Investors are advised to read and retain this Prospectus for future
reference.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end
investment company consisting of eight separate funds. Three of these
funds are available for use with Massachusetts Mutual Life Insurance
Company's Flex Extra Annuity. The three available Oppenheimer funds
(collectively the "Funds") are as follows:
OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks
to achieve capital appreciation by investing in "growth-type" companies.
OPPENHEIMER GLOBAL SECURITIES FUND ("Global Securities Fund") seeks long-
term capital appreciation by investing a substantial portion of assets in
securities of foreign issuers, "growth-type" companies, cyclical
industries and special situations which are considered to have
appreciation possibilities. Current income is not an objective. These
securities may be considered to be speculative.
OPPENHEIMER STRATEGIC BOND FUND ("Strategic Bond Fund") seeks a high level
of current income principally derived from interest on debt securities and
seeks to enhance such income by writing covered call options on debt
securities. The Fund intends to invest principally in: (i) foreign
government and corporate debt securities, (ii) U.S. Government securities,
and (iii) lower-rated high yield domestic debt securities, commonly known
as "junk bonds", which are subject to a greater risk of loss of principal
and nonpayment of interest than higher-rated securities. These securities
may be considered to be speculative.
Shares of the Funds are sold only to provide benefits under variable life
insurance policies and variable annuity contracts (collectively, the
"Accounts"). The Accounts invest in shares of one or more of the Funds in
accordance with allocation instructions received from Account owners. Such
allocation rights are further described in the accompanying Account
Prospectus. Shares are redeemed to the extent necessary to provide
benefits under an Account.
This Prospectus sets forth concisely information about the Trust and the
Funds that prospective investors should know before investing. A Statement
of Additional Information about the Trust and the Funds (the "Additional
Statement") dated May 1, 1994, has been filed with the Securities and
Exchange Commission ("SEC") and is available without charge upon request
to Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217, or by calling the toll-free number shown above.
The Statement of Additional Information (which is incorporated in its
entirety by reference in this Prospectus) contains more detailed
information about the Trust, the Funds and their management.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective May 1, 1994 as amended September 15, 1994.
<PAGE>
Table Of Contents
Page
Financial Highlights
Performance Information
The Funds and Their Investment Policies
Introduction
Investment Policies - Strategic Bond Fund
Risk Factors
Investment Policies - Capital Appreciation Fund and
Global Securities Fund
Capital Appreciation Fund
Global Securities Fund
Special Investment Methods
Borrowing
Small, Unseasoned Companies
Participation Interests
Foreign Securities
Warrants and Rights
Repurchase Agreements
Restricted and Illiquid Securities
Loans of Portfolio Securities
When-Issued Securities
Writing Covered Calls
Hedging
Interest Rate Futures
Bond Index Futures
Stock Index Futures
Purchasing Calls on Securities and Futures
Puts on Securities and Futures
Foreign Currency Options
Forward Contracts
Interest Rate Swap Transactions
Risk of Options and Futures Trading
Derivatives
Portfolio Turnover
Short Sales Against-the-Box
Investment Restrictions
Management of the Funds
Management's Discussion of Performance
Indices
Page
Purchase of Shares
Redemption of Shares
Dividends, Distributions and Taxes
Dividends and Distributions of Strategic Bond Fund
Dividends and Distributions of Capital Appreciation
Fund and Global Securities Fund
Dividends and Distributions: General
Tax Treatment to the Account as Shareholder
Tax Status of the Funds
Additional Information
Description of the Trust and its Shares
Shareholder Inquires
The Custodian and the Transfer Agent
Appendix A - Description of Terms
Appendix B - Description of Securities Rating
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period
The information in the following tables has been audited by Deloitte &
Touche, independent auditors, whose report on the financial statements of
the Funds for the fiscal year ended December 31, 1993, is included in the
Statement of Additional Information.
Financial Highlights
Oppenheimer Variable Account Funds
<TABLE>
<CAPTION>
Oppenheimer
Capital Appreciation
Fund
1993(2) 1992(3) 1991(3) 1990(3) 1989(3) 1988(3) 1987(3) 1986(2) 1986(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $ 14.39 $13.12 $16.21 $13.71
Income (loss) from
investment operations:
Net investment income .05 .06 .08 .32 .50 .33 .21 .12 .09
Net realized and
unrealized gain (loss)
on investments 6.71 3.43 8.18 (3.54) 3.93 1.60 1.67 (1.24) 3.40
Total income (loss) from
investment operations 6.76 3.49 8.26 (3.22) 4.43 1.93 1.88 (1.12) 3.49
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.06) (.14) (.26) (.53) (.34) - (.34) (.21) (.20)
Distributions from net
realized gain on
investments (1.10) (.55) - (1.41) - (.01) (.27) (1.76) (.79)
Total dividends and
distributions to
shareholders (1.16) (.69) (.26) (1.94) (.34) (.01) (.61) (1.97) (.99)
Net asset value, end of
period $ 31.64 $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $14.39 $13.12 $16.21
TOTAL RETURN, AT NET ASSET
VALUE(4) 27.32% 15.42% 54.72% (16.82)% 27.57% 13.41% 14.34% (1.65)% N/A
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $136,885 $83,335 $49,371 $23,295 $27,523 $13,667 $9,692 $4,549 $3,852
Average net assets (in
thousands) $ 98,228 $56,371 $34,887 $24,774 $21,307 $13,239 $8,598 $3,099 $2,292
Number of shares
outstanding at end of
period (in thousands) 4,326 3,201 2,125 1,528 1,349 838 674 347 238
Ratios to average net
assets:
Net investment income .23% .30% .81% 1.93% 3.27% 2.13% 1.68% 2.36%(5) 2.27%
Expenses .47% .54% .63% .71% .68% .73% .75% 1.01%(5) 2.17%
Portfolio turnover rate(6) 122.8% 78.9% 122.3% 222.0% 130.5% 128.7% 138.7% 100.1% 464.8%
</TABLE>
1. For the year ended June 30, 1986Operating results were achieved by
Centennial Capital Appreciation Fund, a separate investment company
acquired by OCAP on August14, 1986.
2. For the six months ended December 31, 1986Operating results prior to
August 15, 1986 were achieved by Centennial Capital Appreciation Fund, a
separate investmentcompany acquired by OCAP on August 14, 1986.
3. For the year ended December 31.
4. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additionalshares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
5. Annualized.
6. 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.
Financial Highlights (Continued)
Oppenheimer Variable Account Funds
<TABLE>
<CAPTION>
Oppenheimer
Global Securities
Fund
1993(2) 1992(2) 1991(2) 1990(1)
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.57 $ 10.38 $10.04 $10.00
Income (loss) from investment operations:
Net investment income (.02) .07 .04 -
Net realized and unrealized gain (loss) on
investments 6.75 (.80) .30 .04
Total income (loss) from investment operations 6.73 (.73) .34 .04
Dividends and distributions to shareholders:
Dividends from net investment income - (.04) - -
Distributions from net realized gain on investments - (.04) - -
Total dividends and distributions to shareholders - (.08) - -
Net asset value, end of period $ 16.30 $ 9.57 $10.38 $10.04
TOTAL RETURN, AT NET ASSET VALUE(3) 70.32% (7.11)% 3.39% .40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $96,425 $13,537 $7,339 $ 432
Average net assets (in thousands) $31,696 $11,181 $3,990 $ 263
Number of shares outstanding at end of period (in
thousands) 5,917 1,415 707 43
Ratios to average net assets:
Net investment income .72% 1.04% .75% .08%(4)
Expenses .92% 1.06% 1.32% 6.84%(4)
Portfolio turnover rate(5) 65.1% 34.1% 29.5% 0.0%
</TABLE>
1. For the period from November 12, 1990 (commencement of operations) to
December 31, 1990.
2. For the year ended December 31.
3. 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.
4. Annualized.
5. 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.
