<PAGE>
A Message To Our Contract Owners:
We are pleased to forward this combined Semiannual Report for CML Variable
Annuity Account E (the ``Separate Account''), and the Bond Fund of the
Oppenheimer Variable Account Funds. Please note the Oppenheimer Bond Fund was
substituted for the Panorama Series Income Portfolio on June 1, 1996.
The Semiannual Report for the Separate Account begins on page 2. As of June 30,
1996, the Separate Account had net assets of $8,743,437 and the accumulation
unit value for qualified the Separate Account plans was $5.90. For the Separate
Account non-qualified plans, the accumulation unit value on June 30, 1996 was
$4.69.
The Semiannual Report for the Bond Fund of the Oppenheimer Variable Account
Funds begins on page 5.
We appreciate the interest and confidence you have shown in the Separate
Account.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
/s/Thomas B. Wheeler
Thomas B. Wheeler
Chairman and Chief Executive Officer
August 1, 1996
1
<PAGE>
CML Variable Annuity - Account E
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in Oppenheimer Variable Account Funds Bond Fund 756,600 shares at value
(Identified cost $8,625,635) (Notes 3A and 3B)............................................................... $ 8,743,152
Cash........................................................................................................... 1,091
------------
Total assets................................................................................................. 8,744,243
------------
LIABILITIES
Payable to Massachusetts Mutual Life Insurance Company......................................................... 806
------------
NET ASSETS..................................................................................................... $ 8,743,437
============
Net assets, applicable to:
1,477,128 tax-qualified accumulation units outstanding at $5.89624 per unit.................................... $ 8,709,496
7,230 non tax-qualified accumulation units outstanding at $4.69447 per unit................................... 33,941
------------
Net assets................................................................................................... $ 8,743,437
============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
CML Variable Annuity - Account E
STATEMENT OF OPERATIONS
For The Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Panorama Oppenheimer
Income/(1)/ Bond/(2)/
------------ ------------
<S> <C> <C>
Investment income
Dividends (Note 3B)............................................................................. $ 5,453 $ 128,254
Expenses
Mortality and expense risk fees (Note 4)........................................................ 948 (18)
------------ ------------
Net investment income (Note 3C)................................................................. 4,505 128,272
------------ ------------
Net realized and unrealized loss on investments
Net realized gain (loss) on investments (Notes 3B and 3C)...................................... (23,279) 13,019
Change in net unrealized depreciation on investments............................................ (288,218) (34,374)
------------ ------------
Net loss on investments......................................................................... (311,497) (21,355)
------------ ------------
Net increase (decrease) in net assets resulting from operations................................. $ (306,992) $ 106,917
============ ============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For The Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Panorama Oppenheimer Panorama
Income Bond Income
1996/(1)/ 1996/(2)/ 1995
------------ ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................................................... $ 4,505 $ 128,272 $ (1,140)
Net realized gain (loss) on investments........................................ (23,279) 13,019 33,485
Change in net unrealized appreciation/depreciation on investments.............. (288,218) (34,374) 1,005,646
Net increase (decrease) in net assets resulting from operations................ (306,992) 106,917 1,037,991
------------ ------------ ------------
Capital transactions:
Net contract payments.......................................................... 21,643 1,059 38,012
Withdrawal of funds............................................................ (868,529) (12,930) (929,670)
Divisional transfer............................................................ (8,648,391) 8,648,391 --
------------ ------------ ------------
Net increase (decrease) in net assets resulting from capital transactions...... (9,495,277) 8,636,520 (891,658)
------------ ------------ ------------
Total increase (decrease)....................................................... (9,802,269) 8,743,437 146,333
NET ASSETS, at beginning of the year............................................ 9,802,269 -- 9,595,486
------------ ------------ ------------
NET ASSETS, at end of the period/year........................................... $ -- $ 8,743,437 $ 9,741,819
============ ============ ============
</TABLE>
/(1)/For the period 1/1/96-5/31/96
/(2)/For the period 6/1/96-6/30/96
See Notes to Financial Statements.
3
<PAGE>
CML Variable Annuity - Account E
Notes To Financial Statements
(Unaudited)
1. HISTORY
CML Variable Annuity Account A (the "Separate Account") is a separate
investment account established by Connecticut Mutual Life Insurance Company
("CML"). On February 29, 1996, CML merged with and into the Massachusetts
Mutual Life Insurance Company ("MassMutual"). Upon the merger, CML's
existence ceased, MassMutual became the surviving company under the name
Massachusetts Mutual Life Insurance Company. CML Variable Annuity Account A
became a Separate Account of MassMutual. The Separate Account operates as a
registered unit investment trust pursuant to the Investment Company Act of
1940 and the rules promulgated thereunder.
2. INVESTMENT OF THE SEPARATE ACCOUNT'S ASSETS
The Separate Account invests in shares of the Bond Fund which is one of the
Funds of the Oppenheimer Variable Account Funds (the ``Funds"). The Fund is a
registered, open-end, diversified management investment company for which
OppenheimerFunds, Inc. is the investment advisor.
3. SIGNIFICANT ACCOUNTING POLICIES
A. Investments Valuation
The investment in the Bond Fund is stated at market value which is the net
assets of the Bond Fund.
B. Account for Investments
Investment transactions are accounted for on trade date and identified cost
is the basis followed in determining the cost of investments sold for both
financial statement and federal tax purposes. Dividend income is recorded on
the ex-dividend date.
C. Federal Income Taxes
Operations of the Separate Account form a part of the total operations of
MassMutual, and the Separate Account is not taxed separately. MassMutual is
taxed as a life insurance company under the provisions of the 1986 Internal
Revenue Code, as amended. The Separate Account will not be taxed as a
"regulated investment company" under Subchapter M of the Internal Revenue
Code. Under existing federal law, no taxes are payable on investment income
and realized capital gains attributable to contracts which depend on the
Separate Account's investment performance (the "Contracts"). Accordingly, no
provision for federal income tax has been made. MassMutual may, however, make
such a charge in the future if an unanticipated change of current law results
in a company tax liability attributable to the Separate Account.
