As filed with the Securities and Exchange Commission on September 18,
1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231-5099
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes
effective.
(Approximate Date of Proposed Public Offering)<PAGE>
It is proposed that this filing
will become effective on October 20, 1996, pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered
an indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice
for the year ended December 31, 1995 was filed on February 28, 1996.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Reg. No. 2-93177;
811-4108).
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement and
Prospectus for JP Investment Grade Bond Fund, Inc.
and
Prospectus for Oppenheimer Bond Fund,
a series of Oppenheimer Variable Account Funds
Proxy Statement and Prospectus for
JP Capital Appreciation Fund, Inc.
and
Prospectus for Oppenheimer Growth Fund, a series of
Oppenheimer Variable Account Funds
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
FORM N-14
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Cross Reference Sheet
Proxy Statement and Prospectus of JP Investment Grade Bond Fund, Inc.
and Prospectus of Oppenheimer Bond Fund
Part A of
Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of
Document
- --------- -------------------------------------------------------------
- --
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Tables
(b) Synopsis
(c) Principal Risk Factors
4 (a) Synopsis; Approval or Disapproval of the Reorganization;
Comparison between Bond Fund and JP Fund; Miscellaneous
(b)Approval or Disapproval of the Reorganization - Capitalization
Table
5 (a) Registrant's Prospectus; Comparison Between Bond Fund and JP
Fund
(b) *
(c) *
(d) *
(e) Miscellaneous
(f) Miscellaneous
6 (a) Prospectus of JP Investment Grade Bond Fund, Inc.; Annual
Report of JP Investment Grade Bond Fund, Inc.; Comparison
Between Bond Fund and JP Fund
(b) Miscellaneous
(c) *
(d) *
7 (a) Synopsis; Information Concerning the Meeting
(b) *
(c) Synopsis; Information Concerning the Meeting
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Registrant's Statement of Additional Information
(b) *
(c) *
13 (a) Statement of Additional Information about JP Investment Grade
Bond Fund, Inc.
(b) *
(c) *
14 Registrant's Statement of Additional Information; Statement
of Additional Information about JP Investment Grade Bond
Fund, Inc.; Annual Report of JP Investment Grade Bond Fund,
Inc. at 12/31/95; Registrant's Annual Report at 12/31/95;
Semi-Annual Report of JP Investment Grade Bond Fund, Inc. at
6/30/96; Registrant's Semi-Annual Report at 6/30/96
<PAGE>
Proxy Statement and Prospectus of JP Capital Appreciation Fund, Inc.
and Prospectus of Oppenheimer Growth Fund
Part A of
Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of
Document
- --------- -------------------------------------------------------------
- --
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Tables
(b) Synopsis
(c) Principal Risk Factors
4 (a) Synopsis; Approval or Disapproval of the Reorganization;
Comparison between Growth Fund and JP Fund; Miscellaneous
(b)Approval or Disapproval of the Reorganization - Capitalization
Table
5 (a) Registrant's Prospectus; Comparison Between Growth Fund and
JP Fund
(b) *
(c) *
(d) *
(e) Miscellaneous
(f) Miscellaneous
6 (a) Prospectus of JP Capital Appreciation Fund, Inc.; Annual
Report of JP Capital Appreciation Fund, Inc.; Comparison
Between Growth Fund and JP Fund
(b)Miscellaneous
(c) *
(d) *
7 (a) Synopsis; Information Concerning the Meeting
(b) *
(c) Synopsis; Information Concerning the Meeting
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Registrant's Statement of Additional Information
(b) *
(c) *
13 (a)Statement of Additional Information about JP Capital
Appreciation Fund, Inc.
(b) *
(c) *
14 Registrant's Statement of Additional Information; Statement
of Additional Information about JP Capital Appreciation Fund,
Inc.; Annual Report of JP Capital Appreciation Fund, Inc. at
12/31/95; Semi-Annual Report of JP Capital Appreciation Fund,
Inc. at 6/30/96;
Registrant's Annual Report at 12/31/95; Registrant's Semi-Annual
Report at 6/30/96
Part C of
Form N-14
Item No. Other Information Heading
- --------- -------------------------
15 Indemnification
16 Exhibits
17 Undertakings
_______________
* Not Applicable or negative answer
<PAGE>
PRELIMINARY COPY
JP INVESTMENT GRADE BOND FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held December 3, 1996
To owners of variable annuity contracts issued by Jefferson-Pilot Life
Insurance Company ("JPLIC") entitled to give voting instructions in
connection with Jefferson-Pilot Separate Account A.
Notice is hereby given that a Special Meeting of the Shareholders of JP
Investment Grade Bond Fund, Inc. ("JP Fund"), an open-end, management
investment company, will be held at the Jefferson-Pilot Building (4th
Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina
27420 at 10:00 A.M., local time, on December 3, 1996, and any
adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon the approval or disapproval of the
Agreement and Plan of Reorganization dated as of _________, 1996
(the "Reorganization Agreement") by and among JP Fund, Jefferson-
Pilot Corporation, Oppenheimer Variable Account Funds on behalf of
its series, Oppenheimer Bond Fund ("Oppenheimer Fund"), and
OppenheimerFunds, Inc., and the transactions contemplated thereby
(the "Reorganization"), including (i) the transfer of
substantially all the assets of JP Fund to Oppenheimer Fund in
exchange for shares of Oppenheimer Fund, (ii) the distribution of
such shares of Oppenheimer Fund to shareholders of JP Fund in
liquidation of JP Fund, and (iii) the cancellation of the
outstanding shares of JP Fund ("Proposal 1");
2. To elect to the Board of Directors five (5) directors to hold
office until the earlier of (i) the dissolution of JP Fund or (ii)
the next annual meeting of shareholders of JP Fund called for the
purpose of electing directors, or until their successors are
elected and qualified ("Proposal 2");
3. To ratify or reject the selection of McGladrey & Pullen LLP as JP
Fund's independent auditors for the current fiscal year ("Proposal
3"); and
4. To act upon such other matters as may properly come before the
Meeting.
JPLIC and Jefferson-Pilot Separate Account A (a separate account of
JPLIC) are the only shareholders of JP Fund. However, JPLIC hereby
solicits and agrees to vote the shares of JP Fund at the Meeting in
accordance with timely instructions received from owners of variable
annuity contracts having contract values allocated to Separate Account
A invested in such shares.
As a variable annuity contract owner of record at the close of business
on October __, 1996, you have the right to instruct JPLIC as to the
manner in which shares of JP Fund attributable to your variable annuity
contract should be voted. To assist you in giving your instructions, a
Voting Instruction Form is enclosed that reflects the number of shares
of JP Fund for which you are entitled to give voting instructions. In
addition, the Proposals are more fully described in the accompanying
Proxy Statement and Prospectus and a copy of the Reorganization
Agreement is attached thereto. Please read the Proxy Statement and
Prospectus carefully before sending JPLIC your Voting Instruction Form.
The Board of Directors of JP Fund recommends a vote in favor of each
Proposal and to elect each of the nominees as Director.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED VOTING INSTRUCTION
FORM AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
By Order of the Board of Directors,
J. Gregory Poole, Secretary
October __, 1996
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION
1. What is the Reorganization?
The proposed Reorganization provides for the transfer of substantially
all the assets of JP Investment Grade Bond Fund, Inc. ("JP Fund") to
Oppenheimer Bond Fund ("Oppenheimer Fund"), the issuance of shares of
Oppenheimer Fund to JP Fund for distribution to its shareholders
including Jefferson-Pilot Life Insurance Company and Jefferson-Pilot
Separate Account A and the cancellation of the outstanding shares of JP
Fund. The number of shares of Oppenheimer Fund that will be received
by shareholders of JP Fund will be determined on the basis of the
relative net asset values of Oppenheimer Fund and JP Fund. Although
the number of shares of Oppenheimer Fund issued to a shareholder of JP
Fund may be greater or fewer than the number of JP Fund shares that he
or she holds, the value of the shares of Oppenheimer Fund issued in the
Reorganization will be equal to the value of his or her JP Fund shares.
The Reorganization has been proposed in connection with a proposed
acquisition by OppenheimerFunds, Inc. ("OFI") of the assets of JP
Investment Management Company ("JPM"), the investment adviser to JP
Fund. OFI is discussed in greater detail below.
Owners of Jefferson-Pilot Life Insurance Company ("JPLIC") variable
annuity contracts ("variable contracts") under which contract values
are indirectly invested in JP Fund, are directed to read the
accompanying Proxy Statement and Prospectus for further information
about the Reorganization and related matters. Additional information
about Oppenheimer Fund is set forth in its accompanying Prospectus.
2. What are the reasons for the Reorganization?
Jefferson-Pilot Corporation ("JPC"), in the course of a review of its
business, concluded that it should invest its capital resources in its
core insurance business and communications operations rather than
investing in the expansion of mutual fund assets being managed by JPM
(or another investment management subsidiary). Because managing mutual
fund investment portfolios in an efficient and profitable manner can
only be achieved by managing aggregate assets significantly in excess
of the amount of assets currently being managed by JPM, JPC has decided
to sell the assets of JPM and thereby leave the business of managing
mutual fund investment portfolios. This decision requires that
alternative arrangements be made for the management of the assets of
the four mutual funds (including JP Fund) managed by JPM. The
Reorganization would result in OFI taking over management of the
investment portfolio of JP Fund when JPM is sold.
3. What benefits to owners of variable contracts may result from this
Reorganization?
The Board of Directors of JP Fund has determined that, among other
things, the Reorganization would afford variable contract owners, as
indirect investors in Oppenheimer Fund, the capabilities and resources
of OFI and its affiliates in the area of fixed income investment
management, shareholder services and marketing.
4. Who is paying the expenses of the Reorganization?
All expenses of the Reorganization will be paid by the respective
investment advisers to JP Fund and Oppenheimer Fund and not JP Fund or
Oppenheimer Fund.
5. Who is OppenheimerFunds, Inc.?
OFI and its subsidiaries are engaged principally in the business of
managing, distributing and servicing registered investment companies.
OFI has operated as an investment adviser since 1959. OFI is
indirectly controlled by Massachusetts Mutual Life Insurance Company.
As of June 30, 1996, OFI and a subsidiary had assets of more than $50
billion under management in more than 60 mutual funds.
6. Where can I get prospectuses and other information on the
Oppenheimer Bond Fund or other Oppenheimer Funds available as
investment options under my variable contract?
Call Jefferson-Pilot Investor Services, Inc. at 1-(800) 448-4498. They
will be pleased to supply you with prospectuses and other documentation
with respect to such Oppenheimer funds.
7. How will the Reorganization affect my variable contract and my
relationship with Jefferson-Pilot Life Insurance Company?
As an owner of a variable contract with contract value indirectly
invested in JP Fund on the Record Date, the Reorganization will result
in such contract value being indirectly invested in Oppenheimer Fund.
After the Reorganization, variable contract owners will be able to
allocate net purchase payments and transfer contract values to Sub-
Accounts of Jefferson-Pilot Separate Account A ("Account A") that
invest in Oppenheimer Fund, and JP Fund will not be an investment
option under variable contracts. Your variable contract will not
change in any other way and your relationship with Jefferson-Pilot will
not change at all as a result of the Reorganization.
8. Will this Reorganization result in any tax liability to JP Fund,
Oppenheimer Fund or to me as a variable contract owner?
The Reorganization is structured in a manner that is intended to
qualify for federal income tax purposes as a tax-free reorganization.
The aggregate tax basis of Oppenheimer Fund shares received in the
Reorganization will be the same as the aggregate tax basis of JP Fund
shares held on your behalf prior to the Reorganization, and the holding
period of the shares of Oppenheimer Fund received in the Reorganization
will include the period during which JP Fund shares were held on your
behalf provided that those JP Fund shares were held as capital assets.
Moreover, the Reorganization will not have an adverse impact on the
status of the variable contracts under which contract values are
indirectly invested in JP Fund.
You should consult your tax adviser regarding the effect, if any, of
the Reorganization in light of your individual circumstances. Since
the foregoing only relates to the federal income tax consequences of
the Reorganization, you should also consult your tax adviser as to
state and local tax consequences, if any, of the Reorganization.
<PAGE>
PRELIMINARY COPY
JP INVESTMENT GRADE BOND FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
PROXY STATEMENT
OPPENHEIMER BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROSPECTUS
This Proxy Statement and Prospectus is being furnished on behalf of the
Board of Directors (the "Board") of JP Investment Grade Bond Fund, Inc.
("JP Fund"), an open-end management investment company, by Jefferson-
Pilot Life Insurance Company ("JPLIC") to owners of variable annuity
contracts issued by JPLIC and having contract values on the Record Date
(as defined below) allocated to Jefferson-Pilot Separate Account A
("Account A") invested in shares of JP Fund ("variable contracts").
This Proxy Statement and Prospectus is being furnished in connection
with the solicitation of voting instructions from owners of such
variable contracts ("variable contract owners") for use at the Special
Meeting of Shareholders of JP Fund to be held at the Jefferson-Pilot
Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro,
North Carolina, 27420, at 10:00 A.M., local time, on December 3, 1996,
and any adjournments thereof (the "Meeting"). The Board has set
October 10, 1996, as the date for the determination of JP Fund
shareholders entitled to notice of, and to provide voting instructions
at, the Meeting (the "Record Date"). It is expected that this Proxy
Statement and Prospectus will be mailed to variable contract owners on
or about October __, 1996. Although JPLIC is the sole record owner of
JP Fund shares, variable contract owners are permitted to give JPLIC
voting instructions. Variable contract owners are sometimes referred
to in this Proxy Statement and Prospectus as "shareholders".
At the Meeting, shareholders of JP Fund will be asked to consider and
vote upon the approval or disapproval of the Agreement and Plan of
Reorganization, dated as of ________, 1996 (the "Reorganization
Agreement"), by and among JP Fund, Jefferson-Pilot Corporation,
Oppenheimer Variable Account Funds (the "Trust"), on behalf of its
series, Oppenheimer Bond Fund ("Oppenheimer Fund"), and
OppenheimerFunds, Inc. and the transactions contemplated by the
Reorganization Agreement (the "Reorganization").
The Reorganization Agreement provides for the transfer of substantially
all the assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund having a value equal to the aggregate net asset value
of the outstanding shares of JP Fund, the distribution of such shares
of Oppenheimer Fund to JPLIC and Account A in liquidation of JP Fund
and the cancellation of the outstanding shares of JP Fund. A copy of
the Reorganization Agreement is attached hereto as Exhibit A and is
incorporated by reference herein. As a result of the proposed
Reorganization, each shareholder of JP Fund will receive that number of
shares of Oppenheimer Fund having an aggregate net asset value equal to
the net asset value of such shareholder's shares of JP Fund. This
transaction has been structured in a manner intended to qualify as a
tax-free reorganization for federal income tax purposes. See "Approval
or Disapproval of the Reorganization." At the Meeting, shareholders of
JP Fund will also be asked to elect five directors and ratify the
selection of independent auditors.
JPLIC and Account A of JPLIC are the sole record holders of shares of
JP Fund. However, variable contract owners are the beneficial owners
of shares held by Account A. JPLIC will vote the shares of JP Fund at
the Meeting in accordance with the timely instructions received from
variable contract owners entitled to give voting instructions under
variable contracts. JPLIC will vote shares attributable to variable
contracts for which no voting instructions are received in proportion
(for, against or abstain) to those for which instructions are received.
JPLIC also will vote shares not attributable to variable contracts
(i.e., representing seed money investments in JP Fund made by JPLIC) in
proportion to those for which instructions are received from variable
contract owners. If a Voting Instruction Form is received that does
not specify a choice, JPLIC will consider its timely receipt as an
instruction to vote in favor of the proposal(s) to which it relates and
for each nominee as director. In certain circumstances, JPLIC may have
the right to disregard voting instructions from certain variable
contract owners. JPLIC does not believe that these circumstances exist
with respect to matters currently before shareholders. Variable
contract owners may revoke voting instructions given to JPLIC at any
time prior to the Meeting by notifying the Secretary of JP Fund in
writing.
Oppenheimer Fund is a mutual fund that primarily seeks a high level of
current income from investment in high yield fixed income securities
rated "Baa" or better by Moody's Investors Service, Inc. ("Moody's") or
"BBB" or better by Standard & Poor's Corporation ("Standard & Poor's").
Secondarily, Oppenheimer Fund seeks capital growth when consistent with
its primary objective. JP Fund's primary investment objective is to
seek the maximum level of current income as is consistent with prudent
risk; a secondary investment objective is to seek growth of income and
capital. JP Fund proposes to achieve these objectives by investing
primarily in investment grade fixed- income securities. Shareholders
of JP Fund should consider the differences in investment objectives and
policies of Oppenheimer Fund and JP Fund. See "Investment Objectives
and Policies", "Principal Risk Factors" and "Comparison Between
Oppenheimer Fund and JP Fund - Comparison of Investment Objectives,
Policies and Restrictions."
Oppenheimer Fund has filed with the Securities and Exchange Commission
(the "SEC") a Registration Statement on Form N-14 (the "Registration
Statement") relating to the registration of shares of Oppenheimer Fund
to be offered to the shareholders of JP Fund pursuant to the
Reorganization Agreement. This Proxy Statement and Prospectus
relating to the Reorganization also constitutes a Prospectus of
Oppenheimer Fund filed as part of such Registration Statement.
Information contained or incorporated by reference herein relating to
Oppenheimer Fund has been prepared by and is the responsibility of
Oppenheimer Fund. Information contained or incorporated by reference
herein relating to JP Fund has been prepared by and is the
responsibility of JP Fund.
This Proxy Statement and Prospectus sets forth concisely information
about Oppenheimer Fund that a prospective investor should know before
voting on the Reorganization. The following documents have been filed
with the SEC and are available without charge upon written request to
JP Investment Management Company, the investment adviser and transfer
agent for JP Fund, at 100 North Greene Street, Greensboro, North
Carolina 27401, or by calling 1-800-458-4498 (a toll-free number): (i)
a Prospectus for JP Fund, dated May 1, 1996 (information about JP Fund
is incorporated herein by reference to JP Fund's May 1, 1996
Prospectus), and (ii) a Statement of Additional Information about JP
Fund, dated May 1, 1996 (the "JP Fund Additional Statement"). The most
recent Annual Report and Semi-Annual Report for JP Fund, dated as of
December 31, 1995 and June 30, 1996, respectively, are also available
without charge upon request to JPIS by calling 1-800-458-4498 (toll-
free).
The following documents have been filed with the SEC and are available
without charge upon written request to the transfer agent for
Oppenheimer Fund, OppenheimerFunds Services ("OFS"), at P.O. Box 5270,
Denver, Colorado 80217, or by calling 1-800-525-7048 (a toll free
number): (i) a Prospectus for the Trust, dated May 1, 1996 which is
incorporated herein by reference as it relates to the Oppenheimer Fund
series of the Trust (the shares of the other series of Oppenheimer
Variable Account Funds are not being offered pursuant to the
Reorganization) and a copy of which also accompanies this Proxy
Statement and Prospectus; (ii) a Statement of Additional Information
about the Trust, dated May 1, 1996 (the "Trust Additional Statement"),
which contains more detailed information about Oppenheimer Fund and its
management, and (iii) a Statement of Additional Information relating to
the Reorganization described in this Proxy Statement and Prospectus
(the "Reorganization Additional Statement"), dated ______, 1996,
incorporated herein by reference and filed as part of the Registration
Statement, which includes, among other things, the Prospectus for JP
Fund, the JP Fund Additional Statement and the Oppenheimer Fund
Additional Statement.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
Shares of Oppenheimer Fund are not deposits or obligations of any bank,
are not guaranteed or endorsed by any bank, and are not insured by the
F.D.I.C. or any other agency, and involve investment risks, including
the possible loss of the principal amount invested.