Financial Highlights (Continued)
Oppenheimer Variable Account Funds
<TABLE>
<CAPTION>
Oppenheimer
Strategic Bond
Fund
1993(1)
<S> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 5.00
Income from investment operations:
Net investment income .10
Net realized and unrealized gain on investments and foreign
currency transactions .11
Total income from investment operations .21
Dividends and distributions to shareholders:
Dividends from net investment income (.09)
Distributions from net realized gain on investments -
Total dividends and distributions to shareholders (.09)
Net asset value, end of period $ 5.12
TOTAL RETURN, AT NET ASSET VALUE(2) 4.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $9,887
Average net assets (in thousands) $4,259
Number of shares outstanding at end of period (in thousands) 1,930
Ratios to average net assets:
Net investment income 5.67%(3)
Expenses .96%(3)
Portfolio turnover rate(4) 10.9%
</TABLE>
1. For the period from May 3, 1993 (commencement of operations) to
December 31, 1993.
2. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested inadditional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period.
3. Annualized.
4. 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 theperiodof acquisition of one year or less are excluded from
the calculation.
<PAGE>
Performance Information
From time to time, the yield of Strategic Bond Fund may be advertised.
This yield will be computed in a standardized manner for mutual funds, by
dividing that Fund's net investment income per share earned during a 30-
day base period by the maximum offering price (equal to the net asset
value) per share on the last day of the period. This yield calculation is
compounded on a semi-annual basis, and multiplied by 2 to provide an
annualized yield. The Statement of Additional Information describes a
dividend yield and a distribution return that may also be quoted for this
Fund.
From time to time the "total return" and "average annual total return" for
any of the Funds may be advertised. Each such Fund's "average annual total
return" for a particular period is computed by determining the average
annual compounded rate of return over the period, using the initial amount
invested at the beginning of the period and the redeemable value of the
investment at the end of the period. "Total return" for a particular
period is a cumulative rate of return over the entire period, also using
the initial amount invested and the redeemable value at the end of the
period. The redeemable value of the investment assumes that all dividends
and capital gains distributions have been reinvested at net asset value
without sales charge. Each such Fund's "total return" and "average annual
total return" indicate the investment results an investor would have
experienced over the stated period from changes in share price and
reinvestment of dividends and distributions.
All such performance information is based on historical per share earnings
and is not intended to indicate future performance. "Performance and Tax
Information" in the Statement of Additional Information contains more
detailed information about calculating yield and total return information
and other investment returns.
The Funds and Their Investment Policies
Introduction. The Trust is an open-end, diversified management investment
company organized as a Massachusetts business trust in 1984. It consists
of eight separate Funds - Money Fund, Bond Fund and Growth Fund, all
organized in 1984, High Income Fund, Capital Appreciation Fund and
Multiple Strategies Fund, all organized in 1986, Global Securities Fund,
organized in 1990 and Strategic Bond Fund, organized in 1993. As noted
above, this Prospectus describes three of these Funds: Capital
Appreciation Fund, Global Securities Fund and Strategic Bond Fund.
Each Fund is a separate series of the Trust and has separate assets and
liabilities and a separate net asset value per share, and an investor's
interest is limited to the Fund in which shares are held. Since market
risks are inherent in all securities to varying degrees, assurance cannot
be given that the investment objective of any of the Funds will be met.
The investment policies and practices described below for each Fund are
not "fundamental" policies unless a particular policy is identified as
fundamental. "Fundamental" policies are those that cannot be changed
without the approval of a "majority," as defined in the Investment Company
Act of 1940 (the "Investment Company Act"), of the Fund's outstanding
voting securities. The Fund's Board of Trustees may change non-fundamental
policies without shareholder approval.
Investment Policies - Strategic Bond Fund.
The investment objective of Strategic Bond Fund is to seek a high level
of current income principally derived from interest on debt securities and
to enhance such income by writing covered call options on debt securities.
Although the premiums received by Strategic Bond Fund from writing covered
calls are a form of capital gain, the Fund will not make investments in
securities with the objective of seeking capital appreciation.
The Fund intends to invest principally in: (i) lower-rated high yield
domestic debt securities; (ii) U.S. Government securities, and (iii)
foreign government and corporate debt securities. Under normal
circumstances, the Fund's assets will be invested in each of these three
sectors. However, Strategic Bond Fund may from time to time invest up to
100% of its total assets in any one sector if, in the judgment of the
Manager, the Fund has the opportunity of seeking a high level of current
income without undue risk to principal. Accordingly, the Fund's
investments should be considered speculative. Distributable income will
fluctuate as the Fund assets are shifted among the three sectors.
High Yield Securities. The higher yields and high income sought by
Strategic Bond Fund are generally obtainable from securities in the lower
rating categories of the established rating services, commonly known as
"junk bonds." Such securities are rated "Baa" or lower by Moody's or "BBB"
or lower by Standard & Poor's. Strategic Bond Fund may invest in
securities rated as low as "C" by Moody's or "D" by Standard & Poor's.
Such ratings indicate that the obligations are speculative in a high
degree and may be in default. Risks of high yield, high risk securities
are discussed under "Risk Factors" below. Strategic Bond Fund's portfolio
at December 31, 1993, contained securities in the following rating
categories as rated by Standard & Poor's (the percentages relate to the
weighted average of the bonds in each rating category as a percentage of
that Fund's total assets): AAA, 35.51%; BB, 7.57%; B, 27.51%, CCC, 2.07%;
and unrated 21.18%. Strategic Bond Fund is not obligated to dispose of
securities whose issuers subsequently are in default or if the rating of
such securities is reduced. Appendix B of this Prospectus describes these
rating categories. Strategic Bond Fund may also invest in unrated
securities which, in the opinion of the Manager, offer yields and risks
comparable to those of securities which are rated.
International Securities. The Fund may invest in foreign government and
foreign corporate debt securities (which may be denominated in U.S.
dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities. These investments may
include (i) U.S. dollar-denominated debt obligations known as "Brady
Bonds," which are issued for the exchange of existing commercial bank
loans to foreign entities for new obligations that are generally
collateralized by zero coupon Treasury securities having the same
maturity, (ii) debt obligations such as bonds (including sinking fund and
callable bonds), (iii) debentures and notes (including variable rate and
floating rate instruments), and (iv) preferred stocks and zero coupon
securities. Further information about investments in foreign securities
is set forth below under "Special Investment Methods - Foreign
Securities."
U.S. Government Securities. U.S. Government Securities are debt
obligations issued by or guaranteed by the United States Government or one
of its agencies or instrumentalities. Although U.S. Government Securities
are considered among the most creditworthy of fixed-income investments and
their yields are generally lower than the yields available from corporate
debt securities, the values of U.S. Government Securities (and of fixed-
income securities generally) will vary inversely to changes in prevailing
interest rates. To compensate for the lower yields available on U.S.
Government securities, Strategic Bond Fund will attempt to augment these
yields by writing covered call options against them. See "Writing Covered
Calls," below. Certain of these obligations, including U.S. Treasury notes
and bonds, and mortgage-backed securities guaranteed by the Government
National Mortgage Association ("Ginnie Maes"), are supported by the full
faith and credit of the United States. Certain other U.S. Government
Securities, issued or guaranteed by Federal agencies or government-
sponsored enterprises, are not supported by the full faith and credit of
the United States. These latter securities may include obligations
supported by the right of the issuer to borrow from the U.S. Treasury,
such as obligations of Federal Home Loan Mortgage Corporation ("Freddie
Macs"), and obligations supported by the credit of the instrumentality,
such as Federal National Mortgage Association bonds ("Fannie Maes"). U.S.
Government Securities in which the Fund may invest include zero coupon
U.S. Treasury securities, mortgage-backed securities and money market
instruments.
Zero coupon Treasury securities are: (i) U.S. Treasury notes and bonds
which have been stripped of their unmatured interest coupons and receipts;
or (ii) certificates representing interests in such stripped debt
obligations or coupons. Because a zero coupon security pays no interest
to its holder during its life or for a substantial period of time, it
usually trades at a deep discount from its face or par value and will be
subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. Because the Fund accrues taxable income
from these securities without receiving cash, the Fund may be required to
sell portfolio securities in order to pay cash dividends or to meet
redemptions. The Fund may invest up to 50% of its total assets at the time
of purchase in zero coupon securities issued by either corporations or the
U.S. Treasury.
