Registration No. 2-93177
File No. 811-4018
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 24 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
AMENDMENT NO. 21 / X /
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street,Denver, Colorado 80231
(Address of Principal Executive Offices)
303-671-3200
(Registrant's Telephone Number
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation
Two World Trade Center, New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / On ____________________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ X / On May 1, 1994 pursuant to paragraph (a)
of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended December 31, 1993, will be filed by February 28, 1994.
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FORM N-1A
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Front Cover
2 *
3 Financial Highlights; Fund Performance Information
4 Front Cover; The Funds and Their Investment Policies; Special
Investment Methods; Investment Restrictions; Appendix A -
Description of Terms; Appendix B - Description of Securities
Ratings
5 Management of the Funds; Back Cover; Additional Information -
The Custodian and the Transfer Agent
6 Dividends, Distributions and Taxes; Additional Information;
Management of the Funds
7 Purchase of Shares
8 Redemption of Shares
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
10 Cover Page
11 Cover Page
12 *
13 Investment Objectives and Policies; Investment Restrictions
14 Trustees and Officers; Investment Management Services
15 Investment Management Services; Trustees and Officers - Fund
Shareholders
16 Investment Management Services; Additional Information
17 Brokerage
18 Additional Information - Description of the Trust
19 Purchase, Redemption and Pricing of Shares
20 Performance and Tax Information
21 Brokerage; Additional Information
22 Performance and Tax Information
23 Financial Statements
_______________
* Not applicable or negative answer.
<PAGE>
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 (collectively, the
"Funds"):
OPPENHEIMER MONEY FUND ("Money Fund") seeks the maximum current income
from investments in "money market" securities consistent with low capital
risk and the maintenance of liquidity. Its shares are neither insured nor
guaranteed by the U.S. government, and there is no assurance that this
Fund will be able to maintain a stable net asset value of $1.00 per share.
OPPENHEIMER HIGH INCOME FUND ("High Income Fund") seeks a high level of
current income from investment in high yield fixed-income securities.
High Income Fund's investments include unrated securities or high risk
securities in the lower rating categories, 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.
OPPENHEIMER BOND FUND ("Bond Fund") primarily seeks a high level of
current income from investment in high yield fixed-income securities rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's.
Secondarily, this Fund seeks capital growth when consistent with its
primary objective.
OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks
to achieve capital appreciation by investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND ("Growth Fund") seeks to achieve capital
appreciation by investing in securities of well-known established
companies.
OPPENHEIMER MULTIPLE STRATEGIES FUND ("Multiple Strategies Fund") seeks
a total investment return (which includes current income and capital
appreciation in the value of its shares) from investments in common stocks
and other equity securities, bonds and other debt securities, and "money
market" securities.
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. This Fund's
investments may be considered to be speculative. Until such time as
Strategic Bond Fund reaches $20 million of net assets, it will be managed
as a short-term Government securities fund.
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.
<PAGE>
Table Of Contents
Page
Financial Highlights
Performance Information
The Funds and Their Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Funds
Purchase of Shares
Redemption of Shares
Dividends, Distributions and Taxes
Additional Information
Appendix A: Description of Terms A-1
Appendix B: Description of Securities Ratings B-1
<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.
<PAGE>
Performance Information
From time to time the "yield" and compounded "effective yield" of
Money Fund may be advertised. Money Fund's "yield" is the income
generated by an investment in that Fund over a seven-day period, which is
then "annualized." In annualizing, the amount of income generated by the
investment during that seven days is assumed to be generated each week
over a 52-week period, and is shown as a percentage of the investment.
The compounded "effective yield" is calculated similarly, but the
annualized income earned by an investment in Money Fund is assumed to be
reinvested. The compounded effective yield will therefore be slightly
higher than the yield because of the effect of the assumed reinvestment.
From time to time, the yield of High Income Fund, Strategic Bond Fund
or Bond Fund may be advertised. Yield for these Funds 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 these Funds.
From time to time the "total return" and "average annual total
return" for any of the Funds other than Money Fund 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 "average annual total return" indicates 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.
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 Fund's investment policies and practices described
below 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 - Money Fund. SEC Rule 2a-7 ("Rule 2a-7") of the
Investment Company Act of 1940 (the "Investment Company Act") places
restrictions on a money market fund's investments. Under Rule 2a-7, Money
Fund may purchase only "Eligible Securities," as defined below, that the
Trust's Board of Trustees has determined have minimal credit risk. An
"Eligible Security" is (a) a security that has received a rating in one
of the two highest short-term rating categories by any two "nationally-
recognized statistical rating organizations" as defined in Rule 2a-7
("Rating Organizations"), or, if only one Rating Organization has rated
that security, by that Rating Organization, or (b) an unrated security
that is judged by the Trust's investment adviser, Oppenheimer Management
Corporation (the "Manager") to be of comparable quality to investments
that are "Eligible Securities" rated by Rating Organizations. Rule 2a-7
permits Money Fund to purchase "First Tier Securities," which are Eligible
Securities rated in the highest category for short-term debt obligations
by at least two Rating Organizations, or, if only one Rating Organization
has rated a particular security, by that Rating Organization, or
comparable unrated securities. Under Rule 2a-7, Money Fund may invest
only up to 5% of its assets in "Second Tier Securities," which are
Eligible Securities that are not "First Tier Securities." In addition to
the overall 5% limit on Second Tier Securities, Money Fund may not invest
(i) more than 5% of its total assets in the securities of any one issuer
(other than the U.S. Government, its agencies or instrumentalities) or
(ii) more than 1% of its total assets or $1 million (whichever is greater)
in Second Tier Securities of any one issuer. The Trust's Board must
approve or ratify the purchase of Eligible Securities that are unrated or
are rated by only one Rating Organization. Additionally, under Rule 2a-7,
Money Fund must maintain a dollar-weighted average portfolio maturity of
no more than 90 days, and the maturity of any single portfolio investment
may not exceed 397 days. The Trust's Board has adopted procedures under
Rule 2a-7 pursuant to which the Board has delegated to the Manager the
responsibility of conforming Money Fund's investments with the
requirements of Rule 2a-7 and those Procedures.
Ratings at the time of purchase will determine whether securities may
be acquired under the above restrictions. The rating restrictions
described in this Prospectus do not apply to banks in which the Trust's
cash is kept. Subsequent downgrades in ratings may require reassessments
of the credit risk presented by a security and may require their sale.
See "Investment Objective and Policies -- Money Fund" in the Statement of
Additional Information for further details.
The Trust intends to exercise due care in the selection of portfolio
securities. However, a risk may exist that the issuers of Money Fund's
portfolio securities may not be able to meet their duties and obligations
on interest or principal payments at the time called for by the
instrument. There is also the risk that because of a redemption demand
greater than anticipated by management, some of Money Fund's portfolio may
have to be liquidated prior to maturity at prices less than the original
cost, the face amount or maturity value. Any of these risks, if
encountered, could cause a reduction in the net asset value of Money
Fund's shares.
The types of instruments that will form the major part of Money
Fund's investments are certificates of deposit, bankers' acceptances,
commercial paper, U.S. Treasury bills, securities of U.S. government
agencies or instrumentalities and other debt instruments (including bonds)
issued by corporations, including variable and floating rate instruments,
and variable rate master demand notes. Some of such instruments may be
supported by letters of credit or may be subject to repurchase
transactions (described below). Except as described below, Money Fund
will purchase certificates of deposit or bankers' acceptances only if
issued or guaranteed by a domestic bank subject to regulation by the U.S.
Government or of a foreign bank having total assets at least equal to U.S.
$1 billion. Money Fund may invest in certificates of deposit of up to
$100,000 of a domestic bank if such certificates of deposit are fully
insured as to principal by the Federal Deposit Insurance Corporation. For
purposes of this section, the term "bank" includes commercial banks,
savings banks, and savings and loan associations and the term "foreign
bank" includes foreign branches of U.S. banks (issuers of "Eurodollar"
instruments), U.S. branches and agencies of foreign banks (issuers of
"Yankee dollar" instruments) and foreign branches of foreign banks. Money
Fund also may purchase obligations issued by other entities if they are:
(i) guaranteed as to principal and interest by a bank or corporation whose
certificates of deposit or commercial paper may otherwise be purchased by
Money Fund, or (ii) subject to repurchase agreements (explained below),
if the collateral for the agreement complies with Rule 2a-7. In addition,
the Fund may also invest in other types of securities described above in
accordance with the requirements of the rule. For further information,
see "Foreign Securities" and "Investment Restrictions" below. See
Appendix A below and "Investment Objectives and Policies" in the Statement
of Additional Information for further information on the investments which
Money Fund may make. See Appendix B below for a description of the rating
categories of the Rating Organizations.
Investment Policies - High Income Fund, Bond Fund and Strategic Bond Fund.
High Income Fund. The objective of High Income Fund is to earn a high
level of current income by investing primarily in a diversified portfolio
of high yield, fixed-income securities (long-term debt and preferred stock
issues, including convertible securities) believed by the Manager not to
involve undue risk. The Fund may also acquire participation interests in
loans that are made to corporations or sovereign governments (see
"Investment Policies - Strategic Bond Fund - Domestic Securities"). High
Income Fund's investment policy is to assume certain risks (discussed
below) in seeking high yield, which is ordinarily associated with high
risk securities, commonly known as "junk bonds," in the lower rating
categories of the established securities ratings services (i.e.,
securities rated "Baa" or lower by Moody's Investor Service, Inc.
("Moody's") or "BBB" or lower by Standard & Poor's Corporation ("Standard
& Poor's")), and unrated securities. The investments in which High Income
Fund will invest principally will be in the lower rating categories; it
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. Appendix B of this Prospectus
describes these rating categories.
High Income Fund is not obligated to dispose of securities whose
issuers subsequently are in default or if the rating is subsequently
downgraded. High Income Fund may invest, without limit, in unrated
securities if such securities offer, in the opinion of the Manager, yields
and risks comparable to rated securities. Risks of high yield securities
are discussed below. High Income Fund's portfolio at December 31, 1993
contained domestic and foreign corporate bonds in the following rating
categories as rated by Standard & Poor's (the percentages relate to the
weighted average value of the bonds in each rating category as a
percentage of that Fund's total assets): AA, ___%; A, ___%; BBB, ____%;
BB, ______%; B, _____%; CCC, ______%; D, _____%; and unrated, ____%. If
a bond was not rated by Standard & Poor's but was rated by Moody's, it is
included in the comparable category. The Manager will not rely
principally on the ratings assigned by rating services. The Manager's
analysis may include consideration of the financial strength of the
issuer, including its historic and current financial condition, the
trading activity in its securities, present and anticipated cash flow,
estimated current value of assets in relation to historical cost, the
issuer's experience and managerial expertise, responsiveness to changes
in interest rates and business conditions, debt maturity schedules,
current and future borrowing requirements, and any change in the financial
condition of the issuer and the issuer's continuing ability to meet its
future obligations. The Manager also may consider anticipated changes in
business conditions, levels of interest rates of bonds as contrasted with
levels of cash dividends, industry and regional prospects, the
availability of new investment opportunities and the general economic,
legislative and monetary outlook for specific industries, the nation and
the world.
Bond Fund. Bond Fund's primary objective is also to earn a high level of
current income by investing primarily in a diversified portfolio of high
yield fixed-income securities. As a secondary objective, Bond Fund seeks
capital growth when consistent with its primary objective. As a matter
of non-fundamental policy, Bond Fund will, under normal market conditions,
invest at least 65% of its total assets in bonds. Bond Fund will invest
only in securities rated "Baa" or better by Moody's or "BBB" or better by
Standard & Poor's. However, Bond Fund is not obligated to dispose of
securities if the rating is reduced, and therefore will from time to time
hold securities rated lower than "Baa" by Moody's or "BBB" by Standard &
Poor's.
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. The 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
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): BBB,
_____%; BB, _____%; B _____%, CCC, _____%; CC, _____%; C, _____%; D,
_____%; and unrated _____%. The 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 a dividend. 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 may acquire participation interests in loans that are made to
corporations or sovereign governments. Such participation interests,
which may take the form of interests in, or assignments of, the loan, are
acquired from banks which have made loans or are members of a lending
syndicate. The Fund currently intends to invest no more than 5% of its
net assets in participation interests of the same issuing bank. The
Fund's investments in participation interests are subject to its
limitation on investments in illiquid securities (see "Restricted and
Illiquid Securities," below). Participation interests are primarily
dependent upon the creditworthiness of the borrower for payment of
interest and principal. In the event the borrower fails to pay scheduled
interest or principal payments, the Fund could experience a reduction in
its income and might experience a decline in the net asset value of its
shares.
The Fund's investments may include securities which represent
participation interests 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 High Income Fund, Bond Fund and
Strategic Bond Fund 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 financial strength or economic conditions. High Income
Fund and Strategic Bond Fund in particular may be affected by such risk,
since issuers of lower rated or unrated securities are generally not as
financially secure or creditworthy as issuers of higher-rated securities.
These Funds are not obligated to dispose of securities when issuers are
in default of 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, Growth Fund, Multiple
Strategies 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.
Growth Fund. In seeking its objective of capital appreciation, Growth
Fund will emphasize investments in securities of well-known and
established companies. Such securities generally have a history of
earnings and dividends and are issued by seasoned companies (having an
operating history of at least five years, including predecessors).
Current income is a secondary consideration in the selection of Growth
Fund's portfolio securities.
Multiple Strategies Fund. The objective of Multiple Strategies Fund is
to seek a high total investment return, which includes current income as
well as capital appreciation in the value of its shares. In seeking that
objective, Multiple Strategies Fund may invest in equity securities
(including common stocks, preferred stocks, convertible securities and
warrants), debt securities (including bonds, participation interest,
asset-backed securities, private-label mortgage-backed securities and
CMO's, zero coupon securities and U.S. government obligations) and cash
and cash equivalents (identified above as the types of instruments in
which the Money Fund may invest). Multiple Strategies Fund currently
intends to invest no more than 5% of its net assets in participation
interests of the same issuing bank, which shall be participation interests
in senior, fully-secured floating rate loans that are made primarily to
U.S. companies. Multiple Strategies Fund may purchase only those
participation interests that mature in one year or less, or, if maturing
in more than one year, that have a floating rate that is automatically
adjusted at least once each year according to a specified rate for such
investments, such as a percentage of a bank's prime rate.