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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated October __, 1996.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
COMPARATIVE FEE TABLES
SYNOPSIS
Purpose of the Meeting
Parties to the Reorganization
The Reorganization
Vote Required
Tax Consequences of the Reorganization
Dissenters' Rights
Investment Objectives and Policies
Investment Advisory Fees
Purchases and Redemptions
PRINCIPAL RISK FACTORS
Investment in Debt Securities
Foreign Securities
Options, Futures and Interest Rate Swaps; Derivatives
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1)
Background
Acquisition Agreement
Board Approval of the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Dissenters' Rights
Capitalization Table (Unaudited)
COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND
Comparison of Investment Objectives, Policies and Restrictions
Special Investment Methods
Investment Restrictions
Oppenheimer Fund Performance
Other Investors in Oppenheimer Fund
Additional Comparative Information
ELECTION OF DIRECTORS (Proposal 2)
Information Concerning the Board
Officers of JP Fund
Other Information
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 3)
INFORMATION CONCERNING THE MEETING
The Meeting
Record Date; Vote Required; Share Information
Voting Instructions
Costs of the Solicitation and the Reorganization
MISCELLANEOUS
Financial Information
Public Information
SHAREHOLDER PROPOSALS
OTHER BUSINESS
EXHIBIT A - Agreement and Plan of Reorganization, dated as of ________,
1996, by and among Oppenheimer Variable Account Funds, on
behalf of Oppenheimer Bond Fund, JP Investment Grade Bond
Fund, Inc., OppenheimerFunds, Inc. and Jefferson-Pilot
Corporation
ENCLOSURE - Prospectus of the Trust,
dated May 1, 1996
<PAGE>
COMPARATIVE FEE TABLES
Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses
Shareholders of the funds do not pay any sales load, redemption fee or
exchange fee. See the Account A prospectus for fees that apply to
variable contract owners. Each fund pays a variety of expenses
directly for management of its assets, administration and other
services, and those expenses are reflected in the net asset value per
share of each of Oppenheimer Fund and JP Fund. The following
calculations are based on the expenses of JP Fund and Oppenheimer Fund
for the 12 months ended December 31, 1995 and the six months ended June
30, 1996. These amounts are shown as a percentage of the average net
assets of JP Fund and Oppenheimer Fund for those periods (for the six
months ended June 30, 1996, the percentages are annualized). Proforma
expenses for the combined fee after giving effect to the Reorganization
are not shown as they do not differ from the fees indicated below for
Oppenheimer Fund. The table does not reflect expenses that apply at
the separate account level or that are charged by Account A or by JPLIC
under the variable contracts.
<TABLE>
<CAPTION>
JP Fund Oppenheimer Fund
12 months 6 months 12 months 6 months
ended ended ended ended
12/31/95 6/30/96(1) 12/31/95 6/30/96(1)
<S> <C> <C> <C> <C>
Management Fees(1) 0.50% 0.50% 0.75% 0.74%
Other Expenses 0.20% 0.21% 0.05% 0.04%
Total Fund Operating
Expenses(1) 0.70% 0.71% 0.80% 0.78%
</TABLE>
(1) Annualized
Examples
To attempt to show these expenses over time, the examples shown below
have been created. Assume that you make a $1,000 investment in either
JP Fund or Oppenheimer Fund and that the annual return is 5% and that
the operating expenses for each fund are the ones shown in the chart
above for the six months ended June 30, 1996 and the 12 months ended
December 31, 1995.
Based on the rate of "Total Fund Operating Expenses" shown above for
the six months ended June 30, 1996, if you were to redeem your shares
at the end of each period shown below, your investment would incur the
following expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $43 $97
JP Fund $7 $23 $40 $88
</TABLE>
If you did not redeem your investment, it would incur the following
expenses by the end of the applicable period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $43 $97
JP Fund $7 $23 $40 $88
</TABLE>
Based on the rate of "Total Fund Operating Expenses" shown above for
the 12 months ended December 31, 1995, if you were to redeem your
shares at the end of each period shown below, your investment would
incur the following expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $26 $44 $99
JP Fund $7 $22 $39 $87
</TABLE>
If you did not redeem your investment, it would incur the following
expenses by the end of the applicable period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $26 $44 $99
JP Fund $7 $22 $39 $87
</TABLE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus and
presents key considerations for shareholders of JP Fund to assist them
in determining whether to approve or disapprove the Reorganization.
This synopsis is only a summary and is qualified in its entirety by the
more detailed information contained in or incorporated by reference in
this Proxy Statement and Prospectus and the Reorganization Agreement
which is Exhibit A hereto. Shareholders should carefully review this
Proxy Statement and Prospectus and the Reorganization Agreement in
their entirety and, in particular, the current Prospectus of The Trust
which accompanies this Proxy Statement and Prospectus and is
incorporated by reference herein.
<PAGE>
Purpose of the Meeting
At the Meeting, shareholders of JP Fund will be asked to approve or
disapprove the Reorganization. In addition, shareholders will be
requested to elect five directors of JP Fund and ratify the selection
of JP Fund's independent auditors.
Parties to the Reorganization
Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account
Funds, a diversified, open-end, management investment company organized
in 1984 as a multi-series Massachusetts business trust. Oppenheimer
Fund was organized in 1985 and is one of nine separate series of the
Trust. Oppenheimer Fund is located at 3410 South Galena Street,
Denver, Colorado 80231. OppenheimerFunds, Inc. ("OFI") acts as
investment adviser to Oppenheimer Fund. OFI is located at Two World
Trade Center, New York, New York 10048-0203. Additional information
about Oppenheimer Fund is set forth below.
JP Fund is a diversified, open-end, management investment company
organized in 1982 as a North Carolina corporation. JP Fund is located
at 100 North Greene Street, Greensboro, North Carolina 27420. JP
Investment Management Company ("JPM") acts as investment adviser and
transfer agent to JP Fund. JPM is located at 100 North Greene Street,
Greensboro, North Carolina 27401. Additional information about JP Fund
is set forth below.
The Reorganization
The Reorganization Agreement provides for the transfer of substantially
all the assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
liabilities of JP Fund. JP Fund will retain a small Cash Reserve
sufficient to pay any liabilities and expenses of dissolution. The
Reorganization Agreement also provides for the distribution by JP Fund
of these shares of Oppenheimer Fund to JP Fund shareholders in
liquidation of JP Fund. As a result of the Reorganization, each JP
Fund shareholder will receive that number of full and fractional
Oppenheimer Fund shares equal in value to such shareholder's pro rata
interest in the net assets transferred to Oppenheimer Fund as of the
Valuation Date (as hereinafter defined). For further information about
the Reorganization see "Approval or Disapproval of the Reorganization"
below.
For the reasons set forth below under "Approval or Disapproval of the
Reorganization - Board Approval of the Reorganization," the Board,
including the Directors who are not "interested persons" of JP Fund
(the "Independent Directors"), as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), has
concluded that the Reorganization is in the best interests of JP Fund
and its shareholders and that the interests of existing JP Fund
shareholders will not be diluted as a result of the Reorganization, and
recommends approval of the Reorganization by JP Fund shareholders. The
Board of Trustees of the Trust has also approved the Reorganization and
determined that the interests of existing Oppenheimer Fund shareholders
will not be diluted as a result of the Reorganization. If the
Reorganization is not approved, JP Fund will continue in existence and
the Board will determine whether to pursue alternative actions. The
section below entitled "Approval or Disapproval of the Reorganization"
sets forth certain information with respect to the background of the
Reorganization, including other transactions and agreements entered
into, or contemplated to be entered into, by OFI, JPM and certain
affiliates of JPM.
Vote Required
Approval of the Reorganization will require the affirmative vote of a
majority of the shares of JP Fund entitled to vote at the Meeting. See
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information."
Tax Consequences of the Reorganization
As a condition to the closing of the Reorganization, JP Fund and
Oppenheimer Fund will have received an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization for federal
income tax purposes. As a result of such tax-free reorganization, no
gain or loss would be recognized by JP Fund, Oppenheimer Fund, or the
shareholders of either fund for federal income tax purposes. Moreover,
the Reorganization will not have an adverse impact on the tax status of
the variable contracts under which contract values are indirectly
invested in JP Fund. For further information about the tax consequences
of the Reorganization, see "Approval or Disapproval of the
Reorganization -Tax Aspects of the Reorganization" below.
Dissenters' Rights
Dissenters' rights of appraisal are generally not available to
shareholders of JP Fund with respect to the Reorganization. See, "The
Reorganization - Dissenters' Rights."
Investment Objectives and Policies
Oppenheimer Fund's investment objective is a fundamental policy, and JP
Fund's investment objectives and policies are also fundamental
policies. Fundamental policies are those that cannot be changed
without the approval of shareholders of that fund. Oppenheimer Fund's
investment policies described below are not fundamental unless this
Proxy Statement and Prospectus indicates a particular policy is
fundamental.
As its primary investment objective, Oppenheimer Fund seeks a high
level of current income by investing primarily in a diversified
portfolio of high yield fixed-income securities. As a secondary
objective, Oppenheimer Fund seeks capital growth when consistent with
its primary objective. As a matter of non-fundamental policy,
Oppenheimer Fund will, under normal market conditions, invest at least
65% of its total assets in bonds. Oppenheimer Fund will invest only in
securities rated "Baa" or better by Moody's or "BBB" or better by
Standard & Poor's. Oppenheimer Fund's current investment policies are
described herein under "Principal Risk Factors" and "Comparison Between
Oppenheimer Fund and JP Fund" and in more detail in the Trust's current
Prospectus, which accompanies this Proxy Statement and Prospectus, and
the Trust Additional Statement.
JP Fund's primary investment objective is to seek the maximum level of
current income as is consistent with prudent risk. A secondary
investment objective is to seek growth of income and capital. JP Fund
proposes to achieve these objectives by investing primarily in fixed
income securities rated A or better by S&P or Moody's.
Oppenheimer Fund's and JP Fund's investments may also include
securities of foreign governments and companies (limited, in the case
of JP Fund, to securities issued by Canadian companies), U.S.
Government obligations, mortgage-backed securities, collateralized
mortgage-backed obligations (CMOs), asset-backed securities, zero
coupon securities, other fixed-income securities, preferred stock, and
dividend-paying common stocks. Oppenheimer Fund and JP Fund may also
enter into repurchase agreements subject to certain limitations.
Oppenheimer Fund may also write covered call options and use certain
derivative investments, including options and futures, to enhance
income and may use hedging instruments to try to manage investment
risks.
Shareholders of JP Fund should consider the differences in investment
objectives and policies between JP Fund and Oppenheimer Fund.
Oppenheimer Fund invests in a wider variety of securities, some of
which have greater investment risks, than the types of securities JP
Fund usually holds. See "Principal Risk Factors" and "Comparison
Between Oppenheimer Fund and JP Fund - Comparison of Investment
Objectives, Policies and Restrictions."
Investment Advisory Fees
Oppenheimer Fund and JP Fund each obtain investment management services
from their respective investment advisers pursuant to the terms of
their respective investment advisory agreements. Each agreement
provides that a management fee is payable to the investment adviser
monthly. Oppenheimer Fund pays a management fee to OFI computed on its
net asset value as of the close of business each day, which fee
declines on additional assets as Oppenheimer Fund increases its asset
base, at the annual rate of 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $200 million and
0.50% of net assets over $1 billion. The management fee payable by JP
Fund to JPM is at an annual rate of 1/2 of 1% of JP Fund's average
daily net asset value. JPM is reimbursed by JP Fund for performing
certain shareholder accounting services. JPM has contractually agreed
that if in any fiscal year the total of JP Fund's ordinary business
expenses (with specified exceptions) exceeds 1% of JP Fund's average
daily net asset value, JPM will pay the excess by reducing its
management fee by a corresponding amount. OFI has voluntarily
undertaken that the total expenses of Oppenheimer Fund in any fiscal
year will not exceed 2.5% of the first $30 million of average net
assets, 2.0% the next $70 million and 1.5% of average net assets over
$100 million and OFI's management fee will be reduced or eliminated
during any fiscal year in which the payment of such fee would cause
Oppenheimer Fund's expenses to exceed this limitation. OFI's
undertaking to Oppenheimer Fund is revocable and may be changed or
eliminated at any time. Neither fund's management fees were reduced
during the past fiscal year.
Purchases and Redemptions
Purchases. Shares of Oppenheimer Fund are currently offered for
purchase by separate accounts as an investment medium for variable life
insurance policies and variable annuity contracts, and separate
accounts for retirement plans. Purchases of JP Fund's shares are
currently restricted to the separate accounts that are sponsored by the
insurance subsidiaries of Jefferson-Pilot Corporation and any of their
affiliates and to pension plans for employees of said companies and
their affiliates. Shares of JP Fund and Oppenheimer Fund are offered
at their respective offering price which is net asset value (without
sales charge.)
Redemptions. Shares of Oppenheimer Fund and shares of JP Fund may be
redeemed at their respective net asset values per share calculated
after the redemption order is received and accepted.
Oppenheimer Fund may redeem accounts valued at less than $200 if the
account has fallen below such stated amount for reasons other than
market value fluctuations. For JP Fund, the corresponding minimum is
$250 once the account has been open at least 12 months.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in
Oppenheimer Fund, JP Fund shareholders should carefully consider the
following summary of risk factors, relating to both Oppenheimer Fund
and JP Fund, in addition to the other information set forth in this
Proxy Statement and Prospectus. Additional information on risk factors
for each fund is set forth in the respective Prospectus of each fund
and in addition for Oppenheimer Fund, the Trust Additional Statement.
As a general matter, Oppenheimer Fund and JP Fund are intended for
investors seeking high current income. As a secondary objective, such
funds also seek capital growth and, as to JP Fund, growth of income.
There is no assurance that either Oppenheimer Fund or JP Fund will
achieve its investment objectives and investment in the funds is
subject to investment risks, including the possible loss of the
principal invested.
Investment in Debt Securities
Each fund pursues its investment objective(s) through investments
primarily in debt securities. Debt securities are subject to interest
rate risk and credit risk. Certain types of debt securities are also
subject to additional investment risks which relate to the specific
type of security. These risks are discussed below. These risks can
cause the value of the debt securities held by a fund to change which
means that the value of a fund's shares will go up or down, and when
shares are sold, an investor may receive more or less than the investor
paid for them.
Interest rate risk relates to fluctuations in market value due to
changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise.
When interest rates rise, the values of already-issued debt securities
generally decline. The magnitude of these fluctuations will often be
greater for longer-term debt securities than for shorter-term debt
securities. Credit risk relates to the ability of the issuer of a debt
security to make interest or principal payments on the security as they
become due. Generally, higher-yielding, lower-rated bonds are subject
to greater credit risk than higher-rated bonds or securities issued or
guaranteed by the U.S. government, which are subject to little, if any,
credit risk.
Oppenheimer Fund and JP Fund may invest in mortgage-backed securities,
including collateralized mortgage-backed obligations ("CMOs"), that are
subject to prepayment risks. 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 effective
maturity of a mortgage-backed security may be shortened by unscheduled
or early payment of principal and interest on the underlying mortgages.
This may result in greater price and yield volatility than traditional
fixed-income securities that have a fixed maturity and interest rate.
The principal that is returned may be invested in instruments having a
higher or lower yield than the prepaid instruments depending on then-
current market conditions. Such securities therefore may be less
effective as a means of "locking in" attractive long-term interest
rates and may have less potential for appreciation during periods of
declining interest rates than conventional bonds with comparable stated
maturities. If a fund buys mortgage-backed securities at a premium,
prepayments of principal and foreclosures of mortgages may result in
some loss of the fund's principal investment to the extent of the
premium paid. The value of mortgage-backed securities may also be
affected by changes in the market's perception of the creditworthiness
of the entity issuing or guaranteeing them or by changes in government
regulations and tax policies. CMOs may be issued in a variety of
classes or series ("tranches"). The principal value of certain CMO
tranches may be more volatile and less liquid than other types of
mortgage-related securities, because of the possibility that the
principal value of the CMOs may be prepaid earlier than the maturity of
the CMOs as a result of prepayments of the underlying mortgage loans by
the borrowers.
Oppenheimer Fund may also invest in CMOs that are "stripped." Stripped
mortgage-backed securities usually have two classes. The classes
receive different proportions of the interest and principal
distributions on the pool of mortgage assets that act as collateral for
the security. In certain cases, one class will receive all of the
interest payments (and is known as an "I/O"), while the other class
will receive all of the principal payments (and is known as a "P/O").
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid,
Oppenheimer Fund will lose the anticipated cash flow from the interest
on the prepaid mortgages. That risk is increased when general interest
rates fall, and in times of rapidly falling interest rates, the fund
might receive back less than its investment in such I/Os. The value of
"principal only" securities generally increases as interest rates
decline and prepayment rates rise. The price of these securities is
typically more volatile than that of coupon-bearing bonds of the same
maturity. Stripped securities are generally purchased and sold by
institutional investors through investment banking firms. At present,
established trading markets have not yet developed for these
securities. Therefore, some stripped securities may be deemed
"illiquid". If a fund holds illiquid stripped securities, the amount
it can hold will be subject to the funds' investment policy limiting
investment in illiquid securities. Although JP Fund may invest in I/Os
and P/Os, it has not done so to date and JPM has no intention of having
JP Fund invest in I/Os or P/Os in the foreseeable future.
Oppenheimer Fund and JP Fund may invest in "asset-backed" securities.
These represent interests in pools of consumer loans and other trade
receivables, similar to mortgage-backed securities. They are issued by
trusts and "special purpose corporations." They are backed by a pool of
assets, such as credit card or auto loan receivables, which are the
obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as Oppenheimer Fund.
These securities may be supported by a credit enhancement, such as a
letter of credit, a guarantee or a preference right. However, the
extent of the credit enhancement may be different for different
securities and the credit enhancement generally applies to only a
fraction of the security's value. These securities present special
risks. For example, in the case of credit card receivables, the issuer
of the security may have no security interest in the related
collateral.
Foreign Securities
Oppenheimer Fund currently intends to invest no more than 25% of its
total assets in debt securities of foreign governments and foreign
companies. JP Fund may not invest in foreign securities other than
securities issued by Canadian companies. 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, 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. In addition, there are
risks of changes in foreign currency values. A change in value of a
foreign currency against the U.S. dollar will result in a change in the
U.S. dollar value of a fund's securities denominated in a foreign
currency. The currency rate change will also affect its income
available for distribution. Both funds' investment income and proceeds
from foreign securities may be received in foreign currencies and the
funds will be required to absorb the cost of currency fluctuations. If
a fund suffers a loss on foreign currencies after it has distributed
its income during the year, the fund may find that it has distributed
more income than was available from actual investment income, and the
shareholders will have received a return of capital.
Options, Futures and Interest Rate Swaps; Derivatives
Oppenheimer Fund may purchase and sell certain kinds of futures
contracts and options on such contracts for hedging purposes.
Oppenheimer Fund may also purchase and sell put and call options,
options on broadly-based stock or bond indices and foreign currency and
forward contracts and may enter into interest rate swap agreements.