Domestic Securities. The Fund's investments in domestic securities may
include preferred stocks, participation interests and zero coupon
securities. Domestic investments include fixed-income securities and
dividend-paying common stocks issued by domestic corporations in any
industry which may be denominated in U.S. dollars or non-U.S. currencies.
The Fund's investments may include securities which represent
participation interests in loans made to corporations (see "Participation
Interests," below) and in pools of residential mortgage loans which may
be guaranteed by agencies or instrumentalities of the U.S. Government
(e.g. Ginnie Maes, Freddie Macs and Fannie Maes), including collateralized
mortgage-backed obligations ("CMOs"), or which may not be guaranteed. Such
securities differ from conventional debt securities which provide for
periodic payment of interest in fixed amounts (usually semi-annually) with
principal payments at maturity or specified call dates. Mortgage-backed
securities provide monthly payments which are, in effect, a "pass-through"
of the monthly interest and principal payments (including any prepayments)
made by the individual borrowers on the pooled mortgage loans. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at lower rates than the original investment, thus
reducing the yield of the Fund. CMOs in which the Fund may invest are
securities issued by a U.S. Government instrumentality or private
corporation that are collateralized by a portfolio of mortgages or
mortgage-backed securities which may or may not be guaranteed by the U.S.
Government. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage-
backed securities. Mortgage-backed securities may be less effective than
debt obligations of similar maturity at maintaining yields during periods
of declining interest rates.
The Fund may invest in CMOs that are "stripped"; that is, the security is
divided into two parts, one of which receives some or all of the principal
payments and the other which receives some or all of the interest.
Stripped securities that receive interest only are subject to increased
volatility due to interest rate changes, and have the additional risk that
if the principal underlying the CMO is prepaid, which is more likely to
happen if interest rates fall, the Fund will lose the anticipated cash
flow from the interest on the mortgages that were prepaid. See "Mortgage-
Backed Securities" in the Statement of Additional Information for more
details.
The Fund may also invest in asset-backed securities, which are securities
that represent fractional undivided interests in pools of consumer loans
and trade receivables, similar in structure to the mortgage-backed
securities in which the Fund may invest, described above. Payments of
principal and interest are passed through to holders of asset-backed
securities and are typically supported by some form of credit enhancement,
such as a letter of credit, surety bond, limited guarantee by another
entity or having a priority to certain of the borrower's other securities.
The degree of credit enhancement varies, and generally applies to only a
fraction of the asset-backed security's par value until exhausted.
Risk Factors. The securities in which Strategic Bond Fund principally
invests are considered speculative and involve greater risk than lower
yielding, higher rated fixed-income securities, while providing higher
yield than such securities. Lower rated securities may be less liquid, and
significant losses could be experienced if a substantial number of other
holders of such securities decide to sell at the same time. Other risks
may involve the default of the issuer or price changes in the issuer's
securities due to changes in the issuer's financial strength or economic
conditions. Issuers of lower rated or unrated securities are generally not
as financially secure or creditworthy as issuers of higher-rated
securities. Strategic Bond Fund is not obligated to dispose of securities
when issuers are in default or if the rating of the security is reduced.
These risks are discussed in more detail in the Statement of Additional
Information.
Investment Policies - Capital Appreciation Fund and Global Securities
Fund.
Capital Appreciation Fund. In seeking its objective of capital
appreciation, Capital Appreciation Fund will emphasize investments in
securities of "growth-type" companies. Such companies are believed to have
relatively favorable long-term prospects for increasing demand for their
goods or services, or to be developing new products, services or markets,
and normally retain a relatively larger portion of their earnings for
research, development and investment in capital assets. "Growth-type"
companies may also include companies developing applications for recent
scientific advances. Capital Appreciation Fund may also invest in cyclical
industries and in "special situations" that the Manager believes present
opportunities for capital growth. "Special situations" are anticipated
acquisitions, mergers or other unusual developments which, in the opinion
of the Manager, will increase the value of an issuer's securities,
regardless of general business conditions or market movements. An
additional risk is present in this type of investment since the price of
the security may be expected to decline if the anticipated development
fails to occur.
Global Securities Fund. The objective of the Global Securities Fund is to
seek long-term capital appreciation. Current income is not an objective.
In seeking its objective, the Fund will invest a substantial portion of
its invested assets in securities of foreign issuers, "growth-type"
companies (those which, in the opinion of the Manager, have relatively
favorable long-term prospects for increasing demand or which develop new
products and retain a significant part of earnings for research and
development), cyclical industries (e.g. base metals, paper and chemicals)
and special investment situations which are considered to have
appreciation possibilities (e.g., private placements of start-up
companies). The Fund may invest without limit in "foreign securities" (as
defined below in "Special Investment Methods - Foreign Securities") and
thus the relative amount of such investments will change from time to
time. It is currently anticipated that Global Securities Fund may invest
as much as 80% or more of its total assets in foreign securities. Under
normal market conditions, the Fund will invest its total assets in
securities of issuers traded in markets of at least three countries (which
may include the United States). See "Special Investment Methods -Foreign
Securities," below, for further discussion as to the possible rewards and
risks of investing in foreign securities and as to additional
diversification requirements for the Fund's foreign investments.
Special Investment Methods
Borrowing. From time to time, Capital Appreciation Fund and Global
Securities Fund may each increase their ownership of securities by
borrowing from banks and investing the borrowed funds (on which that Fund
will pay interest). Capital Appreciation Fund may borrow, subject to the
300% asset coverage requirement of the Investment Company Act. Global
Securities Fund may borrow up to 10% of the value of its total assets.
Global Securities Fund will not borrow, if as a result of such borrowing
more than 25% of its total assets would consist of investments in
when-issued or delayed delivery securities or borrowed funds. Purchasing
securities with borrowed funds is a speculative investment method known
as "leverage," which may subject a Fund to relatively greater risks and
costs than funds that do not use leverage, including possible reduction
of income and increased fluctuation of net asset value per share. For
further discussion of such risks and other details, see "Investment
Objectives and Policies - Borrowing" in the Statement of Additional
Information.
Pursuant to an undertaking by Capital Appreciation Fund and Global
Securities Fund, borrowing by each such Fund is limited to 25% of the
value of its net assets, which is further limited to 10% if the borrowing
is for a purpose other than to facilitate redemptions. Neither percentage
limitation is a fundamental policy.
Small, Unseasoned Companies. Capital Appreciation Fund, Global Securities
Fund and Strategic Bond Fund may each invest in securities of small,
unseasoned companies as well as those of large, well-known companies.
Securities of small, unseasoned companies may have a limited trading
market and volatile price movements, which may adversely affect their
disposition and can result in their being priced lower than might
otherwise be the case.
Participation Interests. Strategic Bond Fund and Global Securities Fund
may acquire participation interests in U.S. dollar-denominated loans that
are made to U.S. or foreign companies (the "borrower"). They may be
interests in, or assignments of, the loan, and are acquired from banks or
brokers that have made the loan or are members of the lending syndicate.
The Manager has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. Some borrowers may
have senior securities rated as low as "C" by Moody's or "D" by Standard
& Poor's, but may be deemed acceptable credit risks. Participation
interests are considered investments in illiquid securities (see
"Restricted and Illiquid Securities,"below). Their value primarily depends
upon the creditworthiness of the borrower, and its ability to pay interest
and principal. Borrowers may have difficulty making payments. If a
borrower fails to make scheduled interest or principal payments, the Funds
could experience a reduction in their respective income and a decline in
the net asset value of their respective shares. Further details are set
forth in the Statement of Additional Information under "Investment
Objective and Policies."
Foreign Securities. Each Fund may purchase "foreign securities" that is,
securities of companies organized under the laws of countries other than
the United States that are traded on foreign securities exchanges or in
the foreign over-the-counter markets. Securities of foreign issuers that
are represented by American Depository Receipts ("ADRs"), or that are
listed on a U.S. securities exchange or are traded in the United States
over-the-counter markets are not considered "foreign securities" for this
purpose because they are not subject to many of the special considerations
and risks (discussed below and in the Statement of Additional Information)
that apply to foreign securities traded and held abroad. If a Fund's
securities are held abroad, the countries in which such securities may be
held and the sub-custodians holding them must be approved by the Fund's
Board of Trustees under applicable SEC rules. Each Fund may also invest
in debt obligations issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their
agencies or instrumentalities, subject to the investment policies
described above. Foreign securities which the Funds may purchase may be
denominated in U.S. dollars or in non-U.S. currencies. The Funds may
convert U.S. dollars into foreign currency, but only to effect securities
transactions and not to hold such currency as an investment.