The composition of Multiple Strategies Fund's portfolio among the
different types of permitted investments will vary from time to time based
upon the Manager's evaluation of economic and market trends and perceived
relative total anticipated return from such types of securities.
Accordingly, there is neither a minimum nor a maximum percentage of
Multiple Strategies Fund's assets that may, at any given time, be invested
in any of the types of investments identified above. In the event future
economic or financial conditions adversely affect equity securities, it
is expected that Multiple Strategies Fund would assume a defensive
position by investing in debt securities (with an emphasis on securities
maturing in one year or less from the date of purchase), or cash and cash
equivalents.
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. However, the Fund has undertaken to comply with the foreign country
diversification guidelines by a portfolio of a separate account as set
forth in Section 10506 of the California Insurance Code, as follows:
Global Securities Fund will invest its assets in a minimum of five
different countries at all times. However, this minimum is reduced to
four when foreign country investments comprise less than 80% of the Fund's
net assets; to three when less than 60% of such value; to two when less
than 40%; and to one when less than 20%. The Fund will have no more than
20% of its net assets invested in securities of issuers located in any one
country, except that: (i) the Fund may invest an additional 15% of its net
assets in securities of issuers located in any of Australia, Canada,
France, Japan, the United Kingdom or Germany, and (ii) investments in U.S.
issuers are not subject to these guidelines. 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). It is currently anticipated that the Fund may invest as
much as 80% or more of its total assets in foreign securities. See
"Special Investment Methods -Foreign Securities," below, for further
discussion as to the possible rewards and risks of investing in foreign
securities.
Special Investment Methods
Borrowing. From time to time, Capital Appreciation Fund, Strategic Bond
Fund, Growth Fund, Multiple Strategies 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, Strategic Bond Fund, and Multiple Strategies
Fund may each borrow subject to the 300% asset coverage requirement of the
Investment Company Act. Growth Fund may borrow only up to 5% of the value
of its total assets and 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.
Small, Unseasoned Companies. Money Fund, Capital Appreciation Fund,
Multiple Strategies Fund, Growth 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. It is not
currently intended that investments in securities of companies (including
predecessors) that have operated less than three years will exceed 5% of
the net assets of either Growth Fund or Multiple Strategies Fund. Money
Fund, Capital Appreciation Fund, Global Securities Fund and Strategic Bond
Fund are not subject to this restriction. 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, Global Securities Fund,
High Income Fund and Multiple Strategies 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 "Illiquid and
Restricted 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 its income and a decline in the net asset value
of its 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 each Fund (other than Global Securities
Fund, Multiple Strategies Fund or Strategic Bond Fund) will invest no more
than 25% of its total assets in foreign securities or in government
securities of any one foreign country or in obligations of foreign banks.
Multiple Strategies Fund will invest no more than 35% of its total assets
in foreign securities or in government securities of any one 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 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, 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 (except Money Fund) 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 (10% of net assets for Money Fund) 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 Fund's
Board of Trustees, the Manager determines the liquidity of the 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% (10% for
Money Fund) 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 (High Income, 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 (see "Restricted and
Illiquid Securities" in the Statement of Additional Information). 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 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.
Writing Covered Calls. High Income Fund, Capital Appreciation Fund,
Growth Fund, Multiple Strategies 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.
High Income Fund, Global Securities Fund, and Strategic Bond Fund may also
write calls that are traded on foreign securities exchanges and domestic
over-the-counter markets. Global Securities Fund and Strategic Bond Fund
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 - High Income Fund, Global Securities Fund and
Strategic Bond Fund," below) must be covered by deliverable securities or
by liquid assets segregated to satisfy the Futures contract. Capital
Appreciation Fund, Growth Fund and Multiple Strategies Fund may each
purchase a call only in a "closing purchase transaction" to terminate its
obligation on a call which it has written. 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 High Income, Strategic Bond or Global Securities
Funds' total assets may be subject to calls, up to 25% of Capital
Appreciation or Multiple Strategies
Funds' total assets may be subject to calls, and up to 5% of Growth 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 - Global Securities Fund, Strategic Bond Fund and High Income
Fund. For hedging purposes as a temporary defensive maneuver, Global
Securities Fund and Strategic Bond Fund may use Stock Index Futures;
Global Securities Fund, Strategic Bond Fund and High Income Fund may 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. Global Securities Fund, Strategic Bond
Fund and High Income Fund will not use Futures and options on Futures for
speculation. The Hedging Instruments which Global Securities Fund,
Strategic Bond Fund and High Income Fund may use are described below.
Interest Rate Futures. Global Securities Fund, Strategic Bond Fund and
High Income 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, Strategic Bond Fund and High
Income 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. Global Securities Fund and Strategic Bond Fund 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. Global Securities Fund,
Strategic Bond Fund and High Income Fund may purchase calls on securities
or on Futures (as permitted by its investment policy), that are traded on
U.S. and foreign securities or commodities exchanges or the U.S. 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. Global Securities Fund and Strategic
Bond Fund may also purchase calls on securities or on Futures that are
traded on foreign over-the-counter markets. The value of debt securities
underlying calls purchased by any of these three Funds 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. Global Securities Fund, Strategic Bond
Fund and High Income Fund may purchase put options ("puts") which relate
to securities (whether or not it holds such securities in its portfolio)
or Futures (as permitted by its investment policy). They may also write
puts on securities or Futures (as permitted by its investment policy) only
if such puts are covered by segregated liquid assets. None of these three
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. Global Securities Fund, Strategic Bond Fund and
High Income 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. Global Securities Fund, Strategic Bond Fund and High
Income 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.
These three 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." These
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.
None 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. These 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 in excess of 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 - High Income Fund, Global
Securities Fund and Strategic Bond Fund - Interest Rate Swap Transactions"
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 High Income
Fund or Strategic Bond Fund or Global Securities Fund. There are certain
risks in writing calls. If a call written by a Fund 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 Fund 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.
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, Growth Fund, Multiple Strategies Fund and Global Securities Fund and
to a lesser extent, higher transaction costs for Money Fund, Bond Fund,
Strategic Bond Fund and High Income Fund. Portfolio turnover rates are
set forth under "Condensed Financial Information" for each Fund except
Strategic Bond 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").
Short Sales Against-the-Box. Global Securities Fund and Strategic Bond
Fund may sell securities short in "short sales against-the-box." No more
than 15% of Global Securities 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, are changeable
only by a vote 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, other than securities of the U.S. Government or its agencies or
instrumentalities (Money Fund, Bond Fund and High Income Fund, only);
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; however, there
is no limitation as to concentration of investments by Money Fund in
obligations issued by domestic banks, foreign branches of domestic banks
(if guaranteed by the domestic parent), savings and loan associations or
in obligations issued by the federal government and its agencies and
instrumentalities; (5) deviate from the percentage requirements and other
restrictions listed under "Writing Covered Calls," "Hedging," "Warrants
and Rights," and "Borrowing"; and (6) deviate from the percentage
requirements listed under "Short Sales Against-the-Box" (Global Securities
Fund only). None of the percentage limitations and restrictions described
above and in the Statement of Additional Information for Strategic Bond
Fund with respect to writing covered calls and Hedging 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. Money Fund has separately
undertaken to exclude savings and loan associations from the exception to
the concentration limitation set forth under investment restriction (4),
above. 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").
The monthly management fee payable to the Manager is computed on the
aggregate net assets of all the Funds as of the close of business each
day. Each Fund's share of the management fee is determined by the ratio
of its net assets to the aggregate net assets of all the Funds. Except
as stated below, the annual management fee rate is 0.50% of the first $250
million of aggregate Trust net assets, 0.45% of the next $50 million,
0.40% of the next $100 million, 0.35% of the next $400 million and 0.30%
of net assets in excess of $800 million. Money Fund's management fee rate
is reduced by 0.05% of the first $250 million of its net assets and by
0.05% of its net assets in excess of $4 billion. High Income Fund pays
an additional management fee at the annual rate of 0.15% of its net
assets. Global Securities Fund's annual management fee is 0.75% on the
first $200 million of aggregate Trust net assets, 0.72% on the next $200
million, 0.69% on the next $200 million, 0.66% on the next $200 million
and 0.60% on net assets in excess of $800 million. Strategic Bond Fund's
annual management fee is 0.65% of aggregate Trust assets.
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 were as
follows:
Management Total Operating
Fund Fees Expenses
Money Fund ---% ---%
High Income Fund ---% ---%
Bond Fund ---% ---%
Appreciation Fund ---% ---%
Growth Fund ---% ---%
Multiple Strategies Fund ---% ---%
Global Securities Fund ---% ---%
Strategic Bond Fund(1) ---% ---%
_______________
(1) Annualized.
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 Money Fund, High Income Fund, Bond Fund and 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 and a Vice President of High Income Fund, Bond Fund and
Strategic Bond Fund. Since July, 1989, January 1990 and July, 1989,
respectively, he has been the person principally responsible for the day-
to-day management of the Funds' portfolios. 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
and a Vice President of Global Securities Fund. Since February, 1991, 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 an international equities portfolio manager/analyst with Brown Brothers
Harriman & Co. Mr. Arthur Zimmer is a Vice President of the Manager who
serves as a Portfolio Manager and a Vice President of Money Fund. Since
October, 1990, 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 an officer of other OppenheimerFunds and formerly
served as Vice President of Hanifen Imhoff Management Company (mutual fund
investment adviser). Mr. Robert Doll is a Senior Vice President of the
Manager who serves as a Portfolio Manager and a Vice President of Growth
Fund. Since April, 1991, 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 an officer of other OppenheimerFunds.
Mr. Paul LaRocca 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 January, 1994, Mr. Jay Tracey, served as Vice
President and Portfolio Manager of the Fund. Messrs. Richard Rubinstein
and David Negri are Vice Presidents of the Manager and serves as Portfolio
Managers Vice Presidents of Multiple Strategies Fund, since April, 1991
and July, 1989, respectively. During the past five years, Mr. Rubinstein
serves as an officer of other OppenheimerFunds and was formerly Vice
President and Portfolio Manager/Security Analyst for Oppenheimer Capital
Corp., an investment adviser. For more information about the Fund'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 $26 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 High Income Fund, bonds of cyclical
companies in the automotive, paper and metals industries were emphasized,
in expectation that they would benefit from stronger U.S. economic growth,
and once a recovery takes hold in Europe and Japan. The strengthening of
the U.S. economy and continued low inflation and interest rate levels
resulted in favorable performance of high yield, lower rated bonds, which
more than offset modest declines in yields as interest rates move lower.
For Bond Fund, bonds were emphasized in areas which are expected to
experience high growth rates, such as telecommunications, or in areas
which are regarded as undervalued, such as oil and gas companies.
Intermediate U.S. treasury securities were purchased for that Fund to
position it for a possible increase in interest rates. 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 Growth Fund, stocks were emphasized in financial service
companies positioned to benefit from low interest rates, health care
companies, and other global companies regarded as having above-average
long-term prospects. Multiple Strategies Fund's fixed income portfolio
emphasized high-yield corporate issues and foreign bonds, notably from
Canadian, Australian and Latin American issuers, which are expected to
benefit from the improving global economy and be less sensitive to changes
in U.S. interest rates. That Fund's equity portfolio focused on health
care and technology stocks that are expected to provide employ new
products or services, and international stocks expected to capitalize on
the prospects of strong economic growth offshore. For Global Securities
Fund, banks and financial services in emerging markets and developed
countries consumer industries servicing emerging markets,
telecommunications and energy logistics was 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 in the
paper, metals and automotive industries, to take advantage of price
appreciation in the event of economic recovery, and foreign fixed income
securities 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.
Comparison of Change in Value of $10,000 Hypothetical Investment in High
Income Fund Versus Salomon Brothers High Yield Market Index
(Chart comparing total return of High Income Fund shares to performance
of Salomon Brothers High Yield Market Index)
Average Annual Total Return at 12/31/93
1 year 5 years Life of Fund (1)
26.34% 16.96% 14.70%
Comparison of Change in Value of $10,000 Hypothetical Investment in Bond
Fund Versus Lehman Brothers Corporate Bond Index
(Chart comparing total return of Bond Fund shares to performance of Lehman
Brothers Corporate Bond Index)
Average Annual Total Return at 12/31/93
1 year 5 years Life of Fund (1)
13.04% 11.61% 11.21%
Comparison of Change in Value of $10,000 Hypothetical Investment in
Capital Appreciation Fund Versus S&P 500 Index
(Chart comparing total return of Capital Appreciation Fund shares to
performance of S&P 500 Index)
Average Annual Total Return at 12/31/93
1 year 5 years Life of Fund (1)
27.32% 19.26% 16.46%
Comparison of Change in Value of $10,000 Hypothetical Investment in Growth
Fund Versus S&P 500 Index
(Chart comparing total return of Growth Fund shares to performance of S&P
500 Index)
Average Annual Total Return at 12/31/93
1 year 5 years Life of Fund (1)
7.25% 11.83% 12.70%
Comparison of Change in Value of $10,000 Hypothetical Investment in
Multiple Strategies Fund Versus S&P 500 Index and Lehman Brothers
Aggregate Bond Index
(Chart comparing total return of Multiple Strategies Fund shares to
performance of S&P 500 Index and Lehman Brothers Aggregate Bond Index)
Average Annual Total Return at 12/31/93
1 year 5 years Life of Fund (1)
15.96% 11.01% 11.67%
Comparison of Change in Value of $10,000 Hypothetical Investment in Global
Securities Fund Versus Morgan Stanley World Index
(Chart comparing total return of Global Securities Fund shares to
performance of Morgan Stanley World Index)
Average Annual Total Return at 12/31/93
1 year Life of Fund (1)
70.32% 17.14%
Comparison of Change in Value of $10,000 Hypothetical Investment in
Strategic Bond Fund Versus Lehman Brothers Aggregate Bond Index and
Salomon Brothers World Government Bond Index
(Chart comparing total return of Strategic Bond Fund to performance of
Lehman Brothers Aggregate Bond Index and Salomon Brothers World Government
Bond Index)
Average Annual Total Return at 12/31/93
Life of Fund (1)
6.50%
Indices. The Salomon Brothers High Yield Market Index is an unmanaged
index of below-investment grade (but rated at least BB+/Ba1 by Standard
& Poor's or Moody's) U.S. corporate debt obligations, widely-recognized
as a measure of the performance of the high-yield corporate bond market,
the market in which High Income Fund principally invests. The Lehman
Brothers Corporate Bond Index is an unmanaged index of publicly-issued
non-convertible investment grade corporate debt of U.S. issuers, widely
recognized as a measure of the U.S. fixed-rate corporate bond market. 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.
