9.63%, 04/01/12 25,000 16,375 - ---------------------------------------------------------------------- Texas Petrochemical Corp., Sr. Unsec. Sub. Notes, 11.13%, 07/01/06 155,000 95,325 - ---------------------------------------------------------------------- Western Gas Resources, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%, 06/15/09 250,000 268,750 ====================================================================== 380,450 ====================================================================== Packaged Foods & Meats-0.23% Dole Food Co., Inc., Sr. Unsec. Notes, 7.25%, 05/01/09 60,000 57,150 ====================================================================== Paper Packaging-0.53% Graphic Packaging Corp., Unsec. Gtd. Sub. Notes, 8.63%, 02/15/12 125,000 132,500 ====================================================================== Paper Products-1.29% Appleton Papers Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.50%, 12/15/08 115,000 126,500 - ---------------------------------------------------------------------- Tembec Industries Inc. (Canada), Sr. Unsec. Gtd. Yankee Notes, 7.75%, 03/15/12 200,000 198,000 ====================================================================== 324,500 ====================================================================== Personal Products-1.64% Armkel LLC, Sr. Sub. Notes, 9.50%, 08/15/09 70,000 76,125 - ---------------------------------------------------------------------- Elizabeth Arden, Inc., Sr. Sec. Notes, 11.75%, 02/01/11 190,000 195,700 - ---------------------------------------------------------------------- Herbalife International, Inc., Sr. Sub. Notes, 11.75%, 07/15/10 (Acquired 06/21/02-10/18/02; Cost $133,469)(a) 140,000 140,000 ====================================================================== 411,825 ====================================================================== Pharmaceuticals-1.64% aaiPharma Inc., Sr. Sub. Unsec. Gtd. Notes, 11.00%, 04/01/10 240,000 241,200 - ----------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Pharmaceuticals-(Continued) Biovail Corp. (Canada), Sr. Sub. Yankee Notes, 7.88%, 04/01/10 $170,000 $ 170,850 ====================================================================== 412,050 ====================================================================== Publishing-1.41% American Media Operations, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.25%, 05/01/09 150,000 156,000 - ---------------------------------------------------------------------- Dex Media East LLC, Sr. Notes, 9.88%, 11/15/09 (Acquired 10/13/02; Cost $100,000)(a) 100,000 108,000 - ---------------------------------------------------------------------- PRIMEDIA Inc., Sr. Unsec. Gtd. Notes, 8.88%, 05/15/11 100,000 91,250 ====================================================================== 355,250 ====================================================================== Railroads-2.18% Kansas City Southern Railway, Sr. Unsec. Gtd. Notes, 9.50%, 10/01/08 200,000 221,000 - ---------------------------------------------------------------------- Railamerica Transportation Corp., Sr. Unsec. Gtd. Sub. Notes, 12.88%, 08/15/10 175,000 175,875 - ---------------------------------------------------------------------- TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd. Disc. Yankee Deb., 11.75%, 06/15/09(c) 155,000 151,900 ====================================================================== 548,775 ====================================================================== Real Estate-2.02% Host Marriott LP-Series G, Sr. Gtd. Notes, 9.25%, 10/01/07 175,000 176,750 - ---------------------------------------------------------------------- iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08 145,000 152,975 - ---------------------------------------------------------------------- MeriStar Hospitality Corp., Sr. Unsec. Gtd. Notes, 9.13%, 01/15/11 155,000 135,625 - ---------------------------------------------------------------------- RFS Partnership LP, Sr. Unsec. Gtd. Notes, 9.75%, 03/01/12 40,000 41,000 ====================================================================== 506,350 ====================================================================== Restaurants-0.35% Perkins Family Restaurants, L.P.-Series B, Sr. Unsec. Notes, 10.13%, 12/15/07 100,000 88,500 ====================================================================== Semiconductors-0.32% ON Semiconductor Corp., Sr. Sec. Gtd. Notes, 12.00%, 05/15/08 (Acquired 05/01/02-06/11/02; Cost $104,986)(a) 110,000 80,850 ====================================================================== Specialty Chemicals-1.06% K & F Industries, Inc. Sr. Sub. Notes, 9.63%, 12/15/10 (Acquired 12/13/02; Cost $40,000)(a) 40,000 41,000 - ---------------------------------------------------------------------- Macdermid Inc., Sr. Unsec. Gtd. Sub. Notes, 9.13%, 07/15/11 50,000 53,750 - ---------------------------------------------------------------------- Millennium America, Inc. Sr. Notes, 9.25%, 06/15/08 (Acquired 06/20/02; Cost $56,375)(a) 55,000 57,613 - ---------------------------------------------------------------------- Sr. Unsec. Gtd. Sub. Notes, 9.25%, 06/15/08 50,000 52,313 - ---------------------------------------------------------------------- OM Group, Inc., Sr. Unsec. Gtd. Sub. Notes, 9.25%, 12/15/11 115,000 62,675 ====================================================================== 267,351 ======================================================================
AIM V.I. HIGH YIELD FUND
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Specialty Stores-2.71% Advance Stores Co., Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.25%, 04/15/08 $150,000 $ 159,000 - ---------------------------------------------------------------------- CSK Auto, Inc., Sr. Unsec. Gtd. Notes, 12.00%, 06/15/06 80,000 86,000 - ---------------------------------------------------------------------- Petco Animal Supplies Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 11/01/11 200,000 215,500 - ---------------------------------------------------------------------- Petro Stopping Centers LP, Sr. Unsec. Notes, 10.50%, 02/01/07 75,000 70,500 - ---------------------------------------------------------------------- United Rentals, Inc.-Series B, Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08 150,000 149,250 ====================================================================== 680,250 ====================================================================== Telecommunications Equipment-0.49% Filtronic PLC (United Kingdom), Sr. Unsec. Yankee Notes, 10.00%, 12/01/05 135,000 123,525 ====================================================================== Textiles-0.64% Cabot Safety Corp., Sr. Sub. Notes, 12.50%, 07/15/05 160,000 160,800 ====================================================================== Trucking-1.81% Avis Group Holdings, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 05/01/09 215,000 235,963 - ---------------------------------------------------------------------- North American Van Lines, Sr. Unsec. Gtd. Sub. Notes, 13.38%, 12/01/09 220,000 218,350 ====================================================================== 454,313 ====================================================================== Wireless Telecommunication Services-2.33% AirGate PCS, Inc., Sr. Sub. Disc. Notes, 13.50%, 10/01/09(c)(d) 130,000 14,950 - ---------------------------------------------------------------------- Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc. Notes, 12.88%, 02/15/10(c) 45,000 8,325 - ---------------------------------------------------------------------- Horizon PCS, Inc., Sr. Unsec. Gtd. Disc. Notes, 14.00%, 10/01/10(c) 120,000 9,000 - ---------------------------------------------------------------------- iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%, 07/15/10(c) 130,000 7,150 - ---------------------------------------------------------------------- IWO Holdings, Inc., Sr. Unsec. Gtd. Notes, 14.00%, 01/15/11 240,000 46,800 - ---------------------------------------------------------------------- Nextel Communications, Inc., Sr. Unsec. Notes, 9.50%, 02/01/11 240,000 220,800 - ---------------------------------------------------------------------- NTELOS Inc., Sr. Unsec. Notes, 13.00%, 08/15/10 155,000 44,175 - ---------------------------------------------------------------------- SBA Communications Corp., Sr. Unsec. Notes, 10.25%, 02/01/09 150,000 82,125 - ---------------------------------------------------------------------- Spectrasite Holdings, Inc., Sr. Disc. Notes, 12.00%, 07/15/08(c) 145,000 47,125 - ---------------------------------------------------------------------- Spectrasite Holdings, Inc., Sr. Unsec. Disc. Notes, 11.25%, 04/15/09(c) 30,000 9,150 - ---------------------------------------------------------------------- Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Notes, 10.38%, 01/15/11 72,000 76,500 - ----------------------------------------------------------------------
PRINCIPAL MARKET AMOUNT VALUE - ---------------------------------------------------------------------- Wireless Telecommunication Services-(Continued) UbiquiTel Operating Co., Sr. Unsec. Gtd. Disc. Sub. Notes, 14.00%, 04/15/10(c) $192,000 $ 12,480 - ---------------------------------------------------------------------- US Unwired Inc.-Series B, Sr. Unsec. Gtd. Sub. Disc. Notes, 13.38%, 11/01/09(c) 90,000 5,850 ====================================================================== 584,430 ====================================================================== Total Bonds & Notes (Cost $24,503,193) 22,731,696 ====================================================================== SHARES WARRANTS & OTHER EQUITY INTERESTS-0.96% Broadcasting & Cable TV-0.94% CSC Holdings Inc.-Series M, PIK Pfd. 2,500 235,000 - ---------------------------------------------------------------------- Knology, Inc.-Series D, Conv. Pfd. (Acquired 11/07/02; Cost $0)(a) 5,972 0 - ---------------------------------------------------------------------- ONO Finance PLC (United Kingdom)-Rts., expiring 05/31/09(e) 550 1 ====================================================================== 235,001 ====================================================================== Construction Materials-0.00% Dayton Superior-Wts., expiring 06/15/09 (Acquired 08/07/00; Cost $0)(a)(e) 220 110 ====================================================================== General Merchandise Stores-0.01% Travelcenters of America Inc.-Wts., expiring 05/01/09 (Acquired 01/29/01; Cost $0)(a)(e) 300 3,075 ====================================================================== Home Furnishings-0.00% Winsloew Escrow Corp.-Wts., expiring 08/15/07 (Acquired 12/06/99; Cost $0)(a)(e) 30 315 ====================================================================== Railroads-0.01% Railamerica Inc.-Wts., expiring 08/15/10 (Acquired 10/05/00; Cost $0)(a)(e) 175 1,335 ====================================================================== Wireless Telecommunication Services-0.00% Horizon PCS, Inc.-Wts., expiring 10/01/10 (Acquired 05/02/01; Cost $0)(a)(e) 500 0 - ---------------------------------------------------------------------- iPCS, Inc.-Wts., expiring 07/15/10 (Acquired 01/29/01; Cost $0)(a)(e) 100 25 - ---------------------------------------------------------------------- IWO Holdings Inc.-Wts., expiring 01/15/11 (Acquired 08/24/01-09/04/01; Cost $2,600)(a)(e) 240 60 - ---------------------------------------------------------------------- NTELOS Inc.-Wts., expiring 08/15/10 (Acquired 11/15/00; Cost $0)(a)(e) 300 3 - ---------------------------------------------------------------------- Ubiquitel Inc.-Wts., expiring 04/15/10 (Acquired 08/10/00; Cost $0)(a)(e) 300 113 ====================================================================== 201 ====================================================================== Total Warrants & Other Equity Interests (Cost $261,725) 240,037 ======================================================================
AIM V.I. HIGH YIELD FUND
MARKET SHARES VALUE - ---------------------------------------------------------------------- MONEY MARKET FUNDS-6.40% STIC Liquid Assets Portfolio(f) 804,499 $ 804,499 - ---------------------------------------------------------------------- STIC Prime Portfolio(f) 804,499 804,499 ====================================================================== Total Money Market Funds (Cost $1,608,998) 1,608,998 ====================================================================== TOTAL INVESTMENTS-97.83% (Cost $26,373,916) 24,580,731 ====================================================================== OTHER ASSETS LESS LIABILITIES-2.17% 545,237 ====================================================================== NET ASSETS-100.00% $25,125,968 ______________________________________________________________________ ======================================================================
Investment Abbreviations: Conv. - Convertible Deb. - Debentures Disc. - Discounted Gtd. - Guaranteed Pfd. - Preferred PIK - Payment in Kind Rts. - Rights Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants
Notes to Schedule of Investments: (a) Securities not registered under the Securities Act of 1933, as amended (e.g., the security was purchased in a Rule 144A transaction or a Regulation D transaction); the securities may be resold only pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The Fund has no rights to demand registration of these securities. The aggregate market value of these securities at 12/31/02 was $2,842,696, which represented 11.31% of the Fund's net assets. Of these securities, less than 0.00% of the Fund's net assets are considered to be illiquid. (b) Defaulted security. Currently, the issuer is in default with respect to interest payments. (c) Discounted bond at issue. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (d) Consists of more than one class of securities traded together as a unit. In addition to the security listed, each unit includes warrants to purchase common or preferred shares of the issuer. (e) Non-income producing security acquired as part of a unit with or in exchange for other securities. (f) The money market fund and the Fund are affiliated by having the same investment advisor. See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND Statement of Assets and Liabilities December 31, 2002 ASSETS: Investments, at market value (cost $26,373,916) $24,580,731 - ------------------------------------------------------------ Receivables for: Investments sold 43,840 - ------------------------------------------------------------ Fund shares sold 1,499 - ------------------------------------------------------------ Dividends and interest 576,489 - ------------------------------------------------------------ Investment for deferred compensation plan 19,437 ============================================================ Total assets 25,221,996 ____________________________________________________________ ============================================================ LIABILITIES: Payables for: Fund shares reacquired 38,636 - ------------------------------------------------------------ Deferred compensation plan 19,437 - ------------------------------------------------------------ Accrued administrative services fees 17,990 - ------------------------------------------------------------ Accrued distribution fees -- Series II 38 - ------------------------------------------------------------ Accrued transfer agent fees 1,765 - ------------------------------------------------------------ Accrued operating expenses 18,162 ============================================================ Total liabilities 96,028 ============================================================ Net assets applicable to shares outstanding $25,125,968 ____________________________________________________________ ============================================================ NET ASSETS: Series I $24,983,652 ____________________________________________________________ ============================================================ Series II $ 142,316 ____________________________________________________________ ============================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE: Series I 4,998,679 ____________________________________________________________ ============================================================ Series II 28,496 ____________________________________________________________ ============================================================ Series I: Net asset value per share $ 5.00 ____________________________________________________________ ============================================================ Series II: Net asset value per share $ 4.99 ____________________________________________________________ ============================================================
Statement of Operations For the year ended December 31, 2002 INVESTMENT INCOME: Interest $ 3,034,659 - ------------------------------------------------------------ Dividends 28,032 - ------------------------------------------------------------ Dividends from affiliated money market funds 15,871 ============================================================ Total investment income 3,078,562 ============================================================ EXPENSES: Advisory fees 167,345 - ------------------------------------------------------------ Administrative services fees 117,619 - ------------------------------------------------------------ Custodian fees 20,713 - ------------------------------------------------------------ Distribution fees -- Series II 114 - ------------------------------------------------------------ Transfer agent fees 9,753 - ------------------------------------------------------------ Trustees' fees 8,520 - ------------------------------------------------------------ Other 24,769 ============================================================ Total expenses 348,833 ============================================================ Less: Fees waived and expenses reimbursed (203) - ------------------------------------------------------------ Expenses paid indirectly (276) ============================================================ Net expenses 348,354 ============================================================ Net investment income 2,730,208 ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES: Net realized gain (loss) from investment securities (8,153,576) - ------------------------------------------------------------ Change in net unrealized appreciation of investment securities 3,638,095 ============================================================ Net gain (loss) from investment securities (4,515,481) ============================================================ Net increase (decrease) in net assets resulting from operations $(1,785,273) ____________________________________________________________ ============================================================
See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND Statement of Changes in Net Assets For the years ended December 31, 2002 and 2001
2002 2001 - ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 2,730,208 $ 3,307,145 - ----------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities (8,153,576) (6,354,746) - ----------------------------------------------------------------------------------------- Change in net unrealized appreciation of investment securities 3,638,095 1,271,997 ========================================================================================= Net increase (decrease) in net assets resulting from operations (1,785,273) (1,775,604) ========================================================================================= Distributions to shareholders from net investment income: Series I -- (3,500,180) - ----------------------------------------------------------------------------------------- Share transactions-net: Series I (2,028,474) 7,923,261 - ----------------------------------------------------------------------------------------- Series II 141,011 -- ========================================================================================= Net increase (decrease) in net assets (3,672,736) 2,647,477 ========================================================================================= NET ASSETS: Beginning of year 28,798,704 26,151,227 ========================================================================================= End of year $ 25,125,968 $28,798,704 _________________________________________________________________________________________ ========================================================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $ 42,267,377 $44,154,693 - ----------------------------------------------------------------------------------------- Undistributed net investment income 2,543,233 (308,871) - ----------------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities (17,891,457) (9,615,838) - ----------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities (1,793,185) (5,431,280) ========================================================================================= $ 25,125,968 $28,798,704 _________________________________________________________________________________________ =========================================================================================
See Notes to Financial Statements. AIM V.I. HIGH YIELD FUND Notes to Financial Statements December 31, 2002 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. High Yield Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eighteen separate portfolios. The Fund currently offers two classes of shares, Series I and Series II shares, both of which are offered to insurance company separate accounts. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current SEC guidance, however, requires participating insurance companies to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio and class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is to achieve a high level of current income. The Fund will seek to achieve its objective by investing primarily in a diversified portfolio of foreign and U.S. government and corporate debt securities, including lower rated high yield debt securities (commonly known as "junk bonds"). These high yield bonds may involve special risks in addition to the risks associated with investment in higher rated debt securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade bonds. Also, the secondary market in which high yield bonds are traded may be less liquid than the market for higher grade bonds. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued at the closing bid price furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the last sales price as of the close of the customary trading session on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Premiums and discounts are amortized and/or accreted for financial reporting purposes. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gains, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, AIM V.I. HIGH YIELD FUND no provision for federal income taxes is recorded in the financial statements. E. EXPENSES -- Distribution expenses directly attributable to a class of shares are charged to the respective classes' operations. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets. NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.625% on the first $200 million of the Fund's average daily net assets, plus 0.55% on the next $300 million of the Fund's average daily net assets, plus 0.50% on the next $500 million of the Fund's average daily net assets, plus 0.45% on the Fund's average daily net assets in excess of $1 billion. AIM has agreed to waive advisory fees of Series I and Series II shares to the extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes, dividend expense on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) of each Series to 1.30%. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended December 31, 2002, AIM waived fees of $157. Pursuant to a master administrative services agreement with AIM, the Fund has agreed to pay AIM a fee for costs incurred in providing accounting services and certain administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide administrative services to the Fund. For the year ended December 31, 2002, the Fund paid AIM $117,619 of which AIM retained $50,000 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended December 31, 2002, AFS retained $6,074 for such services. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Series II shares ("the Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Series II shares. Of this amount, the Fund may pay a service fee of up to 0.25% of the average daily net assets of the Series II shares to insurance companies who furnish continuing personal shareholder services to their customers who purchase and own Series II shares of the Fund. AIM Distributors has agreed to reimburse the Fund's Rule 12b-1 Distribution Plan fees to the extent necessary to limit the total expenses of Series II shares to 1.45%. Pursuant to the master distribution agreement for the period March 26, 2002 (date sales commenced) through December 31, 2002, the Series II shares paid $68 after plan fees reimbursed by AIM Distributors of $46. Certain officers and trustees of the Trust are officers of AIM, AFS and/or AIM Distributors. During the year ended December 31, 2002, the Fund paid legal fees of $2,704 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of that firm is a trustee of the Trust. NOTE 3--INDIRECT EXPENSES For the year ended December 31, 2002, the Fund received reductions in custodian fees of $276 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $276. NOTE 4--TRUSTEES' FEES Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. NOTE 5--BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended December 31, 2002, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST Distributions to Shareholders: The tax character of distributions paid during the years ended December 31, 2002 and 2001 was as follows:
2002 2001 - ------------------------------------------------------------- Distributions paid from ordinary income $ -- $3,500,180 _____________________________________________________________ =============================================================
Tax Components of Beneficial Interest: As of December 31, 2002, the components of beneficial interest on a tax basis were as follows: Undistributed ordinary income $ 2,569,755 - ------------------------------------------------------------- Unrealized appreciation (depreciation) -- investments (1,944,866) - ------------------------------------------------------------- Temporary book/tax differences (25,760) - ------------------------------------------------------------- Capital loss carryforward (17,135,207) - ------------------------------------------------------------- Post-October capital loss deferral (605,331) - ------------------------------------------------------------- Shares of beneficial interest 42,267,377 ============================================================= $ 25,125,968 _____________________________________________________________ =============================================================
AIM V.I. HIGH YIELD FUND The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales, bond premium amortization and defaulted bond adjustments. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses. The Fund's capital loss carryforward expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD - ----------------------------------------------------------- December 31, 2006 $ 247,107 - ----------------------------------------------------------- December 31, 2007 545,518 - ----------------------------------------------------------- December 31, 2008 2,010,706 - ----------------------------------------------------------- December 31, 2009 5,842,381 - ----------------------------------------------------------- December 31, 2010 8,489,495 =========================================================== $17,135,207 ___________________________________________________________ ===========================================================
NOTE 7--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 2002 was $18,703,328 and $19,351,646, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of December 31, 2002 is as follows: Aggregate unrealized appreciation of investment securities $ 856,962 - ------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (2,801,828) ============================================================= Net unrealized appreciation (depreciation) of investment securities $(1,944,866) _____________________________________________________________ ============================================================= Cost of investments for tax purposes is $26,525,597.