It is currently intended that Capital Appreciation Fund will invest no
more than 25% of its total assets in foreign securities or in government
securities of any foreign country or in obligations of foreign banks.
Neither Global Securities Fund nor Strategic Bond Fund has any
restrictions on the amount of its assets that may be invested in foreign
securities. Investments in securities of issuers in non-industrialized
countries generally involve more risk and may be considered highly
speculative.
The Funds have undertaken to comply with the foreign country
diversification guidelines of Section 10506 of the California Insurance
Code, as follows: Whenever a Fund's investment in foreign securities
exceeds 25% of its net assets, it will invest its assets in securities of
issuers located in a minimum of two different foreign countries; this
minimum is increased to three foreign countries if foreign investments
comprise 40% or more of a Fund's net assets, to four if 60% or more and
to five if 80% or more. In addition, no such Fund will have more than 20%
of its net assets invested in securities of issuers located in any one
foreign country; that limit is increased to 35% for Australia, Canada,
France, Japan, the United Kingdom or Germany.
The percentage of each Fund's assets that will be allocated to foreign
securities will vary depending on the relative yields of foreign and U.S.
securities, the economies of foreign countries, the condition of their
financial markets, the interest rate climate of such countries, and the
relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and political data.
Subsequent foreign currency losses may result in a Fund having previously
distributed more income in a particular period than was available from
investment income, which could result in a return of capital to
shareholders. Each such Fund's portfolio of foreign securities may include
those of a number of foreign countries or, depending upon market
conditions and subject to the above diversification requirements those of
a single country. In summary, foreign securities markets may be less
liquid and more volatile than the markets in the U.S. Risks of foreign
securities investing may include foreign withholding taxation, changes in
currency rates or currency blockage, currency exchange costs, difficulty
in obtaining and enforcing judgments against foreign issuers, relatively
greater brokerage and custodial costs, risk of expropriation or
nationalization of assets, less publicly available information, and
differences between domestic and foreign legal, auditing, brokerage and
economic standards. See "Investment Objectives and Policies - Foreign
Securities" in the Statement of Additional Information for further
details.
Warrants and Rights. Each of the Funds may invest up to 5% of its total
assets in warrants and rights other than those that have been acquired in
units or attached to other securities. No more than 2% of each such Fund's
total assets may be invested in warrants that are not listed on either the
New York or American Stock Exchanges. For further details, see "Warrants
and Rights" in the Statement of Additional Information.
Repurchase Agreements. Each Fund may acquire securities that are subject
to repurchase agreements to generate income while providing liquidity.
There is no limit on the amount of any Fund's net assets that may be
subject to repurchase agreements having a maturity of seven days or less.
No Fund will enter into repurchase agreements which will cause more than
15% of its net assets to be invested in repurchase agreements having a
maturity beyond seven days. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on
the delivery date, the Fund may experience costs in disposing of the
collateral, and losses if there is any delay in doing so.
Restricted and Illiquid Securities. Under the supervision of the Board of
Trustees, the Manager determines the liquidity of a Fund's investments.
Investments may be illiquid because of the absence of a trading market,
making it difficult to value them or dispose of them promptly at an
acceptable price. A restricted security is one that has a contractual
restriction on resale or cannot be sold publicly until it is registered
under the Securities Act of 1933. No Fund will purchase or otherwise
acquire any security if, as a result, more than 15% of its net assets
(taken at current value) would be invested in securities that are illiquid
by virtue of the absence of a readily available market or because of legal
or contractual restrictions on resale ("restricted securities"). This
policy applies to participation interests, bank time deposits, master
demand notes and repurchase transactions maturing in more than seven days,
over-the-counter ("OTC") options held by any Fund and that portion of
assets used to cover such OTC options [Global Securities and Strategic
Bond Funds]. This policy is not a fundamental policy and does not limit
purchases of restricted securities eligible for resale to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act
of 1933 that are determined to be liquid by the Board of Trustees or by
the Manager under Board-approved guidelines. Such guidelines take into
account trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in particular Rule 144A securities, a Fund's holdings of
those securities may be illiquid. There may be undesirable delays in
selling such securities at a price representing their fair value. None of
the Funds presently intend to invest more than 10% of its net assets in
illiquid or restricted securities; restricted securities eligible for
resale pursuant to Rule 144A are not included within this limitation.
Loans of Portfolio Securities. To attempt to increase income, each Fund
may lend its portfolio securities if the loan is collateralized in
accordance with applicable regulatory requirements and if after any loan,
the value of the securities loaned does not exceed 25% of the value of
that Fund's total assets. In connection with securities lending, a Fund
might experience risks of delay in receiving additional collateral, or
risks of delay in recovery of the securities, or loss of rights in the
collateral should the borrower fail financially. The Funds presently do
not intend that the value of securities loaned will exceed 5% of each
Fund's total assets. See "Loans of Portfolio Securities" in the Statement
of Additional Information for further information on securities loans.
When-Issued Securities. Each Fund may from time to time purchase
securities on a "when-issued" basis, and may purchase or sell securities
on a "delayed delivery" basis. Debt securities are often issued on this
basis. In those transactions, a Fund obligates itself to purchase or sell
securities with delivery and payment to occur at a later date to secure
what is considered to be an advantageous price and yield at the time the
obligation is entered into. The price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for when-issued securities take place at a later date
(normally within 45 days of purchase). During the period between purchase
and settlement, no payment is made by the Fund to the issuer and no
interest accrues to the Fund from the investment. Although the Fund is
subject to the risk of adverse market fluctuation during that period, the
Manager does not believe that the net asset value or income of a Fund will
be significantly adversely affected by its purchase of securities on a
"when-issued" basis. See "When-Issued and Delayed Delivery Transactions"
in the Statement of Additional Information Statement for further details.
Writing Covered Calls. Capital Appreciation Fund, Global Securities Fund
and Strategic Bond Fund may each write, (i.e., sell) call options
("calls") that are traded on a domestic securities exchange or quoted on
NASDAQ, that are traded on foreign securities exchanges and domestic,
over-the-counter markets or that are traded on foreign over-the-counter
markets. Such Funds may also write calls that are traded on foreign over-
the-counter markets. All such calls written by these Funds must be
"covered" while the call is outstanding (i.e., the Fund must own the
securities subject to the call or other securities acceptable for
applicable escrow requirements). Calls on Futures (see "Hedging" below)
must be covered by deliverable securities or by liquid assets segregated
to satisfy the Futures contract. Covered call writing is an attempt to
enhance income through the receipt of premiums from expired calls and any
net profits from closing purchase transactions. After any such sale, up
to 100% of each such Fund's total assets may be subject to calls.
If a call written by a Fund is exercised, the Fund forgoes any possible
profit from an increase in the market price of the underlying security
over the exercise price less the commissions paid on the sale. In
addition, the Fund could experience capital losses which might cause
previously distributed short-term capital gains to be recharacterized as
non-taxable return of capital to shareholders.
Hedging. For hedging purposes as a temporary defensive maneuver, Global
Securities Fund, Capital Appreciation Fund and Strategic Bond Fund may use
Stock Index Futures. Global Securities Fund and Strategic Bond Fund may
also use Interest Rate Futures and Bond Index Futures (together with Stock
Index Futures, referred to as "Futures"), Forward Contracts (defined
below), and call and put options on securities, Futures (as applicable),
broadly-based indices and foreign currencies. Strategic Bond Fund may also
enter into Interest Rate Swap transactions (all of the foregoing are
referred to as "Hedging Instruments"). Hedging Instruments may be used to
attempt to: (i) protect against declines in the market value of a Fund's
portfolio securities or Futures, and thus protect that Fund's net asset
value per share against downward market trends, (ii) protect a Fund's
unrealized gains in the value of its securities which have appreciated,
(iii) facilitate selling portfolio securities for investment reasons, (iv)
establish a position in the securities markets as a temporary substitute
for purchasing particular securities, or (v) reduce the risk of adverse
currency fluctuations. A call or put may be purchased only if, after such
purchase, the value of all call and put options held by that Fund would
not exceed 5% of its total assets. The Funds will not use Futures and
options on Futures for speculation. The Hedging Instruments which the
Funds may use are described below.