D. Annuity Reserves
Annuity reserves are computed according to the Progressive Annuity Table at 3
1/2% interest, adjusted for the investment performance of the Separate
Account.
E. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. CHARGES
For assuming mortality and expense risks, MassMutual deducts a charge equal,
on an annual basis, to .42% of the daily net asset value of the Separate
Account's assets.
4
<PAGE>
Oppenheimer Bond Fund
Objective
Oppenheimer Bond Fund primarily seeks a high level of current income from
investing in high yield fixed-income securities rated "Baa" or better by
Moody's of "BBB" or better by Standard & Poor's. Secondarily, the Fund seeks
capital growth when consistent with its primary objective of high current
income.
Narrative by David Negri, Fund Manager
There were two major factors that contributed to the performance of Oppenheimer
Bond Fund. First, was our defensive decision to keep the portfolio's average
maturity relatively short, and second, was our strategic diversification over a
variety of different types of bonds. A short average maturity was a benefit as
interest rates rose. Since longer bonds are typically the most sensitive to
changes in interest rates, they depreciated the most this year. So, by having a
shorter portfolio, we were able to capture a competitive level of income, but
suffered less in terms of price than some longer-term investments. Our
diversification among different classes of bonds also benefited the portfolio.
In particular, our international bonds performed well, avoiding the difficulties
experienced by most types of domestic bonds. Our mortgage-backed securities also
performed well. As interest rates rose, prepayment risk decreased supporting
mortgage bond prices. Mortgage-backed securities also pay very competitive
income, which benefited the portfolio./2/
While the Fund's short average maturity and high degree of current income helped
to offset the negative price performance of the general bond market, our
Treasury securities performed poorly in comparison with our other holdings.
Still, at only half of our U.S. government bond allocation, and with shorter-
term maturities, we were able to limit their potentially negative impact.
As we move through the second half of the year, we will continue to work on
capturing as much income as possible. Because we believe the economy is
relatively healthy, we will continue to focus on corporate bonds. In particular,
we believe there is great potential to be found in bonds issued by financial
services firms and oil- and gas-related businesses. Within the financial
services industry, companies with ongoing consolidations should improve balance
sheets and profitability, while in the oil and gas industry, technology stocks
are experiencing improving profits.
We also believe that foreign government bonds offer greater income and relative
value than domestic government bonds, so we'll continue to emphasize the bonds
of developed nations where we see compelling yield and total return
opportunities.
Finally, we continue to favor mortgage-related securities over Treasuries, and
have been adding to our holdings in private label mortgages. Because these are
loans underwritten by banks rather than the federal government, in general they
tend to offer higher yields than similar securities.
Looking forward, we think the Fund will continue to do well because of its
strategic positioning. Currently, we expect that economic growth in the U.S.
will continue, though it may not necessarily accelerate. In this type of
environment, it's difficult to imagine the Federal Reserve will cut interest
rates, so it's hard to imagine another bull market like the one we experienced
last year. In light of our outlook on the economy, we will continue to position
the portfolio around income opportunities and avoid taking on unnecessary
interest rate risk. By investing in quality bonds, with an attractive inflation-
adjusted real rate of return, we expect to provide investors with relative price
stability and competitive income going forward.
We appreciate your confidence in Oppenheimer Bond Fund. We look forward to
helping your reach your financial goals in the future.
- ---------------------
/1/The Fund's portfolio is subject to change.
<PAGE>
Oppenheimer Variable Account Funds
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
------------
<S> <C>
ASSETS:
Investments, at value (cost *) - see accompanying statement $311,908,746
Unrealized appreciation on forward foreign currency
exchange contracts - Note 5 44,513
Cash 33,484
Receivables:
Dividends and interest 5,038,216
Investments sold 1,426,309
Shares of beneficial interest sold 173,827
Closed forward foreign currency exchange contracts 4,502
Other 4,736
------------
Total assets 318,634,333
------------
LIABILITIES:
Options written, at value (premiums received **)
- see accompanying statement - Note 6 45,966
Unrealized depreciation on forward foreign currency
exchange contracts - Note 5 15,592
Payables and other liabilities:
Investments purchased 759,038
Shares of beneficial interest redeemed 142,079
Closed forward foreign currency exchange contracts 18,999
Custodian fees 14,005
Other 21,754
------------
Total liabilities 1,017,433
------------
NET ASSETS $317,616,900
============
COMPOSITION OF NET ASSETS:
Paid-in capital $315,750,262
Undistributed net investment income 901,640
Accumulated net realized loss from investments
and foreign currency transactions (92,383)
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies 1,057,381
------------
NET ASSETS $317,616,900
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 27,823,143
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.42
*Cost $310,870,304
**Premiums received $30,995
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Operations
For the Six Months Ended June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
-----------
<S> <C>
INVESTMENT INCOME:
Interest (net of withholding taxes of *) $ 8,882,639
Dividends 47,527
Total income 8,930,166
-----------
EXPENSES:
Management fees - Note 4 874,928
Custodian fees and expenses 18,960
Registration and filing fees 14,607
Legal and auditing fees 6,595
Insurance expenses 2,887
Trustees' fees and expenses 1,790
Other 590
-----------
Total expenses 920,357
-----------
NET INVESTMENT INCOME 8,009,809
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments 104,747
Closing of futures contracts (67,865)
Closing and expiration of options written 83,599
Foreign currency transactions (85,215)
Net change in unrealized appreciation or
depreciation on investments (7,873,177)
Translation of assets and liabilities denominated
in foreign currencies 104,084
-----------
Net realized and unrealized loss (7,733,827)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 275,982
===========
*Interest $36,464
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Changes in Net Assets
For the Six Months Ended June 30, 1996 (Unaudited) and the Year Ended December
31, 1995
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
---------------------------
1996 1995
---------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,009,809 $ 11,813,502
Net realized gain 35,266 1,310,131
Net change in unrealized appreciation or depreciation (7,769,093) 13,318,419
---------------------------
Net increase in net assets resulting from operations 275,982 26,442,052
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment income (8,450,650) (11,209,883)
Distributions from net realized gain (133,010) --
BENEFICIAL INTEREST TRANSACTIONS:
Net increase in net assets resulting from
beneficial interest transactions - Note 2 114,692,808 60,932,217
---------------------------
NET ASSETS:
Total increase 106,385,130 76,164,386
Beginning of period 211,231,770 135,067,384
---------------------------
End of period $317,616,900 $211,231,770
===========================
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1996 Year Ended December 31,
(Unaudited) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.84 $10.78 $11.65 $10.99 $11.15 $10.33
Income (loss) from investment operations:
Net investment income 0.33 0.72 0.76 0.65 0.87 0.95
Net realized and unrealized gain (loss) (0.37) 1.07 (0.98) 0.76 (0.17) 0.80
-----------------------------------------------------------------------------
Total income (loss) from investment operations (0.04) 1.79 (0.22) 1.41 0.70 1.75
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (0.37) (0.73) (0.62) (0.75) (0.86) (0.93)
Distributions from net realized gain (0.01) -- (0.03) -- -- --
-----------------------------------------------------------------------------
Total dividends and distributions to shareholders (0.38) (0.73) (0.65) (0.75) (0.86) (0.93)
-----------------------------------------------------------------------------
Net asset value, end of period $11.42 $11.84 $10.78 $11.65 $10.99 $11.15
=============================================================================
TOTAL RETURN, AT NET ASSET VALUE/(1)/ (0.33)% 17.00% (1.94)% 13.04% 6.50% 17.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $317,617 $211,232 $135,067 $111,846 $63,354 $32,762
Average net assets (in thousands) $236,650 $170,929 $121,884 $87,215 $45,687 $22,169
Ratios to average net assets:
Net investment income 6.79%/(2)/ 6.91% 7.30% 7.20% 7.81% 8.73%
Expenses 0.78%/(2)/ 0.80% 0.57% 0.46% 0.56% 0.64%
Portfolio turnover rate/(3)/ 40.20% 79.40% 35.10% 36.30% 41.30% 7.60%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Total returns are not annualized for periods of less than one full year.
Total return information does not reflect expenses that apply at the separate
account level or to related insurance products. Inclusion of these charges
would reduce the total return figures for all periods shown.
2. Annualized.
3. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-
term securities) for the period ended June 30, 1996 were $194,115,687 and
$84,471,602, respectively.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds--Oppenheimer Bond Fund
STATEMENT OF INVESTMENTS
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
---------- ------------
<S> <C> <C>
Mortgage-Backed Obligations--26.4%
Government Agency--21.0%
FHLMC/FMNA/Sponsored--16.9%
Federal Home Loan Mortgage Corp.,
Gtd. Multiclass Mtg. Participation
Certificates, 7%, 4/1/25.................. $ 5,188,488 $ 4,997,967
Federal National Mortgage Assn.:
6.50%, 3/1/11-5/1/11....................... 25,017,373 24,211,064
7%, 4/1/04-11/1/25......................... 10,090,581 9,725,799
7.50%, 1/1/08-1/1/25....................... 5,457,662 5,398,311
8%, 5/1/17................................. 625,038 636,345
Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8.75%,
11/25/05.................................. 3,000,000 3,123,750
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
10.40%, 4/25/19........................... 1,793,536 1,914,026
Interest-Only Stripped Mfg.-Backed Security:
Trust 218, C1. 2, 12.588%-13.20%,
4/1/23/(2)/............................... 7,725,412 2,569,907
Trust 257, C1. 2, 11.448%-15.373%,
2/1/24/(2)/............................... 3,529,536 1,219,897
-----------
53,797,066
-----------
GNMA/Guaranteed--4.1%
Government National Mortgage Assn.:
6%, 10/20/25............................... 4,842,429 4,863,639
7%, 1/15/09-10/20/24....................... 6,199,401 8,049,413
-----------
12,913,052
-----------
Private--5.4%
Commercial--3.8%
FDIC Trust, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through
Certificates, Series 1994-C1:
C1. 2-D, 8.70%,9/25/25/(3)/............... 1,500,000 1,549,688
C1. 2-E, 8.70%, 9/25/25/(3)/.............. 1,500,000 1,537,031
Merrill Lynch Mortgage Investors, Inc.,
Mtg. Pass-Through Certificates, Series
1995-C2, C1. C, 7.906%, 6/15/21/(4)/...... 964,447 967,160
Morgan Stanley Capital I, Inc. Commercial
Mtg. Pass-Through Certificates, Series
1996-C1, Cl. D-1, 7.51%, 2/1/28/(3)//(4)/. 1,000,000 951,250