Oppenheimer Fund may write (sell) covered call options on up to 100% of
its assets. The foregoing instruments, referred to as "hedging
instruments," may be considered derivative investments. Oppenheimer
Fund may also invest in certain derivative investments to seek to
enhance income and capital appreciation. Hedging instruments and
derivative investments and their special risks are described below in
"Comparison Between Oppenheimer Fund and JP Fund."
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION
(Proposal 1)
Background
JPC, in the course of a review of its business, concluded that it
should concentrate on its core insurance business and communications
operations and not continue, through its existing subsidiaries, in the
business of managing mutual fund investment portfolios. JPC is a
publicly-held holding company that is the parent of JPM. In addition
to JP Fund, JPM manages another mutual fund, JP Capital Appreciation
Fund, Inc. (with JP Fund, the "Insurance Funds") that sells its shares
exclusively to Account A to support variable annuity contracts. JPM
also manages two mutual funds that are sold on a retail basis through a
broker-dealer network. In aggregate, these four mutual funds had net
assets at June 30, 1996 of approximately $172 million. Managing mutual
fund investment portfolios in an efficient and profitable manner
requires significant assets per fund and in the aggregate. Usually
several billion dollars in aggregate net assets is necessary to cover
normal operating costs and provide resources for capital investment in
new products and services. With regard to retail mutual funds,
financing certain classes of shares and providing sales support to
dealers are additional expenses that can only be supported from a
relatively large asset base. Consequently, it has become increasingly
difficult for a relatively small mutual fund operation such as that
managed by JPM to compete. JPC evaluated the capital investment that
would be required of it or its subsidiaries to achieve such an asset
base and determined that: (1) the best investment of its resources
would not be in expanding the mutual fund assets under JPM's
management, and (2) if, through JPM (or another subsidiary), it could
not be extremely competitive in the business of managing mutual fund
investment portfolios, it should sell the assets of JPM and facilitate
making other arrangements for the management of the assets of the four
mutual funds (including JP Fund) managed by JPM. Sometime after these
determinations by JPC were made, representatives of JPC and JPM met
with OFI to discuss OFI acquiring JPM's mutual fund-related assets.
Representatives of OFI and JPM held meetings beginning in December
1995. Following the negotiation of the terms of an acquisition
agreement and related agreements, an acquisition agreement (the
"Acquisition Agreement") was executed by OFI, JPC, JPM and JPLIC on
_______________, 1996.
The Reorganization described in this Proxy Statement and Prospectus is
one aspect of the overall Acquisition (as hereinafter defined)
contemplated by the Acquisition Agreement described below. The
consummation of the Reorganization is one condition, among others, to
the closing of the Acquisition. Likewise, the consummation of the
Acquisition is one condition, among others, to the closing of the
Reorganization. Accordingly, unless the parties otherwise agree, the
Reorganization may not be effected, despite shareholder approval, if
the Acquisition does not close. In such case, JP Fund will continue in
existence and the Board will take such further action as it, in its
discretion, deems necessary or advisable. The description of the
Acquisition Agreement set forth below is a summary only.
Acquisition Agreement
The Acquisition Agreement contemplates the sale to OFI of all the
assets of JPM (the "Purchased Assets") and the assumption by OFI of
certain liabilities of JPM and JPC relating to the Purchased Assets
("Assumed Liabilities") (the foregoing sale and assumption constitute
the "Acquisition"). The Acquisition Agreement contemplates that each
of the four mutual funds advised by JPM (including JP Fund) (each, a
"Reorganized Fund") will be reorganized with a mutual fund currently
advised by OFI.
A condition to the obligation of the parties to close under the
Acquisition Agreement (the "Acquisition Closing") is the approval of
the reorganizations of the Reorganized Funds (including the
Reorganization described in this Proxy Statement and Prospectus) by
their respective shareholders and the approval of the reorganizations
of the Insurance Funds by applicable state insurance regulatory
authorities. The Acquisition Agreement sets forth certain other
conditions to each party's obligation to close.
JPM, JPC and JPLIC have agreed pursuant to an Agreement Not to Compete
not to, among other things, sell or offer to sell shares of or other
security interests in investment companies or investment oriented
insurance policies to persons who were shareholders of the Reorganized
Funds or owned variable contracts issued by JPLIC invested in the
Insurance Funds, in each case, immediately prior to the reorganization
of such fund for a period to end on the fourth anniversary of the
Acquisition Closing. Further, JPM, JPC and JPLIC may not act as an
investment adviser to funds established, formed, sold, sponsored or
distributed by them and their affiliates with certain exceptions. OFI,
on the one hand, and JPM, JPC and JPLIC, on the other, have agreed to
indemnify the other for certain liabilities.
Board Approval of the Reorganization
At its meeting on August 26, 1996, the Board, including the Independent
Directors, unanimously approved the Reorganization and the
Reorganization Agreement, determined that the Reorganization is in the
best interests of JP Fund and its shareholders and resolved to
recommend that JP Fund shareholders vote for approval of the
Reorganization. The Board further determined that the Reorganization
would not result in dilution of JP Fund's shareholders' interests.
In evaluating the Reorganization, the Board requested and reviewed,
with the assistance of independent legal counsel, materials furnished
by OFI and JPM. These materials included financial statements as well
as other written information regarding OFI and its personnel,
operations and financial condition. The Board also reviewed the same
type of information about JPM. Consideration was given to comparative
information concerning other mutual funds with similar investment
objectives to JP Fund and Oppenheimer Fund. The Board also considered
information with respect to the relative historical performance of JP
Fund, Oppenheimer Fund and other mutual funds having similar investment
objectives. The Board also reviewed and discussed the terms and
provisions of the investment advisory agreement pursuant to which OFI
provides investment management services to Oppenheimer Fund and
compared and contrasted them to the existing management arrangements
for JP Fund as well as the management arrangements of other similar
mutual funds, particularly with respect to the allocation of various
types of expenses, levels of fees and resulting expense ratios.
In reaching its determination, the Board gave careful consideration to
the following factors, among others: (1) because JPC intends to sell
JPM or otherwise leave the business of managing mutual fund investment
portfolios, new arrangements for the management of JP Fund's assets
were necessary; (2) the Reorganization would afford variable contract
owners, as indirect investors in Oppenheimer Fund the capabilities and
resources of OFI and its affiliates in the area of investment
management and shareholder servicing; (3) the terms and conditions of
the Reorganization, including that (a) there would be no sales charge
imposed in effecting the Reorganization, (b) the Reorganization is
intended to qualify as a tax-free exchange, and (c) all expenses of the
Reorganization would be paid by OFI and JPM and not by Oppenheimer Fund
or JP Fund; and (4) the similarities and differences of the investment
objectives, policies and methods of JP Fund and Oppenheimer Fund. The
Board also considered that the annual operating expenses for
Oppenheimer Fund are higher, as a percentage of net assets, and would
be higher on a pro forma basis after giving effect to the
Reorganization, than the operating expenses of JP Fund due to the fact
that Oppenheimer Fund is subject to a higher management fee rate than
JP Fund. For operating expenses and other expense information relating
to Oppenheimer Fund and JP Fund, see "Comparative Fee Tables - Expenses
of Oppenheimer Fund and JP Fund; Pro Forma Expenses."
The Board was also advised regarding the provisions of Section 15(f) of
the 1940 Act as they relate to the Acquisition. Section 15(f) of the
1940 Act provides, in effect, that an investment adviser of a
registered investment company, or an affiliated person of such adviser,
may receive any amount or benefit in connection with the sale of the
adviser's business provided that two conditions are satisfied. First,
an "unfair burden" must not be imposed on the investment company for
which the investment adviser acts in such capacity as a result of the
sale, or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" as defined in the 1940
Act, includes any arrangement during the two-year period after the
transaction whereby the investment adviser (or predecessor or successor
advisers), or any interested person of such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from any
person in connection with the purchase or sale of securities or other
property to, from or on behalf of the investment company (other than
ordinary fees for bona fide principal underwriting services), or from
the investment company or its securities holders (other than fees for
bona fide investment advisory and other services).
Management of the Reorganized Funds (including JP Fund) and management
of the mutual funds managed by OFI into which the Reorganized Funds
will be reorganized (including Oppenheimer Fund) are aware of no
circumstances arising from the Acquisition or preparatory transactions
to the Acquisition that might result in the imposition of an "unfair
burden" on the Reorganized Funds (including JP Fund) or the mutual
funds managed by OFI into which the Reorganized Funds will be
reorganized (including Oppenheimer Fund). Moreover, the Acquisition
Agreement provides that OFI, JPM and JPC will conduct their businesses
(and use their reasonable efforts to cause their respective affiliates
to conduct their businesses) so as to assure, insofar as is in their
control, that no "unfair burden" will be imposed on the Reorganized
Fund (including JP Fund) or any mutual fund managed by OFI into which a
Reorganized Fund would be reorganized (including Oppenheimer Fund) as a
result of the transactions contemplated by the Acquisition Agreement.
The second condition of Section 15(f) is that during the three-year
period immediately following a transaction to which Section 15(f) is
applicable, at least 75% of the subject investment company's board of
directors must not be "interested persons" (as defined in the 1940 Act)
of the investment company's investment adviser or predecessor adviser.
The current composition of the Board of Trustees of each mutual fund
managed by OFI into which a Reorganized Fund would be organized
(including Oppenheimer Fund) is in compliance with such condition.
After consideration of the above factors, and such other factors and
information as the directors deemed relevant, the Board, including the
Independent Directors, unanimously approved the Reorganization and the
Reorganization Agreement and voted to recommend its approval to the
shareholders of JP Fund.
The Trust's Board of Trustees, on behalf of Oppenheimer Fund, including
the trustees who are not "interested persons" of Oppenheimer Fund,
unanimously approved the Reorganization and the Reorganization
Agreement and determined that the Reorganization is in the best
interests of Oppenheimer Fund and its shareholders. The Board of
Trustees further determined that the Reorganization would not result in
dilution of the Oppenheimer Fund shareholders' interests. The Board of
Trustees considered, among other things, that an increase in
Oppenheimer Fund's asset base as a result of the Reorganization could
benefit Oppenheimer Fund shareholders due to the economies of scale
available to a larger fund. Over time, these economies of scale may
result in slightly lower costs per account for each Oppenheimer Fund
shareholder through lower operating expenses and transfer agency
expenses.
The Reorganization
The following summary of the Reorganization Agreement is qualified in
its entirety by reference to the Reorganization Agreement (a copy of
which is set forth in full as Exhibit A to this Proxy Statement and
Prospectus). The Reorganization Agreement contemplates a
reorganization under which (1) substantially all of the assets of JP
Fund would be transferred to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund having a value equal to the value of the JP Fund
assets transferred, (2) these Oppenheimer Fund shares would be
distributed among shareholders of JP Fund in liquidation of JP Fund and
(3) the outstanding shares of JP Fund would be cancelled. Prior to the
Closing Date (as hereinafter defined), JP Fund will endeavor to
discharge all of its liabilities and obligations when and as due prior
to such date. Oppenheimer Fund will not assume any liabilities or
obligations of JP Fund except for portfolio securities purchased which
have not settled in the ordinary course of business. In this regard,
JP Fund will retain a cash reserve (the "Cash Reserve") in an amount
which is deemed sufficient in the discretion of the Board for the
payment of (a) JP Fund's expenses of liquidation (if any) and (b) JP
Fund's liabilities, other than those assumed by Oppenheimer Fund. The
Cash Reserve will be accounted for as a liability of JP Fund in
determining its net asset value. The number of full and fractional
shares of Oppenheimer Fund to be issued to JP Fund will be determined
on the basis of Oppenheimer Fund's and JP Fund's relative net asset
values per share, computed as of the close of business of The New York
Stock Exchange Inc. on the business day preceding the Closing Date (the
"Valuation Date"). The Closing Date for the Reorganization will be the
date of the closing of the Acquisition under the Acquisition Agreement
or such other date as may be mutually agreed upon in writing.
The valuation procedures set forth in the Trust's Prospectus and the
Trust Additional Statement will be utilized to determine the value of
JP Fund's assets to be transferred to Oppenheimer Fund pursuant to the
Reorganization, the value of Oppenheimer Fund's assets and the net
asset value of shares of Oppenheimer Fund. Such values will be
computed by JPM and OFI, respectively, as of the Valuation Date in a
manner consistent with OFI's regular practice in pricing Oppenheimer
Fund.
The Reorganization Agreement provides for coordination between the
funds as to their respective portfolios so that, on and after the
Closing Date, Oppenheimer Fund will be in compliance with all of its
investment policies and restrictions. JP Fund will recognize capital
gain or loss on any sales made pursuant to this condition. If JP Fund
realizes net gain from the sale of securities, such gain, to the extent
not offset by capital loss carry-forwards, will be distributed to
shareholders prior to the Closing Date and will be taxable to
shareholders as long-term capital gain or, if the assets disposed of
had not been held for more than one year, as ordinary income. For a
discussion of the tax consequences of such distributions to variable
contract owners, see "Tax Aspects of the Reorganization" below and
"Federal Tax Status" in the Account A current prospectus.
Contemporaneously with the closing, JP Fund will be liquidated (except
for the Cash Reserve) and JP Fund will distribute or cause to be
distributed pro rata to JP Fund shareholders of record on the Valuation
Date the full and fractional shares of Oppenheimer Fund received by JP
Fund. Upon such liquidation, all issued and outstanding shares of the
JP Fund will be cancelled on JP Fund's books and JP Fund shareholders
will have no further rights as shareholders of JP Fund. To assist JP
Fund in the distribution of Oppenheimer Fund shares, Oppenheimer Fund
will, in accordance with a shareholder list supplied by JP Fund, cause
Oppenheimer Fund's transfer agent to credit and confirm an appropriate
number of shares of Oppenheimer Fund to each shareholder of JP Fund.
After the closing of the Reorganization, JP Fund will not conduct any
business except in connection with the winding up of its affairs.
Under the Reorganization Agreement, within one year after the Closing
Date, JP Fund shall either (i) transfer any remaining amount of the
Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced
by the estimated cost of distributing it to shareholders) is not
material (as defined below), or (ii) distribute such remaining amount
to the shareholders of JP Fund who were such on the Valuation Date.
Such remaining amount shall be deemed to be material if the amount to
be distributed, after deducting the estimated expenses of the
distribution, equals or exceeds one cent per share of JP Fund
outstanding on the Valuation Date. After this transfer or distribution
and after all final reports and tax returns have been filed and the
winding up of JP Fund's affairs has been completed, JP will be
dissolved as a corporation under North Carolina law.
The consummation of the Reorganization is subject to the conditions set
forth in the Reorganization Agreement, including, without limitation,
approval of the Reorganization by JP Fund's shareholders.
Notwithstanding approval of JP Fund's shareholders, the Reorganization
may be terminated at any time prior to the Closing Date (1) by mutual
written consent of JP Fund, and the Trust, on behalf of Oppenheimer
Fund, (2) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if
the Closing shall not have occurred on or before December 31, 1996,
(3) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if the
other party shall fail to perform in any material respect its
agreements contained in the Reorganization Agreement required to be
performed on or prior to the Closing Date, the other party materially
breaches any representation, warranty, or covenant contained in the
Reorganization Agreement, the JP Fund shareholders fail to approve the
Reorganization Agreement, or if a condition in the Reorganization
Agreement expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it
will not or cannot be met prior to the Closing Date, or (4) if a
suspension in the redemption of shares shall continue for 60 days
beyond the Valuation Date. The Reorganization Agreement will
automatically terminate prior to the Closing if the Acquisition
Agreement is terminated or the Acquisition is not consummated.
Termination of the Reorganization Agreement pursuant to (1), (2) or (4)
above, or an automatic termination as described in the preceding
sentence, will terminate all obligations of the parties thereto and
there will be no liability for damages. In such case JP Fund and
Oppenheimer Fund will be reimbursed for its expenses incurred with
respect to the Reorganization by JPM and OFI, respectively. In the
event of a termination pursuant to (3) above, all obligations of
Oppenheimer Fund and JP Fund under the Reorganization Agreement will be
terminated without liability for damages except that the party in
breach (other than a breach due to JP Fund shareholders not approving
the Reorganization) of the Reorganization Agreement will, upon demand,
reimburse (such reimbursement to be made by such party's investment
adviser) the non-breaching party for all expenses and reasonable out-
of-pocket fees (if any) incurred in connection with the transactions
contemplated by the Reorganization Agreement.
Pursuant to the Reorganization Agreement, JPC has agreed to indemnify
and hold harmless JP Fund, Oppenheimer Fund, their investment advisers
and their respective trustees, officers and shareholders against claims
resulting from certain actions or a failure to act by JP Fund and OFI
has agreed to indemnify and hold harmless JP Fund and its investment
adviser and their respective directors, officers and shareholders
against claims resulting from certain actions or a failure to act by
Oppenheimer Fund.
In addition, JPC has separately agreed with JP Fund and the Independent
Directors that, if indemnification from the assets of JP Fund or
liability insurance is not available to the Independent Directors after
the Closing Date, JPC will indemnify and hold the Independent Directors
harmless to the same extent as provided under the JP Fund's Articles of
Incorporation.
Approval of the Reorganization will require the vote specified below in
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information." If the Reorganization is not approved by the
shareholders of JP Fund, the Board will consider other possible courses
of action.
Tax Aspects of the Reorganization
At or prior to the Closing Date, JP Fund will declare a dividend in an
amount large enough so that it will have declared a dividend of all of
its investment company taxable income and net capital gain, if any, for
the taxable period ending on the Closing Date (determined without
regard to any deduction for dividends paid). Such dividends will be
included in the taxable income of JP Fund's shareholders as ordinary
income and long-term capital gain, respectively.
The exchange of the assets of JP Fund for shares of Oppenheimer Fund
and the assumption by Oppenheimer Fund of certain liabilities of JP
Fund is intended to qualify for federal income tax purposes as a
reorganization under Section 368(a)(1) of the Internal Revenue Code of
1986, as amended (the "Code"). JP Fund has represented to Sutherland,
Asbill & Brennan, tax counsel to JP Fund, that there is no plan or
intention by any JP Fund shareholder who owns 5% or more of JP Fund's
outstanding shares and, to JP Fund's best knowledge, there is no plan
or intention on the part of the remaining JP Fund shareholders, to
redeem, sell or otherwise dispose of a number of Oppenheimer Fund
shares received in the transaction that would reduce JP Fund
shareholders' ownership of Oppenheimer Fund shares to a number of
shares having a value, as of the Closing Date, of less than 50% of the
value of all the formerly outstanding JP Fund shares as of the same
date. JP Fund has also represented that Oppenheimer Fund will acquire
at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by JP Fund
immediately prior to the Reorganization. JP Fund and Oppenheimer Fund
have each further represented to Sutherland, Asbill & Brennan the fact
that, as of the Closing Date, JP Fund and Oppenheimer Fund will qualify
as regulated investment companies or will meet the diversification test
of Section 368(a)(2)(F)(ii) of the Code. As of the Record Date, JPLIC
and Account A of JPLIC were the only record shareholders of JP Fund.
As a condition to the closing of the Reorganization, Oppenheimer Fund
and JP Fund will receive the opinion of Sutherland, Asbill & Brennan to
the effect that, based on the Reorganization Agreement, information
given by JPC, the above representations and other representations as
such firm shall reasonably request, existing provisions of the Code,
Treasury Regulations issued thereunder, current Revenue Rulings,
Revenue Procedures and court decisions, for federal income tax
purposes:
(a) The reorganization contemplated by the Reorganization Agreement
will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be
a "party to the reorganization" within the meaning of Section 368(b) of
the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for
shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of
certain identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer of
its assets to Oppenheimer Fund in exchange solely for shares of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
identified liabilities of JP Fund (if any) and the subsequent
distribution by JP Fund of such shares to the shareholders of JP Fund.
(Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon the
exchange of the JP Fund shares solely for the shares of Oppenheimer
Fund. (Section 354)
(e) The basis of the shares of Oppenheimer Fund to be received by each
JP Fund shareholder pursuant to the reorganization will be the same as
the adjusted basis of that shareholder's JP Fund shares surrendered in
exchange therefor. (Section 358)
(f) The holding period of shares of Oppenheimer Fund to be received by
each JP Fund shareholder will include the shareholder's holding period
for the JP Fund shares surrendered in exchange therefor, provided such
JP Fund shares were held as capital assets on the Closing Date.
(Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP
Fund will be the same as JP Fund's tax basis for the assets immediately
prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items of
JP Fund described in Section 381(c) of the Code, including the earnings
and profits, or deficit therein of JP Fund as of the Closing Date,
subject to the conditions and limitations specified in Sections 381,
382, 383 and
384 of the Code.
(j) No gain or loss will be recognized by owners of variable contracts
issued by JPLIC through Account A or the transfer of JP Fund's assets
to Oppenheimer Fund in exchange solely for the shares of Oppenheimer
Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities
(if any) and the subsequent distribution by JP Fund of those shares to
Account A.
Owners of variable contracts should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their
individual circumstances, which may be affected the type of variable
contract they own or by their status. See also "Federal Tax Status" in
the Account A prospectus. Since the foregoing discussion only relates
to the federal income tax consequences of the Reorganization,
shareholders of JP Fund should also consult their tax advisers as to
state and local tax consequences, if any, of the Reorganization.
Dissenters' Rights
Under the North Carolina Business Corporation Act (the "NCBCA"), the
state statute governing JP Fund, shareholders of a company acquired in
a reorganization who do not vote to approve the reorganization could
have, under certain circumstances, "appraisal rights" (where they may
elect to have the "fair value" of their shares as of the day prior to
such reorganization, determined in accordance with the NCBCA,
judicially appraised and paid to them). Variable contract owners,
however, do not have such rights under the NCBCA.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of Oppenheimer Fund and
JP Fund and indicates the pro forma combined capitalization as of June
30, 1996 as if the Reorganization had occurred on that date.
<TABLE>
<CAPTION>
Net Asset
Shares Value
Net Assets Outstanding Per Share
Oppenheimer Fund $317,616,900 27,823,143 $11.42
<S> <C> <C> <C>
JP Fund $ 30,338,495 2,788,539 $10.88
Pro Forma Combined
Fund* $347,955,395 30,479,754 $11.42
- ------------------
</TABLE>
*Reflects issuance of 2,656,611 shares of Oppenheimer Fund in a tax-
free exchange for the net assets of JP Fund, aggregating $30,338,495
for shares of JP Fund.
The pro forma ratio of expenses to average annual net assets of the
combined funds at June 30, 1996 would have been .78%.
COMPARISON BETWEEN Oppenheimer Fund AND JP FUND
Comparative information about Oppenheimer Fund and JP Fund is presented
below. More complete information about Oppenheimer Fund and JP Fund is
set forth in their respective Prospectuses (which, as to Oppenheimer
Fund, accompanies this Proxy Statement and Prospectus and is
incorporated herein by reference) and Statements of Additional
Information. To obtain copies of either Prospectus, see "Miscellaneous
- - Public Information."
Comparison of Investment Objectives, Policies and Restrictions
As its primary investment objective, Oppenheimer Fund seeks a high
level of current income by primarily investing in a diversified
portfolio of high yield fixed-income securities. Oppenheimer Fund
seeks capital growth when consistent with its primary objective. JP
Fund's primary investment objective is to seek the maximum level of
current income as is consistent with prudent risk. A secondary
investment objective is to seek growth of income and capital. In
seeking their investment objectives, which are fundamental policies,
Oppenheimer Fund and JP Fund employ the investment policies as
described in detail below.
Oppenheimer Fund. As a matter of non-fundamental policy, under normal
market conditions, Oppenheimer Fund will invest at least 65% of its
total assets in bonds. Oppenheimer Fund will invest only in securities
rated "Baa" or better by Moody's or "BBB" or better by Standard &
Poor's. However, Oppenheimer Fund is not obligated to dispose of
securities if the rating is reduced, and therefore may from time to
time hold securities rated lower than "Baa" by Moody's or "BBB" by
Standard & Poor's.
Oppenheimer Fund currently intends to invest no more than 25% of its
total assets in debt securities issued or guaranteed by foreign
companies and debt securities of foreign governments or their agencies.
These investments may include (i) U.S. dollar-denominated debt
obligations known as "Brady Bonds", (ii) debt obligations such as bonds
including sinking fund and callable bonds, (iii) debentures and notes
(including variable and floating rate instruments) and (iv) preferred
stocks and zero coupon securities. However, if Oppenheimer Fund's
assets are held abroad, the countries in which they are held and the
sub-custodians holding then must be approved by the Trust's Board of
Trustees when required to do so under applicable regulations.
Oppenheimer Fund may also invest in U.S. Government Securities
(including mortgage-related U.S. Government Securities that are issued
or guaranteed by federal agencies or government-sponsored entities but
are not supported by the full faith and credit of the U.S. Government),
mortgage-backed securities, whether issued by the U.S. government or
private issuers, CMOs, stripped CMOs, and asset-backed securities and
other fixed-income securities, all of which are discussed above. See
"Principal Risk Factors." In addition to the foregoing, Oppenheimer
Fund may invest in zero coupon securities, participation interests,
preferred stocks, warrants and rights and dividend-paying common stocks
and may enter into short sales against-the-box. With respect to the
percentage of assets that may be invested in particular industries or
in the securities of one or more issuers, Oppenheimer Fund is subject
to certain concentration and diversification requirements as set forth
in "Investment Restrictions" (1) and (4) below.
JP Fund. JP Fund proposes to achieve its investment objectives by
investing primarily in fixed income securities rated A or better by S&P
or Moody's. JP Fund will also purchase dividend paying common stocks.
Fixed income securities will include debt securities and preferred
stocks, some of which may have a call on common stock by means of
conversion privilege or attached warrants. When the incremental yield
available on corporate securities is small compared to that available
on U.S. Treasury securities, JP Fund may invest substantially in U.S.
Treasury securities. JP Fund may also hold cash or invest in short-
term securities and may purchase U.S. Government obligations with a
simultaneous agreement by the seller to repurchase the securities at
the original price plus accrued interest; provided that not more than
10% of JP Fund's net assets may be invested in such repurchase
agreements that mature in more than seven days. Although JP Fund may
invest to a limited extent in lower-grade securities, its fixed-income
investments that are rated are currently all investment grade. JP may
invest in other securities including foreign securities (provided they
are issued by Canadian companies) and mortgage-backed securities. The
percentage of assets invested in different types of securities will
vary from time to time depending upon the judgment of JPM as to general
market and economic conditions, fiscal and monetary policy and trends
in interest rates and yields. JP Fund's investments (other than cash
and U.S. Government securities) are diversified among the securities
issued by different companies and governments to the extent that no
more than 5% of its total assets may be invested in securities issued
by any one issuer. In addition, JPM generally selects investments for
JP Fund from among many different industries and may invest up to 25%
of JP Fund's assets in a single industry.
Special Investment Methods
Oppenheimer Fund and JP Fund may use certain special investment methods
as summarized below.
Loans. JP Fund is prohibited from making loans except to the extent of
investing in repurchase agreements or purchasing a portion of an issue
of a debt security distributed to the public. Oppenheimer Fund may not
make loans. It may, however, invest in debt obligations consistent
with its investment objective and policies and may enter into
repurchase agreements. Oppenheimer Fund may also lend its portfolio
securities, but has no present intention of doing so.
Repurchase Agreements and Illiquid Securities. Both Oppenheimer Fund
and JP Fund may enter into repurchase agreements. Repurchase
agreements must be fully collateralized. However, if the vendor fails
to pay the resale price on the delivery date, the funds may experience
costs or delays in disposing of the collateral and may experience
losses to the extent that the proceeds from the sale of the collateral
is less than the repurchase price.
There is no limit on the amount of either fund's net assets that may be
invested subject to repurchase agreements of seven days or less because
these investments are liquid and may be disposed of promptly. Neither
fund will purchase illiquid or restricted securities (which are subject
to legal or contractual restrictions on resale) that will cause more
than 10% of its net assets to be invested in such securities. As to
Oppenheimer Fund, this percentage limit may increase to 15% with
respect to all illiquid or restricted securities if certain state laws
are changed or Oppenheimer Fund's shares are no longer sold in those
states. Repurchase agreements with maturities longer than seven days
are considered illiquid. JP Fund has no present intention of acquiring
restricted securities. For Oppenheimer Fund, certain restricted
securities, eligible for resale to qualified institutional purchasers,
are not subject to the foregoing limitation. However, investing in
such restricted securities could have the effect of increasing the
level of fund illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
Hedging. Oppenheimer Fund may purchase and sell: futures contracts
that relate to broadly-based securities indices or to interest rates;
certain put and call options; forward contracts; and options on
futures, broadly-based stock indices and bond indices. Oppenheimer
Fund may also enter into interest rate swap agreements. These are all
referred to as "hedging instruments." Oppenheimer Fund does not use
hedging instruments for speculative purposes. Up to 100% of
Oppenheimer Fund's total assets may be subject to covered calls.
Oppenheimer Fund will not write puts if more than 50% of its net assets
would have to be segregated to cover put obligations. Oppenheimer Fund
may only purchase a call or put if, after such purchase, the value of
all call and put options held by Oppenheimer Fund would not exceed 5%
of Oppenheimer Fund's total assets. Other limits on the use of hedging
instruments are described in the Trust's Prospectus and the Trust
Statement of Additional Information. JP Fund does not invest in hedging
instruments.
Hedging instruments may be used to manage Oppenheimer Fund's exposure
to the possibility that the prices of its portfolio securities may
decline, or to establish a position in the securities market as a
temporary substitute for purchasing individual securities; to try to
manage its exposure to changing interest rates; to hedge the Fund's
portfolio against price fluctuations; and to increase the Fund's
exposure to the securities market. Forward contracts are used to try
to manage foreign currency risks on the Fund's foreign investments.
Oppenheimer Fund's foreign currency options are used to try to protect
against declines in the dollar value of foreign securities Oppenheimer
Fund owns, or to protect against an increase in the dollar cost of
buying foreign securities. Oppenheimer Fund may write covered call
options to provide income for liquidity purposes, defensive reasons, or
to raise cash to distribute to shareholders.
The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than those required for normal
portfolio management. If Oppenheimer Fund uses a hedging instrument at
the wrong time or judges market conditions incorrectly, hedging
strategies may reduce the Fund's return. Oppenheimer Fund could also
experience losses if the prices of its futures and options positions
were not correlated with its other investments or if it could not close
out a position because of an illiquid market for the future or option.
Options trading involves the payment of premiums, and options, futures
and forward contracts are subject to special tax rules that may affect
the amount, timing and character of Oppenheimer Fund's distributions to
its shareholders. There are also special risks in particular hedging
strategies. If a covered call written by Oppenheimer Fund is exercised
on an investment that has increased in value, Oppenheimer Fund will be
required to sell the investment at the call price and will not be able
to realize any profit if the investment has increased in value above
the call price. Interest rate swaps are subject to credit risks (if
the other party fails to meet its obligations) and also to interest
rate risks. Oppenheimer Fund could be obligated to pay more under its
swap agreements than it receives under them, as a result of interest
rate changes.
Derivative Investments. Oppenheimer Fund can invest in a number of
different kinds of "derivative investments." Some types of derivatives
are hedging instruments and may be used for hedging purposes, as
described above. Oppenheimer Fund may invest in others because they
offer the potential for increased income and capital appreciation. In
general, a "derivative investment" is a specially-designed security or
contract the performance of which is linked to the performance of
another investment or security, such as an option contract, futures
contract, index, currency or commodity. In the broadest sense,
derivative investments include the hedging instruments, mortgage-backed
and asset-backed securities and CMOs in which both of the funds may
invest.
Other types of derivatives in which Oppenheimer Fund may invest include
index-linked or commodity-linked notes, debt exchangeable for common
stock, equity-linked debt securities and currency-indexed securities.
JP Fund does not have a policy with regard to investments in such other
types of derivatives investments such as hedging instruments.
Nonetheless, JP Fund has never invested in such derivative investments
and JPM has no intention of having JP Fund invest in such investments.
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of
the instrument. There is also the risk that the underlying investment
or security might not perform the way the investment adviser expected
it to perform. The performance of derivative investments may also be
influenced by interest rate changes in the U.S. and abroad. All of
these risks can mean that Oppenheimer Fund will realize less income
than expected from its investments, or that it can lose part or all of
the value of its investments, which will affect its share price.
When-Issued and Delayed Delivery Transactions. JP Fund and Oppenheimer
Fund may purchase securities on a "when-issued" basis and may purchase
or sell such securities on a "delayed delivery" basis. These terms
refer to securities that have been created and for which a market
exists, but which are not available for immediate delivery or are to be
delivered at a later date. There may be a risk of loss to either fund
if the value of the security changes prior to the settlement date.
Although JP Fund may purchase securities on a "when-issued" basis and
may purchase or sell such securities on a "delayed delivery" basis, it
has not done so to date and JPM has no intention of having JP Fund do
so in the foreseeable future.
Investment Restrictions
Both Oppenheimer Fund and JP Fund have certain investment restrictions
that, together with their respective investment objectives are
fundamental policies changeable only by shareholder approval. The
investment restrictions of Oppenheimer Fund and JP Fund are set forth
below.
Oppenheimer 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 Oppenheimer Fund's total assets would be
invested in securities of that issuer, or (b) Oppenheimer 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; (2)
lend money except in connection with the acquisition of debt securities
which Oppenheimer Fund's investment policies and restrictions permit it
to purchase; Oppenheimer Fund may also make 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;
therefore Oppenheimer Fund will not purchase the securities of issuers
primarily engaged in the same industry if more than 25% of the total
value of Oppenheimer Fund's assets would (in the absence of special
circumstances) consist of securities of companies in a single industry;
(5) deviate from the percentage requirements and other restrictions
listed under "Warrants and Rights," and the first paragraph under
"Special Risks-Borrowing for Leverage" of the Trust Prospectus; (6)
invest in oil or gas exploration or development programs; (7) invest in
real estate or in interests in real estate, but may purchase securities
of issuers holding real estate or interests therein; (8) invest in
companies for the purpose of acquiring control of management thereof;
(9) 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; (10)
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 (11) 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.
JP Fund cannot: (1) issue senior securities; (2) purchase securities on
margin or sell short, except it may obtain such short-term credits as
are necessary for the clearance of transactions; (3) write, purchase or
sell puts, calls or combinations thereof; (4) borrow money except that,
as a temporary measure for extraordinary or emergency purposes and not
for investment purposes, JP Fund may borrow up to 5% of the value of
its total assets; (5) act as an underwriter of securities of other
issuers, except JP Fund may invest up to 10% of the value of its net
assets (at time of investment) in portfolio securities which JP Fund
might not be free to sell to the public without registration of such
securities under the Securities Act of 1933; (6) purchase or sell real
estate or interests in real estate, nor interests in real estate
investment trusts or real estate limited partnerships (however, JP Fund
may purchase interests in real estate investment trusts whose
securities are registered under the Securities Act of 1933 and are
readily marketable); (7) engage in the purchase and sale of commodities
or commodity contracts; (8) make loans, except to the extent that
either of the following is deemed to constitute a loan: (a) purchase
of a portion of an issue of a debt security distributed to the public;
or (b) investment in "repurchase agreements"; (9) purchase the
securities (except U.S. Government securities) of any one issuer if
immediately after and as a result of such purchase (a) the value of the
holdings of JP Fund in the securities of such issuer exceeds 5% of the
value of JP Fund's total assets, or (b) JP Fund owns more than 10% of
the outstanding voting securities of any one class of securities of
such issuer; (10) purchase the securities of open-end investment
companies (except JP Fund may purchase the securities of other
investment companies provided that (a) immediately after such purchase
JP Fund and companies controlled by JP Fund, or other investment
companies having the same investment adviser as JP Fund, do not own
more than 10% of the investment company whose securities are being
purchased; (b) JP Fund cannot invest more than 10% of its total assets
in the securities of other investment companies; and (c) such purchases
are made in the open market where no commission or profit to a sponsor
or dealer results other than the customary broker's commission;
notwithstanding the foregoing, restrictions 10(a), 10(b) and 10(c) do
not apply in connection with a merger, consolidation, or plan of
reorganization; (11) mortgage, pledge, hypothecate, or in any manner
transfer, as security of indebtedness, any securities owned or held by
JP Fund; (12) participate on a joint or joint and several basis in any
trading account in securities or effect a short sale of any security,
except in connection with an underwriting in which it is a participant
in the circumstances specified in "5" above; and (13) purchase or
retain the securities of any issuer if those officers and directors of
JP Fund, its adviser or underwriter owning individually more than 0.5%
of the securities of such issuer together own more than 5% of the
securities of such issuer. As non-fundamental policies changeable
without shareholder approval, JP Fund cannot: (a) invest in companies
for the purpose of exercising control or management; (b) invest in
foreign securities other than securities issued by Canadian companies;
and (c) invest in interests of oil, gas or other mineral exploration or
development programs (including oil, gas or mineral leases).
Oppenheimer Fund Performance
Oppenheimer Fund does not maintain a fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization
of any capital gains.
During Oppenheimer Fund's fiscal year ended December 31, 1995,
Oppenheimer Fund reacted to a strong rally in treasury securities by
reducing its treasury allocation in favor of increased allocations in
different categories of U.S. Government and corporate bonds. It
reduced its holdings in utilities and cyclical companies such as mining
and metals companies in favor of companies expected to experience
earnings growth, such as cable, communications, broadcasting and media
firms. Oppenheimer Fund's investment performance will vary over time
depending on market conditions, the composition of the portfolio and
expenses. Past performance should not be considered a prediction of
future performance.
Included in the prospectus for the Trust, a copy of which accompanies
this Proxy Statement and Prospectus and those portions that pertain to
Oppenheimer Fund being incorporated herein by reference, in the section
entitled "Performance of Oppenheimer Fund" is a performance graph which
depicts the performance of a hypothetical investment of $10,000 in
shares of Oppenheimer Fund held over a ten-year period through December
31, 1995 with all dividends and capital gains distributions reinvested.
The average annual total return of shares of Oppenheimer Fund are
compared with the performance of Lehman Brothers Corporate Bond Index,
a broad-based, unmanaged index of publicly-issued nonconvertible
investment grade corporate debt of U.S. issuers, widely recognized as a
measure of the U.S. fixed-rate corporate bond market. The Lehman
Brothers Corporate Bond Index includes a factor for the reinvestment of
interest, but does not consider the effect of expenses, capital gains
or transaction costs, and none of the data shows the effect of taxes.
Information on JP Fund performance is set forth in JP Fund's current
Prospectus and in its Annual Report as of December 31, 1995, which may
be obtained without charge as set forth in "Miscellaneous - Public
Information." Such information is incorporated herein by reference.