______________
(1)Inception dates are as follows: April 30, 1986 for High Income Fund;
April 3, 1985 for Bond Fund and Growth Fund; August 15, 1986 for Capital
Appreciation Fund; February 9, 1987 for Multiple Strategies Fund and
November 12, 1990 for Global Securities Fund.; and May 1, 1993 for
Strategic Bond Fund.
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 Statement of Additional
Information) is net asset value (without sales charge). Under Rule 2a-7,
the amortized cost method is used to value Money Fund's net asset value
per share, which is expected to remain fixed at $1.00 per share except
under extraordinary circumstances; see "Purchase, Redemption and Pricing
of Shares - Money Fund Net Asset Valuation" in the Statement of Additional
Information for further information. There can be no assurance that Money
Fund's net asset value will not vary.
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 (other than shares of the Money Fund) will
fluctuate accordingly. Therefore, the redemption value may be more or
less than the investor's cost.
Dividends, Distributions And Taxes
Dividends of the Money Fund. The Trust intends to declare all of Money
Fund's net income, defined below, as dividends on each day the New York
Stock Exchange is open for business. Such dividends will be payable on
shares held of record at the time of the previous determination of net
asset value. Daily dividends accrued since the prior dividend payment
will be paid to shareholders monthly as of a date selected by the Board
of Trustees. Money Fund's net income for dividend purposes consists of
all interest income accrued on portfolio assets, less all expenses of that
Fund for such period. Accrued market discount is included in interest
income; amortized market premium is treated as an expense. Since Money
Fund does not expect to realize long-term capital gains, it does not
contemplate payment of any capital gains distribution. Any short-term
realized undistributed securities profits in excess of 0.01% of gross
assets of Money Fund will also be declared as a dividend at the close of
each business day following realization and paid monthly as described
above; any net realized capital loss will be carried forward to offset
against gains in later years. Money Fund seeks to maintain a net asset
value of $1.00 per share for purchases and redemptions. To effect this
policy, under certain circumstances the Money Fund may withhold dividends
or make distributions from capital or capital gains (see "Purchase,
Redemption and Pricing of Shares" in the Statement of Additional
Information).
Dividends and Distributions of High Income Fund, Bond Fund, Strategic Bond
Fund and Multiple Strategies Fund. The Trust intends to declare High
Income Fund, Bond Fund, Strategic Bond Fund and Multiple Strategies Fund
dividends quarterly, payable in March, June, September and December.
Dividends and Distributions of Capital Appreciation Fund, Growth Fund and
Global Securities Fund. The Trust intends to declare Capital Appreciation
Fund, Growth Fund and Global Securities Fund dividends on an annual basis.
Dividends and Distributions: General. Any Fund (other than Money 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
described herein; 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, Monarch Life Insurance Company's Variable
Account B may be deemed to control Money Fund, High Income Fund, Growth
Fund and Multiple Strategies Fund; Bankers Security Variable Annuity Funds
P and Q may be deemed to control High Income Fund, Multiple Strategies
Fund, Global Securities Fund and Capital Appreciation Fund; Nationwide's
Separate Accounts I and II may be deemed to control Bond Fund and Multiple
Strategies Fund; Confederation Life Insurance and Annuity Company's
Separate Account A may be deemed to control Global Securities Fund and
Growth 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 (except Oppenheimer Money
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."
Salomon
Brothers
Fiscal High Yield
Year Ended High Income Fund Market Index
04/30/86(1) $10,000 $10,000
12/31/86 $10,473
12/31/87 $11,318
12/31/88 $13,081
12/31/89 $13,715
12/31/90 $14,352
12/31/91 $19,220
12/31/92 $22,664
12/31/93 $28,632
Lehman
Brothers
Fiscal Corporate
Year Ended Bond Fund Bond Index
04/03/85(1) $10,000 $10,000
12/31/85 $11,882 $11,819
12/31/86 $13,084 $13,770
12/31/87 $13,415 $14,112
12/31/88 $14,618 $15,352
12/31/89 $16,565 $17,526
12/31/90 $17,877 $18,811
12/31/91 $21,028 $22,325
12/31/92 $22,395 $24,294
12/31/93 $25,315 $27,209
Fiscal Capital
Year Ended Appreciation Fund S&P 500 Index
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 $13,353 $15,152
12/31/91 $20,938 $19,758
12/31/92 $24,167 $21,261
12/31/93 $30,770 $23,400
Fiscal
Year Ended Growth Fund S&P 500 Index
04/03/85(1) $10,000 $10,000
12/31/85 $10,950 $12,076
12/31/86 $12,894 $14,331
12/31/87 $13,322 $15,083
12/31/88 $16,265 $17,581
12/31/89 $20,101 $23,141
12/31/90 $18,450 $22,422
12/31/91 $23,163 $29,238
12/31/92 $26,528 $31,463
12/31/93 $28,451 $34,628
Lehman
Brothers
Fiscal Multiple Aggregate
Year Ended Strategies Fund S&P 500 Index Bond Index
02/09/87(1) $10,000 $10,000 $10,000
12/31/87 $10,397 $ 8,923 $10,063
12/31/88 $12,700 $10,401 $10,857
12/31/89 $14,701 $13,690 $12,434
12/31/90 $14,421 $13,265 $13,549
12/31/91 $16,941 $17,297 $15,716
12/31/92 $18,463 $18,613 $16,879
12/31/93 $21,408 $20,486 $18,525
Morgan
Fiscal Global Stanley
Year Ended Securities Fund World Index
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
Lehman Salomon
Brothers Brothers World
Fiscal Strategic Aggregate Government
Year Ended Bond Fund Bond Index Bond Index
05/01/93(1) $10,000 $10,000 $10,000
12/31/93 $10,425 $10,453
________________________
(1) Commencement of operations.
<PAGE>
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 the Fund, 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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER VARIABLE ACCOUNT FUNDS
3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is an investment company
consisting of eight separate Funds (the "Funds"):
Oppenheimer Money Fund ("Money Fund")
Oppenheimer High Income Fund ("High Income Fund")
Oppenheimer Bond Fund ("Bond Fund")
Oppenheimer Capital Appreciation Fund ("Capital Appreciation Fund")
Oppenheimer Growth Fund ("Growth Fund")
Oppenheimer Multiple Strategies Fund ("Multiple Strategies Fund")
Oppenheimer Global Securities Fund ("Global Securities Fund")
Oppenheimer Strategic Bond Fund ("Strategic Bond Fund")
Shares of the Funds are sold only to provide benefits under variable life
insurance policies and variable annuity contracts (collectively the
"Accounts"), as described in the Account Prospectus.
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction
with the Trust's Prospectus (the "Prospectus") dated May 1, 1994, and the
Account Prospectus.
TABLE OF CONTENTS
Page
Investment Objectives and Policies
Investment Restrictions
Trustees and Officers
Investment Management Services
Brokerage
Purchase, Redemption and Pricing of Shares
Yield, Total Return and Tax Information
Additional Information
Report of Independent Auditors
Financial Statements
The date of this Additional Statement is May 1, 1994.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Funds are described
in the Prospectus. Set forth below is supplemental information about
those policies. Certain capitalized terms used in this Additional
Statement are defined in the Prospectus.
Investment Policies - Money Fund The Prospectus describes "Eligible
Securities" in which Money Fund may invest and indicates that if a
security's rating is downgraded, the Manager and/or the Board may have to
reassess the security's credit risk. If a security has ceased to be a
First Tier Security, the Manager will promptly reassess whether the
security continues to present "minimal credit risk." If the Manager
becomes aware that any Rating Organization has downgraded its rating of
a Second Tier Security or rated an unrated security below its second
highest rating category, the Trust's Board of Trustees shall promptly
reassess whether the security presents minimal credit risk and whether it
is in Money Fund's best interests to dispose of it; but if Money Fund
disposes of the security within 5 days of the Manager learning of the
downgrade, the Manager will provide the Board with subsequent notice of
such downgrade. If a security is in default, or ceases to be an Eligible
Security, or is determined no longer to present minimal credit risks, the
Board must determine whether it would be in Money Fund's best interests
to dispose of the security. The Rating Organizations currently designated
as such by the Securities and Exchange Commission ("SEC") are Standard &
Poor's Corporation, Moody's Investors Services, Inc., Fitch Investors
Services, Inc., Duff & Phelps, Inc., IBCA Limited and its affiliate, IBCA,
Inc., and Thomson BankWatch, Inc. See Appendix B to the Prospectus for
a description of the rating categories of the Rating Organizations.
Time Deposits/Variable and Floating Rate Demand Notes. The Fund may
invest in fixed time deposits, which are non-negotiable deposits in a bank
for a specified period of time at a stated interest rate, whether or not
subject to withdrawal penalties; however, such deposits which are subject
to such penalties, other than deposits maturing in less than 7 days, are
subject to the 10% investment limitation for illiquid securities set forth
in "The Fund and Its Investment Policies" in the Prospectus. The
commercial paper obligations which the Fund may buy are unsecured and may
include floating and variable rate demand notes. The nature and terms
of these demand notes permit the investment of fluctuating amounts by the
Fund at varying rates of interest pursuant to direct arrangements between
the Fund, as lender, and the borrower. They permit daily changes in the
amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may prepay up to the full amount
of the note without penalty. These notes may or may not be backed by bank
letters of credit. Because these notes are direct lending arrangements
between the lender and the borrower, it is not generally contemplated that
they will be traded, and there is no secondary market for them, although
they may be redeemable (and thus immediately repayable by the borrower)
at principal amount, plus accrued interest, at any time. The Fund has no
limitations on the type of issuer from whom these notes will be purchased;
however, in connection with such purchase and on an ongoing basis,
Oppenheimer Management Corporation (the "Manager") will consider the
earning power, cash flow and other liquidity ratios of the issuer, and its
ability to pay principal and interest on demand, including a situation in
which all holders of such notes make demand simultaneously. While these
notes are not typically rated by credit rating agencies, the Fund may,
under its present rating standards, invest in them if they are unrated,
but only if at the time of an investment, the issuer meets the criteria
set forth in the Prospectus under Rule 2a-7 of the Investment Company Act
as to unrated securities.
Master Demand Notes. Master demand notes are obligations that permit
the investment of fluctuating amounts by Money Fund at varying rates of
interest pursuant to direct arrangements between Money Fund and the
corporate issuer of the Note. These notes permit daily changes in the
amounts owed under the note. Money Fund has the right to increase the
amount under the note at any time up to the full amount provided by the
note agreement, or to decrease the amount. The corporate issuer may repay
up to the full amount of the note at any time without penalty. It is not
generally contemplated that master demand notes will be traded because
they are direct arrangements between the corporate issuer of the note and
the purchaser of the note. There is no secondary market for these notes,
although they are redeemable and thus immediately repayable by the issuer
at face value, plus accrued interest, at any time. Accordingly, Money
Fund's right to redeem is dependent upon the ability of the issuer to pay
principal and interest on demand. In connection with the master demand
arrangements, earning power, cash flow, and other liquidity ratios of the
issuer will be considered and monitored by the Manager on an ongoing basis
to determine if the issuer can meet its obligations thereunder. Master
demand notes, as such, are not typically rated by credit rating agencies.
If not so rated, Money Fund may invest in them only if at the time of an
investment, the note meets the criteria set forth in the Prospectus as to
an Eligible Security.
Investment Policies - Money Fund, High Income Fund, Bond Fund and
Strategic Bond Fund. The market value of fixed income securities in which
Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund may invest
generally will be affected by changes in the level of interest rates. An
increase in interest rates will tend to reduce the market value of fixed
income investments, and a decline in interest rates will tend to increase
their value. In order to take advantage of differences in securities
prices and yields or of fluctuations in interest rates, consistent with
their respective investment objectives, these Funds may trade for short-
term profits.
- High Yield Securities. As stated in the Prospectus, the corporate
debt in which High Income Fund and Strategic Bond Fund will principally
invest may be in the lower rating categories.
Risks of high yield securities include: (i) limited liquidity and
secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination
to the prior claims of banks and other senior lenders, (iv) the operation
of mandatory sinking fund or call/redemption provisions during periods of
declining interest rates which may cause the Fund to invest premature
redemption proceeds in lower yielding portfolio securities, (v) the
possibility that earnings of the issuer may be insufficient to meet its
debt service, and (vi) the issuer's low creditworthiness and potential for
insolvency during periods of rising interest rates and economic downturn.
As a result of the limited liquidity of high yield securities, their
prices have at times experienced significant and rapid decline when a
substantial number of holders decided to sell. A decline is also likely
in the high yield bond market during an economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the
market for high yield bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. In
addition, there have been several Congressional attempts to limit the use
of tax and other advantages of high yield bonds which, if enacted, could
adversely affect the value of these securities and the net asset value of
these two Funds. For example, federally-insured savings and loan
associations have been required to divest their investments in high yield
bonds.
Investment Policies - Capital Appreciation Fund, Growth Fund, Multiple
Strategies Fund, Strategic Bond Fund and Global Securities Fund. The
investment risks and rewards of certain of the investment policies of
these five Funds are discussed below.
