Semiannual Report June 30, 2000
Oppenheimer
Bond Fund/VA
A Series of Oppenheimer Variable Account Funds
[logo]OppenheimerFunds(R)
The Right Way to Invest
<PAGE>
Oppenheimer Variable Account Funds--Oppenheimer Bond Fund/VA
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Objective
Oppenheimer Bond Fund/VA, a series of Oppenheimer Variable Account Funds,
primarily seeks a high level of current income from investing in high-yield
fixed-income securities. Secondarily, the Fund seeks capital growth when this is
consistent with its primary objective of high income.
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Narrative by David Negri and John Kowalik, Co-Portfolio Managers
During the six-month period that ended June 30, 2000, Oppenheimer Bond Fund/VA
provided an annualized total return of 1.95%(1) in a very challenging investment
environment. First, rising interest rates eroded the prices of most bond-market
sectors, especially the higher quality sectors such as corporate bonds. Second,
because many high yield corporate bonds respond to changes in their issuers'
stock prices, this sector of the bond market was generally hurt by the decline
of the Nasdaq stock market during March and April, 2000.
However, for income-oriented investors who can tolerate short-term
price volatility, yields benefited from the drop in prices, which was due to
higher interest rates. What's more, the differences in yield between corporate
bonds and U.S. Treasury securities recently reached their widest levels in more
than 15 years. This is the case because corporations are attempting to attract
investors, and need to pay relatively higher rates of interest in order to do
so.
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Why do higher interest rates affect returns from corporate bonds? Because higher
interest rates tend to increase borrowing costs for companies that finance their
operations and growth through the bond market, investors tend to become
concerned that higher interest rates might reduce earnings for these companies.
The result is a lower demand for bonds.
Interest rates have been rising because of concerns that the U.S.
economy may be growing too quickly, potentially re-igniting long-dormant
inflationary pressures. To ease these pressures, the Federal Reserve Board has
raised key short-term interest rates three more times during the six-month
reporting period. Including the three rate hikes implemented before the
reporting period began, the Federal Reserve Board has raised interest rates by a
total of 1.75 percentage points.
In addition, corporate bond issuers have been adversely affected by
more stringent loan requirements from many lenders, which has made credit scarce
in both the banking system and public markets. This development is especially
bad for companies that need to borrow in order to refinance maturing debt.
Because the Fund's investment objective emphasizes current income, we
have continued to manage the Fund in a way that is designed to achieve high
yield. Part of that investment approach entails investing in higher- yielding,
long maturity corporate bonds. As a result, as interest rates continued to rise
early in the period, the Fund's duration--a measure of the Fund's sensitivity to
changing interest rates--was at a relatively high level.
To lower the Fund's duration, we proceeded to reduce our holdings of
longer-term corporate bonds, and redeployed those assets to the
intermediate-term sector of the corporate-bond market. The advantage was that
intermediate-term bonds were providing virtually the same yield of longer-term
bonds, with less interest-rate risk. In addition, we focused our corporate-bond
holdings primarily among highly liquid names, which could be quickly turned into
cash to take advantage of any better income opportunities that might arise.(2)
Despite reducing the Fund's duration in February and April, this
posture hurt the Fund's price performance, offsetting any yield advantage it may
have provided. We ended the reporting period with a duration that was modestly
lower than our peer group average (in general, the lower a portfolio's duration,
less it is adversely affected by rising interest rates.(2)
1. Includes changes in net asset value per share and does not include the
charges associated with the separate account products which offer this Fund.
Such performance is not annualized and would have been lower if such charges
were taken into account.
2. The Fund's duration and portfolio are subject to change.
2 Oppenheimer Bond Fund/VA
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Oppenheimer Variable Account Funds--Oppenheimer Bond Fund/VA
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The Fund also invested in U.S. Treasury securities during the reporting period,
increasing our exposure to these securities, and thus our ability to take
advantage of unusual conditions in that market sector. More specifically,
longer-term U.S. Treasury securities have rallied over the past six months
because of unique supply-and-demand influences. Because U.S. Treasuries are
generally considered the most creditworthy investments in the world, demand for
them by U.S. and international investors has historically remained high.
However, after the federal government used a portion of the budget surplus to
buy back some seasoned, long-term U.S. Treasury bonds, the available supply has
dwindled. As a result, for most of the six-month period, longer-term U.S.
Treasury bonds provided lower yields--and higher prices--than comparable
short-term securities. The Fund's greater exposure to longer-term U.S.
Treasuries enabled us to participate in some of those price gains.
While we have been frustrated by the extent to which the higher
yielding sectors of the bond market have been out of favor, we are encouraged
that historically wide spreads may attract interest from investors who are no
longer receiving spectacular results in the stock market. Nonetheless, the
economic environment remains uncertain, and we do not expect any lasting market
recovery to take place until the success of the Federal Reserve Board's
inflation-fighting strategy becomes more evident.
In the meantime, corporate bonds have been providing attractive levels
of income; in our opinion, their prices currently reflect a worst-case economic
scenario. Having the patience and discipline to take advantage of temporary
market weaknesses is an important part of what makes OppenheimerFunds The Right
Way to Invest.