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES As a result of differing book/tax treatment of bond premium amortization and defaulted bond adjustments on December 31, 2002, undistributed net investment income was increased by $121,896, undistributed net realized gains decreased by $122,043 and shares of beneficial interest increased by $147. This reclassification had no effect on the net assets of the Fund. NOTE 9--SHARE INFORMATION Changes in shares outstanding during the years ended December 31, 2002 and 2001 were as follows:
2002 2001 ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------- Sold: Series I 1,454,744 $ 7,353,977 2,277,266 $ 14,617,884 - --------------------------------------------------------------------------------------------------------------------- Series II* 33,073 162,657 -- -- ===================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 660,415 3,500,180 ===================================================================================================================== Reacquired: Series I (1,877,404) (9,382,451) (1,633,796) (10,194,803) - --------------------------------------------------------------------------------------------------------------------- Series II* (4,577) (21,646) -- -- ===================================================================================================================== (394,164) $(1,887,463) 1,303,885 $ 7,923,261 _____________________________________________________________________________________________________________________ =====================================================================================================================
* Series II shares commenced sales on March 26, 2002. AIM V.I. HIGH YIELD FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------- MAY 1, 1998 (DATE OPERATIONS YEAR ENDED DECEMBER 31, COMMENCED) TO ---------------------------------------------- DECEMBER 31, 2002 2001 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 5.31 $ 6.35 $ 9.02 $ 8.84 $10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.51(a) 0.70(b) 0.91 1.03(a) 0.39 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.82) (1.01) (2.64) (0.10) (1.15) ================================================================================================================================= Total from investment operations (0.31) (0.31) (1.73) 0.93 (0.76) ================================================================================================================================= Less dividends from net investment income -- (0.73) (0.94) (0.75) (0.40) ================================================================================================================================= Net asset value, end of period $ 5.00 $ 5.31 $ 6.35 $ 9.02 $ 8.84 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (5.84)% (4.85)% (19.14)% 10.52% (7.61)% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $24,984 $28,799 $26,151 $25,268 $7,966 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers 1.30%(d) 1.21% 1.13% 1.14% 1.13%(e) - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers 1.30%(d) 1.29% 1.19% 1.42% 2.50%(e) ================================================================================================================================= Ratio of net investment income to average net assets 10.20%(d) 11.39%(b) 11.44% 11.07% 9.75%(e) _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 74% 64% 72% 127% 39% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. Had the Fund not amortized premiums on debt securities, the net investment income per share would have been $0.71 and the ratio of net investment income to average net assets would have been 11.44%. In accordance with the AICPA Audit and Accounting Guide for Investment Companies, per share and ratios prior to January 1, 2001 have not been restated to reflect this change in presentation. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year. Total returns do not reflect charges at the separate account level which if included would reduce total returns for all periods shown. (d) Ratios are based on average daily net assets of $26,729,639. (e) Annualized.
SERIES II -------------- MARCH 26, 2002 (DATE SALES COMMENCED) TO DECEMBER 31, 2002 - ---------------------------------------------------------------------------- Net asset value, beginning of period $ 5.27 - ---------------------------------------------------------------------------- Income from investment operations: Net investment income 0.38(a) - ---------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.66) ============================================================================ Total from investment operations (0.28) ============================================================================ Net asset value, end of period $ 4.99 ____________________________________________________________________________ ============================================================================ Total return(b) (5.31)% ____________________________________________________________________________ ============================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $ 142 ____________________________________________________________________________ ============================================================================ Ratio of expenses to average net assets: With fee waivers and expense reimbursements 1.45%(c) - ---------------------------------------------------------------------------- Without fee waivers and expense reimbursements 1.55%(c) ============================================================================ Ratio of net investment income to average net assets 10.05%(c) ____________________________________________________________________________ ============================================================================ Portfolio turnover rate 74% ____________________________________________________________________________ ============================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year. Total returns do not reflect charges at the separate account level which if included would reduce total returns for all periods shown. (c) Ratios are annualized and based on average daily net assets of $59,371. AIM V.I. HIGH YIELD FUND Report of Independent Certified Public Accountants To the Shareholders and Board of Trustees AIM Variable Insurance Funds We have audited the accompanying statement of assets and liabilities of AIM V.I. High Yield Fund, a series of shares of beneficial interest of AIM Variable Insurance Funds including the schedule of investments as of December 31, 2002, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods in the four year period then ended and for the period May 1, 1998 (commencement of operations) through December 31, 1998. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. High Yield Fund, as of December 31, 2002, 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 years or periods in the four year period then ended and for the period May 1, 1998 (commencement of operations) through December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 31, 2003 AIM V.I. HIGH YIELD FUND Trustees and Officers As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Interested Persons - ----------------------------------------------------------------------------------------------------------------------------------- Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None Trustee, Chairman and Group Inc. (financial services holding President company); and Director and Vice Chairman, AMVESCAP PLC (parent of AIM and a global investment management firm); formerly, President and Chief Executive Officer, A I M Management Group Inc.; Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); Director and Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), A I M Fund Services, Inc., (registered transfer agent), and Fund Management Company (registered broker dealer) - ----------------------------------------------------------------------------------------------------------------------------------- Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Director, Chairman, President and Trustee Officer, A I M Management Group Inc. Chief Executive Officer, INVESCO (financial services holding company); Bond Funds, Inc., INVESCO Director, Chairman and President, A I M Combination Stock & Bond Funds, Advisors, Inc. (registered investment Inc., INVESCO Counselor Series advisor); Director, A I M Capital Funds, Inc., INVESCO Global and Management, Inc. (registered investment International Funds, Inc., INVESCO advisor) and A I M Distributors, Inc. Manager Series Funds, Inc., (registered broker dealer), Director and INVESCO Money Market Funds, Inc., Chairman, A I M Fund Services, Inc. INVESCO Sector Funds, Inc., (registered transfer agent), and Fund INVESCO Stock Funds, Inc., INVESCO Management Company (registered broker Treasurer's Series Funds, Inc. and dealer); and Chief Executive Officer, INVESCO Variable Investment Funds, AMVESCAP PLC -- AIM Division (parent of Inc. AIM and a global investment management firm); formerly, Director, Chairman and Chief Executive Officer, INVESCO Funds Group, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ----------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. (registered Trustee investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee (technology consulting company) and Captaris, Inc. (unified messaging provider) - ----------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Chairman, Cortland Trust, Inc. None Trustee (registered investment company); Director, Magellan Insurance Company; Member of Advisor Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Director, The Boss Group (private equity group); formerly, Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; and director of various affiliated Volvo companies - ----------------------------------------------------------------------------------------------------------------------------------- Edward K. Dunn, Jr. -- 1935 1998 Formerly, Chairman, Mercantile Mortgage None Trustee Corp.; Vice Chairman, President and Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. - ----------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company) and Texana Timber LP - ----------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered Trustee Naftalis and Frankel LLP investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly, Chief Executive Officer, YWCA None Trustee of the USA - ----------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Louis S. Sklar -- 1939 1993 Executive Vice President, Development None Trustee and Operations, Hines Interests Limited Partnership (real estate development company) - -----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust. (2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. AIM V.I. HIGH YIELD FUND Trustees and Officers (continued) As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Other Officers - ----------------------------------------------------------------------------------------------------------------------------------- Gary T. Crum(3) -- 1947 1993 Director, Chairman and Director of N/A Senior Vice President Investments, A I M Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC; formerly, Chief Executive Officer and President A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Carol F. Relihan -- 1954 1993 Director, Senior Vice President, General N/A Senior Vice President and Counsel and Secretary, A I M Advisors, Secretary Inc. and A I M Management Group Inc.; Director, Vice President and General Counsel, Fund Management Company; and Vice President, A I M Fund Services, Inc., A I M Capital Management, Inc. and A I M Distributors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Robert G. Alley -- 1948 1993 Managing Director and Chief Fixed Income N/A Vice President Officer, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Stuart W. Coco -- 1955 1993 Managing Director and Chief Research N/A Vice President Officer -- Fixed income, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A Vice President Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; and Vice President, A I M Fund Services, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Cash N/A Vice President Management Officer, A I M Capital Management, Inc.; Director and President, Fund Management Company; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Edgar M. Larsen(3) -- 1940 1999 Vice President, A I M Advisors, Inc. and N/A Vice President President, Chief Executive Officer and Chief Investment Officer, A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Dana R. Sutton -- 1959 1993 Vice President and Fund Treasurer, A I M N/A Vice President and Treasurer Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- (3) Information is current as of January 10, 2003. The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.347.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street Houston, TX 77046 Suite 100 Suite 100 Suite 2400 Houston, TX 77046 Houston, TX 77046 Philadelphia, PA 19103 COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN Foley & Lardner Kramer, Levin, Naftalis A I M Fund Services, State Street Bank and 3000 K N.W., Suite 500 & Frankel LLP Inc. Trust Company Washington, D.C. 20007 919 Third Avenue P.O. Box 4739 225 Franklin Street New York, NY 10022 Houston, TX 77210-4739 Boston, MA 02110