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates:
Series 1992-CHF, C1, C, 8.25%, 12/25/20... 1,030,504 1,041,936
Series 1994-C1,C1. C, 8%, 6/25/26......... 1,500,000 1,505,625
Series 1995-C1, C1. D, 6.90%, 2/25/27..... 3,000,000 2,725,313
Structured Asset Securities Corp.,
Multiclass Pass-Through Certificates, Series
1996-CFL, C1. D, 7.034%, 2/25/26.......... 1,800,000 1,713,375
-----------
11,991,378
-----------
Manufactured Housing--0.2%
Green Tree Financial Corp., Series
1994-6, C1. A3, 7.70%, 1/15/20............. 738,000 750,678
-----------
Multi-Family--1.1%
Countrywide Funding Corp., Series
1993-12, C1. B1, 6.625%, 2/25/24.......... 1,000,000 875,547
Merrill Lynch Trust, Collateralized
Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 43,
C1. E, 6.50%, 8/27/15..................... 500,000 471,715
Resolution Trust Corp., Commercial
Mtg. Pass-Through Certificates, Series
1991-M5, C1. A, 9%, 3/25/17............... 2,092,478 2,152,637
-----------
3,499,899
-----------
Other--0.0%
Salomon Brothers Mortgage Securities VI:
Interest-Only Stripped Mtg.-Backed
Security, Series 1987-3, C1. B, 9.549%,
10/23/17/(2)/............................. 108,078 27,898
Principal-Only Stripped Mtg.-Backed
Security, Series 1987-3, C1. A, 9.489%,
10/23/17/(5)/............................. 159,996 106,198
-----------
134,096
-----------
Residential--0.3%
Contimortgage Home Equity Loan Trust,
Series 1995-2, C1. A2, 7.95%, 4/15/10..... 554,000 559,367
Ryland Mortgage Securities Corp. III,
Sub. Bonds, Series 1992-A, C1. 1A,
7.17%, 3/29/30/(4)/....................... 293,427 291,502
-----------
850,869
-----------
Total Mortgage-Backed Obligations
(Cost $83,636,632)......................... 83,937,039
-----------
U.S. Government Obligations--31.5%
Treasury--31.5%
U.S. Treasury Bonds:
10.375%, 11/15/12......................... 365,000 483,550
6.875%, 8/15/25/(6)/...................... 3,500,000 3,463,904
7.125%, 2/15/23........................... 3,000,000 3,030,936
7.50%, 11/15/16........................... 6,780,000 7,123,237
8%, 11/15/21.............................. 5,000,000 5,565,625
6.125%, 8/15/19........................... 2,060,000 2,311,062
8.875%, 8/15/17........................... 740,000 888,231
9.25%, 2/15/16............................ 740,000 915,518
STRIPS, Zero Coupon, 7.329%,
5/15/15/(7)/.............................. 1,107,000 292,936
STRIPS, Zero Coupon, 7.341%,
8/15/14/(7)/.............................. 3,690,000 1,031,118
U.S. Treasury Nts.:
5.875%, 11/15/05.......................... 3,000,000 2,826,561
6%, 12/31/97.............................. 3,000,000 3,000,936
6.375%, 6/30/97........................... 1,000,000 1,005,625
6.50%, 5/15/05-8/15/05.................... 18,000,000 17,740,305
6.75%, 6/30/99............................ 16,340,000 16,539,134
7.25%, 6/15/04-8/15/04.................... 11,980,000 12,406,787
7.375%, 11/15/97.......................... 2,000,000 2,035,626
7.50%, 11/15/01-2/15/05................... 12,486,000 13,115,585
7.75%, 12/31/99........................... 2,000,000 2,085,000
7.875%, 11/15/04.......................... 2,000,000 2,150,624
9.25%, 8/15/98............................ 2,000,000 2,120,624
-----------
Total U.S. Government Obligations
(Cost $99,580,053)........................ 100,112,924
------------
Foreign Government Obligations--14.2%
Bonos de la Tesoreria de la Federacion,
Zero Coupon, 37.779%, 3/6/97/(7)/ MXP..... 5,300,000 567,967
Canada (Government of) Real Return
Debs., 4.517%, 12/1/21/(6)/ CAD........... 3,390,000 2,443,167
CEZ AS, Zero Coupon Disc.
Promissory Nts., 10.762%, 7/1/96/(7)/ CZK. 14,000,000 508,534
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds--Oppenheimer Bond Fund
STATEMENT OF INVESTMENTS (Continued)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
---------- ------------
<S> <C> <C>
Foreign Government Obligations (Continued)
Corporacion Andian de Fomento
Sr. Unsec. Debs.:
6.625%, 10/14/98/(3)/..................... $ 1,000,000 $ 998,125
7.25%, 4/20/98/(2)/....................... 1,000,000 1,004,688
Denmark (Kingdom of) Bonds:
8%, 3/15/06 DKK........................... 17,000,000 3,014,340
8%, 5/15/03 DKK........................... 22,140,000 3,995,567
Financiera Energetica Nacional SA,
9.375% Eurobonds, 6/15/06/(3)/............ 2,350,000 2,355,875
Germany (Republic of) Bonds:
7.375%, 12/2/02 DEM....................... 1,250,000 875,495
8.25%, 9/20/02 DEM........................ 1,950,000 1,424,830
Italy (Republic of) Certificati di
Credito del Tesoro Nts., 11.20%
8/1/00/(4)/............................... 2,835,000,000 1,893,759
National Treasury Management Agency
(Irish Government) Bonds, 8%,
10/16/00 IEP.............................. 1,495,000 2,493,462
New South Wales Treasury Corp. Gtd.
Bonds, 12%, 12/1/01 AUD................... 3,490,000 3,120,520
New Zealand (Republic of) Bonds, 8%
2/15/01 NZD............................... 2,760,000 1,817,748
Ontario, Canada (Province of) Bonds,
9%, 10/17/01.............................. 554,000 584,492
Poland (Republic of):
Disc. Bonds, 8.437%, 10/27/24/(4)/........ 5,250,000 4,935,000
Treasury Bills, Zero Coupon:
21.658%, 10/2/96/(7)/ PLZ................. 720,000 251,334
21.466%, 12/4/96/(7)/ PLZ................. 2,250,000 759,038
20.371%, 3/19/97/(7)/ PLZ................. 600,000 255,785
22.37%, 7/24/96/(7)/ PLZ.................. 3,000,000 1,088,816
Portugal (Republic of) Gtd. Bonds,
Obligation do les Medio Prazo, 11.875%,
2/23/00 PTE............................... 65,000,000 464,182
South Africa (Republic of) Debs.,
9.625%, 12/15/99.......................... 1,000,000 1,046,250
Spain (Kingdom of) Gtd. Bonds, Bonos
y Obliagcion del Estado, 12.25%,
3/25/00 ESP............................... 100,000,000 884,090
Sweden (Kingdom of) Bonds, Series
1030, 13%, 6/15/01 SEK.................... 12,600,000 2,321,861
United Kingdom Treasury Nts.:
13%, 7/14/00 GBP.......................... 1,630,000 3,040,818
7.50%, 12/7/06 GBP........................ 2,000,000 3,020,201