Oppenheimer Bond Fund/VA 3
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Statement of Investments June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal Market Value
Amount Note 1
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<S> <C> <C>
Mortgage-Backed Obligations--37.0%
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Government Agency--9.8%
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FHLMC/FNMA/Sponsored--9.7%
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Gtd. Multiclass Mtg. Participation Certificates:
Series 151, Cl. F, 9%, 5/15/21 $ 472,035 $ 490,176
Series 1541, Cl. H, 7%, 10/15/22 4,750,000 4,663,882
Series 1714, Cl. M, 7%, 8/15/23 2,000,000 1,919,360
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Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security:
Series 194, Cl. IO, 11.63%, 4/1/28(1) 30,359,353 9,698,390
Series 197, Cl. IO, 11.25%, 4/1/28(1) 13,127,650 4,102,391
Series 202, Cl. IO, 11.33%, 4/1/29(1) 55,881,316 18,632,926
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Federal National Mortgage Assn.:
6.50%, 3/1/11 448,962 435,619
7%, 4/1/04-11/1/25 627,389 608,758
7.50%, 1/1/08-1/1/26 2,010,188 1,990,686
8%, 5/1/17 111,081 112,493
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Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 131, Cl. G, 8.75%, 11/25/05 1,073,475 1,094,269
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Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, Trust 1989-17, Cl. E, 10.40%, 4/25/19 539,053 572,238
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Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security,
Trust 294, Cl. 2, 15.95%, 2/1/28(1) 26,751,528 8,552,129
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52,873,317
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GNMA/Guaranteed--0.1%
Government National Mortgage Assn., 7%, 1/15/09-5/15/09 359,484 356,663
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Private--27.2%
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Manufactured Housing--1.2%
Conseco Finance Securitizations Corp., Home Equity Loan Pass-Through Certificates,
Series 2000-D, Cl. A5, 8.41%, 12/15/25 6,500,000 6,522,344
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Commercial--19.9%
Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates,
Series 1997-D5, Cl. B2, 6.93%, 2/14/41 5,400,000 3,327,750
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Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security,
Series 1997-D5, Cl. PS1, 8.95%, 2/14/41(1) 18,131,545 1,456,190
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Capital Lease Funding Securitization LP, Interest-Only Stripped Mtg.-Backed Security,
Series 1997-CTL1, 10.29%, 6/22/24(1)(2) 30,180,842 1,103,487
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Commercial Mortgage Acceptance Corp., Collateralized Mtg. Obligations:
Series 1996-C1, Cl. D, 7.415%, 12/25/20(2)(3) 2,500,000 2,422,266
Series 2000-FL2, 8.98%, 4/15/11 2,600,000 2,596,762
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Commercial Mortgage Asset Trust, Series 1999-C1, Cl. C, 7.35%, 8/17/13 673,400 634,995
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CRIIMI MAE Trust I, Collateralized Mtg. Obligations,
Series 1996-C1, Cl. A2, 7.56%, 8/30/05(4) 2,000,000 1,898,672
4 Oppenheimer Bond Fund/VA
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
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Commercial (continued)
CRIIMI MAE Trust I, Commercial Mtg. Trust:
Series 1998-C1, Cl. A1, 7%, 11/2/06(4) $ 3,300,000 $ 2,971,805
Series 1998-C1, Cl. A2, 7%, 3/2/11(4) 9,750,000 8,560,957
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CS First Boston Mortgage Securities Corp., Interest-Only Stripped Mtg.-Backed Security,
Series 1998-C1, Cl. AX, 8.07%, 4/11/30(1) 24,583,207 1,498,039
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CS First Boston Mortgage Securities Corp., Mtg. Pass-Through Certificates:
Series 1997-C1, Cl. E, 7.50%, 3/1/11(2) 5,006,000 4,508,529
Series 1999-C1, Cl. C, 7.942%, 9/15/09(3) 6,500,000 6,439,062
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Delta Funding Corp., Collateralized Mtg. Obligations,
Series 2000-02, Cl. B, 8.36%, 8/15/30 5,444,000 4,493,001
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FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Series 1994-C1, Cl. 2-D, 8.70%, 9/25/25 1,500,000 1,466,719
Series 1994-C1, Cl. 2-E, 8.70%, 9/25/25 1,500,000 1,442,812
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First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997-CHL1, Cl. C, 8.083%, 7/25/06(2)(3) 4,024,000 3,692,020
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First Union-Lehman Brothers Commercial Mortgage Trust,
Commercial Mtg. Pass-Through Certificates, Series 1998-C2, Cl. E, 6.778%, 5/18/13 2,000,000 1,676,875
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First Union-Lehman Brothers Commercial Mortgage Trust,
Interest-Only Stripped Mtg.-Backed Security, Series 1998-C2, 9.30%, 5/18/28(1) 29,235,643 1,045,517
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General Motors Acceptance Corp., Collateralized Mtg. Obligations,
Series 1997-C2, Cl. D, 7.192%, 1/15/08 3,500,000 3,076,172
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General Motors Acceptance Corp., Collateralized Mtg. Obligations,
Series 1998-C1, Cl. E, 7.089%, 3/15/11(3) 3,500,000 3,172,969
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GMAC Commercial Mtg. Securities, Inc., Mtg. Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security, Series 1997-C1, Cl. X, 8.52%, 7/15/27(1) 26,575,597 2,018,084
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GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates,
Series 1997-CL1, Cl. F, 7.823%, 7/13/30(3) 4,000,000 3,605,000
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LB-UBS Securities Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates:
Series 2000-C3, Cl. C, 7.95%, 2/15/10 5,821,250 5,859,452
Series 2000-C3, Cl. G, 7.95%, 2/15/10 3,538,000 3,337,882
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Lehman Brothers Commercial Conduit Mortgage Trust,
Interest-Only Stripped Mtg.-Backed Security, Series 1998-C1, Cl. IO, 8.87%, 2/18/28(1) 43,698,675 2,239,557
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Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates:
Series 1996-C1, Cl. D, 7.42%, 4/25/28 2,000,000 1,927,969
Series 1997-C2, Cl. D, 7.071%, 12/10/29(3) 4,000,000 3,735,625
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Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates:
Series 1997-RR, Cl. D, 7.766%, 4/30/39(2) 4,300,231 3,192,250
Series 1997-XL1, Cl. F, 7.409%, 10/3/30(3) 2,500,000 2,313,281