Other Investors in Oppenheimer Fund
Shares of Oppenheimer Fund are sold to separate accounts of insurance
companies that are not affiliated with JPLIC or each other, a practice
known as "shared funding." They are also sold to separate accounts to
serve as the underlying investment for both variable annuity contracts
and variable life insurance contracts, a practice known as "mixed
funding." As a result, there is a possibility that a material conflict
may arise between the interests of owners of various different types of
variable contracts, whose contract values are indirectly invested in
Oppenheimer Fund. Likewise, there is a possibility that a material
conflict may arise between the interests of owners of variable
contracts having contract values indirectly invested in Oppenheimer
Fund through a separate account of one insurance company and the
interests of owners of other variable contract whose contract values
are indirectly invested in the fund through one or more separate
accounts or other insurance companies. Shares of Oppenheimer Fund may
also be sold to separate accounts of certain pension and retirement
plans qualifying under Section 401 of the Code. As a result, there is
a possibility that a material conflict may arise between the interests
of owners of various types of variable contracts (including variable
contracts issued by insurance companies other than JPLIC), and such
retirement plans or participants in such retirement plans. There are
certain other risks associated with mixed and shared funding and with
the sale of shares to qualified pension and retirement plans. These
are discussed in Oppenheimer Fund's prospectus under the caption "Other
Investment Restrictions".
Additional Comparative Information
General. For a discussion of the organization and operation of
Oppenheimer Fund, including brokerage practices, see "Investment
Objectives and Policies" and "How the Funds are Managed" in the Trust's
current Prospectus and "Brokerage Policies of the Funds" in the Trust
Additional Statement. For a discussion of the organization and
operation of JP Fund, including brokerage practices, see "Investment
Objectives and Policies," and "Who Manages The Funds" in JP Fund's
current Prospectus and "Brokerage" in the JP Fund Additional Statement.
Financial Information. For certain financial information about
Oppenheimer Fund and JP Fund see, as to Oppenheimer Fund, "Financial
Highlights" and "Performance of the Funds" in the Trust's current
Prospectus and as to JP Fund "Condensed Financial Information" and
"Performance" in JP Fund's current Prospectus.
Management of Oppenheimer Fund and JP Fund. For information about the
management of Oppenheimer Fund and JP Fund, including their respective
Boards of Trustees or Directors, investment adviser, portfolio
managers, see as to Oppenheimer Fund "How the Funds are Managed" in the
Trust's current Prospectus and "How the Funds are Managed," "Trustees
and Officers of the Trust" and "The Manager and Its Affiliates" in the
Trust Additional Statement, and as to JP Fund and "Who Manages the
Funds" in JP Fund's current Prospectus and "The Investment Adviser,"
and "The Fund's Directors and Officers" in the JP Fund Additional
Statement.
Description of Shares of Oppenheimer Fund and JP Fund. Oppenheimer
Fund is a series of the Trust, Oppenheimer Variable Account Funds, a
Massachusetts business trust. Oppenheimer Fund and its shareholders
are governed principally by the Trust's Declaration of Trust, its By-
Laws and other governing documents. Each share of Oppenheimer Fund
represents an interest in Oppenheimer Fund proportionately equal to the
interest of each other share and entitles the holder to one vote per
share (and a fractional vote for a fractional share) on matters
submitted to a vote at shareholder meetings. Shares of Oppenheimer
Fund and of the Trust's other series vote together in the aggregate on
certain matters at shareholder meetings, such as the election of
Trustees and ratification of appointment of auditors. Shareholders of
a particular series vote separately on proposals which affect that
series, and shareholders of a series which is not affected by that
matter are not entitled to vote on the proposal. Shareholders of
Oppenheimer Fund together with the shareholders of the Trust's other
series have the right, under certain circumstances, to remove a Trustee
and will be assisted in communicating with other shareholders for such
purpose.
Oppenheimer Fund is authorized to issue an unlimited number of shares
of beneficial interest. Shares are freely transferable and shares do
not have cumulative voting rights or preemptive or subscription rights.
Oppenheimer Fund is governed by a Board of Trustees that has the power,
without shareholder approval, to establish and designate one or more
series. Oppenheimer Fund has only one class of shares, which are
offered for purchase only by separate accounts such as Separate Account
A. Under certain circumstances, a shareholder of Oppenheimer Fund may
be held personally liable as a partner for the obligations of
Oppenheimer Fund, and under the Trust's Declaration of Trust, such a
shareholder is entitled to indemnification rights by Oppenheimer Fund;
the risk of a shareholder incurring any such loss is limited to the
remote circumstances in which Oppenheimer Fund is unable to meet its
obligations. For further information about the shares of Oppenheimer
Fund, see "How the Fund is Managed" in the Oppenheimer Fund current
Prospectus and Oppenheimer Fund Additional Statement.
JP Fund is a North Carolina corporation with 100,000,000 shares of
common stock, par value $1.00 per share, authorized, which shares are
divided initially into two classes, consisting of 50,000,000 shares of
Class A and 50,000,000 shares of Class B. JP Fund and its shareholders
are governed by its Articles of Incorporation and By-Laws and by the
NCBCA. The shares of common stock issued and outstanding on the date
Class B shares are first issued will be reclassified as Class A; no
Class B shares have been issued as of the date hereof. Each share
entitles the holder to participate equally in dividends and
distributions declared by JP Fund and in its remaining net assets on
liquidation after satisfaction of outstanding liabilities. JP Fund
shares are fully paid and nonassessable when issued; have no preemptive
or conversion rights; are transferable without restriction; and are
redeemable at net asset value. On matters submitted for a shareholder
vote, each shareholder is entitled to one vote for each share owned.
Fractional shares have proportionately the same rights as do full
shares.
Oppenheimer Fund is not required to hold, and does not plan to hold,
regular annual meetings of shareholders. In contrast, JP Fund is
required to hold an annual meeting of shareholders each year or in lieu
thereof, a special meeting of shareholders.
Dividends, Distributions and Taxes. The Trust intends to declare
dividends on Oppenheimer Fund shares from net investment income
quarterly, payable in March, June, September and December. Any net
long-term and short-term capital gains may be distributed by
Oppenheimer Fund annually in December and supplemental distributions of
capital gains and ordinary income may be made following the end of
Oppenheimer Fund's fiscal year. JP Fund's policy is to pay dividends
from net investment income quarterly in February, May, August, and
November. Each December each fund makes a distribution of the capital
gains, if any, realized during the 12-month period ended the preceding
October 31. For a discussion of the policies of Oppenheimer Fund and
JP Fund with respect to dividends and distributions, and a discussion
of the tax consequences of an investment in Oppenheimer Fund and JP
Fund, see as to Oppenheimer Fund "Dividends, Capital Gains and Taxes"
in the Oppenheimer Fund current Prospectus and as to JP Fund
"Dividends, Distribution and Taxes" in the JP Fund current Prospectus.
For a discussion of the tax consequences of an investment in Account A,
see "Federal Tax Status" in the Account A prospectus.
Purchases and Redemptions of Shares. Information on purchases,
exchanges, and redemptions of shares of Oppenheimer Fund and JP Fund is
provided under "Synopsis -- Purchases and Redemptions" in this Proxy
Statement and Prospectus. For an additional discussion of how shares
of Oppenheimer Fund and JP Fund may be purchased and redeemed see, as
to Oppenheimer Fund, "How to Buy Shares," and "How to Sell Shares," in
the Trust's current Prospectus and the Trust Statement of Additional
Information and, as to JP Fund, "How to Purchase Shares," and "How to
Redeem Shares" in JP Fund's current Prospectus.
Shareholder Inquiries. For a description of how shareholder inquiries
should be made, see, as to Oppenheimer Fund, "How the Funds are
Managed" in the Trust's current Prospectus and, as to JP Fund, the
back cover page of the JP Fund current Prospectus.
The Board of Directors recommends that shareholders approve the
Reorganization Agreement.
ELECTION OF DIRECTORS
(Proposal 2)
The Board of Directors of JP Fund recommends that shareholders elect
the following nominees to serve as the 5 directors of the full Board of
directors of JP Fund: John C. Ingram, J. Lee Lloyd, Richard W.
McEnally, William E. Moran and E.J. Yelton. Each of the nominees is
presently a Director of JP Fund and has been previously elected by
shareholders of JP Fund. If elected, the directors will serve until
the earlier of the dissolution of JP Fund or the next shareholder
meeting called for the purpose of electing directors, or until the
election and qualification of their successors. If the enclosed voting
instruction is duly executed and received in time for the Meeting, and
if no contrary specification is made as provided therein, it will be
voted in favor of the election as directors of the foregoing nominees.
If any nominee should be unwilling or unable to serve, which is not now
anticipated, the Proxy may be voted with discretionary authority for a
substitute or substitutes as shall be designated by the Board of
Directors. Certain information concerning the directors and executive
officers of JP Fund is set forth below.
Information Concerning the Board
JP Fund's current Board of directors consists of 5 directors, all of
whom are elected at annual meetings. The Board of directors does not
have a standing audit, nominating or compensation committee. The
following list of JP Fund's directors and executive officers, all of
whom are also directors and/or officers of JP Capital Appreciation
Fund, Inc., Jefferson-Pilot Investment Grade Bond Fund, Inc. and
Jefferson-Pilot Capital Appreciation Fund, Inc. (collectively with JP
Fund, the "Jefferson-Pilot Funds") includes information as to their
principal occupations during the past five years and their principal
affiliations.
<TABLE>
<CAPTION>
Name and Other Position/Office Principal Occupation(s) Officer or
Information with JP Fund During the Past 5 Years Director Since
<S> <C> <C>
John C. Ingram* Director Senior Vice President, 1989
3802 Woodcote Dr. JPLIC since November 1988.
Greensboro, N.C.
Age-52
J. Lee Lloyd Director Managing Director, Lloyd & Company 1994
16 Irving Park Lane since April 1991.
Greensboro, NC 27455
Age-36
Richard W. McEnally Director Professor of Investment Banking, 1984
401 Brookside Drive University of North Carolina at
Chapel Hill, NC at Chapel Hill.
Age-54
William E. Moran Director Senior Vice President, Connors 1983
5206 Barnfield Road Investor Service, Inc.
Greensboro, NC since January 1995; prior thereto, Chancellor
Age-64 University of North Carolina at
Greensboro.
W. Hardee Mills, Jr. Vice President Vice President of JPLIC 1987
5 St. Francis Court since February 1994; prior
Greensboro, NC 27408 thereto, Second Vice President,
Age-46 JPLIC.
J. Gregory Poole Secretary Assistant Secretary of JPC and 1994
1805 Gate Post Drive Associate Counsel and Assistant
Greensboro, NC 27455 Secretary of JPLIC since February
Age-32 1994; prior thereto, various
positions at JPC and JPLIC.
E.J. Yelton* Director, Senior Vice President - Investments 1994
3204 St. Regis Road President, of JPC and Executive Vice President
Greensboro, NC 27408 Treasurer - Investments of JPLIC since October
Age-57 1993; prior thereto, President and
CEO, ING North America
Investment Centre/Member of
ING Group (investment banking firm).
</TABLE>
* Messrs. Ingram and Yelton are directors that are "interested
persons" (as that term is defined in the 1940 Act) of JP Fund due to
the following positions with JPM and JPC: Mr. Ingram -Senior Vice
President, Treasurer and Director of JPM, and Mr. Yelton - President
and Director, JPM and Senior Vice President - Investments, JPC.
The nominees for directors are beneficial owners of the following
shares in JPC, the parent of JP Fund's investment adviser: Yelton,
_____; Ingram, ______; Moran, ____; Lloyd, ____; and McEnally, ____.
During the period January 1, 1995 to December 31, 1995, the Directors
of JP Fund purchased and/or sold shares of JPM, JPC and subsidiaries of
JPC as follows: [identify only if securities purchased/sold exceed 1%
of outstanding shares of entity]
Officers of JP Fund
The following officers of JP Fund also serve as officers and/or
directors of JPM and JPIS: E.J. Yelton, President and Treasurer of JP
Fund, is President and a Director of JPM and a Director of JPIS; W.
Hardee Mills, Jr., Vice President of JP Fund, is Vice President of JPM
and J. Gregory Poole, Secretary of JP Fund, is Secretary of JPIS and
JPM. Messrs. Yelton, Poole and Mills hold positions with the other
Jefferson-Pilot Funds similar to the positions held with JP Fund. The
other Jefferson-Pilot Funds have the same investment adviser as JP
Fund.
The following table provides information regarding the compensation
each nominee for director was paid by JP Fund and the other Jefferson-
Pilot Funds for the year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compensation
Name of Aggregate Pension or Retirement Estimated Annual From Jefferson-
Person, Compensation Benefits Accrued as Benefits upon Pilot
Position from JP Fund Part of JP Fund Expenses Retirement______ Funds
<S> <C> <C> <C> <C>
John C. Ingram $0 $0 $0 $0
Director
J. Lee Lloyd 1,220 0 0 4,880
Director
Richard W. McEnally 1,220 0 0 4,880
Director
William E. Moran 1,220 0 0 4,880
Director
E.J. Yelton 0 0 0 0
Director,
President,
Treasurer
</TABLE>
Other Information
The Board of Directors met five items during the fiscal year ended
December 31, 1995 and all of the Directors were present for at least
75% of those meetings. During the year ended December 31, 1995,
directors who are not employed by JP Fund or its affiliates received a
$100 director's fee for each meeting attended, amounting to an
aggregate of $500. In addition, each of the Independent Directors
receives a fee of $720 per year payable in equal monthly installments.
As of the Record Date, JP Fund's directors and officers owned Account A
contracts holding JP Fund shares the amounts indicated: John C.
Ingram,______ shares; J. Lee Lloyd, None; Richard W. McEnally, _____
shares; William E. Moran, ______shares; E.J. Yelton, ______shares; W.
Hardee Mills, Jr., None; J. Gregory Poole, _______shares; and all
directors and officers as a group,_____shares.
The percentage of shares beneficially owned by each such individual,
and all directors and officers as a group, did not exceed 1% of JP
Fund's outstanding shares.
JP Fund's investment adviser and transfer agent is JPM, P.O. Box 21008,
Greensboro, North Carolina 27420, a North Carolina corporation
organized on January 13, 1970. JPM is a wholly-owned subsidiary of
JPC, an insurance holding company. JPM presently serves the other
Jefferson-Pilot Funds in these capacities as well.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
MO 64105-1716 (phone: 1-800-292-6701) serves as JP Fund's custodian.
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 3)
The Board of Directors of JP Fund recommends that the shareholders
ratify the selection of McGladrey & Pullen LLP ("McGladrey & Pullen"),
Certified Public Accountants, to continue to serve as the independent
auditors of JP Fund for the fiscal year ending December 31, 1996. That
firm or its predecessor has served as JP Fund's independent auditors
from the time of JP Fund's incorporation on July 19, 1982. JP Fund has
been advised by McGladrey & Pullen that neither the said firm nor any
of its members have a direct or indirect financial interest in JP Fund.
McGladrey & Pullen also serves as independent auditors for JPM.
INFORMATION CONCERNING THE MEETING
The Meeting
The Meeting will be held at the Jefferson-Pilot Building (4th Floor,
Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420,
at 10:00 A.M., local time, on December 3, 1996. At the Meeting, JP
Fund shareholders will be asked to consider and vote upon approval or
disapproval of the Reorganization Agreement, and the transactions
contemplated thereby, including the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund, the distribution by JP Fund of such shares to its
shareholders in liquidation of JP Fund and the cancellation of the
outstanding shares of JP Fund. At the meeting, shareholders of JP Fund
will also be asked to elect five Directors and ratify or reject the
selection of independent accountants.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on October 10, 1996 as the
Record Date for the determination of shareholders entitled to notice
of, and to vote at, the Meeting. The affirmative vote of a majority of
the JP Fund shares entitled to vote at the Meeting is required for
approval of Proposal 1. The affirmative vote of a majority of JP Fund
shares voted (in person or by proxy) at the Meeting, if a quorum is
present at the Meeting, is required to approve Proposal 3. A plurality
of all the votes cast at the Meeting, if a quorum is present at the
Meeting, is sufficient to elect the nominees for director (Proposal 2).
JPLIC will be entitled to one vote for each share and a fractional vote
for each fractional share held of record at the close of business on
the Record Date. Only JP Fund shareholders will vote on the
Reorganization and the other Proposals. The vote of shareholders of
Oppenheimer Fund is not being solicited.
At the close of business on the Record Date, there were approximately
_________ shares of JP Fund issued and outstanding. The presence in
person or by proxy of the holders of one-third of JP Fund's shares
constitutes a quorum for the transaction of business at the Meeting.
As of the Record Date, JPLIC owned of record all of JP Fund's
outstanding shares; the beneficial owners of all of JP Fund's
outstanding shares with the exception of less than 1% beneficially
owned by JPLIC are the owners of variable contracts issued by JPLIC
through Account A. To the knowledge of JP Fund, as of the Record Date,
none of such beneficial owners owned beneficially 5% or more of the
outstanding JP Fund shares.
As of the Record Date, the holders of all of the outstanding shares of
Oppenheimer Fund were separate accounts of (i) The Life Insurance
Company of Virginia, Richmond, VA which owned _____________ shares;
(ii) Nationwide Life Insurance Company, Columbus, OH which owned
______________ shares; and (iii) Aetna Life Insurance and Annuity
Company, Hartford, CT which owned _____________ shares.
In the event a quorum does not exist on the date originally scheduled
for the Meeting, or, subject to approval of the Board, for other
reasons, one or more adjournments of the Meeting may be sought by the
Board.
Voting Instructions
JPLIC is the sole record holder and JPLIC and Account A of JPLIC are
the only beneficial shareholders of JP Fund. JPLIC will vote the
shares of JP Fund at the Meeting in accordance with the timely
instructions received from persons entitled to give voting instructions
under variable contracts. JPLIC will vote shares attributable to
variable contracts as to which no voting instructions are received in
proportion (for, against or abstain) to those which instructions are
received. JPLIC also will vote shares not attributable to variable
contracts (i.e., representing seed money investments in JP Fund made by
JPLIC) in proportion to those for which instructions are received from
owners. If a Voting Instruction Form is received that does not specify
a choice, JPLIC will consider its timely receipt as an instruction to
vote in favor of the proposal(s) to which it relates. Variable
contract owners may revoke voting instructions given to JPLIC at any
time prior to the Meeting by notifying the Secretary of JP Fund in
writing.
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be borne by OFI and
JPM. Similarly, any costs associated with documents included in that
mailing, such as existing prospectuses or annual reports, will be borne
by OFI and JPM. In addition to the solicitation of proxies by mail,
proxies may be solicited by officers and employees of JPM or JPM
affiliates, personally or by telephone or telecopy.
In addition to the proxy solicitation expenses (as described above),
OFI and JPM will bear the cost of the tax opinion, as well as any other
expenses associated with the Reorganization, including legal and
accounting expenses.
MISCELLANEOUS
Financial Information
The Reorganization will be accounted for by Oppenheimer Fund in its
financial statements similar to a pooling without restatement. Further
financial information as to JP Fund is contained in JP Fund's current
Prospectus, which is available without charge upon written request to
JPIS at P.O. Box 22086, Greensboro, North Carolina 27420, and in its
audited financial statements as of December 31, 1995, which are
included in the JP Fund Additional Statement. Financial information
for Oppenheimer Fund is contained in its current Prospectus
accompanying this Proxy Statement and Prospectus and incorporated
herein as to information with respect to Oppenheimer Fund, and in its
audited financial statements as of December 31, 1995, which are
included in the Trust Additional Statement.