-----------
Total Foreign Government Obligations
(Cost $44,980,690)........................ 45,165,964
-----------
Loan Participations--0.5%
Colombia (Republic of) 1989-1990
Integrated Loan Facility Bonds, 8.563%,
7/1/01 (Cost $1,457,891)/(4)(9)/.......... 1,571,600 1,465,517
-----------
Municipal Bonds and Notes--0.6%
Dade County, Florida Educational
Facilities Authority:
Exchangeable Revenue Bonds, University
of Miami, Prerefunded, MBIA Insured,
7.65%, 4/1/10............................. 175,000 196,550
Revenue Bonds, University of Miami,
MBIA Insured, 7.65%, 4/1/10............... 205,000 225,008
Taxable Exchange Revenue Bonds,
University of Miami, MBIA Insured,
9.70%, 4/1/10............................. 120,000 131,712
Pinole, California Redevelopment Agency
Tax Allocation TAxable Bonds, Pinole
Vista Redevelopment, Series B, 8.35%, 8/1/17. 670,000 675,954
Port of Portland, Oregon Special
Obligation Taxable Revenue Bonds,
PAMCO Project, 9.20% 5/15/22.............. 500,000 537,055
-----------
Total Municipal Bonds and Notes
(Cost $1,663,889)......................... 1,766,278
-----------
Corporate Bonds and Notes--16.7%
Basic Industry--2.1%
Chemicals--1.0%
Lyondell Petrochemical Co., 8.25% Nts.,
3/15/97................................... 738,000 748,040
Quantum Chemical Corp., 10.375% First
Mtg. Nts., 6/1/03......................... 2,100,000 2,305,911
-----------
3,053,951
-----------
Paper--1.1%
Boise Cascade Corp., 9.90% Nts.,
3/15/00................................... 750,000 817,223
Noranda Forest, Inc., 11% Debs.,
7/15/98 CAD............................... 1,000,000 792,138
Potiaich Corp., 9.46% Medium-Term
Nts., 4/2/02.............................. 369,000 409,524
Scotia Pacific Holding Co., 7.95%
Timber Collateralized Nts., 7/20/15....... 1,508,981 1,484,643
-----------
3,503,628
-----------
Consumer Related--2.4%
Consumer Products--0.7%
Fletcher, Challenge Capital Canada, Inc., 7.75%
Nts., 6/20/06............................. 1,800,000 1,827,324
Procter & Gamble Co., 9.36% Debs.,
1/1/21.................................... 369,000 441,729
-----------
2,269,053
-----------
Food/Beverages/Tobacco--0.4%
Bass America, Inc., 6.75% Gtd. Nts.,
8/1/99.................................... 554,000 555,750
Phillip Morris Cos., Inc. 8.875% Nts.,
7/1/96.................................... 500,000 500,000
Unilever CR spol. s.r.o., guaranteed by
Unilever NV, Rotterdam, The
Netherlands, Zero Coupon Promissory
Nts., 11.189% 10/11/96/(7)/ CZK........... 7,000,000 246,639
-----------
1,302,339
-----------
Healthcare--0.5%
R.P. Scherer Corp., 6.75% Sr. Nts.,
2/1/04.................................... 1,250,000 1,195,314
Roche Holdings, Inc., 2.75% Bonds,
4/14/00................................... 920,000 811,325
-----------
2,006,639
-----------
Hotel/Gaming--0.1%
Circus Circus Enterprises, Inc., 6.75%
Nts., 7/15/03............................ 375,000 363,378
-----------
Textile/Apparel--0.3%
Fruit of the Loom, Inc., 7% Debs.,
3/15/11................................... 1,097,000 985,410
-----------
Toys--0.3%
Mattel, Inc., 6.875% Sr. Nts., 8/1/97...... 1,000,000 1,006,052
-----------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
STATEMENT OF INVESTMENTS (Continued)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
------------ ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Consumer Related (Continued)
Energy - 1.9%
BP America Inc., 10.875% Nts.,
8/1/01 CAD..................................... $ 650,000 $ 540,231
Coastal Corp.:
8.75% Sr. Nts. 5/15/99......................... 369,000 368,071
9.75% Sr. Debs., 8/1/03........................ 200,000 225,716
Colorado International Gas Corp., 10%
Sr. Debs., 6/15/05............................. 369,000 431,634
Enron Corp., 9.875% Debs., 6/15/03.............. 375,000 429,130
McDermott Inc., 9.375% Nts., 3/15/02............ 400,000 425,047
Mitchell Energy & Development Corp.,
9.25% Sr. Nts., 1/15/02........................ 1,000,000 1,027,077
Norsk Hydro AS, 8.75% Bonds,
10/23/01....................................... 738,000 784,125
Sonat, Inc. 9.50% Nts., 8/15/99................. 250,000 268,589
Southwest Gas Corp., 9.75% Debs.,
Series F, 6/15/02.............................. 500,000 549,655
Texaco Capital, Inc., 8.875% Gtd. Debs.,
9/1/21......................................... 369,000 421,875
TransCanada Pipelines Ltd., 9.875%
Debs., 1/1/21.................................. 554,000 680,090
------------
6,172,240
------------
Financial Services - 3.7%
Banks & Thrifts - 1.1%
Banco Ganadero SA, 9.75% Sr. Unsub.
Unsec. Nts. 8/26/99/(3)/....................... 185,000 190,781
BankAmerica Corp.:
7.50% Sr. Nts., 3/15/97........................ 100,000 101,060
7.75% Sub. Nts.. 7/15/02....................... 554,000 574,663
Chase Manhattan Corp. (New), 10,125%
Sub. Nts., 11/1/00............................. 554,000 620,844
First Chicago Corp.:
11.25% Sub. Nts., 2/20/01...................... 750,000 877,050
9% Sub. Nts., 6/15/99.......................... 150,000 159,482
First Fidelity Bancorporation, 8.50%
Sub. Capital Nts., 4/1/98...................... 654,000 675,462
------------
3,199,342
------------
Diversified Financial - 2.4%
Allied-Lyons Finance BV, 6.50% Debs.,
8/26/97........................................ 369,000 368,539
American Car Line Co., 8.25%
Equipment Trust Certificates, Series
1993-A, 4/15/08................................ 578,000 585,004
American General Finance Corp., 5.875%
Sr. Nts., 7/1/00............................... 554,000 536,764
Associates Corp. of North America, 8.625%
Sr. Nts., 06/15/97............................. 369,000 377,618
AVCO Financial Services Asia Ltd.,
5.875% Sr. Nts., 10/15/97...................... 369,000 367,643
Catepillar Financial Services, Inc.,
6.85% Medium-Term Nts., Series D,
9/15/97........................................ 369,000 372,310
Chrysler Financial Corp., 6.65%
Medium-Term Nts., 04/28/97..................... 369,000 370,506
Countrywide Funding Corp., 6.57% Gtd.