AIM V.I. HIGH YIELD FUND AIM V.I. PREMIER EQUITY FUND Annual Report - December 31, 2002 [AIM INVESTMENTS LOGO] AIM V.I. PREMIER EQUITY FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE BEAR MARKET PERSISTS ~THROUGHOUT FISCAL YEAR AIM V.I. Premier Equity Fund delivered negative returns for the year ended December 31, 2002, as the three-year slump continued on Wall Street. The fund's Series I shares returned -30.26%, and Series II shares returned ~-30.44%.* The Lipper Large-Cap Core Fund Index, an index measuring the performance ~of funds with similar investment strategies, returned -21.23%. Major market indexes also ended the fiscal year with negative returns. For example, the S&P 500 returned -22.09% for the year. RELEVANT MARKET CONDITIONS Stocks suffered for much of 2002 as the bear market lingered throughout the year. The economy was helped by strong consumer confidence and retail sales for much of the year. Both auto and home sales were strong during 2002. But investors remained cautious as reports of accounting and corporate governance misdeeds dominated front-page headlines. After experiencing negative Gross Domestic Product growth in mid 2001, the economy rebounded and showed accelerating growth through early 2002. Real GDP in the first quarter grew in excess of 5% on an annualized basis. Growth decelerated in the middle part of 2002, with growth in the second quarter coming in at only 1.25%. Markets followed these trends in the economy. They held steady in the first quarter, and declined in the second and third quarters as concerns arose about the deceleration in the economy. The fourth quarter was a good one for equity markets as expectations grew that the economic deceleration had ended. After holding short-term interest rates at 1.75% until November, the Federal Reserve Board (the Fed) cut the bank overnight rate by 50 basis points (0.50%) to 1.25%. This was the Fed's only interest rate cut during 2002, yet investor reaction to the central bank's strategy continued to be passive. The Conference Board said consumer ~confidence fell to 80.3 points in December, from 84.9 points in November. And, initial claims for unemployment benefits rose to 403,000 the last week in December. Economists consider any jobless report higher than 400,000 an indicator of a weakening labor market. Further, the national unemployment rate hit 6% in December, the highest level in eight years. As the fiscal year closed, there were positive signs. One key measurement of manufacturing activity, the Institute for Supply Management Index, rose to 54.7 points in December from 49.2 points in November. That was the first indicator of growth in the sector since August 2002. Auto sales also climbed as the year closed, gaining 14% in December. Each of the Big 3 manufacturers posted positive results for December. Low interest rates, strong consumer spending, and positive signs of economic growth were signs of optimism. FUND STRATEGIES AND TECHNIQUES We have made several tactical changes since mid year in response to the volatile economic and market environment. We repositioned our structure and process to respond more rapidly to developments in the news or in company fundamentals. We also reorganized our staff of analysts. Our team of analysts had previously worked as generalists. However, each team member now specializes in stocks along industry lines. This focus on specific business lines by analysts allows fund managers to make better, faster decisions. The changes we have made to our structure and process have not changed what we seek in a given security. We remain focused on earnings growth, value of earnings, and earnings momentum. We have increased the number of holdings in the fund since the beginning of the year--up to 83. Additional holdings allow us to better manage risk for investors, which is increasingly important in this volatile market. We are beginning to see positive signals that the economy is growing. The administration has proposed stimulative fiscal policy, interest PORTFOLIO COMPOSITION as of 12/31/02, based on total net assets
==================================================================================================== TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES - ---------------------------------------------------------------------------------------------------- 1. Pfizer Inc. 3.9% 1. Diversified Financial Services 10.9% 2. Citigroup Inc. 3.7 2. Pharmaceuticals 7.8 3. Microsoft Corp. 3.5 3. Integrated Oil & Gas 5.7 4. American International Group Inc. 3.3 4. Broadcasting & Cable TV 5.1 5. HCA Inc. 2.9 5. Computer Hardware 4.1 6. Cox Communications Inc.-Class A 2.9 6. Multi-Line Insurance 4.1 7. Exxon Mobil Corp. 2.8 7. Systems Software 3.5 8. Target Corp. 2.7 8. Banks 3.4 9. Freddie Mac 2.5 9 General Merchandise Stores 3.1 10. General Electric Co. 2.4 10. Health Care Facilities 2.9 The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security. ====================================================================================================
AIM V.I. PREMIER EQUITY FUND ================================================================================ RESULTS OF A $10,000 INVESTMENT 5/5/93-12/31/02 INDEX DATA FROM 4/30/93-12/31/02 [LINE CHART] Source: Lipper, Inc. S&P 500 INDEX $23,972 LIPPER LARGE-CAP CORE FUND INDEX $21,171 AIM V.I. PREMIER EQUITY FUND-SERIES I $20,728 Past performance cannot guarantee comparable future results. This chart uses a logarithmic scale, which means the price scale (vertical axis) is structured so that a given distance always represents the same percent change in price, rather than the same absolute change in price. For example, the distance from one to 10 is the same as the distance from 10 to 100 on a logarithmic chart, but the latter distance is 10 times greater on a linear chart. A logarithmic scale better illustrates performance in the fund's early years before reinvested distributions and compounding create the potential for the original investment to grow to very large numbers. ================================================================================ FUND RETURNS AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/02 SERIES I SHARES INCEPTION (5/5/93) 7.84% 5 YEARS -2.19 1 YEAR -30.26 SERIES II SHARES* INCEPTION 7.57% 5 YEARS -2.43 1 YEAR -30.44 *Performance shown for periods prior to the inception date of the Series II class of shares (9/19/01) reflects the historical results of the Series I class (inception date (5/5/93) adjusted to reflect the impact the Series II class Rule 12b-1 plan would have had if the Series II class had then existed. The Series I and Series II share classes invest in the same portfolio of securities and will have substantially similar performance, except to the extent that expenses borne by each class differ. AIM Variable Insurance Funds are offered through insurance company separate accounts to fund variable annuity contracts and variable life insurance policies, and through certain pension or retirement plans. Performance figures given represent the fund and are not intended to reflect actual annuity values. They do not reflect expenses and fees at the separate-account level. These expenses and fees, which are determined by the product issuers, will vary and will lower the total return. Fund performance figures are historical, and they reflect fund expenses, the reinvestment of distributions and changes in net asset value. The fund's investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than their original cost. AIM V.I. Premier Equity Fund is for shareholders who seek long-term growth of capital by investing in stocks of companies that are undervalued relative to the stock market as a whole. Effective May 1, 2002, AIM V.I. Value Fund was renamed AIM V.I. Premier Equity Fund. This change had no effect on the fund's investment objective. The unmanaged Lipper Large-Cap Core Fund Index represents an average of the 30 largest large-cap core funds tracked by Lipper, Inc., an independent mutual fund performance monitor. The unmanaged Standard & Poor's 500 Composite Index of 500 stocks (the S&P 500) is an index of common stocks frequently used as a general measure of U.S. stocks market performance. An investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not include sales charges. Performance of an index of funds reflects fund expenses. Performance of a market index does not. In the management discussion and in the Schedule of Investments in this report, the fund's portfolio holdings are organized according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc. and Standard & Poor's. DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE. rates are low, stock valuations are attractive, and news media reports about the economy are becoming more positive. A few stocks of particular interest include: o Dell Computer stock was a strong ~contributor to fund performance. The leading manufacturer of direct-sales ~personal computers, the company has been consistently profitable in a volatile industry. In addition to a full line of desktop and notebook PCs designed for consumers, Dell offers network servers, workstations, storage systems, and Ethernet switches. o Cox Communications provides cable ~TV service to 6.3 million customers, cable modem service to 1.4 million ~subscribers and telephone service to 700,000 customers. The company has completed the physical upgrade of the large majority of its physical plant, and is experiencing a reduction in its capital expenditures and a concurrent increase in free cash flow. Performance was hurt by negative news in the industry. o UnitedHealth Group is a national leader in forming and operating markets for the exchange of health and well-being services. The company experienced another year of consistent increases in earning estimates, and it made the ~single largest positive contribution to fund performance for 2002. IN CLOSING We know market conditions in recent years have been largely disappointing. We want to assure you that your fund management team continues to work diligently to meet the fund's investment objective of achieving long-term growth of capital, with income a secondary objective. PORTFOLIO MANAGEMENT TEAM AS OF 12/31/02 EVAN HARREL, LEAD MANAGER ROBERT SHELTON ASSISTED BY PREMIER EQUITY TEAM Schedule of Investments December 31, 2002
MARKET SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-91.49% Advertising-1.27% Omnicom Group Inc. 300,000 $ 19,380,000 ============================================================================== Airlines-0.66% Southwest Airlines Co. 730,400 10,152,560 ============================================================================== Application Software-0.77% BEA Systems, Inc.(a) 693,700 7,956,739 - ------------------------------------------------------------------------------ Intuit Inc.(a) 82,000 3,847,440 ============================================================================== 11,804,179 ============================================================================== Banks-3.37% Bank of America Corp. 457,000 31,793,490 - ------------------------------------------------------------------------------ Bank of New York Co., Inc. (The) 823,300 19,726,268 ============================================================================== 51,519,758 ============================================================================== Biotechnology-0.53% Amgen Inc.(a) 166,800 8,063,112 ============================================================================== Brewers-0.78% Anheuser-Busch Cos., Inc. 247,100 11,959,640 ============================================================================== Broadcasting & Cable TV-5.12% Comcast Corp.-Class A(a) 293,899 6,927,199 - ------------------------------------------------------------------------------ Comcast Corp.-Special Class A(a) 1,215,000 27,446,850 - ------------------------------------------------------------------------------ Cox Communications, Inc.-Class A(a) 1,549,700 44,011,480 ============================================================================== 78,385,529 ============================================================================== Building Products-0.23% Masco Corp. 165,000 3,473,250 ============================================================================== Computer & Electronics Retail-1.20% Best Buy Co., Inc.(a) 762,700 18,419,205 ============================================================================== Computer Hardware-4.14% Dell Computer Corp.(a) 1,320,000 35,296,800 - ------------------------------------------------------------------------------ Hewlett-Packard Co. 1,017,800 17,669,008 - ------------------------------------------------------------------------------ International Business Machines Corp. 133,200 10,323,000 ============================================================================== 63,288,808 ============================================================================== Consumer Finance-1.11% MBNA Corp. 894,900 17,020,998 ============================================================================== Data Processing Services-1.71% First Data Corp. 738,800 26,160,908 ==============================================================================