Public Information
Additional information about Oppenheimer Fund and JP Fund is available,
as applicable, in the following documents: (1) the Trust's Prospectus
dated May 1, 1996, accompanying this Proxy Statement and Prospectus and
incorporated by reference herein as to information with respect to
Oppenheimer Fund, (2) JP Fund Prospectus dated May 1, 1996, which may
be obtained without charge by writing to JPM at the address indicated
above; (3) the Trust's Annual Report as of December 31, 1995 and Semi-
Annual Report as of June 30, 1996, which may be obtained without charge
by writing to OFS at the address on the cover of this Proxy Statement
and Prospectus; and (4) JP Fund's Annual Report as of December 31, 1995
and Semi-Annual Report as June 30, 1996, which may be obtained without
charge by writing to JPM at the address indicated above. All of the
foregoing documents may be obtained by calling the toll-free number for
Oppenheimer Fund and JP Fund, as applicable, on the cover of this Proxy
Statement and Prospectus.
Additional information about the following matters is contained in the
Reorganization Additional Statement, which is incorporated herein by
reference and includes Oppenheimer Fund's Additional Statement, the JP
Fund Prospectus dated May 1, 1996, the JP Fund Additional Statement and
the Annual Reports and Semi-Annual Reports described in the preceding
paragraph: the organization and operation of Oppenheimer Fund and JP
Fund; more information on investment policies, practices and risks;
information about the Board of Trustees of the Trust and the Board of
Directors of JP Fund, and their responsibilities; a further description
of the services provided by Oppenheimer Fund's and JP Fund's respective
investment adviser, and transfer and shareholder servicing agent;
dividend policies; tax matters; and an explanation of the method of
determining the offering price of the shares of Oppenheimer Fund and JP
Fund. The Reorganization Additional Statement may be obtained by
calling 1-800-525-7048 (a toll free number).
Oppenheimer Fund and JP Fund are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the SEC.
Proxy material, reports and other information about Oppenheimer Fund
and JP Fund which are of public record can be inspected and copied at
public reference facilities maintained by the SEC in Washington, D.C.
and certain of its regional offices, and copies of such materials can
be obtained at prescribed rates from the Public Reference Branch,
Office of Consumer Affairs and Information Services, SEC, Washington,
D.C. 20549.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the next
annual meeting of shareholders of JP Fund (if one is held) and who
wishes to have it set forth in a proxy statement and identified in the
form of proxy prepared by JP Fund must notify JP Fund in such a manner
so that such notice is received by JP Fund by ___________, and in such
form as is required under the rules and regulations promulgated by the
SEC.
OTHER BUSINESS
Management of JP Fund knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters
not known at the time of the solicitation may come before the Meeting,
the proxy as solicited confers discretionary authority with respect to
such matters as properly come before the Meeting, and it is the
intention of the persons named as attorneys-in-fact in the proxy to
vote this proxy in accordance with their judgment on such matters if no
voting instructions are provided.
By Order of the Board of Directors
J. Gregory Poole, Secretary
October __, 1996
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________________, 1996 by and between JP Investment Grade Bond Fund, Inc.
("JP Fund"), a North Carolina corporation, Oppenheimer Variable Account
Funds (the "Oppenheimer Trust"), a Massachusetts business trust, on behalf
of its series Oppenheimer Bond Fund ("Oppenheimer Fund"), and (solely for
purposes of Section 21 of this Agreement) Jefferson-Pilot Corporation
("JPC"), a North Carolina corporation, and OppenheimerFunds, Inc. ("OFI"),
a Colorado corporation.
W I T N E S S E T H:
WHEREAS, JP Fund and Oppenheimer Fund are each open-end investment
companies of the management type; and
WHEREAS, JP Fund and Oppenheimer Fund desire to provide for the
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), of JP Fund through the acquisition by
Oppenheimer Fund of substantially all of the assets of JP Fund in exchange
solely for voting shares of beneficial interest ("shares") of Oppenheimer
Fund and the assumption by Oppenheimer Fund of certain liabilities of JP
Fund, which shares of Oppenheimer Fund are thereafter to be distributed
by JP Fund pro rata to its shareholders in complete liquidation of JP Fund
and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. JP Fund and Oppenheimer Fund hereby adopt this Agreement and
Plan of Reorganization (the "Agreement") pursuant to Section 368(a)(1) of
the Code as follows: The reorganization will be comprised of the
acquisition by Oppenheimer Fund of substantially all of the assets of JP
Fund in exchange for the issuance of shares of Oppenheimer Fund to JP Fund
and the assumption by Oppenheimer Fund of certain liabilities of JP Fund,
followed by the distribution by JP Fund of such shares of Oppenheimer Fund
to the shareholders of JP Fund in exchange for their shares of JP Fund,
all upon and subject to the terms hereinafter set forth.
2. On the Closing Date (as hereinafter defined) (i) JP Fund shall
transfer and deliver (or cause to be so transferred and delivered) to
Oppenheimer Fund, free and clear of all liens, encumbrances, restrictions
and claims (other than Assumed Liabilities (as hereinafter defined)), the
assets of JP Fund including but not limited to portfolio securities, cash
(excluding the Cash Reserve as defined below), cash equivalents and
receivables as the same shall exist on that date (the "Assets") and (ii)
Oppenheimer Fund shall deliver to JP Fund (in accordance with Section 5
hereof) in exchange therefor, the shares of Oppenheimer Fund to be issued
hereunder. The Assets shall exclude a cash reserve (the "Cash Reserve")
which shall be retained by JP Fund for the payment by it in respect of the
Liabilities (as hereinafter defined) of JP Fund, if any, and which Cash
Reserve shall not exceed the amount contemplated by Section 10E. The
aggregate number of shares of Oppenheimer Fund to be delivered by
Oppenheimer Fund at the Closing (as hereinafter defined) shall be such
number as shall have, as of the Valuation Date, an aggregate net asset
value equal to the value of the Assets so transferred and delivered. Such
Oppenheimer Fund shares shall be issued without the imposition of any
sales charge or load. Oppenheimer Fund agrees that, if the reorganization
becomes effective, Oppenheimer Fund will treat each shareholder of JP Fund
who received any of Oppenheimer Fund's shares as a result of the
reorganization as having made the minimum initial purchase of shares of
Oppenheimer Fund received by such shareholder for the purpose of making
additional investments in shares of Oppenheimer Fund, regardless of the
value of the shares of Oppenheimer Fund received. Promptly following the
execution of the Agreement, JP Fund shall provide Oppenheimer Fund with
a list of the Assets including, as to portfolio securities, a description
thereof, units held and their value, as of the most reasonably practicable
date.
3. The net asset value of shares of Oppenheimer Fund and the value
of the Assets shall in each case be determined as of the close of business
of The New York Stock Exchange on the business day immediately preceding
the Closing Date (the "Valuation Date"). The foregoing valuations shall
be prepared using the procedures set forth in Oppenheimer Fund's then
current prospectus and statement of additional information and shall be
computed in accordance with the regular practice and pricing services
utilized by OppenheimerFunds, Inc. in pricing the Oppenheimer Fund. In
accordance with the foregoing, Oppenheimer Fund and JP Fund shall each
respectively prepare a report setting forth, as of the Valuation Date, its
respective total net assets, the number of its shares outstanding, the net
asset value of Oppenheimer Fund shares or the net asset value of JP Fund
shares, respectively, and as to each of its portfolio securities, the
cusip or ticket number, description thereof, units held and value
determined as aforesaid (the "Valuation Report"). A Valuation Report shall
be delivered by each of Oppenheimer Fund and JP Fund to the other on the
Closing Date.
JP Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to JP Fund's
shareholders all of JP Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing of the transactions contemplated herein (the
"Closing") shall be at the office of OppenheimerFunds, Inc., Two World
Trade Center, Suite 3400, New York, New York 10048, at the date and time
of the closing of the acquisition contemplated by that certain Acquisition
Agreement (the "Acquisition Agreement") dated [the date of the Agreement]
by and among OppenheimerFunds, Inc., JP Investment Management Company,
Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Corporation (or
such other date, time and place as JP Fund and Oppenheimer Fund may
otherwise designate) (the "Closing Date").
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940, as amended (the "1940
Act"), or any rule, regulation or order thereunder, suspended the
redemption of its shares or postponed payment therefor, the Closing Date
shall be postponed until the first business day after the date when JP
Fund and Oppenheimer Fund have ceased such suspension or postponement;
provided, however, that if such suspension shall continue for a period of
60 days beyond the Valuation Date, then the other party to the Agreement
shall be permitted to terminate the Agreement as set forth in Section 20.
5. Shares of Oppenheimer Fund representing the number of shares
of Oppenheimer Fund being delivered against the Assets, registered in the
name of JP Fund, shall be transferred to JP Fund on the Closing Date. In
connection with the Closing, JP Fund shall distribute on a pro rata basis
to the shareholders of JP Fund on the Valuation Date the shares of
Oppenheimer Fund received by JP Fund on the Closing Date in exchange for
the Assets in complete liquidation of JP Fund; for the purpose of the
distribution by JP Fund of shares of Oppenheimer Fund to its shareholders,
Oppenheimer Fund will promptly cause its transfer agent to: (a) credit an
appropriate number of shares of Oppenheimer Fund on the books of
Oppenheimer Fund to each shareholder of JP Fund in accordance with a list
(the "Shareholder List") of JP Fund shareholders received from JP Fund;
and (b) confirm an appropriate number of shares of Oppenheimer Fund to
each shareholder of JP Fund; certificates for shares of Oppenheimer Fund
will be issued upon written request of a former shareholder of JP Fund and
surrender of the JP Fund certificates but only for whole shares, with
fractional shares credited to the name of the shareholder on the books of
Oppenheimer Fund. JP Fund covenants and agrees to cause the cancellation
of all of its outstanding shares upon the Closing.
The Shareholder List shall be certified by the Secretary of JP Fund
and by an authorized signatory of Investors Fiduciary Trust Company, JP
Fund's transfer agent, and shall indicate, as of the Valuation Date, the
name, address and taxpayer identification number of each shareholder of
JP Fund, indicating his or her share balance. JP Fund agrees to supply the
Shareholder List to Oppenheimer Fund not later than the Closing Date in
such form (including computer diskette) as Oppenheimer Fund shall request.
JP Fund further agrees to deliver to Oppenheimer Fund or its designee (i)
on or before the Closing Date all such other information and documents
available to JP Fund relating to such shareholders as may be necessary for
Oppenheimer Fund and its designee to perform all necessary shareholder
accounting, communication and related services subsequent to the Closing
and (ii) as soon as practicable after the Closing all original
documentation (including Internal Revenue Service forms, certificates and
correspondence) relating to the taxpayer identification numbers of JP Fund
shareholders on the Shareholder List and their liability for or exemption
from backup withholding. Shareholders of JP Fund holding certificates
representing their shares shall not be required to surrender their
certificates to anyone in connection with the reorganization. After the
Closing Date, however, it will be necessary for such shareholders to
surrender their certificates in order to redeem, transfer, exchange or
pledge the shares of Oppenheimer Fund which they received.
The share transfer books of JP Fund will be permanently closed
as of the Valuation Date and only redemption requests received in proper
form on or prior to the Valuation Date shall be fulfilled by JP Fund;
redemption requests received by JP Fund after that date shall be treated
as requests for the redemption of the shares of Oppenheimer Fund that
shall have been distributed to the shareholder in question as set forth
in this Section 5.
6. Within one year after the Closing Date, JP Fund shall (a) either
pay or make provision for payment of all of its Liabilities (other than
Assumed Liabilities) and (b) either (i) transfer any remaining amount of
the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced
by the estimated cost of distributing it to shareholders) is not material
(as defined below) or (ii) distribute such remaining amount to the
shareholders of JP Fund on the Valuation Date. Such remaining amount shall
be deemed to be material if the amount to be distributed, after deduction
of the estimated expenses of the distribution, equals or exceeds one cent
per share of JP Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
JP Fund and Oppenheimer Fund as to their respective portfolios so that,
after the Closing, Oppenheimer Fund will not hold assets inconsistent with
its investment objectives and will be in compliance with all of its
investment policies and restrictions.
8. Portfolio securities or written evidence acceptable to
Oppenheimer Fund of record ownership thereof by The Depository Trust
Company or through the Federal Reserve Book Entry System or any other
depository approved by JP Fund pursuant to Rule 17f-4 and Rule 17f-5 under
the 1940 Act shall be endorsed and delivered, or transferred by
appropriate transfer or assignment documents, by JP Fund on the Closing
Date to Oppenheimer Fund, or at its direction, to Oppenheimer Fund's
custodian bank, in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any.
The cash of JP Fund shall be delivered on the Closing Date to Oppenheimer
Fund by bank wire or inter-bank transfer of immediately available funds
to Oppenheimer Fund's custodian bank payable to the order of Oppenheimer
Fund for the account of Oppenheimer Fund.
If, at the Closing Date, JP Fund is unable to make delivery
under this Section 8 to Oppenheimer Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased
by JP Fund, or the cash proceeds of a sale of portfolio securities, prior
to the Closing Date have not yet been delivered in the ordinary course of
business to it or JP Fund's custodian, then the delivery requirements of
this Section 8 with respect to said undelivered securities or cash will
be waived and JP Fund will deliver to Oppenheimer Fund by or on the
Closing Date and with respect to said undelivered securities or cash
executed copies of an agreement or agreements of assignment as to such
securities or cash proceeds in a form reasonably satisfactory to
Oppenheimer Fund, together with such other documents, including a due bill
or due bills and brokers' confirmation slips as may reasonably be required
by Oppenheimer Fund.
9. Oppenheimer Fund shall not assume and shall not otherwise be
responsible for any liabilities (except the obligations, if any, to pay
the purchase price of portfolio securities purchased by JP Fund which have
not settled in the ordinary course of business ("Assumed Liabilities")),
taxes, obligations, expenses, contracts, claims, commitments, agreements
and arrangements relating to (i) the Assets or (ii) JP Fund, its
predecessors, affiliates, directors, officers, employees and agents, in
each case whether fixed, contingent, accrued or otherwise ("Liabilities").
JP Fund expressly agrees to remain liable for and discharge all its
Liabilities whether incurred prior to or subsequent to the Closing Date.
With respect to any expenses applicable to, or incurred by JP Fund and
Oppenheimer Fund hereto in connection with entering into and carrying out
the provisions of the Agreement ("Expenses"), including legal, accounting
and registration fees and Blue Sky expenses and expenses of the proxy
solicitation, including the cost of printing and mailing the Proxy
Statement and Prospectus (as hereinafter defined) and related proxy
materials, it is hereby agreed that except as otherwise provided in
Section 20 of the Agreement, the respective investment adviser for
Oppenheimer Fund and JP Fund shall reimburse the Fund for which it acts
as investment adviser for such Fund's Expenses and, as to the rights and
obligations of said investment advisers inter se, the terms of the
Acquisition Agreement shall govern. It is understood and acknowledged that
in no event shall JP Fund or Oppenheimer Fund be liable for the payment
of any Expenses.
10. As soon as practicable after it fulfills its obligations set
forth in Section 6 hereof, JP Fund shall file Articles of Dissolution with
the North Carolina Secretary of State (the "Department") and shall file
an application for an order of the Securities and Exchange Commission
("SEC") pursuant to Section 8(f) of the 1940 Act, declaring that it has
ceased to be an investment company, and shall take, in accordance with
North Carolina law and the 1940 Act, all such other actions as may be
necessary or appropriate to effect a complete liquidation and dissolution
of JP Fund and to deregister JP Fund under the 1940 Act.
11. Any reporting, filing or other obligation of JP Fund under the
federal securities laws and state laws shall remain the responsibility of
JP Fund until it is deregistered under the 1940 Act or liquidated and
dissolved, respectively.
12. The obligations of Oppenheimer Fund hereunder shall be subject
to the following conditions:
A. The shareholders of JP Fund shall have approved the
Agreement and the transactions contemplated herein; such shareholder
approval shall have been by the affirmative vote of a majority of the
outstanding voting shares of JP Fund in conformity with the provisions of
the North Carolina Business Corporation Act ("NCBCA") at a meeting for
which proxies have been solicited by the Proxy Statement and Prospectus
(as hereinafter defined); and JP Fund shall have furnished to Oppenheimer
Fund copies of resolutions with respect to each of the foregoing and
copies of resolutions of the Board of Directors of JP Fund with respect
to approvals of the Agreement and the transactions contemplated herein,
in each case certified by the Secretary or an Assistant Secretary of JP
Fund.
B. Oppenheimer Fund shall have received an opinion of counsel
to JP Fund dated the Closing Date, to the effect that: (i) JP Fund is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of North Carolina with full powers to carry on its
business as described by its charter and then being conducted and to enter
into and perform the Agreement (North Carolina counsel may be relied upon
in delivering such opinion); (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable on JP
Fund and to authorize effectively the transactions contemplated by the
Agreement have been taken by JP Fund; (iii) the Agreement has been duly
authorized, executed and delivered by JP Fund and, assuming due
authorization, execution and delivery of the Agreement by Oppenheimer
Trust, constitutes a valid and binding obligation of JP Fund, enforceable
against JP Fund in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws affecting creditors rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity (the
"Bankruptcy Exception")); and (iv) the execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated
by the Agreement will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, (b) any
loan, credit agreement, note, bond, mortgage, indenture, lease or contract
applicable to JP Fund, its assets and properties (other than any such
conflicts, violations or defaults that individually or in the aggregate
would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
C. The representations and warranties of JP Fund contained
herein shall be true and correct at and as of the Closing Date (with all
representations and warranties that were made as of the date of the
Agreement or as of another date being made again as of the Closing Date)
and JP Fund shall have performed, in all material respects, each of the
covenants required to be performed by JP Fund at or prior to Closing, and
Oppenheimer Fund shall have been furnished with a certificate of the
President, or a Vice President, or the Secretary or the Assistant
Secretary or the Treasurer of JP Fund, dated the Closing Date, to that
effect.
D. On the Closing Date, JP Fund shall have furnished to
Oppenheimer Fund a certificate of the Treasurer or Assistant Treasurer of
JP Fund as to the amount of the capital loss carry-over, if any, and net
unrealized appreciation or depreciation, if any, with respect to JP Fund
as of the Closing Date.
E. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
F. A Registration Statement on Form N-14 (the "N-14
Registration Statement") filed by Oppenheimer Trust under the Securities
Act of 1933, as amended (the "1933 Act"), containing a preliminary form
of the proxy statement and prospectus required under the 1940 Act to
request the approval of shareholders of JP Fund of the reorganization
contemplated in the Agreement, shall have become effective under the 1933
Act not later than _________________, 1996.
G. On the Closing Date, Oppenheimer Fund shall have received
a letter of a senior executive officer of JP Investment Management Company
(JP Fund's investment adviser) in form acceptable to Oppenheimer Fund,
stating that between the date of the Agreement and the Closing Date there
has been no material adverse change in the Assets, the operations or the
financial condition of JP Fund (it being understood that a decrease in the
size of JP Fund due to a diminution in the value of its portfolio and/or
redemption of its shares shall not be considered a material adverse
change) and that nothing has come to his or her attention which would
indicate that as of the Closing Date there were any Liabilities of JP Fund
not fully covered by the Cash Reserve or expected not to be so covered or
pending or threatened claims, actions, suits, proceedings or
investigations with respect to or affecting JP Fund, or any director,
officer, employee or agent of JP Fund.
H. Oppenheimer Fund shall have received an opinion, dated the
Closing Date, of Sutherland, Asbill & Brennan, to the same effect as the
opinion contemplated by Section i of the Agreement.
I. Except as otherwise provided in the last paragraph of
Section 8, Oppenheimer Fund shall have received at the Closing all of the
Assets to be conveyed hereunder, free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever
except the Assumed Liabilities.