Interest Rate Futures. Global Securities Fund and Strategic Bond Fund may
buy and sell futures contracts that relate to debt securities ("Interest
Rate Futures"). An Interest Rate Future obligates the seller to deliver
and the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
Bond Index Futures. Global Securities Fund and Strategic Bond Fund may buy
and sell futures contracts that relate to bond indices ("Bond Index
Futures"). A bond index assigns relative values to the bonds included in
that index and is used as a basis for trading long-term Bond Index Futures
contracts. Bond Index Futures reflect the price movements of bonds
included in the index. They differ from Interest Rate Futures in that
settlement is made in cash rather than by delivery.
Stock Index Futures. The Funds may buy and sell futures contracts that
relate to broadly-based stock indices ("Stock Index Futures"). A stock
index is "broadly-based" if it includes stocks that are not limited to
issuers in any particular industry or group of industries. Stock Index
Futures obligate one party to accept, and the other party to make,
delivery of cash equal to the difference between the stock index value at
the close of trading of the contract and the exercise price of the futures
contract times a specified multiple (the "multiplier") which determines
the total dollar value for each point of difference. No physical delivery
of the underlying stocks in the index is made. Generally, contracts are
closed out prior to the expiration date of the contract.
Purchasing Calls on Securities and Futures. Each Fund may purchase calls
on securities or on Futures that are traded on U.S. and foreign securities
or commodities exchanges, or the U.S. over-the-counter markets or foreign
over-the-counter markets or foreign over-the-counter markets in order to
protect against the possibility that its portfolio will not fully
participate in an anticipated rise in value of the long-term securities
market. The value of debt securities underlying calls will not exceed the
value of the portion of the Fund's portfolio invested in cash or cash
equivalents (i.e. securities with maturities of less than one year).
Puts on Securities and Futures. Each Fund may purchase put options
("puts") which relate to securities (whether or not it holds such
securities in its portfolio) or Futures. They may also write puts on
securities or Futures only if such puts are covered by segregated liquid
assets. None of the Funds will write puts if, as a result, more than 50%
of its net assets would be required to be segregated liquid assets. In
writing puts, there is the risk that a Fund may be required to buy the
underlying security at a disadvantageous price.
Foreign Currency Options. Each Fund may purchase and write puts and calls
on foreign currencies that are traded on a securities or commodities
exchange or quoted by major recognized dealers in such options, for the
purpose of protecting against declines in the dollar value of foreign
securities owned by such Fund or in the dollar value of payments on such
securities and against increases in the dollar cost of foreign securities
to be acquired. If a rise is anticipated in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased
cost of such securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If a decline in the dollar value
of a foreign currency is anticipated, the decline in value of portfolio
securities denominated in that currency may be partially offset by writing
calls or purchasing puts on that foreign currency. However, in the event
of currency rate fluctuations adverse to a Fund's position, it would lose
the premium it paid and transactions costs.
Forward Contracts. Each Fund may enter into foreign currency exchange
contracts ("Forward Contracts"), which obligate the seller to deliver and
the purchaser to take a specific amount of foreign currency at a specific
future date for a fixed price. Any of these Funds may enter into a Forward
Contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency, which it has purchased or sold but
which has not yet settled, or to protect against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and a
foreign currency. There is a risk that use of Forward Contracts may reduce
the gain that would otherwise result from a change in the relationship
between the U.S. dollar and a foreign currency. Forward Contracts include
standardized foreign currency futures contracts which are traded on
exchanges and are subject to procedures and regulations applicable to
other Futures.
The Funds may also enter into Forward Contracts to sell a foreign currency
denominated in a currency other than that in which the underlying security
is denominated. This is done in the expectation that there is a greater
correlation between the foreign currency of the Forward Contract and the
foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. This technique is
referred to as "cross hedging." The Funds may also cross hedge by entering
into a Forward Contract to sell a foreign currency and receive a second
foreign currency, both of which differ from the foreign currency in which
the underlying security is denominated. This is done in the expectation
that there is a greater correlation between the foreign currencies of the
Forward Contract and the foreign currency of the underlying investment
than between the U.S. dollar and the foreign currency of the underlying
investment. The success of cross hedging is dependent on many factors,
including the ability of the Manager to correctly identify and monitor the
correlation between foreign currencies and the U.S. dollar. To the extent
that the correlation is not identical, that Fund may experience losses or
gains on both the underlying security and the cross currency hedge.
Neither of these Funds will speculate in foreign currency exchange
contracts. There is no limit as to the percentage of these Funds' assets
that may be committed to foreign currency exchange contracts. The Funds
do not enter into such forward contracts or maintain a net exposure in
such contracts where that Fund would be obligated to deliver an amount of
foreign currency in excess of the value of that Fund's portfolio
securities denominated in that currency or, enter into a cross hedge
unless it is denominated in a currency or currencies that the Manager
believes will have price movements that tend to correlate closely with the
currency in which the investment being hedged is denominated.
Interest Rate Swap Transactions. Strategic Bond Fund may enter into
interest rate swaps. Interest rate swaps are subject to interest rate
risks, in that the Fund could be obligated to pay more under its swap
agreements than it receives, as a result of interest rate changes. In an
interest rate swap, the Fund and another party exchange their respective
commitments to pay or receive interest on a security (e.g., an exchange
of floating rate payments for fixed rate payments). Strategic Bond Fund
will not use interest rate swaps for leverage. Swap transactions will be
entered into only as to security positions held by the Fund. Strategic
Bond Fund may not enter into swap transactions with respect to more than
50% of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal to the
net excess, if any, of its obligations over its entitlements under the
swap and will mark to market that amount daily. There is a risk of loss
on a swap equal to the net amount of interest payments that the Fund is
contractually obligated to make. The credit risk of an interest rate swap
depends on the counterparty's ability to perform. The value of the swap
may decline if the counterparty's creditworthiness deteriorates. If the
counterparty defaults, the Fund risks the loss of the net amount of
interest payments that it is contractually entitled to receive. The Fund
may be able to reduce or eliminate its exposure to losses under swap
agreements either by assigning them to another party, or by entering into
an offsetting swap agreement with the same counterparty or another
creditworthy counterparty. See "Hedging" in the Statement of Additional
Information for further details.
Risks of Options and Futures Trading. The Statement of Additional
Information contains more information about options and Futures, Forward
Contracts, segregation arrangements for Forward Contracts and Futures, the
payment of premiums for option trades, the tax effects, risks and possible
benefits to the Funds from options trading and information as to the
Fund's other limitations on investments in Futures and options thereon.
These limitations and the restrictions described in the preceding
paragraph on cross hedging are not fundamental policies of the Funds.
There are certain risks in writing calls. If a call written by the Funds
is exercised, the Fund foregoes any profit from any increase in the market
price above the call price of the underlying investment on which the call
was written. In addition, the Funds could experience capital losses that
might cause previously distributed short-term capital gains to be re-
characterized as non-taxable return of capital to shareholders. In writing
puts, there is the risk that the Fund may be required to buy the
underlying security at a disadvantageous price. The principal risks of
Futures trading are: (a) possible imperfect correlation between the prices
of the Futures and the market value of the debt securities in the Fund's
portfolio; (b) possible lack of a liquid secondary market for closing out
a Futures position; (c) the need for additional skills and techniques
beyond those required for normal portfolio management; and (d) losses on
Futures resulting from interest rate movements not anticipated by the
Manager.
Derivatives. The most common derivatives, also known as structured
financial products, in which the Funds may invest include: (i) index-
linked notes whose final payouts are dependent upon the performance of one
or more market indices, and (ii) relative performance options whose cash
settlement is a function of the differential returns between two market
indices. A risk of these derivatives is a decline in value of the
underlying instrument due to adverse movements in the index. Investments
in derivatives will be consistent with the Funds' respective investment
policies.