Securities of Growth-Type Companies. Capital Appreciation Fund,
Growth Fund and Global Securities Fund may emphasize securities of
"growth-type" companies. Such issuers typically are those whose goods or
services have relatively favorable long-term prospects for increasing
demand, or ones which develop new products, services or markets and
normally retain a relatively large part of their earnings for research,
development and investment in capital assets. They may include companies
in the natural resources fields or those developing industrial
applications for new scientific knowledge having potential for
technological innovation, such as nuclear energy, oceanography, business
services and new customer products.
Small Unseasoned Issuers. Each of these five Funds may invest in
small unseasoned issuers. 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. If other investment companies and
investors who invest in such issuers trade the same securities when one
of these Funds attempts to dispose of its holdings, that Fund may receive
lower prices than might otherwise be obtained.
Domestic Securities. Strategic Bond and Multiple Strategies Funds'
investments in fixed-income securities issued by domestic corporations may
include participation interests, asset-backed securities and other debt
obligations (bonds, debentures, notes, mortgage-backed securities and
CMOs) together with preferred stocks.
- Participation Interests. Strategic Bond Fund, Global Securities
Fund, High Income Fund and Multiple Strategies Fund may invest in
participation interests, subject to the limitation, described in
"Restricted and Illiquid Securities" in the Prospectus, on investments by
the Fund in illiquid investments. Participation interests provide the
Fund an undivided interest in a loan made by the issuing financial
institution in the proportion that the Fund's participation interest bears
to the total principal amount of the loan. It is currently intended that
no more than 5% of either Multiple Strategies Fund's or Strategic Bond
Fund's net assets can be invested in participation interests of the same
issuing bank. Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan, and there is a risk that
such borrowers may have difficulty making payments. In the event the
borrower fails to pay scheduled interest or principal payments, the Fund
could experience a reduction in its income and might experience a decline
in the net asset value of its shares. In the event of a failure by the
financial institution to perform its obligation in connection with the
participation agreement, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
- Asset-Backed Securities. The value of an asset-backed security is
affected by changes in the market's perception of the asset backing the
security, the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described
above for prepayments of a pool of mortgage loans underlying mortgage-
backed securities.
- Mortgage-Backed Securities. These securities represent
participation interests in pools of residential mortgage loans which may
or may not be guaranteed by agencies or instrumentalities of the U.S.
Government. Such securities differ from conventional debt securities
which generally provide for periodic payment of interest in fixed or
determinable amounts (usually semi-annually) with principal payments at
maturity or specified call dates. Mortgage-backed securities may be
backed by the full faith and credit of the U.S. Treasury (e.g., direct
pass-through certificates of Government National Mortgage Association);
some are supported by the right of the issuer to borrow from the U.S.
Government (e.g., obligations of Federal Home Loan Mortgage Corporation);
and some are backed by only the credit of the issuer itself. Those
guarantees do not extend to the value or yield of the mortgage-backed
securities themselves or to the net asset value of the Fund's shares. Any
of those government agencies may also issue collateralized mortgage-backed
obligations, discussed below.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
affected by a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average life of
a particular pool. Yield on such pools is usually computed by using the
historical record of prepayments for that pool, or, in the case of newly-
issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease as do the values of other debt securities,
but, when prevailing interest rates decline, the value of a pass-through
security is not likely to rise to the extent that the values of other debt
securities rise, because of the prepayment feature of pass-through
securities. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at times when available
investments offer higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by
the Fund have a compounding effect which may increase the yield to the
Fund more than debt obligations that pay interest semi-annually. Because
of those factors, mortgage-backed securities may be less effective than
Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. The Fund may purchase mortgage-backed
securities at a premium or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their principal amount) and may involve
additional risk of loss of principal because the premium may not have been
fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount. The Fund may
purchase mortgage-backed securities at a premium or at a discount.
The Fund may invest in "stripped" mortgage backed securities, in
which the principal and interest portions of the security are separated
and sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the "interest-
only" or "IO" class), while the other class will receive all of the
principal (the "principal-only" or "PO" class). Interest only securities
are extremely sensitive to interest rate changes, and prepayments of
principal on the underlying mortgage assets. An increase in principal
payments or prepayments will reduce the income available to the IO
security. In other types of CMOs, the underlying principal payments may
apply to various classes in a particular order, and therefore the value
of certain classes or "tranches" of such securities may be more volatile
that the value of the pool as a whole, and losses may be more severe than
on other classes.
- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are
fully-collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. Such bonds generally are secured by an assignment
to a trustee (under the indenture pursuant to which the bonds are issued)
of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages
are not passed through to the holders of the CMOs as such (i.e., the
character of payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such
payments are dedicated to payment of interest on and repayment of
principal of the CMOs. CMOs often are issued in two or more classes with
different characteristics such as varying maturities and stated rates of
interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive
maturities (known as "tranches") in sequence. Unlike other mortgage-
backed securities (discussed above), CMOs are designed to be retired as
the underlying mortgages are repaid. In the event of prepayment on such
mortgages, the class of CMO first to mature generally will be paid down.
Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayment, there will be
sufficient collateral to secure CMOs that remain outstanding.
Borrowing. From time to time, each of Capital Appreciation Fund,
Strategic Bond Fund, Growth Fund, Multiple Strategies Fund and Global Fund
may increase its ownership of securities by borrowing from banks on an
unsecured basis and investing the borrowed funds, subject to the
restrictions stated in the Prospectus. Any such borrowing will be made
only from banks and pursuant to the requirements of the Investment Company
Act. Growth Fund may borrow up to 5% of the value of its assets and
Global Securities Fund may borrow up to 10% of the value of its assets.
Capital Appreciation Fund, Strategic Bond Fund and Multiple Strategies
Fund may borrow to the extent that the value of that Fund's assets, less
its liabilities other than borrowings, is equal to at least 300% of all
borrowings including the proposed borrowing. If the value of such Fund's
assets so computed should fail to meet the 300% asset coverage
requirement, that Fund is required within three days to reduce its bank
debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment
judgment would not dictate such sale. Borrowing for investment increases
both investment opportunity and risk. Interest on money borrowed is an
expense these five Funds would not otherwise incur, so that they may have
little or no net investment income during periods of substantial
borrowings. Since substantially all of these Funds' assets fluctuate in
value whereas borrowing obligations are fixed, when a Fund has outstanding
borrowings, its net asset value will tend to increase and decrease more
when its portfolio assets increase or decrease than would otherwise be the
case.
Foreign Securities. The obligations of foreign governmental entities may
or may not be supported by the full faith and credit of a foreign
government. Obligations of supranational entities include those of
international organizations designated or supported by governmental
entities to promote economic reconstruction or development and of
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development
(the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. The
governmental members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed
to make additional capital contributions if the supranational entity is
unable to repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's call), reserves
and net income. There is no assurance that foreign governments will be
able or willing to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization,
confiscatory taxation and potential difficulties in enforcing contractual
obligations, and could be subject to extended settlement periods.
Because each Fund, other than Money Fund, may purchase securities
denominated in foreign currencies, a change in the value of any such
currency against the U.S. dollar will result in a change in the U.S.
dollar value of each Fund's assets and each Fund's income available for
distribution. In addition, although a portion of each Fund's investment
income may be received or realized in foreign currencies, the Fund will
be required to compute and distribute its income in U.S. dollars, and
absorb the cost of currency fluctuations. High Income Fund, Strategic
Bond Fund and Global Securities Fund may engage in foreign currency
exchange transactions for hedging purposes to attempt to protect against
changes in future exchange rates. See "Hedging - Forward Contracts,"
below.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although each Fund, other than Money Fund, will
invest only in securities denominated in foreign currencies that at the
time of investment do not have significant government-imposed restrictions
on conversion into U.S. dollars, there can be no assurance against
subsequent imposition of currency controls. In addition, the values of
foreign securities will fluctuate in response to changes in U.S. and
foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. From time
to time, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it
is possible that such restrictions could be reimposed.
Warrants and Rights. As described in the Prospectus, each Fund other than
Money Fund may invest in warrants and rights. Warrants are options to
purchase equity securities at specified prices valid for a specific period
of time. Their prices do not necessarily move parallel to the prices of
the underlying securities. Any price paid for a warrant will be lost
unless the warrant is exercised prior to its expiration. Rights are
similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Warrants and
rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
Repurchase Transactions. These Funds may acquire securities that are
subject to repurchase agreements in order to generate income while
providing liquidity as set forth in the prospectus. Money Fund's
repurchase agreements must comply with the collateral requirements of Rule
2a-7 under the Investment Company Act. In a repurchase transaction, a
Fund acquires a security from, and simultaneously resells it to, an
approved vendor (a U.S. commercial bank or the U.S. branch of a foreign
bank with assets of $1 billion or broker-dealer with net capital of at
least $50 million which has been designated a primary dealer in government
securities). The sale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Funds' repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. Additionally, the
Funds' Manager will continuously monitor the collateral's value and will
impose creditworthiness requirements to confirm that the vendor is
financially sound.
Loans of Portfolio Securities. Each Fund may lend its respective
portfolio securities subject to the restrictions stated in "Loans of
Portfolio Securities" in the Prospectus. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on
each business day, at least equal the value of the loaned securities and
must consist of cash, bank letters of credit, U.S. Government securities,
or certain other cash equivalents. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the
Trust if the demand meets the terms of the letter. Such terms and the
issuing bank must be satisfactory to the Trust. Any Fund lending its
securities receives amounts equal to the dividends declared or interest
paid on the loaned securities during the term of the loan as well as the
interest on the collateral securities, less any finders' or administrative
fees the Fund pays in arranging the loan. A Fund may share the interest
it receives on the collateral securities with the borrower as long as it
realizes at least a minimum amount of interest required by the lending
guidelines established by the Board of Trustees. The lending Fund will
not lend its portfolio securities to any officer, trustee, employee or
affiliate of the Fund or its Manager. The terms of a Fund's loans must
meet certain tests under the Internal Revenue Code and permit it to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
When-Issued and Delayed Delivery Transactions. Each Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although a Fund will enter into
such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. During the period between commitment by a
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government
securities, or other high grade debt securities rated "A" or better by
Moody's or Standard & Poor's at least equal to the value of purchase
commitments until payment is made.
The Funds will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When a Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If any of the Funds chooses to (i) dispose of the
right to acquire a when-issued security prior to its acquisition or (ii)
dispose of its right to deliver or receive against a forward commitment,
it may incur a gain or loss. At the time the Fund makes a commitment to
purchase or sell a security on a when-issued or forward commitment basis,
it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its
net asset value.
To the extent any Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. Each Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates in a direction other than that expected by the
Manager before settlement will affect the value of such securities and may
cause loss to that Fund.
When-issued transactions and forward commitments allow a Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, a Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
Covered Calls and Hedging
As described in the Prospectus, High Income Fund, Capital
Appreciation Fund, Growth Fund, Multiple Strategies Fund, Global
Securities Fund and Strategic Bond Fund may each write covered calls.
High Income Fund, Global Securities Fund and Strategic Bond Fund may also
employ one or more types of Hedging Instruments, including the futures
identified in the Prospectus ("Futures").
High Income, Global Securities and Strategic Bond Funds' strategy of
hedging with Futures and options on Futures will be incidental to each
such Fund's activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons, a given Fund would: (i) sell Futures,
(ii) purchase puts on such Futures or securities, or (iii) write covered
calls on securities or on Futures. When hedging to permit Global
Securities Fund to establish a position in the equities market as a
temporary substitute for purchasing individual equity securities (which
that Fund will normally purchase, and then terminate that hedging
position), or to attempt to protect against the possibility that High
Income, Global Securities or Strategic Bond Funds' portfolio debt
securities are not fully included in a rise in the debt securities market,
these funds may: (i) purchase Futures, or (ii) purchase calls on such
Futures or on securities.
When hedging to attempt to protect against declines in the dollar
value of a foreign currency-denominated security or in a payment on such
security, High Income Fund, Global Securities Fund and Strategic Bond Fund
would: (a) purchase puts on that foreign currency or on foreign currency
Futures, (b) write calls on that currency or on such Futures, or (c) enter
into Forward Contracts at a lower or higher rate than the spot ("cash")
rate. Additional information about the Hedging Instruments these Funds
may use is provided below. At present, High Income Fund, Global
Securities Fund and Strategic Bond Fund do not intend to purchase or sell
Futures or related options if, after any such purchase, the sum of initial
margin deposits on Futures and premiums paid for related options exceeds
5% of the value of that Fund's total assets. Certain options on foreign
currencies are considered related options for this purpose. In the
future, a Fund may employ Hedging Instruments and strategies that are not
presently contemplated but which may be developed, to the extent such
investment methods are consistent with that Fund's investment objective,
legally permissible and adequately disclosed.
Writing Covered Call Options. When either High Income Fund, Capital
Appreciation Fund, Growth Fund, Multiple Strategies Fund, Global
Securities Fund or Strategic Bond Fund writes a call on a security, it
receives a premium and agrees to sell the underlying security to a
purchaser of a corresponding call on the same security during the call
period (usually not more than 9 months) at a fixed exercise price (which
may differ from the market price of the underlying security), regardless
of market price changes during the call period. Such Fund has retained
the risk of loss should the price of the underlying security decline
during the call period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, each such Fund
may purchase a corresponding call in a "closing purchase transaction."
A profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call expires unexercised,
because a Fund retains the underlying security and the premium received.
Any such profits are considered short-term capital gains for Federal
income tax purposes, and when distributed by each such Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
securities until the call expired or was exercised. Call writing may
affect a Fund's turnover rate and brokerage commissions. The exercise of
calls written by a Fund may cause that Fund to sell related portfolio
securities, thus increasing its turnover rate in a manner beyond its
control.
High Income, Global Securities and Strategic Bond Funds may also
write (and purchase) calls on foreign currencies. A call written on a
foreign currency by one of these Funds is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call written by one of these Funds on
a foreign currency is for cross-hedging purposes if it is not covered, but
is designed to provide a hedge against a decline (due to an adverse change
in the exchange rate) in the U.S. dollar value of a security which the
Fund owns or has the right to acquire and which is denominated in the
currency underlying the option. In such circumstances, the Fund
collateralizes the option by maintaining in a segregated account with the
Fund's custodian, cash or U.S. Government securities in an amount not less
than the value of the underlying foreign currency in U.S. dollars marked-
to-market daily.