J. At or prior to the Closing Date, JP Fund shall have
delivered to Oppenheimer Fund two copies of a list setting forth the
securities, cash and receivables then owned by JP Fund and the respective
federal income tax bases thereof.
13. The obligations of JP Fund hereunder shall be subject to the
following conditions:
A. Oppenheimer Fund shall have furnished to JP Fund copies of
resolutions of the Board of Trustees of Oppenheimer Trust with respect to
approvals of the Agreement and the transactions contemplated herein
certified by the Secretary or an Assistant Secretary of Oppenheimer Trust.
B. JP Fund's shareholders shall have approved the Agreement
and the transactions contemplated hereby, by an affirmative vote of a
majority of the outstanding voting shares of JP Fund.
C. JP Fund shall have received an opinion of counsel to
Oppenheimer Fund dated the Closing Date, to the effect that (i)
Oppenheimer Fund is a series of Oppenheimer Trust, a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full powers to carry on its business
as then being conducted and to enter into and perform the Agreement
(Massachusetts counsel may be relied upon in delivering such opinion);
(ii) all action necessary to make the Agreement, according to its terms,
valid, binding and enforceable upon Oppenheimer Trust and to authorize
effectively the transactions contemplated by the Agreement have been taken
by Oppenheimer Trust; (iii) the shares of Oppenheimer Fund to be issued
hereunder are duly authorized and when issued as provided for herein will
be validly issued, fully-paid and non-assessable, except as otherwise set
forth on Schedule 13C hereto with respect to potential liability of
shareholders of a Massachusetts business trust (Massachusetts counsel may
be relied upon in delivering such opinion); (iv) the Agreement has been
duly authorized, executed and delivered by Oppenheimer Trust on behalf of
Oppenheimer Fund and, assuming due authorization, execution and delivery
of the Agreement by JP Fund, constitutes a valid and binding obligation
of Oppenheimer Trust, enforceable against Oppenheimer Trust in accordance
with its terms, subject to the Bankruptcy Exception and (v) the execution
and delivery of the Agreement does not, and consummation of the
transactions contemplated by the Agreement will not, conflict with, or
result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under: (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, (b) any loan, credit agreement, note, bond,
mortgage, indenture, lease, or contract applicable to Oppenheimer Fund,
its assets and properties (other than any such conflicts, violations or
defaults that individually or in the aggregate would not have a material
adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order of decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. The representations and warranties of Oppenheimer Trust on
behalf of Oppenheimer Fund contained herein shall be true and correct at
and as of the Closing Date (with all representations and warranties that
were made as of the date of the Agreement or as of another date being made
again as of the Closing Date), and Oppenheimer Trust shall have performed,
in all material respects, each of the covenants required to be performed
by Oppenheimer Trust at or prior to Closing, and JP Fund shall have been
furnished with a certificate of the President, a Vice President or the
Secretary or an Assistant Secretary or the Treasurer of Oppenheimer Trust
to that effect dated the Closing Date.
E. JP Fund shall have received an opinion of Sutherland,
Asbill & Brennan to the effect that the Federal tax consequences of the
transaction, if carried out in the manner outlined in the Agreement and
in accordance with (i) JP Fund's representation that there is no plan or
intention by any JP Fund shareholder who owns 5% or more of JP Fund's
outstanding shares, and, to JP Fund's best knowledge, there is no plan or
intention on the part of the remaining JP Fund shareholders, to redeem,
sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares
received in the transaction that would reduce JP Fund shareholders'
ownership of Oppenheimer Fund shares to a number of shares having a value,
as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding JP Fund shares as of the same date, (ii) the
representation that Oppenheimer Fund will acquire at least 90% of the fair
market value of the net assets and at least 70% of the fair market value
of the gross assets held by JP Fund immediately prior to the
reorganization, (iii) the representation by each of JP Fund and
Oppenheimer Fund that, as of the Closing Date, JP Fund and Oppenheimer
Fund will qualify as regulated investment companies and will meet the
diversification test of Section 368(a)(2)(F)(ii) of the Code, and (iv)
such other representations as shall be made by each of JP Fund and
Oppenheimer Fund to Sutherland, Asbill & Brennan and accompany or be set
forth in the opinion, will generally be as follows:
(a) The reorganization contemplated by the Agreement will constitute
a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code and JP Fund and Oppenheimer Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for
shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of
certain identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer
of its assets to Oppenheimer Fund in exchange solely for shares of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
identified liabilities of JP Fund (if any) and the subsequent
distribution by JP Fund of such shares to the shareholders of JP
Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon
the exchange of the JP Fund shares solely for the shares of
Oppenheimer Fund. (Section 354)
(e) The basis of the shares of Oppenheimer Fund received by each JP
Fund shareholder pursuant to the reorganization will be the same as
the adjusted basis of that shareholder's JP Fund shares surrendered
in exchange therefor. (Section 358)
(f) The holding period of shares of Oppenheimer Fund to be received
by each JP Fund shareholder will include the shareholder's holding
period for the JP Fund shares surrendered in exchange therefor,
provided such JP Fund shares were held as capital assets on the
Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP
Fund will be the same as JP Fund's tax basis for the assets
immediately prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items
of JP Fund described in Section 381(c) of the Code, including the
earnings and profits, or deficit in earnings and profits, of JP Fund
as of the date of the transaction, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the Code.
(j) No gain or loss will be recognized by the owners of variable
contracts issued by Jefferson-Pilot Life Insurance Company through
the variable account on the transfer of JP Fund's assets to
Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund
and Oppenheimer Fund's assumption of certain JP Fund liabilities (if
any) and the subsequent distribution by JP Fund of those shares to
the variable account.
Notwithstanding anything herein to the contrary, neither Oppenheimer Fund
nor JP Fund may waive the material conditions set forth in this Section
13E although the actual wording of such opinion may differ to the extent
agreed to by Oppenheimer Fund and JP Fund.
F. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
G. The N-14 Registration Statement shall have become effective
under the 1933 Act not later than ______________________, 1996.
H. JP Fund shall acknowledge receipt of the shares of
Oppenheimer Fund.
I. On the Closing Date, JP Fund shall have received a letter
of a senior officer of OFI in form acceptable to it, stating that between
the date of the Agreement and the Closing Date there has been no material
adverse change in the operations or financial condition of Oppenheimer
Fund (it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material adverse change) and that nothing
has come to his or her attention that would indicate that as of the
Closing Date there were any pending or threatened litigation or claims
with respect to Oppenheimer Fund.
14. JP Fund hereby represents and warrants that:
A. The financial statements of JP Fund as at December 31, 1995
(audited) and June 30, 1996 (unaudited) heretofore furnished to
Oppenheimer Fund, present fairly the financial position, results of
operations, and changes in net assets of JP Fund as of such dates, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year and six-month period; and that
from December 31, 1995 through the date hereof there has not been any
material adverse change in the Assets, the operations or financial
condition of JP Fund, it being agreed that a decrease in the size of JP
Fund due to a diminution in the value of its portfolio and/or redemption
of its shares shall not be considered a material adverse change.
B. JP Fund has good and valid title to the Assets, subject to
no liens, security interests or other encumbrances, and contingent upon
approval of the Agreement and the transactions contemplated hereby by JP
Fund's shareholders, JP Fund has authority to transfer the Assets to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever (excluding the Assumed
Liabilities).
C. The Prospectus of JP Fund dated May 1, 1996, as amended and
supplemented on __________, 1996, and Statement of Additional Information
of JP Fund dated May 1, 1996, contained in JP Fund's Registration
Statement under the 1933 Act, as amended, are true, correct and complete,
conform to the requirements of the 1933 Act and the 1940 Act and do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement of JP Fund,
as amended, was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the requirements of
the 1933 Act and the 1940 Act, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
was, as of its filing, and continues to be, in full force and effect.
D. There is no material Liability of JP Fund in existence
except as set forth in the financial statements of JP Fund as at December
31, 1995 and June 30, 1996 and as of such dates there were no Liabilities
of JP Fund (contingent or otherwise) not disclosed therein that would be
required in conformity with generally accepted accounting principles to
be disclosed therein. No such material Liability of JP Fund has arisen
since December 31, 1995 and June 30, 1996 except as set forth on Exhibit
14D hereto. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of JP Fund, threatened by,
against or involving JP Fund or any director, officer, employee, or agent
of JP Fund. JP Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects, or is likely to materially and
adversely affect, its business or its ability to consummate the
transactions herein contemplated.
E. There are no contracts, agreements or commitments in
existence, whether written or oral, to which JP Fund (or a predecessor)
is a party or has succeeded to a party by assumption or assignment or in
which it has a beneficial interest other than the Agreement and those
entered into by JP Fund in the ordinary conduct of its business and JP
Fund has delivered or made available to Oppenheimer Fund, as to each such
contract, agreement or other commitment, a true and complete copy or
description thereof and as to any oral contract, agreement or other
commitment, a true and complete description thereof.
F. JP Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of North
Carolina, with the requisite corporate power and authority to enter into
and perform the Agreement and, subject to approval of its shareholders,
to consummate the transactions contemplated hereby; all corporate action
necessary to make the Agreement, according to its terms, valid, binding
and enforceable on JP Fund and to authorize the transactions contemplated
by the Agreement, including without limitation necessary approvals of the
Board of Directors of JP Fund, have been taken by JP Fund subject to
approval of the Agreement by the shareholders of JP Fund; the Agreement
has been duly executed and delivered by JP Fund and constitutes a valid
and binding obligation of JP Fund, enforceable against JP Fund in
accordance with its terms, subject to the approval of its shareholders and
the Bankruptcy Exception; and the execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated by the
Agreement will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, or (b)
any loan, credit agreement, note, bond, mortgage, indenture, lease or
contract applicable to JP Fund, its assets and properties (other than any
such conflicts, violations or defaults that individually or in the
aggregate would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
G. All Federal and other tax returns and reports of JP Fund
required by law to be filed have been filed, and all Federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of JP Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of JP Fund ended
December 31, 1995 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due. There are no claims, levies, liabilities or amounts due for
corporate, excise, income or other federal, state or local taxes
outstanding or threatened against JP Fund (other than those reflected in
its most recent audited financial statements) and to the best of JP Fund's
knowledge there are no facts that might form the basis for such claims,
levies, liabilities or amounts due.
H. JP Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, JP Fund has met the
requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and JP Fund intends to meet such
requirements with respect to its current taxable year.
I. All issued and outstanding shares of common stock of JP
Fund, par value $1.00 per share, are, and at the Closing Date will be,
duly authorized and validly issued and outstanding, fully paid and non-
assessable with no personal liability attaching to the ownership thereof.
All such shares will, at the time of Closing, be held by the persons or
entities and in the amounts set forth on the Shareholder List submitted
to Oppenheimer Fund pursuant to Section 5. There are no outstanding
rights, options, warrants, conversion rights, preemptive rights or
agreements with respect to shares of JP Fund. Set forth on Exhibit 14I
hereto are the names, addresses and share ownership amounts of each
shareholder of JP Fund that beneficially (as that term is defined pursuant
to Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules thereunder) owns 1% or more of JP Fund's outstanding shares.
J. The copies of the Certificate of Incorporation and By-laws
of JP Fund, and all amendments thereto, previously delivered to
Oppenheimer Fund are true, complete and correct.
K. There is no plan or intention by any JP Fund shareholder
who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's
best knowledge, there is no plan or intention on the part of the remaining
JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of
a number of Oppenheimer Fund shares received in the transaction that would
reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a
number of shares having a value, as of the Closing Date, of less than 50%
of the value of all of the formerly outstanding JP Fund shares as of the
same date. With respect to the foregoing representation, attached hereto
as Exhibit 14K are true and complete copies of representation letters
signed by each such 5% or greater shareholder.
L. There are no unresolved or outstanding shareholder claims
or complaints related to JP Fund other than as disclosed by JP Fund in
writing to Oppenheimer Fund and which are determined by Oppenheimer Fund
to not be material with respect to the Agreement and the transactions
contemplated herein.
M. Except as previously disclosed to Oppenheimer Fund in
writing, and except as have been corrected as required by applicable law,
there have been no miscalculations of the net asset value of JP Fund
during the twelve-month period preceding the Closing Date and all such
calculations have been done in accordance with the applicable provisions
of the 1940 Act.
N. All of the issued and outstanding shares of JP Fund have
been offered and sold in compliance with applicable registration
requirements of the 1933 Act and state securities laws, are registered
under the 1933 Act, the 1940 Act and in all jurisdictions in which they
are required to be registered under state securities laws and other laws,
and said registrations, including any periodic reports or supplemental
filings, are complete, current and have been continuously effective, all
fees required to be paid have been paid, and JP Fund is not subject to any
stop order and is fully qualified to sell its shares in each state in
which its shares have been registered.
O. JP Fund has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder.
P. No violation of applicable federal, state and local
statute, law or regulation, exists that individually, or in the aggregate,
would have a material adverse effect on the business or operations of JP
Fund.
Q. JP Fund is in compliance with its investment objectives,
policies and restrictions as described in its current Prospectus and
Statement of Additional Information.
R. JP Fund is duly registered under the 1940 Act and such
registration has not been revoked or rescinded and is in full force and
effect.
S. Except for the shareholder approvals specified in Section
12F, no consent, approval, governmental filing, authorization or permit
from any person or entity is necessary for the execution and delivery of
the Agreement and the consummation of the transactions contemplated by the
Agreement.
15. Oppenheimer Trust on behalf of Oppenheimer Fund hereby
represents and warrants that:
A. The financial statements of Oppenheimer Fund as at December
31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to
JP Fund, present fairly the financial position, results of operations, and
changes in net assets of Oppenheimer Fund, as of such dates, in conformity
with generally accepted accounting principles applied on a basis
consistent with the preceding year and six-month period; and that from
December 31, 1995 through the date hereof there has not been any material
adverse changes in the business or financial condition of Oppenheimer
Fund, it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material or adverse change.
B. The Prospectus of Oppenheimer Fund, dated May 1, 1996, and
the Statement of Additional Information of Oppenheimer Fund, dated May 1,
1996, contained in Oppenheimer Trust's Registration Statement under the
1933 Act, are true, correct and complete, conform to the requirements of
the 1933 Act and the 1940 Act and do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Registration Statement of Oppenheimer Trust, as amended, was, as of the
date of the filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the 1933 Act and the 1940 Act
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
C. Oppenheimer Fund is a series of Oppenheimer Trust, a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts with the
requisite power and authority granted to business trusts to enter into and
perform the Agreement and consummate the transactions contemplated hereby;
all necessary action necessary to make the Agreement, according to its
terms, valid, binding and enforceable on Oppenheimer Trust on behalf of
Oppenheimer Fund and to authorize the transactions contemplated by the
Agreement, including without limitation necessary approvals of the Board
of Trustees of Oppenheimer Trust, have been taken by Oppenheimer Trust;
the Agreement has been duly executed and delivered by Oppenheimer Trust
on behalf of Oppenheimer Fund and constitutes a valid and binding
obligation of Oppenheimer Fund, enforceable against Oppenheimer Trust in
accordance with its terms, subject to the Bankruptcy Exception; and the
execution and delivery of the Agreement does not, and the consummation of
the transactions contemplated by the Agreement will not, conflict with,
or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, or (b) any loan, credit agreement, note,
bond, mortgage, indenture, lease or contract applicable to Oppenheimer
Fund, its assets and properties (other than any such conflicts, violations
or defaults that individually or in the aggregate would not have a
material adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order or decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. All Federal and other tax returns and reports of
Oppenheimer Fund required by law to be filed have been filed, and all
Federal and other taxes shown due on said returns and reports have been
paid or provision shall have been made for the payment thereof and to the
best of the knowledge of Oppenheimer Fund no such return is currently
under audit and no assessment has been asserted with respect to such
returns and to the extent such tax returns with respect to the taxable
year of Oppenheimer Fund ended December 31, 1995 have not been filed, such
returns will be filed when required and the amount of tax shown as due
thereon shall be paid when due.
E. Oppenheimer Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations,
Oppenheimer Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and
Oppenheimer Fund intends to meet such requirements with respect to its
current taxable year.
F. Oppenheimer Fund (i) at the time of the reorganization will
have no plan or intention to dispose of any of the assets transferred by
JP Fund, other than in the ordinary course of business, and (ii) has no
plan or intention to redeem or reacquire any of the shares issued by it
in the reorganization other than pursuant to valid requests of
shareholders.
G. After consummation of the transactions contemplated by the
Agreement and for a period of one year thereafter, Oppenheimer Fund
intends to operate its business in a substantially unchanged manner
subject to such changes as may be required in the ordinary course of its
business or as may be approved by the Board of Trustees of Oppenheimer
Trust.
H. The copies of the Declaration of Trust and By-Laws of
Oppenheimer Trust, and any amendments thereto, previously delivered to JP
Fund by Oppenheimer Fund are true, complete and correct.
I. The shares of Oppenheimer Fund which it issues to JP Fund
pursuant to the Agreement will be duly authorized, validly issued, fully-
paid and non-assessable, except as otherwise set forth in Schedule 13C
hereto with respect to potential liability of shareholders of a
Massachusetts business trust, will conform to the description thereof
contained in Oppenheimer Trust's Registration Statement and will be duly
registered under the 1933 Act.
J. All of the issued and outstanding shares of Oppenheimer
Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state
securities laws, are registered in all jurisdictions in which they are
required to be registered and such registrations, including any periodic
reports or supplemental filings, are complete and current, all fees
required to be paid have been paid, and Oppenheimer Fund is not subject
to any stop order and is fully qualified to sell its shares in each state
in which its shares are currently sold.
K. Oppenheimer Trust is duly registered under the 1940 Act and
such registration has not been revoked or rescinded and is in full force
and effect.
16. (a) Each party hereby represents to the other that no broker
or finder has been employed by it with respect to the Agreement or the
transactions contemplated hereby.
(b) Oppenheimer Trust on behalf of Oppenheimer Fund represents
and warrants that the information concerning it in the Proxy Statement and
Prospectus will not as of the date of the Proxy Statement and Prospectus
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements concerning it therein in light of the circumstances in which
they are made not misleading. Oppenheimer Trust on behalf of Oppenheimer
Fund represents and warrants that its financial statements in the N-14
Registration Statement (described below) fairly present the information
shown in accordance with generally accepted accounting principles applied
on a basis consistent with previous periods.
(c) JP Fund represents and warrants that the information
concerning it in the Proxy Statement and Prospectus will not as of the
date of the Proxy Statement and Prospectus contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements concerning it therein in light
of the circumstances in which they are made not misleading. JP Fund
represents and warrants that its financial statements in the N-14
Registration Statement fairly present the information shown in accordance
with generally accepted accounting principles applied on a basis
consistent with previous periods.
17. Oppenheimer Trust on behalf of Oppenheimer Fund agrees that it
will prepare and file the N-14 Registration Statement which shall contain
a preliminary form of Proxy Statement and Prospectus contemplated by Rule
145 under the 1933 Act. JP Fund shall be responsible for preparation of
the notice of meeting, Proxy Statement and Prospectus and form of proxy
to be sent to JP Fund shareholders. The final form of such Proxy Statement
and Prospectus is referred to in the Agreement as the "Proxy Statement and
Prospectus." Each party agrees that it will use its best efforts to have
the N-14 Registration Statement declared effective and to supply such
information concerning itself for inclusion in the Proxy Statement and
Prospectus as may be necessary or desirable in this connection. JP Fund
covenants and agrees to deregister, or cause to have deregistered, the
shares of JP Fund under the 1940 Act as soon as practicable.