MARKET SHARES VALUE - ------------------------------------------------------------------------------ Department Stores-0.95% Federated Department Stores, Inc.(a) 506,700 $ 14,572,692 ============================================================================== Diversified Financial Services-10.88% American Express Co. 194,000 6,857,900 - ------------------------------------------------------------------------------ Citigroup Inc. 1,617,400 56,916,306 - ------------------------------------------------------------------------------ Fannie Mae 475,400 30,582,482 - ------------------------------------------------------------------------------ Freddie Mac 654,600 38,654,130 - ------------------------------------------------------------------------------ J.P. Morgan Chase & Co. 321,100 7,706,400 - ------------------------------------------------------------------------------ Merrill Lynch & Co., Inc. 200,000 7,590,000 - ------------------------------------------------------------------------------ Morgan Stanley 456,100 18,207,512 ============================================================================== 166,514,730 ============================================================================== Drug Retail-1.12% Walgreen Co. 588,700 17,184,153 ============================================================================== Electronic Equipment & Instruments-0.47% Celestica Inc. (Canada)(a) 510,700 7,200,870 ============================================================================== Environmental Services-0.87% Waste Management, Inc. 584,300 13,392,156 ============================================================================== Footwear-1.69% NIKE, Inc.-Class B 580,000 25,792,600 ============================================================================== General Merchandise Stores-3.13% Target Corp. 1,391,900 41,757,000 - ------------------------------------------------------------------------------ Wal-Mart de Mexico S.A. de C.V.-Series V (Mexico) 2,700,100 6,196,951 ============================================================================== 47,953,951 ============================================================================== Health Care Distributors & Services-0.14% Laboratory Corp. of America Holdings(a) 89,200 2,073,008 ============================================================================== Health Care Equipment-0.55% Baxter International Inc. 298,500 8,358,000 ============================================================================== Health Care Facilities-2.92% HCA Inc. 1,075,400 44,629,100 ============================================================================== Household Products-2.49% Kimberly-Clark Corp. 160,000 7,595,200 - ------------------------------------------------------------------------------ Procter & Gamble Co. (The) 355,200 30,525,888 ============================================================================== 38,121,088 ==============================================================================
AIM V.I. PREMIER EQUITY FUND
MARKET SHARES VALUE - ------------------------------------------------------------------------------ Industrial Conglomerates-2.37% General Electric Co. 1,489,200 $ 36,262,020 ============================================================================== Industrial Machinery-1.25% Danaher Corp. 290,800 19,105,560 ============================================================================== Integrated Oil & Gas-5.72% BP PLC-ADR (United Kingdom) 478,900 19,467,285 - ------------------------------------------------------------------------------ ChevronTexaco Corp. 380,000 25,262,400 - ------------------------------------------------------------------------------ Exxon Mobil Corp. 1,227,000 42,871,380 ============================================================================== 87,601,065 ============================================================================== Integrated Telecommunication Services-1.76% AT&T Corp. 181,700 4,744,187 - ------------------------------------------------------------------------------ SBC Communications Inc. 316,000 8,566,760 - ------------------------------------------------------------------------------ Verizon Communications Inc. 352,200 13,647,750 ============================================================================== 26,958,697 ============================================================================== IT Consulting & Services-0.71% Accenture Ltd.-Class A (Bermuda)(a) 342,000 6,152,580 - ------------------------------------------------------------------------------ Affiliated Computer Services, Inc.-Class A(a) 88,100 4,638,465 ============================================================================== 10,791,045 ============================================================================== Life & Health Insurance-0.54% AFLAC Inc. 275,000 8,283,000 ============================================================================== Managed Health Care-2.49% Anthem, Inc.(a) 180,100 11,328,290 - ------------------------------------------------------------------------------ UnitedHealth Group Inc. 321,200 26,820,200 ============================================================================== 38,148,490 ============================================================================== Movies & Entertainment-1.95% AOL Time Warner Inc.(a) 637,200 8,347,320 - ------------------------------------------------------------------------------ Viacom Inc.-Class B(a) 527,500 21,500,900 ============================================================================== 29,848,220 ============================================================================== Multi-Line Insurance-4.05% American International Group, Inc. 869,900 50,323,715 - ------------------------------------------------------------------------------ Hartford Financial Services Group, Inc. (The) 257,600 11,702,768 ============================================================================== 62,026,483 ============================================================================== Multi-Utilities & Unregulated Power-0.62% Duke Energy Corp. 486,900 9,514,026 ============================================================================== Networking Equipment-1.15% Cisco Systems, Inc.(a) 1,342,200 17,582,820 ==============================================================================
MARKET SHARES VALUE - ------------------------------------------------------------------------------ Oil & Gas Drilling-0.93% GlobalSantaFe Corp. (Cayman Islands) 170,000 $ 4,134,400 - ------------------------------------------------------------------------------ Transocean Inc. 433,000 10,045,600 ============================================================================== 14,180,000 ============================================================================== Oil & Gas Equipment & Services-1.88% Baker Hughes Inc. 638,000 20,537,220 - ------------------------------------------------------------------------------ BJ Services Co.(a) 255,700 8,261,667 ============================================================================== 28,798,887 ============================================================================== Packaged Foods & Meats-0.81% Sara Lee Corp. 547,600 12,326,476 ============================================================================== Pharmaceuticals-7.78% Allergan, Inc. 245,000 14,116,900 - ------------------------------------------------------------------------------ Johnson & Johnson 395,900 21,263,789 - ------------------------------------------------------------------------------ King Pharmaceuticals, Inc.(a) 456,200 7,842,078 - ------------------------------------------------------------------------------ Merck & Co. Inc. 139,200 7,880,112 - ------------------------------------------------------------------------------ Pfizer Inc. 1,973,000 60,314,610 - ------------------------------------------------------------------------------ Wyeth 203,800 7,622,120 ============================================================================== 119,039,609 ============================================================================== Property & Casualty Insurance-1.57% Allstate Corp. (The) 427,400 15,809,526 - ------------------------------------------------------------------------------ Travelers Property Casualty Corp.-Class A(a) 183,670 2,690,766 - ------------------------------------------------------------------------------ Travelers Property Casualty Corp.-Class B(a) 372,947 5,463,674 ============================================================================== 23,963,966 ============================================================================== Restaurants-1.27% Yum! Brands, Inc.(a) 801,300 19,407,486 ============================================================================== Semiconductor Equipment-0.77% Applied Materials, Inc.(a) 902,000 11,753,060 ============================================================================== Semiconductors-1.50% Analog Devices, Inc.(a) 738,700 17,632,769 - ------------------------------------------------------------------------------ Micron Technology, Inc.(a) 553,700 5,393,038 ============================================================================== 23,025,807 ============================================================================== Soft Drinks-0.50% PepsiCo, Inc. 182,300 7,696,706 ============================================================================== Specialty Stores-0.30% Staples, Inc.(a) 250,000 4,575,000 ============================================================================== Systems Software-3.46% Microsoft Corp.(a) 1,025,600 53,023,520 ==============================================================================
AIM V.I. PREMIER EQUITY FUND
MARKET SHARES VALUE - ------------------------------------------------------------------------------ Telecommunications Equipment-0.19% QUALCOMM Inc.(a) 80,000 $ 2,911,200 ============================================================================== Wireless Telecommunication Services-1.82% Nextel Communications, Inc.-Class A(a) 1,362,500 15,736,875 - ------------------------------------------------------------------------------ Sprint Corp. (PCS Group)(a) 2,760,100 12,089,238 ============================================================================== 27,826,113 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $1,625,518,117) 1,400,069,551 ============================================================================== PRINCIPAL AMOUNT U.S. TREASURY BILLS-0.65% 1.18%, 03/20/03 (Cost $9,974,433)(b) $10,000,000(c) 9,974,433 ==============================================================================