Medium-Term Nts, Series A, 8/4/97.............. 554,000 556,366
Fleet Mtg. Group, Inc., 6.50% Nts.,
8/15/99........................................ 369,000 366,900
General Motors Acceptance Corp.
7.875% Medium-Term Nts., 2/27/97............... 369,000 373,702
Golden West Financial Corp.:
10.25% Sub. Nts., 5/15/97...................... 369,000 381,747
8.625% Sub. Nts., 8/30/98...................... 185,000 192,463
</TABLE>
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
------------ ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Financial Services (Continued)
Diversified Financial (Continued)
Household Finance Corp., 8.95% Debs.,
9/15/99........................................ $ 369,000 $ 392,637
Household International, BV, 6% Gtd.
Sr. Nts., 3/15/99.............................. 369,000 362,189
Lehman Brothers Holdings, Inc., 8.375%
Nts., 2/15/99.................................. 700,000 726,461
Penske Truck Leasing Co. LP, 7.75%
Sr. Nts., 5/15/99.............................. 738,000 761,374
U.S. Leasing International, 7% Nts.,
11/1/97........................................ 554,000 559,271
------------
7,651,444
------------
Insurance - 0.2%
SunAmerica, Inc., 9% Sr. Nts., 1/15/99.......... 554,000 561,652
------------
Manufacturing - 0.7%
Aerospace/Electronics/Computers - 0.2%
British Aerospace PLC, 8% Debs.,
5/27/97........................................ 740,000 750,175
------------
Automotive - 0.5%
Chrysler Corp., 10.95% Debs., 8/1/17............ 800,000 876,920
General Motors Acceptance Corp.,
7.75% Nts., 4/15/97............................ 700,000 708,659
------------
1,585,579
------------
Media - 2.8%
Broadcasting - 0.2%
Tele-Communications, Inc., 5.28%
Medium-Term Nts., 8/20/96...................... 701,000 700,546
------------
Cable Television - 1.3%
Time Warner Entertainment LP/Time
Warner, Inc., 8.375% Sr. Debs., 3/15/23........ 1,850,000 1,801,214
TKR Cable I, Inc., 10.50% Sr. Debs.,
10/30/07....................................... 2,200,000 2,449,365
------------
4,250,579
------------
Diversified Media - 0.8%
GSPI Corp., 10.15% First Mtg. Bonds,
6/24/10/(3)/................................... 1,142,150 1,286,062
News America Holdings, Inc.:
10.125% Sr. Gtd. Debs., 10/15/12............... 500,000 566,122
12% Sr. Nts., 12/15/01......................... 500,000 541,698
------------
2,393,882
------------
Entertainment/Film - 0.2%
Columbia Pictures Entertainment, Inc.,
9.875% Sr. Sub. Nts., 2/1/98................... 500,000 525,797
------------
Publishing/Printing - 0.3%
Reed Elsevier, Inc., 6.625% Nts.,
10/15/23/(3)/.................................. 600,000 519,270
Reed Publishing (USA), Inc., 7.24%
Gtd. Medium-Term Nts., 2/10/97................. 500,000 503,640
------------
1,022,910
------------
Other - 0.7%
Conglomerates - 0.6%
Tenneco, Inc.:
10% Debs., 3/15/06.............................. 400,000 472,077
10% Debs., 8/1/98............................... 554,000 590,198
7.875% Nts., 10/1/02............................ 650,000 669,822
------------
1,732,097
------------
Services - 0.1%
PHH Corp., 8.50% Nts., 2/1/00................... 369,000 365,606
------------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
STATEMENT OF INVESTMENTS (Continued)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Principal Market Value
Amount\(1)\ (Note 1)
------------ ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Retail -- 0.2%
Drug Stores -- 0.2%
Hook-SuperRx, Inc. 10.125% Sr. Nts.,
6/1/02.......................................................... $ 600,000 $ 641,269
------------
Transportation -- 0.1%
Railroads -- 0.1%
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00............ 400,000 435,511
------------
Utilities -- 2.1%
Electric Utilities -- 0.7%
Commonwealth Edison Co., 6.50% Nts.,
7/15/97........................................................ 775,000 773,183
HNG Internorth/Enron Corp., 9.625%
Debs., 3/15/06................................................. 369,000 419,709
Long Island Lighting Co., 7% Nts.,
3/1/04......................................................... 150,000 134,636
Public Service Co. of Colorado, 8.75%
First Mtg. Bonds, 3/1/22....................................... 750,000 792,497
------------
2,120,025
------------
Telecommunications -- 1.4%
360 Communications Co.:
7.125% Sr. Nts., 3/1/03........................................ 1,450,000 1,392,654
7.50% Sr. Nts., 3/1/06......................................... 2,000,000 1,900,920
GTE Corp.
8.85% Debs., 3/1/98............................................ 554,000 574,946
9.375% Debs., 12/1/00.......................................... 500,000 546,176
------------
4,414,696
------------
Total Corporate Bonds and Notes
(Cost $53,354,901).............................................. 53,033,700
------------
Preferred Stocks -- 0.4% Shares
Bank America Corp. 8.375%, Series K ---------
(Cost $1,177,404).............................................. 45,400 1,157,700
------------
<CAPTION>
Principal
Amount\(1)\
------------
<S> <C> <C>
Structured Instruments -- 2.0%
Bayerische Landesbank Girozenriale,
New York Branch, 14% CD Linked Nts.,
12/17/96 (indexed to the cross currency
rates of Greek Drachma and European
currency unit)................................................ $ 1,000,000 1,001,600
Bayerische Landesbank Girozenriale,
New York Branch, 5.60% CD Linked
Nts., 1/30/97 (indexed to the closing
Nikkei 225 Index on 1/23/97, 10 yr.