Portfolio Turnover. The Funds may engage frequently in short-term trading.
High turnover and short-term trading involve correspondingly greater
commission expenses and transaction costs for Capital Appreciation Fund
and Global Securities Fund and to a lesser extent, higher transaction
costs for Strategic Bond Fund. Portfolio turnover rates are set forth
under "Financial Highlights" for each Fund. If any Fund derives 30% or
more of its gross income from the sale of securities held less than three
months, it may fail to qualify under the tax laws as a regulated
investment company (see "Dividends, Distributions and Taxes," below).
Short Sales Against-the-Box. Each Fund may sell securities short in "short
sales against-the-box." No more than 15% of any Fund's net assets will be
held as collateral for such short sales at any one time. See "Investment
Objectives and Policies -- Short Sales Against-the-Box" in the Statement
of Additional Information for further information.
Investment Restrictions
Each of the Funds has certain investment restrictions which, together with
its investment objective, are fundamental policies, that is, subject to
change only by approval of a majority of the outstanding voting securities
of the appropriate Fund. Under some of those restrictions, each Fund
cannot: (1) with respect to 75% of its total assets, invest in securities
(except those of the U.S. Government or its agencies or instrumentalities)
of any issuer if immediately thereafter, either (a) more than 5% of that
Fund's total assets would be invested in securities of that issuer, or (b)
that Fund would then own more than 10% of that issuer's voting securities
or 10% in principal amount of the outstanding debt securities of that
issuer (the latter limitation on debt securities does not apply to
Strategic Bond Fund); (2) lend money except in connection with the
acquisition of debt securities which a Fund's investment policies and
restrictions permit it to purchase; the Funds may also make loans of
portfolio securities (see "Loans of Portfolio Securities"); (3) pledge,
mortgage or hypothecate any assets to secure a debt; the escrow
arrangements which are involved in options trading are not considered to
involve such a mortgage, hypothecation or pledge; (4) concentrate
investments in any particular industry; therefore these Funds will not
purchase the securities of issuers primarily engaged in the same industry
if more than 25% of the total value of that Fund's assets would (in the
absence of special circumstances) consist of securities of companies in
a single industry; (5) deviate from the percentage requirements and other
restrictions listed under "Warrants and Rights," and the first paragraph
under "Borrowing". None of the percentage limitations and restrictions
described above and in the Statement of Additional Information for the
Funds with respect to writing covered calls, hedging, short sales and
derivatives is a fundamental policy.
The percentage restrictions described above and in the Statement of
Additional Information, other than those described under "Special
Investment Methods -- Borrowing," apply only at the time of investment and
require no action by a Fund as a result of subsequent changes in value of
the investment or the size of that Fund. A supplementary list of
investment restrictions is contained in the Statement of Additional
Information, which also contains further information regarding the Funds'
investment policies. The Trustees of the Trust are required to monitor
events to identify any irreconcilable conflicts which may arise between
the variable life insurance policies and variable annuity contracts that
invest in the Funds. Should any conflict arise which ultimately requires
that any substantial amount of assets be withdrawn from any Fund, its
operating expenses could increase.
Management Of The Funds
The Board of Trustees has overall responsibility for the management of
each Fund under the laws of Massachusetts governing the responsibilities
of trustees of business trusts. Subject to the authority of the Board of
Trustees, the Manager is responsible for the day-to-day management of the
Funds' business, supervises the investment operations of each Fund and the
composition of its portfolio and furnishes advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities, pursuant to an investment advisory agreement with each Fund
(the "Agreements").
Effective September 1, 1994, the monthly management fee payable to the
Manager is computed separately on the net assets of each Fund as of the
close of business each day. The management fee rates that became effective
that day are as follows (i) for Capital Appreciation and Global Securities
Fund: 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, and 0.60% of net assets over $800 million; and (ii) for Strategic
Bond Fund: 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 of net assets, 0.60% of the next $200 million, and 0.50% of net
assets over $1 billion. The management fee rates in effect during the
Funds' fiscal year ended December 31, 1993 are in Note 6 to the financial
statements included in the Trust's Statement of Additional Information.
During the fiscal year ended December 31, 1993, the management fee
(computed on an annualized basis as a percentage of the net assets of all
the Funds as of the close of business each day) and the total operating
expenses as a percentage of average net assets of each Fund, when restated
to reflect the current management fee rates described above and the
current limitation on expenses described in the Statement of Additional
Information, were as follows:
Management Total Operating
Fund Fees Expenses
Capital Appreciation
Fund .75% .80%
Global Securities Fund .75% .96%
Strategic Bond Fund(1) .69% 1.00%
(1) Annualized. Total Operating Expenses would have been 1.06% in the
absence of the Manager's voluntary expense limitation.
The Manager is authorized by the Agreements to employ such brokers or
dealers as may in its best judgment, based on all relevant factors,
implement the policy of the Funds to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of the Funds' portfolio transactions. Subject to the
Agreements, the Manager may also consider sales of shares of the Funds and
other funds advised by the Manager or its affiliates as a factor in the
selection of broker-dealers for portfolio transactions. As most purchases
by Strategic Bond Fund are principal transactions at net prices, these
Funds incur little or no brokerage costs, and the mark-up (the difference
or spread between the dealer's purchase and sale price) that they pay on
principal transactions is smaller than that paid by most individual
investors. "Investment Management Services" in the Statement of Additional
Information contains additional information about the Agreements,
including a description of expense arrangements, exculpation provisions,
and brokerage practices of the Funds.
Mr. David Negri is a Vice President of the Manager who serves as a
Portfolio Manager of Strategic Bond Fund. Since May 1993, he has been the
person principally responsible for the day-to-day management portfolios
of this Funds. During the past five years, he has also served as an
officer of other OppenheimerFunds. Mr. George Evans is a Vice President
of the Manager who serves as a Portfolio Manager of Global Securities
Fund. Since February, 1991, he has been the person principally responsible
for the day-to-day management of that Fund's portfolio. During the past
five years, he has also served as an international equities portfolio
manager/analyst with Brown Brothers Harriman & Co. Mr. Paul LaRocco is an
Assistant Vice President and a Portfolio Manager of the Manager who serves
as Portfolio Manager of Capital Appreciation Fund. Since January, 1994,
he has been the person principally responsible for the day-to-day
management of the Fund's portfolio. During the past five years, he has
also served as Associate Portfolio Manager for other OppenheimerFunds and
formerly served as a securities analyst with Columbus Circle Investors,
prior to which he was an investment analyst for Chicago Title & Trust Co.
Each of the Portfolio Managers named above are also Vice Presidents of the
Trust. For more information about the Trust's other Trustees and Officers,
see "Trustees and Officers" in the Statement of Additional Information.
The Manager has operated as an investment adviser since April 30, 1959.
It and its affiliates currently advise U.S. investment companies with
assets aggregating over $27 billion as of December 31, 1993, and having
more than 1.8 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company owned in part by senior
management of the Manager, and ultimately controlled by Massachusetts
Mutual Life Insurance Company, a mutual life insurance company which also
advises pension plans and investment companies.
Management's Discussion of Performance. During the Funds' fiscal year
ended December 31, 1993, the Managers emphasized the following investment
strategies and techniques. For Capital Appreciation Fund, stocks of
companies were emphasized in health care, technology and
telecommunications, and specialty retailing, in expectation that an
improving economy will support the prospects for stocks of small
companies. For Global Securities Fund, banks and financial services in
emerging markets and developed countries, consumer industries servicing
emerging markets, telecommunications and energy logistics were emphasized
in anticipation of increased capital requirements to support development,
growth and demand of emerging consumer markets, and an anticipated pick
up in global economies and markets. For Strategic Bond Fund, corporate
bonds were emphasized in the paper, metals and automotive industries, to
take advantage of price appreciation in the event of economic recovery,
and foreign fixed income securities were emphasized to take advantage of
growth rates in foreign countries (including Europe, Australia, Canada New
Zealand, Latin America, Indonesia and Eastern Europe) that are higher than
in the U.S.