PRINCIPAL MARKET AMOUNT VALUE - ------------------------------------------------------------------------------ MARKET SHARES VALUE - ------------------------------------------------------------------------------ MONEY MARKET FUNDS-7.96% STIC Liquid Assets Portfolio(d) 60,884,509 $ 60,884,509 - ------------------------------------------------------------------------------ STIC Prime Portfolio(d) 60,884,509 60,884,509 ============================================================================== Total Money Market Funds (Cost $121,769,018) 121,769,018 ============================================================================== TOTAL INVESTMENTS-100.10% (Cost $1,757,261,568) 1,531,813,002 ============================================================================== OTHER ASSETS LESS LIABILITIES-(0.10%) (1,454,097) ============================================================================== NET ASSETS-100.00% $1,530,358,905 ______________________________________________________________________________ ==============================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Non-income producing security. (b) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (c) A portion of the principal balance was pledged as collateral to cover margin requirements for open futures contracts. See Note 8. (d) The money market fund and the Fund are affiliated by having the same investment advisor. See Notes to Financial Statements. AIM V.I. PREMIER EQUITY FUND Statement of Assets and Liabilities December 31, 2002 ASSETS: Investments, at market value (cost $1,757,261,568) $1,531,813,002 - ------------------------------------------------------------- Receivables for: Foreign currency contracts closed 2,254 - ------------------------------------------------------------- Variation margin 84,000 - ------------------------------------------------------------- Fund shares sold 190,576 - ------------------------------------------------------------- Dividends 1,369,656 - ------------------------------------------------------------- Amount due from advisor 31,867 - ------------------------------------------------------------- Investment for deferred compensation plan 52,770 - ------------------------------------------------------------- Other assets 8,125 ============================================================= Total assets 1,533,552,250 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Fund shares reacquired 1,706,728 - ------------------------------------------------------------- Foreign currency contracts outstanding 13,366 - ------------------------------------------------------------- Deferred compensation plan 52,770 - ------------------------------------------------------------- Accrued administrative services fees 1,119,943 - ------------------------------------------------------------- Accrued distribution fees -- Series II 5,973 - ------------------------------------------------------------- Accrued transfer agent fees 43,327 - ------------------------------------------------------------- Accrued operating expenses 251,238 ============================================================= Total liabilities 3,193,345 ============================================================= Net assets applicable to shares outstanding $1,530,358,905 _____________________________________________________________ ============================================================= NET ASSETS: Series I $1,519,524,897 _____________________________________________________________ ============================================================= Series II $ 10,834,008 _____________________________________________________________ ============================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE: Series I 93,699,663 _____________________________________________________________ ============================================================= Series II 669,992 _____________________________________________________________ ============================================================= Series I: Net asset value per share $ 16.22 _____________________________________________________________ ============================================================= Series II: Net asset value per share $ 16.17 _____________________________________________________________ =============================================================
Statement of Operations For the year ended December 31, 2002 INVESTMENT INCOME: Dividends (net of foreign withholding tax of $188,302) $ 19,693,519 - ------------------------------------------------------------- Dividends from affiliated money market funds 1,923,056 - ------------------------------------------------------------- Interest 75,961 ============================================================= Total investment income 21,692,536 ============================================================= EXPENSES: Advisory fees 12,074,846 - ------------------------------------------------------------- Administrative services fees 4,279,991 - ------------------------------------------------------------- Custodian fees 223,222 - ------------------------------------------------------------- Distribution fees -- Series II 13,525 - ------------------------------------------------------------- Transfer agent fees 120,224 - ------------------------------------------------------------- Trustees' fees 19,092 - ------------------------------------------------------------- Other 173,488 ============================================================= Total expenses 16,904,388 ============================================================= Less: Fees waived (22,903) - ------------------------------------------------------------- Expenses paid indirectly (549) ============================================================= Net expenses 16,880,936 ============================================================= Net investment income 4,811,600 ============================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS, FUTURES CONTRACTS AND OPTION CONTRACTS: Net realized gain (loss) from: Investment securities (436,760,132) - ------------------------------------------------------------- Foreign currencies 62,146 - ------------------------------------------------------------- Foreign currency contracts (1,848,273) - ------------------------------------------------------------- Futures contracts 1,145,630 - ------------------------------------------------------------- Option contracts written 300,747 ============================================================= (437,099,882) ============================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (328,190,604) - ------------------------------------------------------------- Foreign currency contracts (30,805) - ------------------------------------------------------------- Futures contracts (2,142,322) ============================================================= (330,363,731) ============================================================= Net gain (loss) from investment securities, foreign currencies, foreign currency contracts, futures contracts and option contracts (767,463,613) ============================================================= Net increase (decrease) in net assets resulting from operations $(762,652,013) _____________________________________________________________ =============================================================
See Notes to Financial Statements. AIM V.I. PREMIER EQUITY FUND Statement of Changes in Net Assets For the years ended December 31, 2002 and 2001
2002 2001 - ----------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 4,811,600 $ 6,224,561 - ----------------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities, foreign currencies, foreign currency contracts, futures contracts and option contracts (437,099,882) (272,780,154) - ----------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities, foreign currencies, foreign currency contracts, futures contracts and option contracts (330,363,731) (97,327,279) =============================================================================================== Net increase (decrease) in net assets resulting from operations (762,652,013) (363,882,872) =============================================================================================== Distributions to shareholders from net investment income: Series I (6,192,808) (3,348,106) - ----------------------------------------------------------------------------------------------- Series II (41,642) (548) - ----------------------------------------------------------------------------------------------- Distributions to shareholders from net realized gains: Series I -- (50,823,827) - ----------------------------------------------------------------------------------------------- Series II -- (8,314) - ----------------------------------------------------------------------------------------------- Share transactions-net: Series I (271,364,143) 230,022,815 - ----------------------------------------------------------------------------------------------- Series II 11,802,858 686,924 =============================================================================================== Net increase (decrease) in net assets (1,028,447,748) (187,353,928) =============================================================================================== NET ASSETS: Beginning of year 2,558,806,653 2,746,160,581 =============================================================================================== End of year $ 1,530,358,905 $2,558,806,653 _______________________________________________________________________________________________ =============================================================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 2,492,872,435 $2,752,433,720 - ----------------------------------------------------------------------------------------------- Undistributed net investment income 4,773,524 6,134,226 - ----------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities, foreign currencies, foreign currency contracts, futures contracts and option contracts (740,205,143) (303,043,113) - ----------------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities, foreign currencies, foreign currency contracts, futures contracts and option contracts (227,081,911) 103,281,820 =============================================================================================== $ 1,530,358,905 $2,558,806,653 _______________________________________________________________________________________________ ===============================================================================================
See Notes to Financial Statements. AIM V.I. PREMIER EQUITY FUND Notes to Financial Statements December 31, 2002 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Premier Equity Fund (formerly AIM V.I. Value Fund) (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of eighteen separate portfolios. The Fund currently offers two classes of shares, Series I and Series II shares, both of which are offered to insurance company separate accounts. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current SEC guidance, however, requires participating insurance companies to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio and class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's primary investment objective is to achieve long-term growth of capital. Income is a secondary objective. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) is valued at the closing bid price furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the last sales price as of the close of the customary trading session on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specifically authorized by the Board of Trustees. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Trustees. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. C. DISTRIBUTIONS -- Distributions from income and net realized capital gains, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. AIM V.I. PREMIER EQUITY FUND D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments are included with the net realized and unrealized gain or loss from investments in the statement of operations. F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis; that is, the Fund will own the underlying security. When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. The current market value of a written option is the mean between the last bid and asked prices on that day. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option's underlying instrument may be a security or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund's resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased or sold. I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a hedge against changes in market conditions. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities as collateral for the account of the broker (the Fund's agent in acquiring the futures position). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contracts at the end of each day's trading. Variation margin payments are made or received depending upon whether unrealized gains or losses are incurred. When the contracts are closed, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund's basis in the contract. Risks include the possibility of an illiquid market and that a change in value of the contracts may not correlate with changes in the value of the securities being hedged. Risks also include to varying degrees, the risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. J. EXPENSES -- Distribution expenses directly attributable to a class of shares are charged to the respective classes' operations. Transfer agency fees and expenses and other shareholder recordkeeping fees and expenses are charged to each class pursuant to a transfer agency and service agreement adopted by the Fund with respect to such class. All other expenses are allocated among the classes based on relative net assets. NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Trust has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.65% of the first $250 million of the Fund's average daily net assets, plus 0.60% of the Fund's average daily net assets in excess of $250 million. Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds in which the Fund has invested. For the year ended December 31, 2002, AIM waived fees of $22,903. AIM V.I. PREMIER EQUITY FUND Pursuant to a master administrative services agreement with AIM, the Fund has agreed to pay AIM a fee for costs incurred in providing accounting services and certain administrative services to the Fund and to reimburse AIM for administrative services fees paid to insurance companies that have agreed to provide administrative services to the Fund. During the year ended December 31, 2002, the Fund paid AIM $4,279,991, of which AIM retained $309,575 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended December 31, 2002, AFS retained $61,761 for such services. The Trust has entered into a master distribution agreement with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Series II shares ("the Plan"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the Fund's average daily net assets of Series II shares. Of this amount, the Fund may pay a service fee of up to 0.25% of the average daily net assets of the Series II shares to insurance companies who furnish continuing personal shareholder services to their customers who purchase and own Series II shares of the Fund. Pursuant to the master distribution agreement for the year ended December 31, 2002, the Series II shares paid $13,525. Certain officers and trustees of the Trust are officers of AIM, AFS and/or AIM Distributors. During the year ended December 31, 2002, the Fund paid legal fees of $6,305 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of that firm is a trustee of the Trust. NOTE 3--INDIRECT EXPENSES For the year ended December 31, 2002, the Fund received reductions in custodian fees of $549 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $549. NOTE 4--TRUSTEES' FEES Trustees' fees represent remuneration paid to each trustee who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Trust. The Trustees deferring compensation have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. NOTE 5--BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended December 31, 2002, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6--FOREIGN CURRENCY CONTRACTS Outstanding foreign currency contracts at December 31, 2002 were as follows:
CONTRACT TO UNREALIZED SETTLEMENT ---------------------- APPRECIATION DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION) - --------------------------------------------------------------------------- 02/25/03 CAD 9,160,000 $5,800,165 $5,813,531 $(13,366) ___________________________________________________________________________ ===========================================================================
NOTE 7--CALL OPTION CONTRACTS Transactions in call options written during the year ended December 31, 2002 are summarized as follows:
CALL OPTION CONTRACTS ---------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED - ----------------------------------------------------------- Beginning of year -- $ -- - ----------------------------------------------------------- Written 1,645 326,367 - ----------------------------------------------------------- Closed (610) (105,004) - ----------------------------------------------------------- Expired (1,035) (221,363) =========================================================== End of year -- $ -- ___________________________________________________________ ===========================================================
NOTE 8--FUTURES CONTRACTS On December 31, 2002, $3,805,000 principal amount of U.S. Treasury obligations were pledged as collateral to cover margin requirements for open futures contracts. Open futures contracts as of December 31, 2002 were as follows:
UNREALIZED NO. OF MONTH/ MARKET APPRECIATION CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION) - ----------------------------------------------------------------------- S&P 500 Index 240 Mar.-03/Long $52,734,000 $(1,619,979) _______________________________________________________________________ =======================================================================
AIM V.I. PREMIER EQUITY FUND NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST Distributions to Shareholders: The tax character of distributions paid during the years ended December 31, 2002 and 2001 was as follows:
2002 2001 - --------------------------------------------------------------- Distributions paid from: Ordinary income $6,234,450 $ 3,348,613 - --------------------------------------------------------------- Long-term capital gain -- 50,832,182 =============================================================== $6,234,450 $54,180,795 _______________________________________________________________ ===============================================================
Tax Components of Beneficial Interest: As of December 31, 2002, the components of beneficial interest on a tax basis were as follows: Undistributed ordinary income $ 4,885,292 - ------------------------------------------------------------- Unrealized appreciation (depreciation)-investments (249,962,089) - ------------------------------------------------------------- Temporary book/tax differences (111,769) - ------------------------------------------------------------- Capital loss carryforward (662,368,304) - ------------------------------------------------------------- Post-October capital loss deferral (54,956,660) - ------------------------------------------------------------- Shares of beneficial interest 2,492,872,435 ============================================================= $1,530,358,905 _____________________________________________________________ =============================================================
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund's unrealized appreciation (depreciation) difference is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains (losses) on certain foreign currency contracts and on certain futures contracts. The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund's temporary book/tax differences are the result of trustee deferral of compensation and retirement plan expenses. The Fund's capital loss carryforward expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD - ----------------------------------------------------------- December 31, 2009 $250,136,976 - ----------------------------------------------------------- December 31, 2010 412,231,328 =========================================================== $662,368,304 ___________________________________________________________ ===========================================================
NOTE 10--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended December 31, 2002 was $865,797,179 and $1,106,733,753, respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of December 31, 2002 is as follows: Aggregate unrealized appreciation of investment securities $ 79,628,983 - ------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (329,591,072) ============================================================= Net unrealized appreciation (depreciation) of investment securities $(249,962,089) _____________________________________________________________ ============================================================= Cost of investments for tax purposes is $1,781,775,091.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES As a result of differing book/tax treatment of foreign currency transactions on December 31, 2002, undistributed net investment income was increased by $62,148 and undistributed net realized gains (losses) decreased by $62,148. This reclassification had no effect on the net assets of the Fund. AIM V.I. PREMIER EQUITY FUND NOTE 12--SHARE INFORMATION Changes in shares outstanding during the years ended December 31, 2002 and 2001 were as follows:
2002 2001 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Series I 12,952,884 $ 261,301,166 25,530,747 $ 638,287,847 - -------------------------------------------------------------------------------------------------------------------------- Series II* 743,703 13,539,946 30,153 703,791 ========================================================================================================================== Issued as reinvestment of dividends: Series I 376,691 6,192,808 2,393,801 54,171,933 - -------------------------------------------------------------------------------------------------------------------------- Series II* 2,541 41,642 392 8,862 ========================================================================================================================== Reacquired: Series I (29,178,636) (538,858,117) (18,964,766) (462,436,965) - -------------------------------------------------------------------------------------------------------------------------- Series II* (105,692) (1,778,730) (1,105) (25,729) ========================================================================================================================== (15,208,509) $(259,561,285) 8,989,222 $ 230,709,739 __________________________________________________________________________________________________________________________ ==========================================================================================================================
* Series II shares commenced sales on September 19, 2001. AIM V.I. PREMIER EQUITY FUND NOTE 13--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 23.35 $ 27.30 $ 33.50 $ 26.25 $ 20.83 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.05(a) 0.06(a) 0.04(a) 0.06(a) 0.09 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (7.11) (3.50) (4.94) 7.76 6.59 ================================================================================================================================= Total from investment operations (7.06) (3.44) (4.90) 7.82 6.68 ================================================================================================================================= Less distributions: Dividends from net investment income (0.07) (0.03) (0.04) (0.09) (0.13) - --------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.48) (1.26) (0.48) (1.13) ================================================================================================================================= Total distributions (0.07) (0.51) (1.30) (0.57) (1.26) ================================================================================================================================= Net asset value, end of period $ 16.22 $ 23.35 $ 27.30 $ 33.50 $ 26.25 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (30.26)% (12.53)% (14.68)% 29.90% 32.41% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,519,525 $2,558,120 $2,746,161 $2,383,367 $1,221,384 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets 0.85%(c) 0.85% 0.84% 0.76% 0.66% ================================================================================================================================= Ratio of net investment income to average net assets 0.24%(c) 0.24% 0.12% 0.20% 0.68% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 46% 40% 62% 62% 100% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns do not reflect charges at the separate account level which if included would reduce total returns for all periods shown. (c) Ratios are based on average daily net assets of $1,986,230,999. AIM V.I. PREMIER EQUITY FUND NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