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NationsBank Trust, Lease Pass-Through Certificates, Series 1997A-1, 7.442%, 1/10/11(3) 2,396,734 2,310,976
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NationsCommercial Corp., NB Commercial Mtg. Pass-Through Certificates:
Series DMC, Cl. B, 8.562%, 8/12/11(2) 1,600,000 1,461,250
Series DMC, Cl. C, 8.921%, 8/12/11(2) 4,400,000 4,003,312
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Nomura Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates,
Series 1998-D6, Series 1998-D6, Cl. A3, 6.98%, 3/17/28(3) 4,875,000 4,513,564
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Potomac Gurnee Financial Corp., Commercial Mtg. Pass-Through Certificates,
Series 1, Cl. C, 7.217%, 12/21/26(2) 250,000 239,687
Oppenheimer Bond Fund/VA 5
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
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Commercial (continued)
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1994-C1, Cl. C, 8%, 6/25/26 $ 590,385 $ 586,972
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,933,438
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Salomon Brothers Mortgage Securities VII, Commercial Mtg. Pass-Through Certificates,
Series 2000-NL1, Cl. A2, 6.905%, 9/15/08(2) 3,250,000 3,048,906
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Structured Asset Securities Corp., Multiclass Pass-Through Certificates,
Series 1996-CFL, Cl. D, 7.034%, 2/25/28 1,800,000 1,779,750
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Structured Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 2000-C2, Cl. K, 8.391%, 3/20/03(2) 2,600,000 2,581,313
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109,172,867
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Multi-Family--0.9%
Option One Mortgage Trust, Collateralized Mtg. Obligations,
Series 1999-1A, 10.06%, 3/1/29(2) 5,009,497 4,920,266
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Other--0.0%
Salomon Brothers Mortgage Securities VI, Interest-Only Stripped Mtg.-Backed Security:
Series 1987-3, Cl. B, 13.76%, 10/23/17(1) 37,335 10,238
Series 1987-3, Cl. B, 38.57%, 10/23/17(1) 13,273 3,640
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Salomon Brothers Mortgage Securities VI, Principal-Only Stripped Mtg.-Backed Security:
Series 1987-3, Cl. A, 20.67%, 10/23/17(5) 55,929 46,159
Series 1987-3, Cl. A, 2.92%, 10/23/17(5) 18,964 15,652
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75,689
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Residential--5.2%
Countrywide Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-12, Cl. B1, 6.625%, 2/25/24 926,124 821,791
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Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates,
Series 1997-HF1, Cl. E, 7.55%, 7/15/29(2) 1,500,000 1,399,219
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NC Finance Trust, Collateralized Mtg. Obligations, Series 1999-I, Cl. ECFD, 8.75%, 12/25/28 13,123,237 12,270,227
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Option One Mortgage Trust, Collateralized Mtg. Obligations, Series 1999-3,
Cl. BB, 10.80%, 12/15/29 5,037,837 4,998,479
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Ryland Mortgage Securities Corp. III, Sub. Bonds, Series 1992-A, Cl. 1A, 8.257%, 3/29/30(3) 165,512 159,914
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Structured Asset Securities Corp., Multiclass Pass-Through Certificates,
Series 1999-1, 10%, 8/25/28(2) 4,544,941 4,473,927
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Washington Mutual Finance Corp., Collateralized Mtg. Obligations,
Series 2000-1, Cl. B1, 10.61%, 1/25/40(2) 4,550,000 4,550,000
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28,673,557
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Total Mortgage-Backed Obligations (Cost $208,710,667) 202,594,703
6 Oppenheimer Bond Fund/VA
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
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U.S. Government Obligations--5.6%
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U.S. Treasury Bonds, STRIPS, 6.27%, 11/15/21(6)(7) $ 31,840,000 $ 8,619,407
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U.S. Treasury Nts., 6.50%, 2/15/10 21,225,000 21,954,609
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Total U.S. Government Obligations (Cost $30,390,608) 30,574,016
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Foreign Government Obligations--3.2%
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Israel (State of) Bonds:
7.25%, 12/15/28 3,250,000 2,833,298
7.75%, 3/15/10 6,500,000 6,430,651
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Ontario, Canada (Province of) Bonds, 8%, 10/17/01 750,000 757,459
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PT Hutama Karya Medium-Term Nts., Zero Coupon, 3/17/1999 (2)(8)(9)IDR 1,000,000,000 31,420
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United Mexican States Bonds, 11.375%, 9/15/16 6,500,000 7,442,500
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Total Foreign Government Obligations (Cost $18,491,412) 17,495,328
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Loan Participations--0.6%
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Ferrell Cos., Inc., 10.853% Sr. Sec. Loan Participation Nts., Series B, 7/17/06(2)(3)
(Cost $3,272,682) 3,300,000 3,242,250
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Corporate Bonds and Notes--48.3%
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Aerospace/Defense--0.5%
Atlas Air, Inc. Pass-Through Certificates, Series 1998-1, 8.01%, 1/2/10 2,610,019 2,462,149
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Loral Space & Communications Ltd., 9.50% Sr. Nts., 1/15/06 200,000 146,000
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2,608,149
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Chemicals--0.4%
Avecia Group plc, 11% Sr. Unsec. Nts., 7/1/09 800,000 788,000
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Huntsman Corp./ICI Chemical Co. plc, 10.125% Sr. Unsec. Sub. Nts., 7/1/09 800,000 810,000
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Sterling Chemicals, Inc., 12.375% Sr. Sec. Nts., Series B, 7/15/06 400,000 408,000
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2,006,000
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Consumer Non-Durables--0.2%
AKI, Inc., 10.50% Sr. Unsec. Nts., 7/1/08 300,000 238,500
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Bell Sports, Inc., 11% Sr. Unsec. Sub. Nts., Series B, 8/15/08 210,000 210,000
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Revlon Consumer Products Corp., 9% Sr. Nts., 11/1/06 500,000 362,500