High Income Fund, Global Securities Fund and Strategic Bond Fund may
also write calls on Futures without owning a futures contract (or, with
respect to the High Income Fund, a deliverable bond) provided that at the
time the call is written, the Fund covers the call by segregating in
escrow an equivalent dollar amount of liquid assets. The Fund will
segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the Future. In no circumstances
would an exercise notice require a Fund to deliver a futures contract; it
would simply put the Fund in a short futures position, which is permitted
by each Fund's hedging policies.
Hedging - High Income Fund, Global Securities Fund and Strategic Bond
Fund. Set forth below are the Hedging Instruments which High Income Fund,
Global Securities Fund and Strategic Bond Fund may use.
Writing Put Options. A put option on securities gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to a Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, a Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put expires unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium
less transaction costs. If the put is exercised, the Fund must fulfill
its obligation to purchase the underlying investment at the exercise
price, which will usually exceed the market value of the investment at
that time. In that case, the Fund may incur a loss, equal to the sum of
the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs incurred.
When writing put options on securities or on foreign currencies, to
secure its obligation to pay for the underlying security, the Fund will
deposit in escrow liquid assets with a value equal to or greater than the
exercise price of the underlying securities. The Fund therefore forgoes
the opportunity of investing the segregated assets or writing calls
against those assets. As long as the obligation of the Fund as the put
writer continues, it may be assigned an exercise notice by the exchange
or broker-dealer through whom such option was sold, requiring the Fund to
take delivery of the underlying security against payment of the exercise
price. The Fund may be assigned an exercise notice at any time prior to
the termination of its obligation as the writer of the put. This
obligation terminates upon expiration of the put, or such earlier time at
which the Fund effects a closing purchase transaction by purchasing a put
of the same series as that previously sold. Once the Fund has been
assigned an exercise notice, it is thereafter not allowed to effect a
closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by that Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
Purchasing Calls and Puts. When High Income Fund, Global Securities
Fund or Strategic Bond Fund purchases a call (other than in a closing
purchase transaction), it pays a premium and has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund
benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the
call and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration
date and the Fund will lose its premium payment and the right to purchase
the underlying investment.
When such Fund purchases a put, it pays a premium and has the right
to sell the underlying investment to a seller of a put on a corresponding
investment during the put period at a fixed exercise price. Buying a put
on securities or Futures a Fund owns enables the Fund to attempt to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If
the market price of the underlying investment is equal to or above the
exercise price and, as a result, the put is not exercised or resold, the
put will become worthless at its expiration date and the Fund will lose
its premium payment and the right to sell the underlying investment; the
put may, however, be sold prior to expiration (whether or not at a
profit).
Purchasing a put on either Futures or on securities it does not own
permits a Fund either to resell the put or, if applicable, to buy the
underlying investment and sell it at the exercise price. The resale price
of the put will vary inversely with the price of the underlying
investment. If the market price of the underlying investment is above the
exercise price, and, as a result, the put is not exercised, the put will
become worthless on its expiration date. In the event of a decline in
price of the underlying investment, the Fund could exercise or sell the
put at a profit to attempt to offset some or all of its loss on its
portfolio securities. When the Fund purchases a put on a Future or
security not held by it, the put protects the Fund to the extent that the
prices of the underlying Future or securities move in a similar pattern
to the prices of the securities in a Fund's portfolio.
Futures. No price is paid or received upon the purchase or sale of
a Future. Upon entering into a Futures transaction, a Fund will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited
with the Fund's Custodian in an account registered in the futures broker's
name; however the futures broker can gain access to that account only
under specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis. Prior
to expiration of the Future, if the Fund elects to close out its position
by taking an opposite position, a final determination of variation margin
is made, additional cash is required to be paid by or released to the
Fund, and any loss or gain is realized for tax purposes. All futures
transactions are effected through a clearinghouse associated with the
exchange on which the contracts are traded.
Forward Contracts. A Forward Contract involves bilateral obligations
of one party to purchase, and another party to sell, a specific currency
at a future date (which may be any fixed number of days from the date of
the contract agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers.
High Income, Global Securities and Strategic Bond Funds may use
Forward Contracts to protect against uncertainty in the level of future
exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In
addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. None of these Funds speculates with Forward Contracts or
foreign currency exchange rates.
These Funds may enter into Forward Contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
a Fund anticipates receipt of dividend payments in a foreign currency, a
Fund may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. Dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction. A Fund will thereby be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or
received.
These Funds may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when a Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of that Fund's portfolio securities denominated in
such foreign currency, or when a Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a Forward Contract to sell a different foreign currency for a fixed
U.S. dollar amount where that Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the Forward Contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of that Fund are denominated ("cross-hedge").
These Funds will not enter into such Forward Contracts or maintain
a net exposure to such contracts where the consummation of the contracts
would obligate that Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. The Fund, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure to Forward
Contracts in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency provided the excess amount is
"covered" by liquid, high-grade debt securities, denominated in that
foreign currency or U.S. dollars, at least equal at all times to the
amount of such excess. As an alternative, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the
forward contract price or the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward contract
price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts.
The precise matching of the Forward Contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot (i.e., cash) market (and bear the expense of such
purchase), if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its
market value exceeds the amount of foreign currency a Fund is obligated
to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing
a Fund to sustain losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring any Fund
to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a Forward
Contract requiring it to purchase a specified currency by entering into
a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would
realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate
or rates between the currencies involved moved between the execution dates
of the first contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, a Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although each Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should that Fund desire to resell that currency
to the dealer.
Interest Rate Swap Transactions. The risk incurred by Strategic Bond
Fund in entering into a swap agreement is twofold: interest rate risk and
credit risk. There is a risk that, based on movements of interest rates
in the future, the payments made by the Fund under a swap agreement will
have been greater than those received by it. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to
an interest rate swap defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of counterparties
to the Fund's interest rate swap transactions on an ongoing basis. The
Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement
provides that all swaps done between the Fund and that counterparty under
the master agreement shall be regarded as parts of an integral agreement.
If on any date amounts are payable in the same currency in respect of one
or more swap transactions, the net amount payable on that date in that
currency shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the
counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party, the
measure of that party's damages is calculated by reference to the average
cost of a replacement swap with respect to each swap (i.e., the mark-to-
market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting
of gains and losses on termination is generally referred to as
"aggregation."
Additional Information About Hedging Instruments and Their Use. Each
Fund's Custodian, or a securities depository acting for the Custodian,
will act as that Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the securities on which the
Fund has written options or as to other acceptable escrow securities, so
that no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or upon the Fund's entering
into a closing transaction. An option position may be closed out only on
a market which provides secondary trading for options of the same series,
and there is no assurance that a liquid secondary market will exist for
any particular option.
When High Income Fund, Strategic Bond Fund or Global Securities Fund
writes an over-the-counter ("OTC") option, it will enter into an
arrangement with a securities dealer, which would establish a formula
price at which that Fund would have the absolute right to repurchase that
OTC option. This formula price would generally be based on a multiple of
the premium received for the option, plus the amount by which the option
is exercisable below for a put, above for a call, the market price of the
underlying security ("in-the-money"). For any OTC option which any of
these three Funds writes, it will treat as illiquid (for purposes of the
15% of net assets restriction on illiquid securities, stated in the
Prospectus) the mark-to-market value of any OTC option held by it. The
SEC is evaluating the general issue of whether or not OTC options should
be considered as liquid securities, and the procedure described above
could be affected by the outcome of that evaluation.
Each Fund's option activities may affect its turnover rate and
brokerage commissions. As noted above, the exercise of calls written by
a Fund may cause that Fund to sell related portfolio securities, thus
increasing its turnover rate in a manner beyond a Fund's control. The
exercise by a Fund of puts on securities or Futures may cause the sale of
related investments, also increasing portfolio turnover. Although such
exercise is within the Fund's control, holding a put might cause the Fund
to sell the underlying investment for reasons which would not exist in the
absence of the put. Each Fund will pay a brokerage commission each time
it buys or sells a call, buys a put or sells an underlying investment in
connection with the exercise of a put or call. Such commissions may be
higher than those which would apply to direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation
to the market value of such investments and consequently, put and call
options offer large amounts of leverage. The leverage offered by trading
in options could result in a Fund's net asset value being more sensitive
to changes in the value of the underlying investment.
Regulatory Aspects of Hedging Instruments. High Income Fund, Global
Securities Fund and Strategic Bond Fund must each operate within certain
restrictions as to its long and short positions in Futures and options
thereon under a rule (the "CFTC Rule") adopted by the Commodity Futures
Trading Commission (the "CFTC") under the Commodity Exchange Act (the
"CEA"), which excludes the Fund from registration with the CFTC as a
"commodity pool operator" (as defined in the CEA) if it complies with the
CFTC Rule. Under these restrictions the Fund will not, as to any
positions, whether short, long or a combination thereof, enter into
Futures and related options for which the aggregate initial margins and
premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA. Certain options on
foreign currencies are considered related options for this purpose.
Transactions in options by these Funds are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. Due to requirements under the Investment Company Act,
when a Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Hedging Instruments and Covered Calls. Each Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986. One of the tests for such qualification is that
less than 30% of its gross income must be derived from gains realized on
the sale of securities held for less than three months. Due to this
limitation, the Funds will limit the extent to which they engage in the
following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by that Fund;
(ii) purchasing calls or puts which expire in less than three months;
(iii) effecting closing transactions with respect to calls or puts
purchased less than three months previously; (iv) exercising puts held by
that Fund for less than three months; and (v) writing calls on investments
held for less than three months.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
in using short hedging by: (i) selling Futures or (ii) purchasing puts on
broadly-based indices or Futures to attempt to protect against declines
in the value of the Fund's securities that the prices of the Futures or
applicable index (thus the prices of the Hedging Instruments) will
correlate imperfectly with the behavior of the cash (i.e., market value
prices) of the Fund's securities. The ordinary spreads between prices in
the cash and futures markets are subject to distortions due to differences
in the natures of those markets. First, all participants in the futures
markets are subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depend on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition of a
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the securities being hedged and movements in the price of the
Hedging Instruments, each Fund may use Hedging Instruments in a greater
dollar amount than the dollar amount of securities being hedged if the
historical volatility of the prices of such securities being hedged is
more than the historical volatility of the applicable index. It is also
possible that where a Fund has used Hedging Instruments in a short hedge,
the market may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
Hedging Instruments and also experience a decline in value in its
securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
equity securities will tend to move in the same direction as the indices
upon which the Hedging Instruments are based.
If a Fund uses Hedging Instruments to establish a position in the
securities markets as a temporary substitute for the purchase of
individual securities (long hedging) by buying Futures and/or calls on
such Futures, on securities, or on stock indices, it is possible that the
market may decline. If either Fund then concludes not to invest in such
securities at that time because of concerns as to possible further market
decline or for other reasons, that Fund will realize a loss on the Hedging
Instruments that is not offset by a reduction in the price of the equity
securities purchased.
Short Sales Against-the-Box. Global Securities Fund and Strategic Bond
Fund may sell securities short in "short sales against-the-box." In such
short sales, while the short position is open, the Fund must own an equal
amount of such securities, or by virtue of ownership of securities have
the right, without payment of further consideration, to obtain an equal
amount of the securities sold short. Short sales against-the-box may be
made to defer, for Federal income tax purposes, recognition of gain or
loss on the sale of securities "in the box" until the short position is
closed out.
INVESTMENT RESTRICTIONS
The significant investment restrictions of all the Funds are set
forth in the Prospectus. The following investment restrictions are also
fundamental policies and, together with the fundamental policies described
in the Prospectus, cannot be changed without the vote of a "majority" (as
defined in the Investment Company Act) of the outstanding shares of the
Trust (or of the Fund, as to matters affecting only that Fund). Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of: (i) 67% or more of the shares present or
represented by proxy at such meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or (ii) more
than 50% of the outstanding shares.
Under these additional restrictions, each of the Funds cannot: (1)
invest in commodities or in commodities contracts, other than the Hedging
Instruments permitted by any of its other fundamental policies, whether
or not any such Hedging Instrument is considered to be a commodity or a
commodity contract (High Income, Global Securities and Strategic Bond
Funds, only; none of the percentage limitations and restrictions for
Strategic Bond Fund regarding Hedging Instruments is a fundamental policy
of Strategic Bond Fund); (2) invest in oil or gas exploration or
development programs; (3) invest in real estate or in interests in real
estate, but may purchase securities of issuers holding real estate or
interests therein; (4) purchase securities on margin, except that a Fund
may make margin deposits in connection with any of the Hedging Instruments
which it may use (High Income, Global Securities and Strategic Bond Funds,
only); (5) make short sales of securities, except that Global Securities
Fund and Strategic Bond Fund may make short sales "against-the-box"; (6)
invest in companies for the purpose of acquiring control of management
thereof; (7) underwrite securities of other companies, except insofar as
it might be deemed to be an underwriter for purposes of the Securities Act
of 1933 in the resale of any securities held in its own portfolio; (8)
invest or hold securities of any issuer if those officers and trustees or
directors of the Trust or its adviser owning individually more than 1/2
of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer; or (9) invest in other open-end investment
companies, or invest more than 5% of its net assets at the time of
purchase in closed-end investment companies, including small business
investment companies, nor make any such investments at commission rates
in excess of normal brokerage commissions.
New York's insurance laws require that investments of each Fund be
made with a degree of care of an "ordinarily prudent person." The Manager
believes that compliance with this standard will not have a negative
impact on the performance of any of the Funds. In addition, each Fund's
investments must comply with the diversification requirements contained
in Section 817(h) of the Internal Revenue Code, and Global Securities Fund
has undertaken to comply with the diversification requirements of Section
10506 of the California Insurance Code (see "Investment Policies -- Global
Securities Fund" in the Prospectus), and in each case with the regulations
adopted under those statutes.