Indices. The S&P 500 Index is an unmanaged index of 500 widely held common
stocks traded on the New York and American Stock Exchanges and the over-
the-counter market, and is widely recognized as a general measure of stock
market performance. The Lehman Brothers Aggregate Bond Index is a broad-
based, unmanaged index of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities, widely recognized as a measure
of the performance of the domestic debt securities market. The Morgan
Stanley World Index is an unmanaged index of issuers listed on the stock
exchanges of 20 foreign countries and the U.S., and is widely recognized
as a measure of global stock market performance. The Salomon Brothers
World Government Bond Index is an unmanaged index of fixed-rate bonds
having a maturity of one year or more, and is widely recognized as a
benchmark of fixed income performance on a world-wide basis. The
performance of each index reflects reinvestment of income but not capital
gains or transaction costs, and none of the data shown above shows the
effect of taxes. While index comparisons may be useful to provide a
benchmark for the Funds' performance, it must be noted that the Funds'
investments are not limited to the securities in any one index and the
index data does not reflect any assessment of the risk of the investments
included in the index.
Purchase Of Shares
Shares of each Fund are offered only for purchase by Accounts as an
investment medium for variable life insurance policies and variable
annuity contracts, as described in the accompanying Account Prospectus.
The sale of shares will be suspended during any period when the
determination of net asset value is suspended and may be suspended by the
Board of Trustees whenever the Board judges it in that Fund's best
interest to do so.
Shares of each Fund are offered at their respective offering price, which
(as used in this Prospectus and the Additional Statement) is net asset
value (without sales charge).
All purchase orders are processed at the offering price next determined
after receipt by the Trust of a purchase order in proper form. The
offering price (and net asset value) is determined as of 4:00 P.M., New
York time, each day the New York Stock Exchange is open. Net asset value
per share of each Fund is determined by dividing the value of that Fund's
net assets by the number of its shares outstanding. The Board of Trustees
has established procedures for valuing each Fund's securities. In general,
those valuations are based on market value, with special provisions for:
(i) securities not having readily available market quotations; (ii) short-
term debt securities; and (iii) calls and Hedging Instruments. Further
details are in "Purchase, Redemption and Pricing of Shares" in the
Statement of Additional Information.
Redemption Of Shares
Payment for shares tendered by an Account for redemption is made
ordinarily in cash and forwarded within seven days after receipt by the
Trust's transfer agent, Oppenheimer Shareholder Services (the "Transfer
Agent"), of redemption instructions in proper form, except under unusual
circumstances as determined by the SEC. The Trust understands that payment
to the Account owner will be made in accordance with the terms of the
accompanying Account Prospectus. The redemption price will be the net
asset value next determined after the receipt by the Transfer Agent of a
request in proper form. The market value of the securities in the
portfolio of the Funds is subject to daily fluctuations and the net asset
value of the Funds' shares will fluctuate accordingly. Therefore, the
redemption value may be more or less than the investor's cost.
Dividends, Distributions and Taxes
Dividends and Distributions of Strategic Bond Fund. The Trust intends to
declare Strategic Bond Fund dividends quarterly, payable in March, June,
September and December.
Dividends and Distributions of Capital Appreciation Fund and Global
Securities Fund. The Trust intends to declare Capital Appreciation Fund
and Global Securities Fund dividends on an annual basis.
Dividends and Distributions: General. Any Fund may make a supplemental
distribution annually in December out of any net short-term or long-term
capital gains derived from the sale of securities, premiums from expired
calls written by the Fund, and net profits from hedging transactions,
realized from November 1 of the prior year through October 31 of the
current year. Each such Fund may also make a supplemental distribution of
capital gains and ordinary income following the end of its fiscal year.
All dividends and capital gains distributions paid on shares of any of the
Funds are automatically reinvested in additional shares of that Fund at
net asset value determined on the distribution date. There are no fixed
dividend rates and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
Tax Treatment to the Account As Shareholder. Dividends paid by each Fund
from its ordinary income and distributions of each Fund's net realized
short-term or long-term capital gains are includable in gross income of
the Accounts holding such shares. The tax treatment of such dividends and
distributions depends on the tax status of that Account.
Tax Status of the Funds. If the Funds qualify as "regulated investment
companies" under the Internal Revenue Code, the Trust will not be liable
for Federal income taxes on amounts paid as dividends and distributions
from any of the Funds. The Funds did qualify during their last fiscal year
and the Trust intends that they will qualify in current and future years.
However, the Code contains a number of complex tests relating to
qualification which any Fund might not meet in any particular year (see,
e.g., "The Funds and Their Investment Policies - Portfolio Turnover"). If
any Fund does not so qualify, it would be treated for tax purposes as an
ordinary corporation and would receive no tax deduction for payments made
to shareholders of that Fund. The above discussion relates solely to
Federal tax laws. This discussion is not exhaustive and a qualified tax
adviser should be consulted.
Additional Information
Description of the Trust and its Shares. The Declaration of Trust permits
the Board of Trustees to issue an unlimited number of full and fractional
shares of beneficial interest of separate series, without par value, and
from time to time to create additional series and to fix and determine the
relative rights and preferences among the different series. Shares of
eight series have been authorized, which constitute interests in the
Funds; the Trustees have authority to create additional series (without
shareholder approval) which would constitute new funds. Shares of each
Fund represent an interest in that Fund proportionately equal to the
interest of each other share of that Fund and entitle their holders to one
vote per share (with proportionate voting for fractional shares) on
matters submitted to their vote, as explained in the Statement of
Additional Information. Shares do not have cumulative voting rights, or
conversion, preemptive or subscription rights, and are fully transferable.
Shares of each Fund have liquidation rights as to the assets of that Fund.
It is not contemplated that regular annual meetings of shareholders will
be held. Under certain circumstances, shareholders have the right to
remove a Trustee. See "Additional Information - Description of the Trust"
in the Statement of Additional Information for details.
As of December 31, 1993, Bankers Security Variable Annuity Funds P and Q
may be deemed to control Capital Appreciation Fund; Nationwide's Separate
Accounts I and II may be deemed to control Global Securities Fund; and
Confederation Life Insurance and Annuity Company's Separate Account A may
be deemed to control Capital Appreciation Fund, Global Securities Fund and
Strategic Bond Fund; in each case by virtue of owning more than 25% of the
shares of such Fund. See "Trustees and Officers - Fund Shareholders" in
the Statement of Additional Information. Except as provided under the
Investment Company Act, the Accounts will vote their shares in accordance
with instructions received from Account Policyowners; this is explained
further in the accompanying Account Prospectus.
Shareholder Inquiries. Inquiries by policyowners for Account information
are to be directed to the insurance company issuing the Account at the
address or telephone number shown on the first page of the accompanying
Account Prospectus.
The Custodian and the Transfer Agent. The Custodian of the assets of the
Trust is The Bank of New York. The Manager and its affiliates have banking
relationships with the Custodian. See "Additional Information" in the
Statement of Additional Information for further details. Cash balances
with the Custodian in excess of $100,000 are not protected by Federal
deposit insurance. Such uninsured balances may at times be substantial.
Oppenheimer Shareholder Services, a division of the Manager, acts as
transfer agent on an at-cost basis for the Trust. It also acts as transfer
agent and shareholder servicing agent for certain other open-end funds
advised by the Manager.
Appendix A -
Description of Terms
Some of the terms used in the Prospectus and the Statement of Additional
Information are described below:
Bank obligations include certificates of deposit which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay
funds deposited with it for a definite period of time (usually 14 days to
one year) at a stated interest rate. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft which has
been drawn on it by a customer; these instruments reflect the obligation
both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a
stated interest rate. Bank notes are short-term direct credit obligations
of the issuing bank or bank holding company.
Commercial paper consists of short-term (usually 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. Variable rate master demand notes are obligations that permit
the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangement between the holder and the borrower. The
holder has the right to increase the amount under the note at any time up
to the face amount, or to decrease the amount borrowed, and the borrower
may repay up to the face amount of the note without penalty.
Corporate obligations are bonds and notes issued by corporations and other
business organizations, including business trusts, in order to finance
their long-term credit needs.