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Styling Technology Corp., 10.875% Sr. Unsec. Sub. Nts., 7/1/08 360,000 37,800
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848,800
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Energy--3.8%
Central Hudson Gas & Electric Corp., 9.25% First Mtg. Nts., 5/1/21 14,300,000 14,832,746
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Colorado Interstate Gas Corp., 10% Sr. Debs., 6/15/05 500,000 551,469
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Eastern Energy Ltd., 6.75% Sr. Nts., 12/1/06(4) 2,000,000 1,888,588
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Enron Corp., 9.875% Debs., 6/15/03 375,000 395,995
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Gothic Production Corp., 11.125% Sr. Sec. Nts., Series B, 5/1/05(4) 450,000 421,875
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Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 500,000 497,500
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HNG Internorth/Enron Corp., 9.625% Debs., 3/15/06 500,000 540,486
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McDermott, Inc., 9.375% Nts., 3/15/02 400,000 285,473
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Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 55,000 55,928
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Ocean Rig Norway AS, 10.25% Sr. Sec. Nts., 6/1/08 400,000 334,000
Oppenheimer Bond Fund/VA 7
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
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Energy (continued)
RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 $ 455,000 $ 489,694
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Texaco Capital, Inc., 8.875% Gtd. Debs., 9/1/21(10) 500,000 569,626
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20,863,380
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Financial--22.0%
Aeltus CBO II Ltd./Aeltus CBO II Corp., 7.982% Sr. Sec. Sub. Bonds, 8/6/09(4) 5,000,000 4,753,750
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Chase Manhattan Corp., 10.125% Sub. Nts., 11/1/00 750,000 757,178
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CIT Group, Inc., 7.375% Unsec. Unsub. Nts., 3/15/03 975,000 962,846
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ForeningsSparbanken AB (Swedbank):
9% Non-Cum. Capital Bonds, 12/29/49(4) 3,250,000 3,189,404
7.50% Unsec. Sub. Nts., 11/29/49(3) 8,450,000 7,904,781
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Household Finance Corp., 8% Nts., 5/9/05 11,000,000 11,098,065
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HSBC Capital Funding LP, 10.176% Bonds, Series 2, 12/31/49(4) 6,500,000 6,977,431
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HVB Fund Trust III, 9% Bonds, 10/22/31(4) 6,500,000 6,227,331
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Hypovereinsbank, 8.741% Bonds, 6/30/31(4) 6,500,000 6,060,762
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Lehman Brothers Holdings, Inc.:
8.25% Unsec. Nts., 6/15/07 14,950,000 14,982,576
8.80% Sr. Nts., 3/1/15 6,500,000 6,886,763
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Liberty Mutual Insurance Co., 7.697% Unsec. Nts., 10/15/97(4) 19,000,000 14,446,726
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Nordbanken AB, 8.95% Bonds, 11/29/49(4) 9,750,000 9,750,634
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Rothmans Nederland Holdings BV, 6.875% Sr. Unsec. Unsub. Nts., 5/6/08 18,899,000 16,464,809
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Safeco Capital Trust I, 8.072% Nts., 7/15/37(10) 7,429,000 6,304,896
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Sovereign Bank, 10.20% Pass-Through Certificates, 6/30/05(2) 3,250,000 3,252,031
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U.S. Leasing International, Inc., 6.625% Sr. Nts., 5/15/03 750,000 727,095
------------
120,747,078
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Food & Drug--0.0%
Pathmark Stores, Inc., 12.625% Sub. Nts., 6/15/02(8)(9) 400,000 102,000
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Food/Tobacco--0.2%
Aurora Foods, Inc., 8.75% Sr. Sub. Nts., Series B, 7/1/08 300,000 169,500
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Canandaigua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 1,000,000 992,500
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1,162,000
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Forest Products/Containers--0.2%
Potlatch Corp., 9.46% Medium-Term Nts., 4/2/02 500,000 515,788
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Riverwood International Corp., 10.625% Sr. Unsec. Nts., 8/1/07 450,000 438,750
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954,538
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Gaming/Leisure--0.6%
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 300,000 279,375
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Intrawest Corp., 9.75% Sr. Nts., 8/15/08 950,000 945,250
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Meristar Hospitality Corp., 8.75% Sr. Unsec. Sub. Nts., 8/15/07 700,000 626,500
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Mohegan Tribal Gaming Authority:
8.125% Sr. Nts., 1/1/06 400,000 382,000
8.75% Sr. Unsec. Sub. Nts., 1/1/09 300,000 286,500
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Premier Parks, Inc.:
0%/10% Sr. Disc. Nts., 4/1/08(11) 300,000 205,125
9.75% Sr. Nts., 6/15/07 200,000 194,250
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Station Casinos, Inc., 9.75% Sr. Sub. Nts., 4/15/07 550,000 552,750
------------
3,471,750
8 Oppenheimer Bond Fund/VA
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
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Healthcare--0.3%
Fresenius Medical Care Capital Trust II, 7.875% Nts., 2/1/08(2) $ 600,000 $ 535,500
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ICN Pharmaceutical, Inc.:
8.75% Sr. Nts., 11/15/08(4) 275,000 272,250
9.75% Sr. Nts., 11/15/08(4) 125,000 123,750
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Tenet Healthcare Corp., 8.625% Sr. Sub. Nts., 1/15/07 800,000 768,000
-----------
1,699,500
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Housing--0.3%
Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 800,000 632,000
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D.R. Horton, Inc., 8% Sr. Nts., 2/1/09 400,000 350,000
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Nortek, Inc.:
9.125% Sr. Nts., Series B, 9/1/07 200,000 186,000
9.25% Sr. Nts., Series B, 3/15/07 800,000 752,000
-----------
1,920,000
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Manufacturing--0.1%
Moll Industries, Inc., 10.50% Sr. Unsec. Sub. Nts., 7/1/08 250,000 45,000