TRUSTEES AND OFFICERS
The Trust's Trustees and officers and their principal occupations and
business affiliations during the past five years are listed below. All
of the Trustees are also trustees, directors or managing general partners
of Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund,
Oppenheimer Strategic Income Funds Trust, Oppenheimer Strategic Investment
Grade Bond Fund, Oppenheimer Strategic Short-Term Income Fund, Oppenheimer
Strategic Income & Growth Fund, Centennial America Fund, L.P., Oppenheimer
Total Return Fund, Inc., Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt
Cash Reserves, Oppenheimer Integrity Funds, Oppenheimer Tax-Exempt Bond
Fund, Oppenheimer Government Securities Fund, Main Street Funds, Inc.,
Oppenheimer Champion High Yield Fund, Centennial Government Trust,
Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial
California Tax Exempt Trust, Centennial New York Tax Exempt Trust, Daily
Cash Accumulation Fund, Inc. and The New York Tax-Exempt Income Fund, Inc.
(all of the foregoing funds are collectively referred to as the "Denver
OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is Chairman of
the Denver-based OppenheimerFunds. As of February 18, 1994, none of the
Trustees or officers were Account owners and thus none owned any Fund
shares.
ROBERT G. AVIS, Trustee(1)
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President, McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee(1)
Two World Trade Center, New York, New York 10048
Chairman, Chief Executive Officer and a director of the Manager; President
and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company, and of HarbourView Asset Management Corp.
("HarbourView"), a subsidiary of the Manager; a director of Shareholder
Services, Inc. ("SSI") and Shareholder Financial Services, Inc. ("SFSI"),
transfer agent subsidiaries of the Manager; formerly President of the
Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which
he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Denver, Colorado 80209
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered property and casualty underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee(1)
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a director of Centennial Asset
Management Corporation, an investment advisory subsidiary of the Manager
("Centennial"); formerly President and a director of Oppenheimer Asset
Management Corporation ("OAMC"), an investment adviser which was a
subsidiary of the Manager and Chairman of the Board of SSI.
PAUL LAROCCO, Portfolio Manager, Capital Appreciation Fund
Two World Trade Center, New York, New York 10048
Assistant Vice President of the Manager; Associate Portfolio Manager for
other OppenheimerFunds; formerly a securities analyst with Columbus Circle
Investors, prior to which he was investment analyst for Chicago Title &
Trust Co.
ROBERT C. DOLL, JR., Vice President; Growth Fund Portfolio Manager
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
DAVID P. NEGRI, Vice President; High Income Fund, Bond Fund and Strategic
Bond Fund Portfolio Manager
Two World Trade Center, New York, New York 10048
Vice President of the Manager; an officer of other OppenheimerFunds.
RICHARD H. RUBINSTEIN, Vice President; Multiple Strategies Fund Portfolio
Manager
Two World Trade Center, New York, New York 10048
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly Vice President and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corporation (an investment adviser).
ARTHUR J. ZIMMER, Vice President; Money Fund Portfolio Manager
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager and Centennial; an officer of other
OppenheimerFunds; formerly Vice President of Hanifen Imhoff Management
Company (mutual fund investment adviser).
GEORGE EVANS, Vice President; Global Securities Fund Portfolio Manager
Two World Trade Center, New York, New York 10048
Assistant Vice President of the Manager; formerly an International
Equities Portfolio Manager/Analyst with Brown Brothers, Harriman & Co.
ANDREW J. DONOHUE, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. ("OFDI"); an officer of other
OppenheimerFunds; formerly Senior Vice President and Associate General
Counsel of the Manager and the Distributor, Partner in Kraft & McManimon
(a law firm), an officer of First Investors Corporation (a broker-dealer)
and First Investors Management Company, Inc. (broker-dealer and investment
adviser), director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager: Vice President and
Treasurer of OFDI and HarbourView; Senior Vice President, Treasurer,
Assistant Secretary and a Director of Centennial; Vice President,
Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of OAMC.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of other
OppenheimerFunds; formerly Vice President/Director of Internal Audit of
the Manager.
________________________
(1) A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.
Remuneration of Officers and Trustees. The officers of the Trust,
(including Messrs. Avis, Swain and Fossel) are affiliated with the Manager
and receive no remuneration from the Trust. During the fiscal year ended
December 31, 1993, the remuneration (including expense reimbursements)
paid to all Trustees of the Trust (excluding Messrs. Swain and Fossel) for
services as Trustees and as members of one or more committees totaled
$________. The Trust has an Audit and Review Committee, comprised of
William A. Baker (Chairman), Charles Conrad, Jr. and Robert M. Kirchner.
This Committee meets regularly to review audits, audit procedures,
financial statements and other financial and operational matters of the
Funds.
Fund Shareholders. As of February 18, 1994, all of the outstanding shares
of each Fund (except Strategic Bond Fund) were held as follows by: (i)
Variable Account B of Monarch Life Insurance Company ("Monarch"),
Springfield, MA; (ii) Separate Accounts P and Q of Bankers Security Life
Insurance Society ("Bankers Security"), Arlington, VA; (iii) Separate
Accounts II and III of The Life Insurance Company of Virginia ("Life of
Virginia"), Richmond, VA; (iv) Separate Accounts I and II of Nationwide
Life Insurance Company ("Nationwide"), Columbus, OH; or (v) Separate
Account A of Confederation Life Insurance and Annuity Company
("Confederation"), Atlanta, GA, as follows:
<TABLE>
<CAPTION> Total Numb
Bankers Life of of Shar
Monarch Security Virginia Nationwide Confederation Outstandi
<S> <C> <C> <C> <C> <C> <C>
Money Fund 29,727,737.92 14,044,204.58 2,864,521.96 0.00 14,584,182.05 61,220,646.
High Income 1,553,371.35 2,495,261.32 1,272,107.14 0.00 3,122,217.71 8,442,957.
Fund
Bond Fund 997,168.96 0.00 1,049,197.11 5,980,497.25 1,574,932.79 9,601,796.
Capital 806,064.63 1,494,681.09 870,053.90 0.00 1,155,053.09 4,325,852.
Appreciation Fund
Growth Fund 1,163,839.20 0.00 597,758.77 0.00 1,441,106.46 3,202,704.
Multiple 4,150,154.71 3,519,317.50 1,611,597.20 5,682,812.21 3,062,091.46 18,025,973.
Strategies Fund
Global 0.00 1,303,124.17 0.00 2,360,609.66 2,253,379.09 5,917,112.
Securities Fund
Strategic 0.00 0.00 0.00 0.00 1,929,958.13 1,929,958.
Bond Fund
</TABLE>
INVESTMENT MANAGEMENT SERVICES
The Manager is a wholly-owned subsidiary of Oppenheimer Acquisition
Corp. ("OAC"), a holding company controlled by Massachusetts Mutual Life
Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom may also serve as officers of the
Funds, and two of whom (Messrs. Jon S. Fossel and James C. Swain) serve
as Trustees of the Trust.
The investment advisory agreements between the Manager and each of
the eight Funds (the "Agreements") require the Manager, at its expense,
to provide each Fund with adequate office space, facilities and equipment,
and to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration of each
Fund, including the compilation and maintenance of records with respect
to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous
public sale of shares of each Fund. Under the terms of the Agreements,
expenses not expressly assumed by the Manager are paid by the Trust. The
Agreements list examples of expenses paid by the Trust, the major
categories of which relate to interest, taxes, brokerage commissions, fees
to certain Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration
costs and non-recurring expenses, including litigation. Expenses with
respect to any two or more Funds are allocated in proportion to the net
assets of the respective Funds except where allocations of direct expenses
can be made. The management fees paid by the Funds to the Manager for the
Funds' most recent three fiscal years was as follows; no information is
shown for Oppenheimer Strategic Bond Fund as that fund commenced
operations after December 31, 1993.
Fiscal year ended December 31,
1993 1992 1991
Money Fund
High Income Fund(1)
Bond Fund
Capital Appreciation Fund
Growth Fund
Multiple Strategies Fund
Global Securities Fund
Strategic Bond Fund (2)
____________________
(1)Does not reflect expense reimbursements of $12,828 in the
fiscal year ended
December 31, 1991.
(2)Since May 1, 1993 (commencement of operations) to December
31, 1993.
The Agreements provide that the Manager is not liable for any loss
sustained by the Trust and/or any Fund in connection with matters to which
the Agreements relate, except a loss resulting by reason of the Manager's
willful misfeasance, bad faith or gross negligence in the performance of
its duties or reckless disregard for its obligations thereunder. The
Manager may act as investment adviser for any other person, firm or
corporation, and the Agreements permit the Manager to use the name
"Oppenheimer" in connection with other investment companies for which it
may act as investment adviser or general distributor. If the Manager
shall no longer act as investment adviser to the Trust, the right of the
Trust or any of the Funds to use the name "Oppenheimer" as part of their
names may be withdrawn.
Independently of the Agreements, the Manager has voluntarily
undertaken that the total expenses of Money Fund, High Income Fund, Bond
Fund, Capital Appreciation Fund, Growth Fund and Multiple Strategies Fund
in any fiscal year exclusive of taxes, interest, brokerage commissions and
any extraordinary non-recurring expenses, including litigation affecting
any Fund, shall not exceed 2.0% of the first $10 million of average net
assets of that Fund plus 1.5% of the next $20 million, plus 1% of average
net assets above $30 million for such year. The payment of the management
fee will be reduced or eliminated during any fiscal year in which such
payment would cause the expenses of these Funds to exceed the pro rata
expense limitation applicable to such Fund. The Manager and Monarch Life
Insurance Company, Bankers Security Life Insurance Society ("Bankers") and
Confederation Life Insurance and Annuity Company have also voluntarily
undertaken to limit the expenses of Money Fund, High Income Fund, Bond
Fund, Capital Appreciation Fund and Multiple Strategies Fund to 0.75% of
average annual net assets, after any other reimbursement by the Manager.
The reimbursement is based on the proportionate number of shares in the
accounts of the respective insurance companies. The undertaking by
Bankers extends to Multiple Strategies Fund only.
BROKERAGE
Provisions of the Agreements Affecting Capital Appreciation Fund, Growth
Fund, Multiple Strategies Fund, Global Securities Fund and Strategic Bond
Fund. One of the duties of the Manager under the Agreements is to arrange
the portfolio transactions for the Funds. The Agreements contain
provisions relating to employment of broker-dealers ("brokers") to effect
the Funds' portfolio transactions. In doing so, the Manager is authorized
by the Agreements to employ brokers, including "affiliated broker-
dealers," as that term is defined in the Investment Company Act, 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
such transactions. The Manager need not seek competitive commission
bidding but is expected to be aware of the current rates of most eligible
brokers and to minimize the commissions paid to the extent consistent with
the provisions of the Agreements and the interests and policies of the
Funds as established by the Board of Trustees.
Under the Agreements, the Manager is authorized to select brokers
which provide brokerage and/or research services for the Funds and/or the
other accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than
another qualified broker would have charged, if a good faith determination
is made by the Manager that the commission is reasonable and fair in
relation to the services provided.
Description of Brokerage Practices. Subject to the provisions of the
Agreements, allocations of brokerage are made by portfolio managers under
the supervision of executive officers of the Manager. Transactions in
securities other than those for which an exchange is the primary market
are generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed
securities and otherwise only if it appears likely that a better price or
execution can be obtained. When the Funds engage in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transactions in the securities to which the
option relates. Where possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or
its affiliates are combined. The transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales portfolio securities.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Funds normally deal directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked prices. The Funds seek to obtain prompt
execution of such orders at the most favorable net price.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research for the commissions of those other
accounts may be useful both to the Funds and one or more of such other
accounts. Such research, which may be supplied by a third party at the
instance of a broker, includes information on particular companies and
industries as well as market or economic trends and portfolio strategy,
receipt of market quotations for portfolio valuations, information
systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such
as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager in the
investment decision-making process may be paid for in commission dollars.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager by making available additional
views for consideration and comparisons, and to enable the Manager to
obtain market information for the valuation of securities held in the
Funds' portfolios or being considered for purchase. The Board, including
the "Independent Trustees" (those Trustees of the Trust who are not
"interested persons," as defined in the Investment Company Act) annually
reviews information furnished by the Manager as to the commissions paid
to brokers furnishing such services so that the Board may ascertain
whether the amount of such commissions was reasonably related to the value
of benefit of such services.
Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund. As most
purchases made by Money Fund, High Income Fund, Bond Fund and Strategic
Bond Fund are principal transactions at net prices, these Funds incur
little or no brokerage costs. Purchases of securities from underwriters
include a commission or concession paid by the issuer to the underwriter,
and purchases from dealers include a spread between the bid and asked
price. No principal transactions and, except under unusual circumstances,
no agency transaction for these Funds will be handled by any affiliated
securities dealer. In the unusual circumstance when these Funds pay
brokerage commissions, the above-described brokerage practices and
policies are followed. Money Fund's policy of investing in short-term
debt securities with maturities of less than 397 days results in high
portfolio turnover. However, since brokerage commissions, if any, are
small, high portfolio turnover does not have an appreciable adverse effect
upon the net asset value of that Fund. The Board of Trustees has
permitted the Manager to use concessions on fixed price offerings to
obtain research, in the same manner as permitted for agency transactions.
During the Funds' fiscal years ended December 31, 1991, 1992 and
1993, total brokerage commissions paid by the Funds (not including spreads
or concessions on principal transactions on a net trade basis) were
$84,370, $79,362 and $___________, respectively, for Capital Appreciation
Fund; $3,871, $2,470 and $________________, respectively, for High Income
Fund; $84,552, $32,228 and $______________, respectively, for Growth Fund;
$226,558, $187,495 and $___________, respectively, for Multiple
Strategies Fund. For the fiscal years ended December 31, 1991, 1992 and
1993, Global Securities Fund paid brokerage commissions of $18,464,
$53,828 and $_______________, respectively. During the fiscal year ended
December 31, 1992, $25,443, $25,948, $75,448, and $986 was paid by Capital
Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global
Securities Fund, respectively, to dealers as brokerage commissions in
return for research services (including special research, statistical
information and execution); the aggregate amount of those transactions was
$_____________, $___________, $_______________, and $______________ for
Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and
Global Securities Fund, respectively.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The sale of shares of the
Funds is currently limited to Accounts as explained on the cover page of
this Additional Statement and in the Prospectus. Such shares are sold at
their respective offering prices (net asset values without sales charges)
and redeemed at their respective net asset values as described in the
Prospectus.