Japanese Yen swap rate and New
Zealand Dollar on 1/26/97) NZD............................... 1,508,523 1,119,691
Canadian Imperial Bank of Commerce,
New York Branch, 14% CD Linked Nts.,
11/25/96 (Indexed to the cross currency
rates of Greek Drachma and European
currency unit)................................................ 250,000 245,325
<CAPTION>
Principal Market Value
Amount\(1)\ (Note 1)
------------ ------------
<S> <C> <C>
International Naderlandan Bank NV,
Prague Branch, Zero Coupon
Promissory Nts., 10.488%
4/28/97 /(7)/ CZK............................................ $ 13,800,000 $ 461,167
International Nederlanden (U.S.) Capital
Holdings Corp., Zero Coupon Chilean
Peso Linked Nts.:
11.813%, 6/23/97/(7)/......................................... 900,000 797,850
11.738%, 6/24/97/(7)/......................................... 900,000 797,670
Merrill Lynch & Co., Inc. Units, 9.75%
6/15/99 (representing debt of Chemical
Banking Corp., sub. capital nts., and
equity of Citicorp, 7.75% preferred,
series 22)/(9)/............................................... 1,000,000 1,138,200
Swiss Bank Corp., New York Branch,
6.05% CD Linked Nts., 6/20/97
(indexed to the colosing Nikkei 225
Index on 1/23/97 5 yr. & 3 mos.
Japanese Yen swap rate and New Zealand Dollar)................ 800,000 808,120
------------
Total Structured Instruments
(Cost $6,218,844)............................................. 6,369,623
------------
Repurchase Agreement - 5.9%
Repurchase agreement with Canadian
Imperial Bank of Commerce, 5.45%, date
6/26/96, to be repurchased at $18,908,584
on 7/1/96, collateralized by U.S. Treasury
Bonds, 9.125%-11.25%, 2/15/15-5/11/18, with
a value of $6,680,920, and U.S. Treasury
Nts., 5.25%-8.50%, 1/11/97-11/15/04, with a
value of $12,626,048 (Cost $18,900,000)....................... 16,900,000 18,900,000
------------
Total Investments, at Value
(Cost $310,870,304)........................................... 98.2% 311,908,745
------------ ------------
Other Assets Net of Liabilities................................. 1.8 5,708,154
Net Assets...................................................... 100.0% $317,616,900
============ ============
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
STATEMENT OF INVESTMENTS (Continued)
June 30, 1996
(Unaudited)
/1/ Principal amount is reported in U.S. Dollars, except for those denoted in
the following currencies:
AUD - Australian Dollar IEP - Irish Punt
CAD - Canadian Dollar ITL - Italian Lira
CZD - Czech Koruna MXP - Mexican Peso
DEM - German Deutsche Mark NZD - New Zealand
DKK - Danish Krone PLZ - Polish Zloty
ESP - Spanish Peseta PTE - Portuguese Escudo
GBP - British Pound Sterling SEK - Swedish Krona
/2/ Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other fixed-
income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the national amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates disclosed represent current yields based upon the current cost basis
and estimated timing and amount of future cash flows.
/3/ Represents a security said under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $10,392,770 or 3.27% of the Fund's
net assets at June 30, 1996.
/4/ Represents the current interest rate for a variable rate security.
/5/ Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these
securities generally increases as interest rates decline and prepayment
rates rise. The price of these securities is typically more volatile than
that of coupon-bearing bonds of the same maturity. Interest rates disclosed
represent current yields based upon the current cost basis and estimated
timing of future cash flows.
/6/ A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:
<TABLE>
<CAPTION>
Contracts
Subject Expiration Exercise Premium Market Value
To Call Date Price Received (Note 1)
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Call option on Australian Dollar 352,000 7/3/96 1.25 /AUD/ $ 2,675 $ 282
Call option on Czech Koruna 1,190,000 9/6/96 28.357/CZK/ 15,946 29,310
Call option on Mexican Peso 460,000 8/5/96 8.03 /MXP/ 12,374 16,374
----------- ------------
$ 30,995 $ 45,966
</TABLE>
/7/ For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.
/8/ Indexed instrument for which the principal amount and/or interest due at
maturity is affected by the relative value of a foreign index.
/9/ Identifies issues considered to be illiquid - See applicable note of Notes
to Financial Statements.
See accompanying Notes to Financial Statements
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies
Oppenheimer Bond Fund (the Fund), is a separate series of Oppenheimer
Variable Account Funds (the Trust), a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek a high level of current
income from investments in high yield fixed-income securities. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager). The following is
a summary of significant accounting policies consistently followed by the
Fund.
Investment Valuation.
Portfolio securities are valued at the close of the New York Stock Exchange
on each trading day. Listed and unlisted securities for which such
information is regularly reported are valued at the last sale price of the
day or, in the absence of sales, at values based on the closing bid or asked
price or the last sale price on the prior trading day. Long-term and short-
term "non-money market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities which cannot be
valued by the approved portfolio pricing service are valued using dealer-
supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by
the Board of Trustees to determine fair value in good faith. Short-term
"money market type" debt securities having a remaining maturity of 60 days
or less are valued at cost (or last determined market value) adjusted for
amortization to maturity of any premium or discount. Forward foreign
currency exchange contracts are valued based on the closing prices of the
forward currency contract rates in the London foreign exchange markets on a
daily basis as provided by a reliable bank or dealer. Options are valued
based upon the last sale price on the principal exchange on which the option
is traded or, in the absence of any transactions that day, the value is
based upon the last sale on the prior trading date if it is within the
spread between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid or asked price closest to the last
reported sale price is used.
Securities Purchased on a When-Issued Basis.
Delivery and payment for securities that have been purchased by the Fund on
a forward commitment or when-issued basis can take place a month or more
after the transaction date. During this period, such securities do not earn
interest, are subject to market fluctuation and may increase or decrease in
value prior to their delivery. The Fund maintains, in a segregated account
with its custodian, assets with a market value equal to the amount of its
purchase commitments. The purchase of securities on a when-issued or forward
commitment basis may increase the volatility of the Fund's net asset value
to the extent the Fund makes such purchases while remaining substantially
fully invested.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar-rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar
(same type coupon and maturity) but not identical securities on a specified
future date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
Foreign Currency Translation.