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Roller Bearing Co. of America, Inc., 9.625% Sr. Sub. Nts., Series B, 6/15/07 500,000 460,000
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Terex Corp., 8.875% Sr. Unsec. Sub. Nts., Series C, 4/1/08(2) 100,000 90,500
-----------
595,500
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Media/Entertainment: Broadcasting--2.1%
British Sky Broadcasting Group plc, 8.20% Sr. Unsec. Nts., 7/15/09 6,500,000 6,108,069
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Chancellor Media Corp.:
8.75% Sr. Unsec. Sub. Nts., Series B, 6/15/07 2,500,000 2,518,750
9% Sr. Unsec. Sub. Nts., 10/1/08 2,200,000 2,271,500
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Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 600,000 550,500
-----------
11,448,819
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Media/Entertainment: Cable/Wireless Video--1.3%
Adelphia Communications Corp., 8.375% Sr. Nts., Series B, 2/1/08 1,300,000 1,155,375
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Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp.:
8.25% Sr. Unsec. Nts., 4/1/07 3,000,000 2,662,500
8.625% Sr. Unsec. Nts., 4/1/09 750,000 662,812
--------------------------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 1,200,000 1,158,000
--------------------------------------------------------------------------------------------------------------------------------
Insight Midwest LP/Insight Capital, Inc., 9.75% Sr. Nts., 10/1/09 500,000 492,500
--------------------------------------------------------------------------------------------------------------------------------
NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 1,000,000 1,000,000
-----------
7,131,187
--------------------------------------------------------------------------------------------------------------------------------
Media/Entertainment: Diversified Media--0.6%
AMC Entertainment, Inc., 9.50% Sr. Unsec. Sub. Nts., 2/1/11 300,000 136,500
--------------------------------------------------------------------------------------------------------------------------------
GSP I Corp., 10.15% First Mtg. Bonds, 6/24/10(4) 1,025,899 942,063
--------------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05(2) 900,000 819,000
--------------------------------------------------------------------------------------------------------------------------------
Mail-Well Corp., 8.75% Sr. Unsec. Sub. Nts., Series B, 12/15/08 535,000 452,075
--------------------------------------------------------------------------------------------------------------------------------
Reed Elsevier, Inc., 6.625% Nts., 10/15/23(4) 600,000 518,868
--------------------------------------------------------------------------------------------------------------------------------
SFX Entertainment, Inc., 9.125% Sr. Unsec. Sub. Nts., 12/1/08 600,000 606,000
-----------
3,474,506
Oppenheimer Bond Fund/VA 9
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
--------------------------------------------------------------------------------------------------------------------------------
Media/Entertainment: Telecommunications--1.6%
Hyperion Telecommunications, Inc., 0%/13% Sr. Disc. Nts., Series B, 4/15/03(11) $ 250,000 $ 233,750
--------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B, 6/1/08 600,000 558,000
--------------------------------------------------------------------------------------------------------------------------------
International CableTel, Inc., 0%/11.50% Sr. Deferred Coupon Nts., Series B, 2/1/06(11) 1,250,000 1,159,375
--------------------------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc., 10% Sr. Unsec. Nts., Series B, 11/15/08 650,000 643,500
--------------------------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc.:
9.625% Sr. Nts., 10/1/07 2,200,000 2,084,500
10.75% Sr. Unsec. Nts., 11/15/08 200,000 198,000
--------------------------------------------------------------------------------------------------------------------------------
PSINet, Inc.:
10% Sr. Unsec. Nts., Series B, 2/15/05 350,000 323,750
11.50% Sr. Unsec. Nts., 11/1/08 450,000 425,250
--------------------------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc., 0%/8.29%
Sr. Unsec. Disc. Nts., Series B, 2/1/08(11) 1,350,000 1,067,166
--------------------------------------------------------------------------------------------------------------------------------
Shaw Communications, Inc., 8.54% Debs., 9/30/27CAD 3,000,000 1,913,404
-----------
8,606,695
--------------------------------------------------------------------------------------------------------------------------------
Media/Entertainment: Wireless Communications--0.8%
Arch Communications, Inc., 12.75% Sr. Nts., 7/1/07 200,000 154,000
--------------------------------------------------------------------------------------------------------------------------------
Crown Castle International Corp., 10.75% Sr. Nts., 8/1/11 300,000 305,625
--------------------------------------------------------------------------------------------------------------------------------
Omnipoint Corp.:
11.50% Sr. Nts., 9/15/09(4) 650,000 698,750
11.625% Sr. Nts., Series A, 8/15/06 500,000 542,500
--------------------------------------------------------------------------------------------------------------------------------
Price Communications Wireless, Inc., 9.125% Sr. Sec. Nts., Series B, 12/15/06 1,000,000 1,015,000
--------------------------------------------------------------------------------------------------------------------------------
SBA Communications Corp., 0%/12% Sr. Unsec. Disc. Nts., 3/1/08(11) 700,000 497,000
--------------------------------------------------------------------------------------------------------------------------------
Spectrasite Holdings, Inc., 0%/12% Sr. Disc. Nts., 7/15/08(11) 600,000 420,000
--------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., 10.375% Sr. Nts., 11/15/09(4) 500,000 520,000
-----------
4,152,875
--------------------------------------------------------------------------------------------------------------------------------
Metals/Minerals--1.1%
AK Steel Corp.:
7.875% Sr. Unsec. Nts., 2/15/09 1,000,000 892,500
9.125% Sr. Nts., 12/15/06 3,250,000 3,136,250
--------------------------------------------------------------------------------------------------------------------------------
Great Lakes Carbon Corp., 10.25% Sr. Sub. Nts., Series B, 5/15/08 750,000 656,250
--------------------------------------------------------------------------------------------------------------------------------
National Steel Corp., 9.875% First Mtg. Bonds, Series D, 3/1/09 500,000 420,000
--------------------------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 900,000 839,250
-----------
5,944,250