The net asset value per share of each Fund is determined as of 4:00
P.M., New York time, each day the New York Stock Exchange (the "NYSE") is
open (a "regular business day") by dividing the value of the Fund's net
assets by the number of shares outstanding. The NYSE's most recent annual
holiday schedule (which is subject to change) states that it will close
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. The NYSE may also
close on other days. Dealers other than Exchange members may conduct
trading at times when the NYSE is closed (e.g., Good Friday). Trading may
occur in debt securities and in foreign securities at times when the NYSE
is closed (including weekends and holidays or after 4:00 P.M., New York
time, on a regular business day). Because the net asset value of the
Funds will not be calculated at such times, if securities held in a Fund's
portfolio are traded at such times, the net asset value per share of that
Fund may be significantly affected at times when shareholders do not have
the ability to purchase or redeem shares.
The Funds' Board of Trustees has established procedures for the
valuation of each Fund's (other than Money Fund's) securities as follows:
(i) equity securities traded on a securities exchange or on NASDAQ are
valued at the last sale prices on their primary exchange or NASDAQ that
day (or, in the absence of sales that day, at values based on the last
sales prices of the preceding trading day, or closing bid and asked
prices); (ii) NASDAQ and other unlisted equity securities for which last
sales prices are not regularly reported but for which over-the-counter
market quotations are readily available are valued at the highest closing
bid price at the time of valuation, or, if no closing bid price is
reported, on the basis of a closing bid price obtained from a dealer who
maintains an active market in that security; (iii) securities (including
restricted securities) not having readily-available market quotations are
valued at fair value under the Board's procedures; (iv) unlisted debt
securities having a maturity in excess of 60 days are valued at the mean
between the bid and asked prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained from active market
makers in the security on the basis of reasonable inquiry; (v) short-term
debt securities having a remaining maturity of 60 days or less are valued
at cost, adjusted for amortization of premiums and accretion of discounts;
and (vi) securities traded on foreign exchanges or in foreign over-the-
counter markets are valued as determined by a portfolio pricing service
approved by the Board, based upon last sales prices reported on a
principal exchange or, if none, at the mean between closing bid and asked
prices and reflect prevailing rates of exchange to convert their values
to U.S. dollars. Foreign currency will be valued as close to the time
fixed for the valuation date as is reasonably practicable. The value of
securities denominated in foreign currency will be converted to U.S.
dollars at the prevailing rates of exchange at the time of valuation.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in such markets
that occur between the time their prices are determined and the close of
the NYSE will not be reflected in that Fund's calculation of its net asset
value unless the Board of Trustees, or the Manager under procedures
established by the Board, determines that the particular event would
materially affect that Fund's net asset value, in which case an adjustment
would be made.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign fixed-income securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Trust's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ National Market on which they are
traded, or, if there are no sales that day, in accordance with (i) above.
When a Fund writes an option, an amount equal to the premium received by
that Fund is included in its Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option.
Money Fund Net Asset Valuation. Money Fund will seek to maintain a net
asset value of $1.00 per share for purchases and redemptions. There can
be no assurance that it will do so. The Fund operates under SEC Rule 2a-
7, under which the Fund may use the amortized cost method of valuing its
shares. The amortized cost method values a security initially at its cost
and thereafter assumes a constant amortization of any premium or accretion
of any discount, regardless of the impact of fluctuating interest rates
on the market value of the security. The method does not take into
account unrealized capital gains or losses.
The Fund's Board of Trustees has established procedures intended to
stabilize Money Fund's net asset value at $1.00 per share. If the Fund's
net asset value per share were to deviate from $1.00 by more than 0.5%,
Rule 2a-7 requires the Board promptly to consider what action, if any,
should be taken. If the Trustees find that the extent of any such
deviation may result in material dilution or other unfair effects on
shareholders, the Board will take whatever steps it considers appropriate
to eliminate or reduce such dilution or unfair effects, including,
without limitation, selling portfolio securities prior to maturity,
shortening the average portfolio maturity, withholding or reducing
dividends, reducing the outstanding number of Fund shares without monetary
consideration, or calculating net asset value per share by using available
market quotations.
As long as it uses Rule 2a-7 the Money Fund must abide by certain
conditions described above and in the prospectus. For purposes of the
Rule, the maturity of an instrument is generally considered to be its
stated maturity (or in the case of an instrument called for redemption,
the date on which the redemption payment must be made), with special
exceptions for certain variable and floating rate instruments. Repurchase
agreements and securities loan agreements are, in general, treated as
having a maturity equal to the period scheduled until repurchase or
return, or if subject to demand, equal to the notice period.
While the amortized cost method provides certainty in valuation,
there may be periods during which the value of an instrument as determined
by amortized cost is higher or lower than the price the Fund would receive
if it sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Fund may tend to be lower than a like
computation made by a fund with identical investments utilizing a method
of valuation based upon market prices or estimates of market prices for
its portfolio. Conversely, during periods of rising interest rates, the
daily yield on Fund shares will tend to be higher than that of a portfolio
priced at market value.
YIELD, TOTAL RETURN AND TAX INFORMATION
Money Fund Yield Information. Money Fund's current yield for a seven day
period of time is determined in accordance with regulations adopted under
the Investment Company Act as follows. First, a base period return is
calculated for the seven-day period by determining the net change in the
value of a hypothetical pre-existing account having one share at the
beginning of a seven day period. The change includes dividends declared
on the original share and dividends declared on any shares purchased with
dividends on that share, but such dividends are adjusted to exclude any
realized or unrealized capital gains or losses affecting the dividends
declared. Next, the base period return is multiplied by 365/7 to obtain
the current yield to the nearest hundredth of one percent. The compounded
effective yield for a seven-day period is calculated by (a) adding 1 to
the base period return (obtained as described above), (b) raising the sum
to a power equal to 365 divided by 7 and (c) subtracting 1 from the
result. For the seven days ended December 31, 1993, Money Fund's "current
yield" was _____% and its compounded "effective yield" for that period was
_____%.
The yield as calculated above may vary for accounts less than
approximately $100 in value due to the effect of rounding off each daily
dividend to the nearest full cent. Since the calculation of yield under
either procedure described above does not take into consideration any
realized or unrealized gains or losses on the Fund's portfolio securities
which may affect dividends, the dividends declared during a period may not
be the same on an annualized basis as the yield for that period.
High Income Fund, Bond Fund and Strategic Bond Fund Yield Information.
The "yield" or "standardized yield" of High Income Fund, Bond Fund and
Strategic Bond Fund for a 30-day period is calculated using the following
formula set forth in the SEC rules:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c =
the average daily number of Fund shares outstanding during the
30-day period that were entitled to receive dividends.
d =
the Fund's maximum offering price (including sales charge) per
share on the last day of the period.
Each Fund's yield for a 30-day period may differ from its yield for
any other period. The SEC formula assumes that the yield for a 30-day
period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. For the 30 days ended December 31,
1993, the yield of High Income Fund and Bond Fund, calculated as described
above, was _____% and _____%, respectively. The "standardized" yield is
not based on distributions paid by a Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the return on a Fund's
portfolio investments, and may differ from a Fund's "distribution return"
described below.
From time to time High Income, Bond and Strategic Bond Funds may
quote a "dividend yield" or a "distribution return." Dividend yield is
based on that Fund's dividends derived from net investment income during
a stated period, and distribution return includes dividends derived from
net investment income and from realized capital gains declared during a
stated period. Under those calculations, the Fund's dividends and/or
distributions declared during a stated period of one year or less (for
example, 30 days) are added together, and the sum is divided by the Fund's
maximum offering price (equal to its net asset value) per share on the
last day of the period. The result may be annualized if the period of
measurement is less than one year. The dividend yield of High Income Fund
and Bond Fund for the quarter ended December 31, 1993, was ____% and
____%, respectively.
Total Return. Any Fund, other than Money Fund, may quote its "total
return" or "average annual total return." "Average annual total return"
("T" in the formula below) is an average annual compounded rate of return.
It is the rate of return based on factors which include a hypothetical
initial investment of $1,000 ("P" in the formula below) over a number of
years ("n") with an Ending Redeemable Value ("ERV") of that investment,
according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses some of the same factors, but does not
average the rate of return
on an annual basis. Total return measures the cumulative (rather than
the average) change in value of a hypothetical investment over a stated
period. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume that all dividends and capital gains distributions
during the period are reinvested at net asset value per share, and that
the investment is redeemed at the end of the period. Set forth below is
the "average annual total return" and "total return" for each Fund (using
the method described above) during the periods indicated:
[/R]
Average Annual Total Return for:
Fiscal Year Five Year
Ended Period Inception(1)
Fund 12/31/93 Ended 12/31/93 To 12/31/93
High Income Fund
Bond Fund
Capital Appreciation Fund
Growth Fund
Multiple Strategies Fund
Global Securities Fund
Strategic Bond Fund
______________
(1)Inception dates are as follows: April 30, 1986 for High Income Fund;
April 3, 1985 for Bond Fund and Growth Fund; August 15, 1986 for Capital
Appreciation Fund; February 9, 1987 for Multiple Strategies Fund and
November 12, 1990 for Global Securities Fund.; and May 1, 1993 for
Strategic Bond Fund.
[/R]
The total return on an investment made in shares of any one of these
Funds may be compared with performance for the same period of either the
Standard & Poor's 500 Index ("S&P 500") or the Dow Jones Industrial
Average ("Dow"). Both the S&P 500 and the Dow are widely recognized
indices of stock market performance consisting of unmanaged groups of
common stocks (the Dow consists of 30 such issues). The performance of
both indices includes a factor for the reinvestment of income dividends
but not capital gains and does not take sales charges or taxes into
consideration.
Performance Information - General. Yield and total return information may
be useful to investors in reviewing performance of the Funds. However,
a number of factors should be taken into account before using such
performance information as a basis for comparison with alternative
investments. An investment in any of these Funds is not insured. Their
performance is not guaranteed and will fluctuate over time. Yield and
total return for any Fund for any given past period is not an indication
or representation by that Fund of future yields or rates of return on its
shares. In comparing the performance of one Fund to another,
consideration should be given to each Fund's investment policy, portfolio
quality, portfolio maturity, type of instrument held and operating
expenses. When comparing yield, total return and investment risk of an
investment in any of the Funds with those of other investment instruments,
investors should understand that certain other investment alternative such
as money market instruments, certificates of deposits ("CDs"), U.S.
Government securities or bank accounts provide yields that are fixed or
that may vary above a stated minimum, and may be insured or guaranteed.
Finally, the performance quotations do not reflect the charges deducted
from an Account, as explained in the attached Prospectus for the Policies.
If these charges were deducted, that performance would be lower than as
described above.
From time to time the Trust may publish the ranking of any of the Funds
by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent service. Lipper monitors the performance of regulated
investment companies, including the Accounts that invest in the Funds, and
ranks their performance for various periods against all variable annuity
funds and variable annuity funds of the corresponding Lipper categories.
These categories are money market, fixed-income, equity and flexible
managed funds. The Lipper performance analysis includes the reinvestment
of capital gains distributions and income dividends but does not take
sales charges or taxes into consideration. From time to time the Trust
may include in its advertisements and sales literature performance
information about the Funds cited in other newspapers and periodicals,
such as The New York Times, which may include performance quotations from
other sources, including Lipper.
Distributions and Taxes. Under the Internal Revenue Code, each Fund must
distribute by December 31 each year 98% of its taxable investment income
earned from January 1 through December 31 of that year and 98% of its
capital gains realized in the period from November 1 of the prior year
through October 31 of that year, or else pay an excise tax on the amounts
not distributed. The Manager might determine that in a particular year
it might be in the best interest of shareholders not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts, which would reduce the amount available for
distribution to shareholders.
The Internal Revenue Code requires that a holder (such as a Fund) of
a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though that Fund receives
no interest payment in cash on the security during the year. As an
investment company, each Fund must pay out substantially all of its net
investment income each year. Accordingly, when a Fund holds zero coupon
securities, it may be required to pay out as an income distribution each
year an amount which is greater than the total amount of cash interest the
Fund actually received. Such distributions will be made from the cash
assets of that Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
The Trust intends for each Fund to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. By so
qualifying, the Funds will not be subject to Federal income taxes on
amounts paid by them as dividends and distributions, as described in the
Prospectus. Each Fund is treated as a single entity for purposes of
determining Federal tax treatment. The Trust will endeavor to ensure that
each Fund's assets are so invested so that all such requirements are
satisfied, but there can be no assurance that it will be successful in
doing so.
ADDITIONAL INFORMATION
Description of the Trust. The Trust's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the Trust's
obligations, and provides for indemnification and reimbursement of
expenses out of its property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides that the
Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder of
a trust (such as the Trust) to be held personally liable as a partner
under certain circumstances, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to the relatively
remote circumstances in which the Trust would be unable to meet the
obligations described above. Any person doing business with the Trust,
and any shareholder of the Trust, agrees under the Trust's Declaration of
Trust to look solely to the assets of the Trust for satisfaction of any
claim or demand which may arise out of any dealings with the Trust, and
the Trustees shall have no personal liability to any such person, to the
extent permitted by law.
It is not contemplated that regular annual meetings of shareholders
will be held. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Trust, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the
shareholders of 10% of the Trust's outstanding shares. In addition, if
the Trustees receive a request from at least 10 shareholders (who have
been shareholders at least six months) holding shares of the Trust valued
at $25,000 or more or holding 1% or more of the Trust's outstanding
shares, whichever is less, that they wish to communicate with other
shareholders to request a meeting to remove a Trustee, the Trustees will
then either make the Trust's shareholder list available to the applicants
or mail their communication to all other shareholders at the applicants'
expense, or the Trustees may take such other action as is permitted by
Section 16(c) of the Investment Company Act. At all shareholder meetings,
shareholders only vote on matters affecting their Fund, and each Fund
votes as an individual class on such matters. However, matters that
require a vote by all shareholders of the Trust are submitted to all the
shareholders, without individual class voting.