SERIES II ------------------------------------- SEPTEMBER 19, 2001 (DATE SALES YEAR ENDED COMMENCED) TO DECEMBER 31, DECEMBER 31, 2002 2001 - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 23.34 $21.00 - --------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.00(a) 0.00(a) - --------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (7.10) 2.85 =================================================================================================== Total from investment operations (7.10) 2.85 =================================================================================================== Less distributions: Dividends from net investment income (0.07) (0.03) - --------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.48) =================================================================================================== Total distributions (0.07) (0.51) =================================================================================================== Net asset value, end of period $ 16.17 $23.34 ___________________________________________________________________________________________________ =================================================================================================== Total return(b) (30.44)% 13.66% ___________________________________________________________________________________________________ =================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $10,834 $ 687 ___________________________________________________________________________________________________ =================================================================================================== Ratio of expenses to average net assets 1.10%(c) 1.10%(d) =================================================================================================== Ratio of net investment income (loss) to average net assets (0.01)%(c) (0.01)%(d) ___________________________________________________________________________________________________ =================================================================================================== Portfolio turnover rate 46% 40% ___________________________________________________________________________________________________ ===================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and is not annualized for periods less than one year. Total returns do not reflect charges at the separate account level which if included would reduce total return for all periods shown. (c) Ratios are based on average daily net assets of $5,410,029. (d) Annualized. AIM V.I. PREMIER EQUITY FUND Report of Independent Certified Public Accountants To the Shareholders and Board of Trustees AIM Variable Insurance Funds We have audited the accompanying statement of assets and liabilities of AIM V.I. Premier Equity Fund, formerly AIM V.I. Value Fund, a series of shares of beneficial interest of AIM Variable Insurance Funds including the schedule of investments as of December 31, 2002, the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods in the five year 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of AIM V.I. Premier Equity Fund, as of December 31, 2002, 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 years or periods in the five year period then ended in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER Philadelphia, Pennsylvania January 31, 2003 AIM V.I. PREMIER EQUITY FUND Trustees and Officers As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Interested Persons - ----------------------------------------------------------------------------------------------------------------------------------- Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None Trustee, Chairman and Group Inc. (financial services holding President company); and Director and Vice Chairman, AMVESCAP PLC (parent of AIM and a global investment management firm); formerly, President and Chief Executive Officer, A I M Management Group Inc.; Director, Chairman and President, A I M Advisors, Inc. (registered investment advisor); Director and Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), A I M Fund Services, Inc., (registered transfer agent), and Fund Management Company (registered broker dealer) - ----------------------------------------------------------------------------------------------------------------------------------- Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Director, Chairman, President and Trustee Officer, A I M Management Group Inc. Chief Executive Officer, INVESCO (financial services holding company); Bond Funds, Inc., INVESCO Director, Chairman and President, A I M Combination Stock & Bond Funds, Advisors, Inc. (registered investment Inc., INVESCO Counselor Series advisor); Director, A I M Capital Funds, Inc., INVESCO Global and Management, Inc. (registered investment International Funds, Inc., INVESCO advisor) and A I M Distributors, Inc. Manager Series Funds, Inc., (registered broker dealer), Director and INVESCO Money Market Funds, Inc., Chairman, A I M Fund Services, Inc. INVESCO Sector Funds, Inc., (registered transfer agent), and Fund INVESCO Stock Funds, Inc., INVESCO Management Company (registered broker Treasurer's Series Funds, Inc. and dealer); and Chief Executive Officer, INVESCO Variable Investment Funds, AMVESCAP PLC -- AIM Division (parent of Inc. AIM and a global investment management firm); formerly, Director, Chairman and Chief Executive Officer, INVESCO Funds Group, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Independent Trustees - ----------------------------------------------------------------------------------------------------------------------------------- Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. (registered Trustee investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company); Trustee (technology consulting company) and Captaris, Inc. (unified messaging provider) - ----------------------------------------------------------------------------------------------------------------------------------- Albert R. Dowden -- 1941 2000 Chairman, Cortland Trust, Inc. None Trustee (registered investment company); Director, Magellan Insurance Company; Member of Advisor Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Director, The Boss Group (private equity group); formerly, Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; and director of various affiliated Volvo companies - ----------------------------------------------------------------------------------------------------------------------------------- Edward K. Dunn, Jr. -- 1935 1998 Formerly, Chairman, Mercantile Mortgage None Trustee Corp.; Vice Chairman, President and Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. - ----------------------------------------------------------------------------------------------------------------------------------- Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff Trustee Century Group, Inc. (government affairs company) and Texana Timber LP - ----------------------------------------------------------------------------------------------------------------------------------- Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered Trustee Naftalis and Frankel LLP investment company) - ----------------------------------------------------------------------------------------------------------------------------------- Prema Mathai-Davis -- 1950 1998 Formerly, Chief Executive Officer, YWCA None Trustee of the USA - ----------------------------------------------------------------------------------------------------------------------------------- Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Ruth H. Quigley -- 1935 2001 Retired None Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Louis S. Sklar -- 1939 1993 Executive Vice President, Development None Trustee and Operations, Hines Interests Limited Partnership (real estate development company) - -----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Graham is considered an interested person of the Trust because he is a director of AMVESCAP PLC, parent of the advisor to the Trust. (2) Mr. Williamson is considered an interested person of the Trust because he is an officer and a director of the advisor to, and a director of the principal underwriter of, the Trust. AIM V.I. PREMIER EQUITY FUND Trustees and Officers (continued) As of January 1, 2003 The address of each trustee and officer of AIM Variable Insurance Funds is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds complex. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s) Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee - ----------------------------------------------------------------------------------------------------------------------------------- Other Officers - ----------------------------------------------------------------------------------------------------------------------------------- Gary T. Crum(3) -- 1947 1993 Director, Chairman and Director of N/A Senior Vice President Investments, A I M Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC; formerly, Chief Executive Officer and President A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Carol F. Relihan -- 1954 1993 Director, Senior Vice President, General N/A Senior Vice President and Counsel and Secretary, A I M Advisors, Secretary Inc. and A I M Management Group Inc.; Director, Vice President and General Counsel, Fund Management Company; and Vice President, A I M Fund Services, Inc., A I M Capital Management, Inc. and A I M Distributors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Robert G. Alley -- 1948 1993 Managing Director and Chief Fixed Income N/A Vice President Officer, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Stuart W. Coco -- 1955 1993 Managing Director and Chief Research N/A Vice President Officer -- Fixed income, A I M Capital Management, Inc.; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A Vice President Officer, A I M Advisors, Inc. and A I M Capital Management, Inc.; and Vice President, A I M Fund Services, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Cash N/A Vice President Management Officer, A I M Capital Management, Inc.; Director and President, Fund Management Company; and Vice President, A I M Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Edgar M. Larsen(3) -- 1940 1999 Vice President, A I M Advisors, Inc. and N/A Vice President President, Chief Executive Officer and Chief Investment Officer, A I M Capital Management, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Dana R. Sutton -- 1959 1993 Vice President and Fund Treasurer, A I M N/A Vice President and Treasurer Advisors, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- (3) Information is current as of January 10, 2003. The Statement of Additional Information of the Trust includes additional information about the Fund's Trustees and is available upon request, without charge, by calling 1.800.347.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS 11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street Houston, TX 77046 Suite 100 Suite 100 Suite 2400 Houston, TX 77046 Houston, TX 77046 Philadelphia, PA 19103 COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN Foley & Lardner Kramer, Levin, Naftalis A I M Fund Services, State Street Bank and 3000 K N.W., Suite 500 & Frankel LLP Inc. Trust Company Washington, D.C. 20007 919 Third Avenue P.O. Box 4739 225 Franklin Street New York, NY 10022 Houston, TX 77210-4739 Boston, MA 02110
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED) Of ordinary dividends paid to shareholders during the Fund's tax year ended December 31, 2002, 100% is eligible for the dividends received deduction for corporations. REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED) Of the ordinary dividends paid, 0.35% was derived from U.S. Treasury Obligations. AIM V.I. PREMIER EQUITY FUND IF YOU'D LIKE TO WRITE US, PLEASE SEND YOUR NOTE OR LETTER TO ONE OF THE FOLLOWING ADDRESSES: BY REGULAR MAIL: The Hartford Attention: IPS P.O. Box 5085 Hartford, CT 06102-5085 ON THE WORLD WIDE WEB: www.hartfordinvestor.com ISSUER: Hartford Life Insurance Company P.O. Box 2999 Hartford, CT 06104-2999 PRINCIPAL UNDERWRITER: Hartford Securities Distribution Company, Inc. P.O. Box 2999 Hartford, CT 06104-2999 INVESTMENT MANAGER: HL Investment Advisors, Inc. P.O. Box 2999 Hartford, CT 06104-2999 INVESTMENT SUB-ADVISERS: Hartford Investment Management Company P.O. Box 1744 Hartford, CT 06114-1744 Wellington Management Company,LLP 75 State Street Boston, MA 02109 INVESTMENT MANAGER: Banc of America Capital Management LLC 101 S. Tryon Street, 9th Floor Charlotte, NC 28255 INVESTMENT SUB-ADVISERS: Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, CA 92130-2083 MacKay Shields LLC 9 West 57th Street, 34th Floor New York, NY 10019 Marsico Capital Management, LLC 1200 17th Street, Suite 1300 Denver, CO 80202 INVESTMENT MANAGER: A I M Advisors, Inc. 11 Greenway Plaza, Suite 100 Houston, Texas 77046-1173 [HARTFORD LOGO] NATANN-1-03 Printed in U.S.A. (C) 2003 The Hartford, Hartford, CT 06115 "The Hartford" is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company. The Hartford P.O. Box 5085 Hartford, CT 06102-5085 PRESORTED STANDARD U.S. POSTAGE PAID HUDSON, MA PERMIT NO. 6 -----END PRIVACY-ENHANCED MESSAGE-----