--------------------------------------------------------------------------------------------------------------------------------
Retail--1.7%
Sherwin-Williams Co., 7.45% Debs., 2/1/97(10) 9,750,000 9,102,980
--------------------------------------------------------------------------------------------------------------------------------
Service--3.1%
Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 700,000 600,250
--------------------------------------------------------------------------------------------------------------------------------
Arvin Industries, Inc., 6.75% Nts., 3/15/08 1,400,000 1,222,255
--------------------------------------------------------------------------------------------------------------------------------
Harcourt General, Inc., 7.30% Sr. Debs., 8/1/97 10,025,000 7,919,369
--------------------------------------------------------------------------------------------------------------------------------
Protection One, Inc., 7.375% Sr. Unsec. Nts., 8/15/05 1,000,000 750,000
--------------------------------------------------------------------------------------------------------------------------------
Safety-Kleen Corp., 9.25% Sr. Unsec. Nts., 5/15/09(8)(9) 800,000 20,000
--------------------------------------------------------------------------------------------------------------------------------
UST, Inc., 8.80% Nts., 3/15/05(4) 6,500,000 6,571,617
-----------
17,083,491
10 Oppenheimer Bond Fund/VA
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
--------------------------------------------------------------------------------------------------------------------------------
Transportation--4.2%
Amtran, Inc., 9.625% Nts., 12/15/05(2) $ 800,000 $ 702,000
--------------------------------------------------------------------------------------------------------------------------------
Atlas Air, Inc., 9.375% Sr. Unsec. Nts., 11/15/06 500,000 482,500
--------------------------------------------------------------------------------------------------------------------------------
Federal-Mogul Corp., 7.375% Nts., 1/15/06 7,150,000 5,205,286
--------------------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 7.45% Bonds, 7/16/31 16,250,000 15,270,612
--------------------------------------------------------------------------------------------------------------------------------
Great Lakes Dredge & Dock Corp., 11.25% Sr. Unsec. Sub. Nts., 8/15/08 300,000 301,125
--------------------------------------------------------------------------------------------------------------------------------
Johnson Controls, Inc., 7.70% Debs., 3/1/15 500,000 501,989
--------------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09 600,000 537,000
------------
23,000,512
--------------------------------------------------------------------------------------------------------------------------------
Utility--3.2%
Azurix Corp., 10.75% Sr. Nts., 2/15/10(4) 225,000 217,688
--------------------------------------------------------------------------------------------------------------------------------
Calpine Corp., 7.75% Sr. Nts., 4/15/09 650,000 615,875
--------------------------------------------------------------------------------------------------------------------------------
Connecticut Light & Power Co., 7.875% First Refunding Mtg. Bonds, 10/1/24 7,330,000 7,394,138
--------------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7.875% Medium-Term Nts., 4/1/05 8,500,000 8,514,331
--------------------------------------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., 9% Mtg. Bonds, 7/15/06 500,000 532,638
------------
17,274,670
------------
Total Corporate Bonds and Notes (Cost $282,674,609) 264,198,680
Shares
================================================================================================================================
Preferred Stocks--0.6%
--------------------------------------------------------------------------------------------------------------------------------
Conseco Financing Trust I, 9.16% Cum. Trust Orginated Preferred Securities 63,100 911,006
--------------------------------------------------------------------------------------------------------------------------------
Conseco Financing Trust VI:
9% Cum. Trust Orginated Preferred Securities 111,463 1,630,146
9% Cum. Trust Orginated Preferred Securities 42,250 583,578
--------------------------------------------------------------------------------------------------------------------------------
Conseco Financing Trust VII, 9.44% Cum. Trust Orginated Preferred Securities 21,500 325,188
------------
Total Preferred Stocks (Cost $5,071,976) 3,449,918
Date Strike Contracts
================================================================================================================================
Call Options Purchased--0.0%
--------------------------------------------------------------------------------------------------------------------------------
U.S. Long Bond Futures, 9/20/00 Call (Cost $47,369) 7/21/00 98% 130 79,219
Oppenheimer Bond Fund/VA 11
<PAGE>
Statement of Investments (Unaudited) (Continued)
Principal Market Value
Amount Note 1
================================================================================================================================
Repurchase Agreements--1.9%
--------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Banc One Capital Markets, Inc., 6.55%, dated 6/30/00,
to be repurchased at $10,585,775 on 7/3/00, collateralized by U.S. Treasury Nts.,
5%-7.50%, 8/31/00-5/15/08, with a value of $7,981,109 and U.S. Treasury Bonds,
5.25%-12%, 8/15/03-11/15/28, with a value of $2,819,365 (Cost $10,580,000) $10,580,000 $ 10,580,000
--------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $559,239,323) 97.2% 532,214,114
--------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 2.8 15,384,179
----------- ------------
Net Assets 100.0% $547,598,293
=========== ============
</TABLE>
Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
CAD -- Canadian Dollar
IDR -- Indonesian Rupiah
1. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
2. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
3. Represents the current interest rate for a variable or increasing rate
security.
4. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $77,012,921 or 14.06% of the Fund's net
assets as of June 30, 2000.
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. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
7. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
8. Non-income-producing security.
9. Issuer is in default.
10. Securities with an aggregate market value of $1,492,886 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
11. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
See accompanying Notes to Financial Statements.