The Custodian and the Transfer Agent. The custodian's responsibilities
include safeguarding and controlling the Trust's portfolio securities,
collecting income on the portfolio securities, and handling the delivery
of portfolio securities to and from the Trust. The Manager has
represented to the Trust that its banking relationships with the Custodian
have been and will continue to be unrelated to and unaffected by the
relationship between the Trust and the Custodian. It will be the practice
of the Trust to deal with the Custodian in a manner uninfluenced by any
banking relationship the Custodian may have with the Manager and its
affiliates.
Oppenheimer Shareholder Services, as transfer agent, is responsible for
maintaining the Trust's shareholder registry and shareholder accounting
records, and for shareholder servicing and administrative functions.
Independent Auditors. The independent auditors of the Trust examine its
financial statements and perform other related audit services. They also
act as auditors for the Manager and certain other funds advised by the
Manager and its affiliates.
<PAGE>
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
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
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
1. Condensed Financial Information (see Part A)*
2. Independent Auditors' Report (see Part B)*
3. Statements of Investments (see Part B)*
4. Statements of Assets and Liabilities (see Part B)*
5. Statements of Operations (see Part B)*
6. Statements of Changes in Net Assets (see Part B)*
7. Per Share Data and Ratios (see Part B)*
8. Notes to Financial Statements (see Part B)*
9. Independent Auditors' Consent: Filed herewith*
(b) Exhibits
1. Fifth Restated Declaration of Trust dated February 25, 1993:
Previously filed with Registrant's Post-Effective Amendment No.
22, 4/30/93, and incorporated herein by reference.
2. By-Laws, amended as of 6/26/90: Previously filed with
Registrant's Post-Effective Amendment No. 18, 3/2/92, and
incorporated herein by reference.
3. Not Applicable.
4.(i) Oppenheimer Money Fund specimen share certificate:*
(ii) Oppenheimer Bond Fund specimen share certificate:*
___________________
*To be filed by Amendment.
(iii) Oppenheimer Growth Fund specimen share certificate:*
(iv) Oppenheimer High Income Fund specimen share certificate:*
(v) Oppenheimer Capital Appreciation Fund specimen share
certificate: *
(vi) Oppenheimer Multiple Strategies Fund specimen share
certificate:*
(vii) Oppenheimer Global Securities Fund specimen share
certificate: *
(viii) Oppenheimer Strategic Bond Fund specimen share
certificate: *
5. (i) Investment Advisory Agreement for Oppenheimer Money Fund
dated 10/22/90: Previously filed with Registrant's Post-
Effective Amendment No. 16, 4/30/91, and incorporated herein
by reference.
(ii) Investment Advisory Agreement for Oppenheimer High Income
Fund dated 10/22/90: Previously filed with Registrant's
Post-Effective Amendment No. 16, 4/30/91, and incorporated
herein by reference.
(iii) Investment Advisory Agreement for Oppenheimer Bond Fund
dated 10/22/90: Previously filed with Registrant's Post-
Effective Amendment No. 16, 4/30/91, and incorporated herein
by reference.
(iv) Investment Advisory Agreement for Oppenheimer Capital
Appreciation Fund dated 10/22/90: Previously filed with
Registrant's Post-Effective Amendment No. 16, 4/30/91, and
incorporated herein by reference.
(v) Investment Advisory Agreement for Oppenheimer Growth Fund
dated 10/22/90: Previously filed with Registrant's Post-
Effective Amendment No. 16, 4/30/91, and incorporated herein
by reference.
(vi) Investment Advisory Agreement for Oppenheimer Multiple
Strategies Fund dated 10/22/90: Previously filed with
Registrant's Post-Effective Amendment No. 16, 4/30/91, and
incorporated herein by reference.
(vii) Investment Advisory Agreement for Oppenheimer Global
Securities Fund dated 8/28/91: Previously filed with
Registrant's Post-Effective Amendment No. 18, 3/2/92, and
incorporated herein by reference.
(viii) Investment Advisory Agreement for Oppenheimer
Strategic Bond Fund: Previously filed with Registrant's Post-
Effective Amendment No. 22, 4/30/93, and incorporated herein by
reference.
___________________
*To be filed by Amendment.
6. Not Applicable.
7. Not Applicable.
8. Custody Agreement between Oppenheimer Variable Account Funds and
The Bank of New York, dated 11/12/92: Previously filed with
Registrant's Post-Effective Amendment No. 21, 3/12/92, and
incorporated herein by reference.
9. Not Applicable.
10.(i) Opinion and Consent of Counsel, 3/14/85: Previously filed with
Registrant's Pre-Effective Amendment No. 1, 3/20/85, and
incorporated herein by reference.
(ii) Opinion and Consent of Counsel, 4/28/86: Previously filed
with Registrant's Post-Effective Amendment No. 5, 8/12/86,
and incorporated herein by reference.
(iii) Opinion and Consent of Counsel, 7/31/86: Previously filed
with Registrant's Post-Effective Amendment No. 5, 8/12/86,
and incorporated herein by reference.
(iv) Opinion and Consent of Counsel, 1/21/87: Previously filed
with Registrant's Post-Effective Amendment No. 7, 2/6/87,
and incorporated herein by reference.
(v) Opinion and Consent of Counsel, dated July 31, 1990:
Previously filed with Registrant's Post-Effective Amendment
No. 15, 9/19/90, and incorporated herein by reference.
(vii) Opinion and Consent of Counsel dated April 23, 1993:
Previously filed with Registrant's Post-Effective Amendment
No. 22, 4/30/93, and incorporated herein by reference.
11. Not Applicable.
12. Not Applicable.
13.(i) Letter dated 3/14/85 from Monarch Life Insurance
Company ("Monarch") to Registrant: Previously filed
with Registrant's Pre-Effective Amendment No. 2,
3/28/85, and incorporated herein by reference.
(ii) Agreement dated 4/3/85 among Registrant, Oppenheimer
Management Corporation and Monarch: Previously filed with
Registrant's Post-Effective Amendment No. 1, 10/2/85, and
incorporated herein by reference.
(iii) Letter dated 3/7/86 from Monarch to Registrant: Previously
filed with Registrant's Post-Effective Amendment No. 3,
4/25/86, and incorporated herein by reference.
(iv) Agreement dated 8/15/86 among Registrant, Oppenheimer
Management Corporation and Monarch: Previously filed with
Registrant's Post-Effective Amendment No. 5, 8/12/86, and
incorporated herein by reference.
(v) Letter dated 1/20/87 from Monarch to Registrant: Previously
filed with Registrant's Post-Effective Amendment No. 11,
4/25/89, and incorporated by reference.
14. Not Applicable.
15. Not Applicable.
16. Performance computation schedules: To be filed by amendment.
- -- Powers of Attorney (and Certified Board Resolution): Filed
herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant does not control any other person. Except that all of
Registrant's issued and outstanding shares are held by certain separate
accounts, as described in Part B of this Registration Statement,
Registrant is not under common control with any other person.
Item 26. Number of Holders of Securities
No. of Record
Holders as of
Title of Class (Series) February 18, 1994
Oppenheimer Money Fund 4
Oppenheimer High Income Fund 4
Oppenheimer Bond Fund 4
Oppenheimer Capital Appreciation Fund 4
Oppenheimer Growth Fund 3
Oppenheimer Multiple Strategies Fund 5
Oppenheimer Global Securities Fund 2
Item 27. Indemnification
Reference is made to paragraphs (c) through (g) of Section 12 of
Article SEVENTH of Registrant's Fifth Restated Declaration of Trust
previously filed as an exhibit to this Registration Statement,
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Oppenheimer Management Corporation is the investment adviser
of the Registrant; it and certain subsidiaries and
affiliates act in the same capacity for other registered
investment companies as described in Parts A and B hereof.
(b) For information as to the business, profession, vocation or
employment of a substantial nature of each of the directors
and officers of Oppenheimer Management Corporation,
reference is made to Part B of this Registration Statement
and to the registration on Form ADV filed under the
Investment Advisers Act of 1940 by Oppenheimer Management
Corporation, which is incorporated by reference.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are in possession of Oppenheimer Management
Corporation at its offices at 3410 South Galena Street, Denver, Colorado
80231.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver and State of Colorado on
the 23rd day of February, 1994.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
/s/ James C. Swain *
by: --------------------------
James C. Swain, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signatures: Title Date
- ----------- ----------------- --------------
/s/ James C. Swain* Chairman of the Board February 23, 1994
- --------------------- of Trustees and
James C. Swain Principal Executive
Officer
/s/ Jon S. Fossel* President and Trustee February 23, 1994
- ----------------------
Jon S. Fossel
/s/ George Bowen* Treasurer and February 23, 1994
- ---------------------- Principal Financial
George Bowen and Accounting Officer
/s/ Robert G. Avis* Trustee February 23, 1994
- ----------------------
Robert G. Avis
/s/ William A. Baker* Trustee February 23, 1994
- ----------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee February 23, 1994
- ----------------------
Charles Conrad, Jr.
/s/ Raymond J. Kalinowski* Trustee February 23, 1994
- ----------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee February 23, 1994
- ----------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee February 23, 1994
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee February 23, 1994
- ---------------------------
Ned M. Steel
*By: /s/ Robert G. Zack
-------------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
EXHIBIT INDEX
Exhibit No. Description
-- Powers of Attorney (and Certified Board Resolutions
dated 10/26/93)
OPPENHEIMER CASH RESERVES
CENTENNIAL AMERICA FUND, L.P.
CENTENNIAL CALIFORNIA TAX-EXEMPT TRUST
CENTENNIAL GOVERNMENT TRUST
CENTENNIAL MONEY MARKET TRUST
CENTENNIAL NEW YORK TAX-EXEMPT TRUST
CENTENNIAL TAX-EXEMPT TRUST
OPPENHEIMER CHAMPION HIGH YIELD FUND
DAILY CASH ACCUMULATION FUND, INC.
OPPENHEIMER EQUITY INCOME FUND
OPPENHEIMER GOVERNMENT SECURITIES FUND
OPPENHEIMER HIGH YIELD FUND
OPPENHEIMER INTEGRITY FUNDS
OPPENHEIMER MAIN STREET FUNDS, INC.
THE NEW YORK TAX-EXEMPT INCOME FUND, INC.
OPPENHEIMER STRATEGIC INCOME FUND
OPPENHEIMER STRATEGIC INCOME & GROWTH FUND
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
OPPENHEIMER STRATEGIC SHORT-TERM INCOME FUND
OPPENHEIMER TAX-EXEMPT BOND FUND
OPPENHEIMER TAX-EXEMPT CASH RESERVES
OPPENHEIMER TOTAL RETURN FUND, INC.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
CERTIFIED RESOLUTIONS OF THE BOARDS
October 26, 1993
At a meeting of the Boards for the above referenced funds (the
"Funds") held on October 26, 1993, the members thereof by unanimous
vote of those present adopted and approved the following
resolutions:
"RESOLVED, that Andrew J. Donohue or Robert G. Zack, and
each of them, be, and the same, is hereby appointed the attorney-
in-fact and agent of James C. Swain, as Chairman of the Funds, and
George C. Bowen, as Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer) of the Funds, to sign
on behalf of such officers any and all Registration Statements
(including any post-effective amendments to such Registration
Statements) under the Securities Act of 1933 and the Investment
Company Act of 1940 and any amendments and supplements thereto, and
to file the same, with all exhibits thereto, with the Securities
and Exchange Commission; and be it further
RESOLVED, that Andrew J. Donohue or Robert G. Zack, and
each of them hereby is authorized, empowered and directed, in the
name and on behalf of the Funds, to take such additional action and
to execute and deliver such additional documents and instruments as
any of them may deem necessary or appropriate to implement the
provisions of the foregoing resolution, the authority for the
taking of such action and the execution and delivery of such
documents and instruments to be conclusively evidenced thereby.
These resolutions supersede and replace the resolutions adopted
June 22, 1993.
In witness whereof, the undersigned has hereunto set his hand
this 26th day of October, 1993.
/s/ George C. Bowen
-------------------------
George C. Bowen, Secretary
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Ned M. Steel
--------------------
Ned M. Steel<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Robert M. Kirchner
----------------------
Robert M. Kirchner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ C. Howard Kast
--------------------
C. Howard Kast<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Raymond J. Kalinowski
-------------------------
Raymond J. Kalinowski
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Jon S. Fossel
--------------------
Jon S. Fossel<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Charles Conrad, Jr.
-----------------------
Charles Conrad, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacities as Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer) of OPPENHEIMER
VARIABLE ACCOUNT FUNDS, a Massachusetts business trust (the
"Fund"), to sign on his behalf any and all Registration Statements
(including any post-effective amendments to Registration
Statements) under the Securities Act of 1933, the Investment
Company Act of 1940 and any amendments and supplements thereto, and
to file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of
them, may lawfully do or cause to be done by virtue hereof. This
power of attorney shall not terminate in the event of my disability
or incapacity and replaces and supersedes all previous powers of
attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ George C. Bowen
--------------------
George C. Bowen<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ William A. Baker
-------------------------
William A. Baker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ Robert G. Avis
--------------------
Robert G. Avis<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ James C. Swain
----------------------
James C. Swain
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes
and appoints Andrew J. Donohue or Robert G. Zack, and each of them,
his true and lawful attorneys-in-fact and agents, for him and in
his capacity as Chairman of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a
Massachusetts business trust (the "Fund"), to sign on his behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney shall not terminate in the
event of my disability or incapacity and replaces and supersedes
all previous powers of attorney executed by me for these purposes.
Dated this 26th day of October, 1993.
/s/ James C. Swain
--------------------
James C. Swain
POWERS\999