The accounting records of the Fund are maintained in U.S. dollars. Prices of
securities purchased that are denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts
related to the purchase and sale of securities and investment income are
translated at the rates of exchange prevailing on the respective dates of
such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Fund's Statement of Operations.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Notes to Financial Statements (Unaudited) (Continued)
1. Significant Accounting Policies (continued)
Repurchase Agreements.
The Fund requires the custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System or to have segregated
within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral
declines, or if the seller enters an insolvency proceeding, realization of
the value of the collateral by the Fund may be delayed or limited.
Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Classification of Distributions to Shareholders.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes primarily because of paydown gains and
losses and the recognition of certain foreign currency gains (losses) as
ordinary income (loss) for tax purposes. The character of the distributions
made during the year from net investment income or net realized gains may
differ from their ultimate characterization for federal income tax purposes.
Also, due to timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or realized
gain (loss) was recorded by the Fund.
Other.
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the ex-
dividend date. Discount on securities purchased is amortized over the life
of the respective securities, in accordance with federal income tax
requirements. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis,
which is the same basis used for federal income tax purposes. Dividends-in-
kind are recognized as income on the ex-dividend date, at the current market
value of the underlying security. Interest on payment-in-kind debt
instruments is accrued as income at the coupon rate, and a market adjustment
is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sold 10,641,027 $122,534,894 7,311,733 $83,544,442
Dividends and distributions reinvested 754,523 8,583,660 976,291 11,209,883
Redeemed (1,414,825) (16,425,746) (2,972,687) (33,822,108)
----------- ------------ ----------- ------------
Net increase 9,980,725 $114,692,808 5,315,337 $60,932,217
=========== ============= =========== ============
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Notes to Financial Statement (Unaudited)(Continued)
3. Unrealized Gains and Losses on Investments
At June 30, 1996, net unrealized appreciation on investments and options written
of $1,023,471 was composed of gross appreciation of $4,733,340, and gross
depreciation of $3,709,869.
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Trust. The annual fees are 0.75% of the first $200
million of net assets, 0.72% of the next $200 million, 0.69% of the next $200
million, 0.66% of the next $200 million, 0.60% of net assets in excess of $800
million and 0.50% of net assets in excess of $1 billion.
5. Forward Contracts
A forward foreign currency exchange contract (forward contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks. They
may also be used to tactically shift portfolio currency risk. The Fund
generally enters into forward contracts as a hedge upon the purchase or sale of
a security denominated in a foreign currency. In addition, the Fund may enter
into such contracts as a hedge against changes in foreign currency exchange
rates on portfolio positions.
Forward contracts are valued based on the closing prices of the forward currency
contract rates in the London foreign exchange markets on a daily basis as
provided by a reliable bank or dealer. The Fund will realize a gain or loss
upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure on outstanding
forward contracts are noted in the Statement of Investments where applicable.
Unrealized appreciation or depreciation on forward contracts is reported in the
Statement of Assets and Liabilities. Realized gains and losses are reported
with all other foreign currency gains and losses in the Fund's Statement of
Operations.
Risks include the potential inability of the counterparty to meet the terms of
the contract and unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
At June 30, 1996, the Fund had outstanding forward contracts to purchase and
sell foreign currencies as follows:
<TABLE>
<CAPTION>
Contract Amount Valuation as of Unrealized Unrealized
Contracts to Purchase Expiration date (000's) June 30, 1996 Appreciation Depreciation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Italian Lira (ITL) 5/9/97 671,747 ITL $ 429,803 $ 7,629 $ -
=========== ------- -------
Contracts to Sell
- -----------------
Japanese Yen (JPY) 8/26/96 43,000 JPY $ 396,015 $ 4,749 $ -
Swiss Franc (CHF) 7/18/96-5/6/97 12,703 10,233,684 32,135 15,592
----------- ------- -------
$10,629,699 36,884 15,592
Total Unrealized Appreciation and Depreciation =========== ------- -------
$44,513 $15,592
======= =======
</TABLE>
6. Option Activity
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to hedge
against adverse movements in the value of portfolio holdings. When an option is
written, the Fund receives a premium and becomes obligated to sell or purchase
the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchase put or call option is
adjusted by the amount of premium received or paid.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Notes to Financial Statements (Unaudited)(Continued)
6. Option Activity (continued)
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a
footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
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. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist. The Fund may
also write over-the-counter options where the completion of the obligation is
dependent upon the credit standing of the counterparty.
Written option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
--------- ---------
Options outstanding at December 31, 1995 - $ -
Options written 6,637,802 115,114
Options cancelled in closing transactions (1,980,331) (47,726)
Options expired prior to exercise (1,460,029) (26,575)
Options exercised (1,195,442) (9,818)
----------- ---------
Options outstanding at June 30, 1996 2,002,000 $ 30,995
=========== =========
7. Illiquid and Restricted Securities
At June 30, 1996, investments in securities included issues that are illiquid or
restricted. The securities are often purchased in private placement transac-
tions, are not registered under the Securities Act of 1933, may have contractual
restrictions on resale, and are valued under methods approved by the Board of
Trustees as reflecting fair value. A security may also be considered illiquid if
its valuation has not changed for a certain period of time. The Fund intends to
invest no more than 10% of its net assets (determined at the time of purchase
and reviewed from time to time) in illiquid or restricted securities. The aggre-
gate value of illiquid or restricted securities subject to this 10% limitation
at June 30, 1996 was $2,603,717, which represents 0.82% of the Fund's net
assets. Information concerning these securities is as follows:
Valuation Per
Acquisition Cost Unit as of
Security Date Per Unit June 30, 1996
- --------------------------------------------------------------------------------
Columbia (Republic of) 1989-1990
Integrated Loan Facility Bonds,
6,563%, 7/1/01 12/5/95 $ 92.00 $ 93.25
Merrill Lynch & Co., Inc.
Units, 9.75%, 6/15/99 5/15/95 $110.05 $113.82
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered
securities are determined to be liquid and are not included within the 10%
limitation specified above.