12 Oppenheimer Bond Fund/VA
<PAGE>
Statement of Assets and Liabilities June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
===================================================================================================
Assets
Investments, at value (cost $559,239,323)--see accompanying statement $532,214,114
---------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 32,424,597
Interest, dividends and principal paydowns 8,204,638
Shares of beneficial interest sold 34,587
Other 2,780
------------
Total assets 572,880,716
===================================================================================================
Liabilities
Bank overdraft 13,349,931
---------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 24,576
---------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 10,889,945
Shares of beneficial interest redeemed 929,039
Daily variation on futures contracts 59,513
Trustees' compensation 3,391
Transfer and shareholder servicing agent fees 324
Other 25,704
------------
Total liabilities 25,282,423
===================================================================================================
Net Assets $547,598,293
============
===================================================================================================
Composition of Net Assets
Paid-in capital $586,252,093
---------------------------------------------------------------------------------------------------
Undistributed net investment income 22,508,191
---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (33,913,255)
---------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies (27,248,736)
------------
Net assets--applicable to 50,671,617 shares of beneficial interest outstanding $547,598,293
============
===================================================================================================
Net Asset Value, Redemption Price Per Share and Offering Price Per Share $10.81
</TABLE>
See accompanying Notes to Financial Statements.
Oppenheimer Bond Fund/VA 13
<PAGE>
Statement of Operations For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
========================================================================================
Investment Income
Interest $ 24,080,083
----------------------------------------------------------------------------------------
Dividends 543,862
------------
Total income 24,623,945
========================================================================================
Expenses
Management fees 2,033,297
----------------------------------------------------------------------------------------
Custodian fees and expenses 49,918
----------------------------------------------------------------------------------------
Trustees' compensation 4,306
----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 1,189
----------------------------------------------------------------------------------------
Other 18,072
------------
Total expenses 2,106,782
Less expenses paid indirectly (19,374)
------------
Net expenses 2,087,408
========================================================================================
Net Investment Income 22,536,537
========================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (including premiums on options exercised) (12,469,779)
Closing of futures contracts (3,310,518)
Closing and expiration of option contracts written (731,265)
Foreign currency transactions 44,525
------------
Net realized loss (16,467,037)
----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 4,385,482
Translation of assets and liabilities denominated in foreign currencies (65,619)
------------
Net change 4,319,863
------------
Net realized and unrealized loss (12,147,174)
========================================================================================
Net Increase in Net Assets Resulting from Operations $ 10,389,363
============
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Bond Fund/VA
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,
(Unaudited) 1999
====================================================================================================
<S> <C> <C>
Operations
Net investment income $ 22,536,537 $ 45,686,066
----------------------------------------------------------------------------------------------------
Net realized loss (16,467,037) (17,567,585)
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 4,319,863 (37,907,094)
------------ ------------
Net increase (decrease) in net assets resulting from operations 10,389,363 (9,788,613)
====================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income (45,437,709) (30,081,522)
----------------------------------------------------------------------------------------------------
Distributions from net realized gain -- (2,888,886)
====================================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from
beneficial interest transactions (18,416,960) (11,720,079)
====================================================================================================
Net Assets
Total decrease (53,465,306) (54,479,100)
----------------------------------------------------------------------------------------------------
Beginning of period 601,063,599 655,542,699
------------ ------------
End of period (including undistributed net investment
income of $22,508,191 and $45,409,363, respectively) $547,598,293 $601,063,599
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Oppenheimer Bond Fund/VA 15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
2000 (Unaudited) 1999 1998 1997 1996 1995
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $11.52 $12.32 $11.91 $11.63 $11.84 $10.78
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .49 .88 .72 .76 .69 .72
Net realized and unrealized gain (loss) (.28) (1.06) .07 .28 (.15) 1.07
-----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations .21 (.18) .79 1.04 .54 1.79
-----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.92) (.57) (.20) (.72) (.74) (.73)
Distributions from net realized gain -- (.05) (.18) (.04) (.01) --
-----------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.92) (.62) (.38) (.76) (.75) (.73)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.81 $11.52 $12.32 $11.91 $11.63 $11.84
====== ====== ====== ====== ====== ======
=============================================================================================================================
Total Return, at Net Asset Value(1) 1.95% (1.52)% 6.80% 9.25% 4.80% 17.00%
=============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $547,598 $601,064 $655,543 $520,078 $426,439 $211,232
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $566,222 $633,059 $586,242 $449,760 $296,253 $170,929
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 8.00% 7.22% 6.31% 6.72% 6.72% 6.91%
Expenses 0.74% 0.73% 0.74%(3) 0.78%(3) 0.78%(3) 0.80%(3)
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 171% 256% 76% 117% 82% 79%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period.
Total returns are not annualized for periods less than one full year. Total
return information does not reflect expenses that apply at the separate account
level or to related insurance products. Inclusion of these charges would reduce
the total return figures for all periods shown.
2. Annualized for periods less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund/VA
<PAGE>
Notes to Financial Statements (Unaudited)
================================================================================
1. Significant Accounting Policies
Oppenheimer Bond Fund/VA (the Fund) is a separate series of Oppenheimer Variable
Account Funds (the Trust), an open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's main investment
objective is to seek a high level of current income. The Trust's investment
advisor is OppenheimerFunds, Inc. (the Manager). The following is a summary of
significant accounting policies consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value.)
--------------------------------------------------------------------------------
Security Credit Risk. The Fund invests in high yield securities, which may be
subject to a greater degree of credit risk, greater market fluctuations and risk
of loss of income and principal, and may be more sensitive to economic
conditions than lower yielding, higher rated fixed income securities. The Fund
may acquire securities in default, and is not obligated to dispose of securities
whose issuers subsequently default. As of June 30, 2000, securities with an
aggregate market value of $153,420, representing 0.03% of the Fund's net assets,
were in default.
--------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments
is separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
--------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires 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 Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders. As of December 31,
1999, the Fund had available for federal income tax purposes an unused capital
loss carryover of approximately $14,340,000, which expires in 2007.