Letters of credit are obligations by the issuer (a bank or other person)
to honor drafts or other demands for payment upon compliance with
specified conditions.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include issues of the United States
Treasury, such as bills, certificates of indebtedness, notes and bonds,
and issues of agencies and instrumentalities established under the
authority of an act of Congress. Such agencies and instrumentalities
include, but are not limited to, Bank for Cooperatives, Federal Financing
Bank, Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal
Land Banks, Federal National Mortgage Association and Tennessee Valley
Authority. Issues of the United States Treasury are direct obligations
of the United States Government. Issues of agencies or instrumentalities
are (i) guaranteed by the United States Treasury, or (ii) supported by the
issuing agency's or instrumentality's right to borrow from the United
States Treasury, or (iii) supported by the issuing agency's or
instrumentality's own credit.
Appendix B - Description of Securities Ratings
This is a description of (i) the two highest rating categories for Short
Term Debt and Long Term Debt by the Rating Organizations referred to under
Investment Policies -- Money Fund, and (ii) additional rating categories
that apply principally to investments by High Income Fund, Strategic Bond
Fund and Bond Fund. The rating descriptions are based on information
supplied by the Rating Organizations to subscribers.
Short Term Debt Ratings.
Moody's Investors Service, Inc. ("Moody's"): The following rating
designations for commercial paper (defined by Moody's as promissory
obligations not having original maturity in excess of nine months), are
judged by Moody's to be investment grade, and indicate the relative
repayment capacity of rated issuers:
Prime-1: Superior capacity for repayment. Capacity will normally be
evidenced by the following characteristics: (a) leveling market positions
in well-established industries; (b) high rates of return on funds
employed; (c) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (d) broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
(e) well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2: Strong capacity for repayment. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
Standard & Poor's Corporation ("S&P"): The following ratings by S&P for
commercial paper (defined by S&P as debt having an original maturity of
no more than 365 days) assess the likelihood of payment:
A-1: Strong capacity for timely payment. Those issues determined to
possess extremely strong safety characteristics are denoted with a plus
sign (+) designation.
A-2: Satisfactory capacity for timely payment. However, the relative
degree of safety is not as high as for issues designated "A-1".
Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following
short-term ratings to debt obligations that are payable on demand or have
original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and
investment notes:
F-1+: Exceptionally strong credit quality; the strongest degree of
assurance for timely payment.
F-1: Very strong credit quality; assurance of timely payment is only
slightly less in degree than issues rated "F-1+".
F-2: Good credit quality; satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned
"F-1+" or "F-1" ratings.
Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for
commercial paper (defined by Duff & Phelps as obligations with maturities,
when issued, of under one year), asset-backed commercial paper, and
certificates of deposit (the ratings cover all obligations of the
institution with maturities, when issued, of under one year, including
bankers' acceptance and letters of credit):
Duff 1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources
of funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1-: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings,
including commercial paper (with maturities up to 12 months), are as
follows:
A1+: Obligations supported by the highest capacity for timely repayment.
A1: Obligations supported by a very strong capacity for timely repayment.
A2: Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply
to commercial paper, certificates of deposit, unsecured notes, and other
securities having a maturity of one year or less.
TBW-1: The highest category; indicates the degree of safety regarding
timely repayment of principal and interest is very strong.
TBW-2: The second highest rating category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
Long Term Debt Ratings.
These rating categories apply principally to investments by High Income
Fund, Strategic Bond Fund and Bond Fund. For Money Fund only, the two
highest rating categories of each Rating Organization are relevant for
securities purchased with a remaining maturity of 397 days or less, or for
rating issuers of short-term obligations.
Moody's: Bonds (including municipal bonds) are rated as follows:
Aaa: Judged to be the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong positions of such issues.
Aa: Judged to be of high quality by all standards. Together with the "Aaa"
group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in "Aaa" securities.
A: Possess many favorable investment attributes and are to be considered
as upper-medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Considered medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may
be very moderate and not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated "B" generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa: Of poor standing and may be in default or there may be present
elements of danger with respect to principal or interest.
Ca: Represent obligations which are speculative in a high degree and are
often in default or have other marked shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" in each generic
rating classification from "Aa" through "B" in its corporate bond rating
system. The modifier "1" indicates that the security ranks in the higher
end of its generic rating category; the modifier "2" indicates a mid-range
ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category.
Standard & Poor's: Bonds are rated as follows:
AAA: The highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and differ from
"AAA" rated issues only in small degree.
A: Have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to adverse effects of change in circumstances
and economic conditions.
BBB: Regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this
capacity than for bonds in the "A" category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest
degree of speculation and "CC" the highest degree. While such bonds will
likely have some equality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds rated
"D" are in default and payment of interest and/or repayment of principal
is in arrears.
Fitch:
AAA: Considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Plus (+) and minus (-)
signs are used in the "AA" category to indicate the relative position of
a credit within that category.
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+".
Duff & Phelps:
AAA: The highest credit quality. The risk factors are negligible, being
only slightly more than the risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Plus
(+) and minus (-) signs are used in the "AA" category to indicate the
relative position of a credit within that category.
IBCA: Long-term obligations (with maturities of more than 12 months) are
rated as follows:
AAA: The lowest expectation for investment risk. Capacity for timely
repayment of principal and interest is substantial such that adverse
changes in business, economic, or financial conditions are unlikely to
increase investment risks significantly.
AA: A very low expectation for investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk
albeit not very significantly.
A plus (+) or minus (-) sign may be appended to a long term rating to
denote relative status within a rating category.
TBW: TBW issues the following ratings for companies. These ratings assess
the likelihood of receiving payment of principal and interest on a timely
basis and incorporate TBW's opinion as to the vulnerability of the company
to adverse developments, which may impact the market's perception of the
company, thereby affecting the marketability of its securities.
A: Possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect
of the company's business, it is entirely mitigated by the strengths of
the organization.
A/B: The company is financially very solid with a favorable track record
and no readily apparent weakness. Its overall risk profile, while low, it
not quite as favorable as for companies in the highest rating category.
APPENDIX TO PROSPECTUS
Graphic material included in Prospectus of Oppenheimer Variable
Account Funds: "Comparison of Total Return of Oppenheimer Variable Account
Funds with Broad-Based Indices - Changes in Value of a $10,000
Hypothetical Investment"
Linear graphs will be included in the Prospectus of Oppenheimer
Variable Account Funds (the "Funds") depicting the initial account value
and subsequent account value of a hypothetical $10,000 investment in
shares of the Funds for the life of each Fund and comparing such values
with the same investments over the same time periods in the Broad-Based
Indices. Set forth below are the relevant data points that will appear
on the linear graphs. Additional information with respect to the
foregoing, including a description of the S&P 500 Index, is set forth in
the Prospectus under "Fund Performance Information - Management's
Discussion of Performance."
<TABLE>
<CAPTION>
Fiscal Capital
Year Ended Appreciation Fund S&P 500 Index
<S> <C> <C>
08/15/86(1) $10,000 $10,000
12/31/86 $ 9,835 $ 9,684
12/31/87 $11,245 $10,192
12/31/88 $12,754 $11,880
12/31/89 $16,269 $15,638
12/31/90 $13,530 $15,152
12/31/91 $20,938 $19,758
12/31/92 $24,167 $21,261
12/31/93 $30,770 $23,400
</TABLE>
<TABLE>
<CAPTION>
Morgan
Fiscal Global Stanley
Year Ended Securities Fund World Index
<S> <C> <C>
11/12/90(1) $10,000 $10,000
12/31/90 $10,040 $10,211
12/31/91 $10,380 $12,148
12/31/92 $ 9,642 $11,582
12/31/93 $16,423 $14,261
</TABLE>
<TABLE>
<CAPTION>
Lehman Salomon
Brothers Brothers World
Fiscal Strategic Aggregate Government
Year Ended Bond Fund Bond Index Bond Index
<S> <C> <C> <C>
05/03/93(1) $10,000 $10,000 $10,000
12/31/93 $10,425 $10,453 $10,426
</TABLE>
________________________
(1) Commencement of operations.
OPPENHEIMER VARIABLE
ACCOUNT FUNDS
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given
or made, such information and representations must not be relied upon as
having been authorized by Oppenheimer Variable Account Funds, Oppenheimer
Management Corporation or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any state to any person to whom it is
unlawful to make such an offer in such state.