Oppenheimer Bond Fund/VA 17
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
================================================================================
1. Significant Accounting Policies (continued)
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes primarily because of paydown gains and losses and the
recognition of certain foreign currency gains (losses) as ordinary income (loss)
for tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. Also, due to timing
of dividends and distributions, the fiscal year in which amounts are distributed
may differ from the fiscal year in which the income or realized gain was
recorded by the Fund.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Discount on securities purchased is
accreted over the life of the respective securities, in accordance with federal
income tax requirements. Realized gains and losses on investments and options
written 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, 2000 Year Ended December 31, 1999
-------------------------------- -------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 3,962,034 $ 43,830,674 10,494,053 $ 123,504,590
Dividends and/or distributions reinvested 4,250,487 45,437,709 2,820,394 32,970,408
Redeemed (9,707,547) (107,685,343) (14,357,807) (168,195,077)
---------- ------------- ----------- -------------
Net decrease (1,495,026) $ (18,416,960) (1,043,360) $ (11,720,079)
========== ============= =========== =============
</TABLE>
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the six months ended June 30, 2000, were
$933,220,826 and $978,116,197, respectively.
18 Oppenheimer Bond Fund/VA
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust. The annual fees are 0.75% of the
first $200 million of average annual net assets, 0.72% of the next $200 million,
0.69% of the next $200 million, 0.66% of the next $200 million, 0.60% of the
next $200 million and 0.50% of average annual net assets over $1 billion. The
Fund's management fee for the six months ended June 30, 2000, was an annualized
rate of 0.72%, before any waiver by the Manager.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer agent for the Fund and is responsible for maintaining the
shareholder registry and shareholder accounting records for the Fund. OFS
provides these services for cost.
================================================================================
5. Foreign Currency Contracts
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates as provided by a reliable bank, dealer or pricing service. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of
the foreign currency transactions. Realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.
As of June 30, 2000, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
Expiration Contract Valuation as of Unrealized
Contract Description Date Amount(000s) June 30, 2000 Depreciation
--------------------------------------------------------------------------------------------------------
Contracts to Sell
<S> <C> <C> <C> <C>
Canadian Dollar (CAD) 11/1/01 3,000 CAD $2,031,265 $24,576
=======
</TABLE>
Oppenheimer Bond Fund/VA 19
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
================================================================================
6. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Fund may buy and sell futures contracts that relate to
broadly-based securities indices "financial futures" or debt securities
"interest rate futures" in order to gain exposure to or to seek to protect
against changes in market value of stock and bonds or interest rates. The Fund
may also buy or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases
in interest rates and decreases in market value of portfolio securities. The
Fund may also purchase futures contracts to gain exposure to changes in interest
rates as it may be more efficient or cost effective than actually buying fixed
income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
As of June 30, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Unrealized
Expiration Number of Valuation as of Appreciation
Contract Description Date Contracts June 30, 2000 (Depreciation)
----------------------------------------------------------------------------------------------------------
Contracts to Purchase
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/20/00 130 $12,654,688 $ 8,125
U.S. Treasury Nts., 10 yr. 9/20/00 124 12,212,063 87,188
---------
95,313
---------
Contracts to Sell
U.S. Treasury Nts., 5 yr. 9/20/00 321 31,784,016 (294,218)
---------
$(198,905)
=========
</TABLE>
20 Oppenheimer Bond Fund/VA
<PAGE>
Notes to Financial Statements (Unaudited) (Continued)
================================================================================
7. 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 purchased put or call option is
adjusted by the amount of premium received or paid.
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 note to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Realized 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.
Written option activity for the six months ended June 30, 2000, was as follows:
<TABLE>
<CAPTION>
Put Options
---------------------------------
Number of Amount of
Options Premiums
------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding as of December 31, 1999 325 $ 328,453
Options written 750 457,109
Options exercised (1,075) (785,562)
------ ---------
Options outstanding as of June 30, 2000 -- $ --
====== =========
</TABLE>
================================================================================
8. Illiquid Securities
As of June 30, 2000, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 15% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of June 30,
2000, was $50,269,133, which represents 9.18% of the Fund's net assets. Certain
restricted securities, eligible for resale to qualified institutional investors,
are not subject to that limit.
Oppenheimer Bond Fund/VA 21
<PAGE>
Oppenheimer Bond Fund/VA
A Series of Oppenheimer Variable Account Funds
<TABLE>
====================================================================================================================================
<S> <C>
Officers and Trustees James C. Swain, Trustee and Chairman of the Board
Bridget A. Macaskill, Trustee and President
William L. Armstrong, Trustee
Robert G. Avis, Trustee
William A. Baker, Trustee
George C. Bowen, Trustee
Edward L. Cameron, Trustee
Jon S. Fossel, Trustee
Sam Freedman, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
John S. Kowalik, Vice President
David P. Negri, Vice President
Andrew J. Donohue, Vice President and Secretary
Brian W. Wixted, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
====================================================================================================================================
Investment Advisor OppenheimerFunds, Inc.
====================================================================================================================================
Transfer Agent OppenheimerFunds Services
====================================================================================================================================
Custodian of Portfolio Securities The Bank of New York
====================================================================================================================================
Independent Auditors Deloitte & Touche LLP
====================================================================================================================================
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records of the Fund
without examination of those records by the independent auditors.
This is a copy of a report to shareholders of Oppenheimer Bond Fund/VA. For other
material information concerning the Fund, see its prospectus. This report must be
preceded or accompanied by the Fund's prospectus, the separate account prospectus, and
current standardized average annual total returns for the separate account being offered.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the FDIC or any other agency, and involve
investment risks, including possible loss of the principal amount invested.
</TABLE>
(C)Copyright 2000 OppenheimerFunds, Inc. All rights reserved.
22 Oppenheimer Bond Fund/VA