18. (a) JP Fund covenants and agrees to afford to Oppenheimer Fund,
its counsel, accountants and other representatives reasonable access,
during normal business hours throughout the period prior to the Closing
Date, to the books, records, employees and representatives of JP Fund.
(b) JP Fund covenants and agrees that during the period from
the date hereof until the Closing Date its investment objectives,
investment policies and investment restrictions, as disclosed in its most
current Prospectus dated May 1, 1996, as amended and supplemented on
__________, 1996, and Statement of Additional Information, dated May 1,
1996, will not be changed in any manner whatsoever except pursuant to a
statutory amendment or regulatory requirement during such time and upon
prior notice to Oppenheimer Fund.
(c) JP Fund covenants that during the period from the date
hereof until the Closing Date, except as approved in writing by
Oppenheimer Fund or expressly provided for in the Agreement, JP Fund (i)
will not conduct its business other than in the ordinary course
substantially in the manner heretofore conducted and consistent with JP
Fund's investment objectives, policies and restrictions as set forth in
its most current Prospectus dated May 1, 1996, as amended and supplemented
on _____________, 1996, and Statement of Additional Information, dated May
1, 1996, (ii) will not permit or allow any of the Assets to be subjected
to any encumbrance, (iii) will not enter into any material transaction or
otherwise incur any material Liability other than in the normal course of
business consistent with past practice, (iv) will not declare, set aside
or pay any dividend or make any other distribution except for payment of
its dividends in ordinary course consistent with past practice and except
for the final dividend and distribution to be made pursuant to Section 3
of the Agreement, and (v) will not agree, whether in writing or otherwise,
to do any of the foregoing. Notwithstanding the foregoing, JP Fund
covenants that (x) between the date of the Agreement and the Closing Date,
promptly following any transaction involving an acquisition or disposition
by JP Fund of portfolio securities, JP Fund shall provide to Oppenheimer
Fund a written report detailing such transaction and (y) upon the written
request of Oppenheimer Fund, to promptly sell one or more portfolio
securities acquired by JP Fund between the date of the Agreement and the
Closing Date and (z) to transfer to Oppenheimer Fund on the Closing Date
only those Assets the acquisition of which will permit Oppenheimer Fund
to be in compliance with all of its investment policies and restrictions.
(d) JP Fund covenants and agrees to comply with all applicable
laws, rules and regulations.
(e) JP Fund covenants and agrees to maintain in the ordinary
course of business consistent with past practice its books and records
through to the date of its dissolution and liquidation and to prepare and
file all documents, reports and instruments and take such action,
including, without limitation, under the federal securities laws and state
laws, that is required or appropriate to be filed or taken by it prior to,
and/or in connection with, its dissolution and liquidation.
19. (a) Oppenheimer Fund covenants that during the period from the
date hereof until the Closing Date it will conduct its business in the
ordinary course, it being understood that such ordinary course of business
will include customary dividends and other distributions and such changes,
if any, that have been approved by trustees of Oppenheimer Fund of which
JP Fund has been advised.
(b) Oppenheimer Fund covenants and agrees to comply with all
applicable laws, rules and regulations.
20. The Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing (i)
by the mutual written consent of Oppenheimer Trust on behalf of
Oppenheimer Fund and JP Fund, (ii) by either Oppenheimer Trust on behalf
of Oppenheimer Fund or JP Fund, by notice in writing to the other, if the
Closing shall not have occurred on or before December 31, 1996, (iii) by
either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by
notice in writing to the other, if (A) the other party shall fail to
perform in any material respect its agreements contained herein required
to be performed on or prior to the Closing Date, (B) the other party
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, (C) the JP Fund shareholders
fail to approve the Agreement or (D) any other condition herein expressed
to be precedent to the obligations of the terminating party has not been
met (other than through the failure of the terminating party to comply
with its obligations under the Agreement) and it reasonably appears that
it will not or cannot be met or (iv) pursuant to Section 4 of the
Agreement. Termination of the Agreement pursuant to (i), (ii) or (iv)
shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, JP Fund or
their respective trustees, directors or officers to any other party or its
trustees, directors, or officers and it is understood and agreed that each
party shall be reimbursed for its Expenses pursuant to Section 9 of the
Agreement. Termination of the Agreement pursuant to (iii) shall terminate
all obligations of Oppenheimer Fund and JP Fund hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
any other party or its trustees, directors or officers, except that the
party in breach of the Agreement shall, upon demand, reimburse the non-
breaching party for all Expenses, including reasonable out-of-pocket
expenses and fees incurred in connection with the transactions
contemplated by the Agreement, and the provisions of Section 9 as to
Expenses shall be of no force or effect. For the purposes of the foregoing
sentence, the non-fulfillment of the condition requiring approval of JP
Fund shareholders set forth in Sections 10A and 11B shall not be deemed
a breach entitling a party to reimbursement of fees and expenses.
The Agreement shall automatically terminate prior to the Closing in
the event the Acquisition Agreement is terminated or the acquisition
contemplated by the Acquisition Agreement is not consummated, and in such
event all obligations of Oppenheimer Fund and JP Fund shall terminate and
there shall be no liability on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
the other or its respective trustees, directors or officers, it being
understood and agreed that each party shall be reimbursed for its Expenses
pursuant to Section 9 of the Agreement.
21. (a) JPC shall indemnify and hold harmless JP Fund, Oppenheimer
Trust, Oppenheimer Fund, their investment advisers and their respective
trustees, officers and shareholders, against any and all claims to the
extent such claims are based upon, arise out of or relate to (i) any
untruthful or inaccurate representation made by JP Fund in the Agreement
or any breach by JP Fund of any warranty or any failure by JP Fund to
perform or comply with any of its obligations, covenants, conditions or
agreements set forth in the Agreement or (ii) the failure of JP Fund to
comply with applicable legal requirements, including, without limitation,
registration under the 1933 Act and the 1940 Act and state securities
laws. Notwithstanding the foregoing, JPC shall not be obligated to so
indemnify any officer or director of JP Fund if such claims result from
such person's willful misfeasance, bad faith or gross negligence.
(b) OFI shall indemnify and hold harmless JP Fund and its
investment adviser and their respective trustees, officers and
shareholders, against any and all claims to the extent such claims are
based upon, arise out of or relate to any untruthful or inaccurate
representation made by Oppenheimer Trust in the Agreement or any breach
by Oppenheimer Trust of any warranty or any failure by Oppenheimer Trust
to perform or comply with any of its obligations, covenants, conditions
or agreements set forth in the Agreement. Notwithstanding the foregoing,
OFI shall not be obligated to so indemnify any officer or director of JP
Fund or its investment adviser if such claims result from such person's
willful misfeasance, bad faith or gross negligence.
(c) As used in this section, the word "claim" means any and all
liabilities, obligations, losses, damages, deficiencies, demands, claims,
penalties, assessments, judgments, actions, proceedings and suits of
whatever kind and nature and all costs and expenses (including, without
limitation, reasonable attorneys' fees).
22. The Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
23. All prior or contemporaneous agreements and representations are
merged into the Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
24. JP Fund understands that the obligations of Oppenheimer Trust
under the Agreement are not binding upon any Trustee or shareholder of
Oppenheimer Trust and OppenheImer Fund personally, but bind only
Oppenheimer Trust, Oppenheimer Fund and Oppenheimer Fund's property. JP
Fund represents that it has notice of the provisions of the Declaration
of Trust of Oppenheimer Trust disclaiming shareholder and Trustee
liability for acts or obligations of Oppenheimer Trust.
25. Neither of the parties shall make any press release of the
transactions contemplated by the Agreement, or any discussion in
connection therewith, without the prior written consent of the other
party, which consent shall not be unreasonably withheld. The preceding
sentence shall not apply to any disclosures required to be made by
applicable laws, as determined by counsel; however, the applicable party
shall consult with the other party concerning the timing and content of
such disclosure before making it.
26. The representations, warranties and covenants set forth in the
Agreement shall survive the closing.
27. The Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of
laws principles of such State.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
Attest: JEFFERSON-PILOT CAPITAL
APPRECIATION FUND, INC.
__________________________ By: _____________________________
Attest: OPPENHEIMER VARIABLE ACCOUNT FUNDS,
ON BEHALF OF OPPENHEIMER BOND FUND
__________________________ By: _____________________________
Attest: For purposes of Section 21 only:
JEFFERSON-PILOT CORPORATION
___________________________ By: ______________________________
Attest: For purposes of Section 21 only:
OPPENHEIMERFUNDS, INC.
____________________________ By: __________________________
<PAGE>
Preliminary Copy
JP INVESTMENT GRADE BOND FUND, INC.
VOTING INSTRUCTIONS FORM FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD DECEMBER 3, 1996
The undersigned variable contract owner indirectly invested in JP
Investment Grade Bond Fund, Inc. ("JP Fund"), does hereby direct
Jefferson-Pilot Life Insurance Company ("JPLIC") to vote shares of the
Fund held to support his or her variable contract at the Special Meeting
of Shareholders of JP Fund to be held on December 3, 1996, at the
Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street,
Greensboro, North Carolina 27420 at 10:00 A.M., local time, and at all
adjournments thereof, and to vote the shares held in the name of JPLIC for
the undersigned on the record date for said meeting on the Proposals
specified on the reverse side.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS A VOTE
FOR THE PROPOSALS ON THE REVERSE SIDE AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE
REVERSE SIDE OR FOR EACH PROPOSAL AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR IF NO CHOICE IS INDICATED.
Please mark your voting instruction form, date and sign it on the reverse
side and return it promptly in the accompanying envelope, which requires
no postage if mailed in the United States.
Proposal 1:
To consider and vote upon the approval or disapproval of the Agreement and
Plan of Reorganization dated as of _________, 1996 (the "Reorganization
Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer
Variable Account Funds, on behalf of its series Oppenheimer Bond Fund
("Oppenheimer Fund"), and Oppenheimer Funds, Inc., and the transactions
contemplated thereby, including (i) the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund
to shareholders of JP Fund in liquidation of JP Fund, and (iii) the
cancellation of the outstanding shares of JP Fund.
FOR____ AGAINST____ ABSTAIN____
Proposal 2:
To elect to the Board of Directors the following five (5) directors to
hold office until the earlier of (i) the dissolution of JP Fund or (ii)
the next annual meeting of shareholders of JP Fund called for the purpose
of electing directors, or until their successors are elected and
qualified.
A) E.J. Yelton D) William Edward Moran
B) John C. Ingram E) J. Lee Lloyd
C) Richard Wolcott McEnally
_______For all nominees listed ____WITHHOLD AUTHORITY
except as marked to the contrary at to vote for all nominees
left. Instruction: To withhold listed at left.
authority to vote for any individual
nominee, line out that nominee's name
at left.
Proposal 3:
To ratify or reject the selection of McGladrey & Pullen as JP Fund's
independent auditors for the current fiscal year.
FOR____ AGAINST____ ABSTAIN____
Dated:________________________, 1996
(Month) (Day)
______________________________
Signature(s)
______________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
<PAGE>
PRELIMINARY COPY
JP CAPITAL APPRECIATION FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held December 3, 1996
To owners of variable annuity contracts issued by Jefferson-Pilot Life
Insurance Company ("JPLIC") entitled to give voting instructions in
connection with Jefferson-Pilot Separate Account A.
Notice is hereby given that a Special Meeting of the Shareholders of JP
Capital Appreciation Fund, Inc. ("JP Fund"), an open-end, management
investment company, will be held at the Jefferson-Pilot Building (4th
Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina
27420 at 10:00 A.M., local time, on December 3, 1996, and any adjournments
thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon the approval or disapproval of the
Agreement and Plan of Reorganization dated as of _________, 1996 (the
"Reorganization Agreement") by and among JP Fund, Jefferson-Pilot
Corporation, Oppenheimer Variable Account Funds, on behalf of its
series Oppenheimer Growth Fund ("Oppenheimer Fund"), and
OppenheimerFunds, Inc., and the transactions contemplated thereby
(the "Reorganization"), including (i) the transfer of substantially
all the assets of JP Fund to Growth Fund in exchange for shares of
Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer
Fund to shareholders of JP Fund in liquidation of JP Fund, and (iii)
the cancellation of the outstanding shares of JP Fund ("Proposal 1");
2. To elect to the Board of Directors five (5) directors to hold office
until the earlier of (i) the dissolution of JP Fund or (ii) the next
annual meeting of shareholders of JP Fund called for the purpose of
electing directors, or until their successors are elected and
qualified ("Proposal 2");
3. To ratify or reject the selection of McGladrey & Pullen LLP as JP
Fund's independent auditors for the current fiscal year ("Proposal
3"); and
4. To act upon such other matters as may properly come before the
Meeting.
JPLIC and Jefferson-Pilot Separate Account A (a separate account of JPLIC)
are the only shareholders of JP Fund. However, JPLIC hereby solicits and
agrees to vote the shares of JP Fund at the Meeting in accordance with
timely instructions received from owners of variable annuity contracts
having contract values allocated to Separate Account A invested in such
shares.
As a variable annuity contract owner of record at the close of business
on October 10, 1996, you have the right to instruct JPLIC as to the manner
in which shares of JP Fund attributable to your variable annuity contract
should be voted. To assist you in giving your instructions, a Voting
Instruction Form is enclosed that reflects the number of shares of JP Fund
for which you are entitled to give voting instructions. In addition, the
Proposals are more fully described in the accompanying Proxy Statement and
Prospectus and a copy of the Reorganization Agreement is attached thereto.
Please read the Proxy Statement and Prospectus carefully before sending
JPLIC your Voting Instruction Form. The Board of Directors of JP Fund
recommends a vote in favor of each Proposal and to elect each of the
nominees as Director.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED VOTING INSTRUCTION FORM AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
By Order of the Board of Directors,
J. Gregory Poole, Secretary
October __, 1996
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION
1. What is the Reorganization?
The proposed Reorganization provides for the transfer of substantially all
the assets of JP Capital Appreciation Fund, Inc. ("JP Fund") to
Oppenheimer Growth Fund ("Oppenheimer Fund"), the issuance of shares of
Oppenheimer Fund to JP Fund for distribution to its shareholders including
Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Separate
Account A and the cancellation of the outstanding shares of JP Fund. The
number of shares of Oppenheimer Fund that will be received by shareholders
of JP Fund will be determined on the basis of the relative net asset
values of Oppenheimer Fund and JP Fund. Although the number of shares of
Oppenheimer Fund issued to a shareholder of JP Fund may be greater or
fewer than the number of JP Fund shares that he or she holds, the value
of the shares of Oppenheimer Fund issued in the Reorganization will be
equal to the value of his or her JP Fund shares.
The Reorganization has been proposed in connection with a proposed
acquisition by OppenheimerFunds, Inc. ("OFI") of the assets of JP
Investment Management Company ("JPM"), the investment adviser to JP Fund.
OFI is discussed in greater detail below.
Owners of Jefferson-Pilot Life Insurance Company ("JPLIC") variable
annuity contracts ("variable contracts") under which contract values are
indirectly invested in JP Fund, are directed to read the accompanying
Proxy Statement and Prospectus for further information about the
Reorganization and related matters. Additional information about
Oppenheimer Fund is set forth in its accompanying Prospectus.
2. What are the reasons for the Reorganization?
Jefferson-Pilot Corporation ("JPC"), in the course of a review of its
business, concluded that it should invest its capital resources in its
core insurance business and communications operations rather than
investing in the expansion of mutual fund assets being managed by JPM (or
another investment management subsidiary). Because managing mutual fund
investment portfolios in an efficient and profitable manner can only be
achieved by managing aggregate assets significantly in excess of the
amount of assets currently being managed by JPM, JPC has decided to sell
the assets of JPM and thereby leave the business of managing mutual fund
investment portfolios. This decision requires that alternative
arrangements be made for the management of the assets of the four mutual
funds (including JP Fund) managed by JPM. The Reorganization would result
in OFI taking over management of the investment portfolio of JP Fund when
JPM is sold.
3. What benefits to owners of variable contracts may result from this
Reorganization?
The Board of Directors of JP Fund has determined that, among other things,
the Reorganization would afford variable contract owners, as indirect
investors in Oppenheimer Fund, the capabilities and resources of OFI and
its affiliates in the area of equity investment management, shareholder
services and marketing.
4. Who is paying the expenses of the Reorganization?
All expenses of the Reorganization will be paid by the respective
investment advisers to JP Fund and Oppenheimer Fund and not JP Fund or
Oppenheimer Fund.
5. Who is OppenheimerFunds, Inc.?
OFI and its subsidiaries are engaged principally in the business of
managing, distributing and servicing registered investment companies. OFI
has operated as an investment adviser since 1959. OFI is indirectly
controlled by Massachusetts Mutual Life Insurance Company. As of June 30,
1996, OFI and a subsidiary had assets of more than $50 billion under
management in more than 60 mutual funds.
6. Where can I get prospectuses and other information on Oppenheimer Fund
or other Oppenheimer Funds available as investment options under my
variable contract?
Call Jefferson-Pilot Investor Services, Inc. at 1-(800) 448-4498. They
will be pleased to supply you with prospectuses and other documentation
with respect to such Oppenheimer funds.
7. How will the Reorganization affect my variable contract and my
relationship with Jefferson-Pilot Life Insurance Company?
As an owner of a variable contract with contract value indirectly invested
in JP Fund on the Record Date, the Reorganization will result in such
contract value being indirectly invested in Oppenheimer Fund. After the
Reorganization, variable contract owners will be able to allocate net
purchase payments and transfer contract values to Sub-Accounts of
Jefferson-Pilot Separate Account A ("Account A") that invest in
Oppenheimer Fund and JP Fund will not be an investment option under
variable contracts. Your variable contract will not change in any other
way and your relationship with Jefferson-Pilot will not change at all as
a result of the Reorganization.
8. Will this Reorganization result in any tax liability to JP Fund,
Oppenheimer Fund or to me as a variable contract owner?
The Reorganization is structured in a manner that is intended to qualify
for federal income tax purposes as a tax-free reorganization. The
aggregate tax basis of Oppenheimer Fund shares received in the
Reorganization will be the same as the aggregate tax basis of JP Fund
shares held on your behalf prior to the Reorganization, and the holding
period of the shares of Oppenheimer Fund received in the Reorganization
will include the period during which JP Fund shares were held on your
behalf provided that those JP Fund shares were held as capital assets.
Moreover, the Reorganization will not have an adverse impact on the status
of the variable contracts under which contract values are indirectly
invested in JP Fund.
You should consult your tax adviser regarding the effect, if any, of the
Reorganization in light of your individual circumstances. Since the
foregoing only relates to the federal income tax consequences of the
Reorganization, you should also consult your tax adviser as to state and
local tax consequences, if any, of the Reorganization.
<PAGE>
PRELIMINARY COPY
JP CAPITAL APPRECIATION FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
PROXY STATEMENT
OPPENHEIMER GROWTH FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROSPECTUS
This Proxy Statement and Prospectus is being furnished on behalf of the
Board of Directors (the "Board") of JP Capital Appreciation Fund, Inc.
("JP Fund"), an open-end, management investment company, by Jefferson-
Pilot Life Insurance Company ("JPLIC") to owners of variable annuity
contracts issued by JPLIC and having contract values on the Record Date
(as defined below) allocated to Jefferson-Pilot Separate Account A
("Account A") invested in shares of JP Fund ("variable contracts").
This Proxy Statement and Prospectus is being furnished in connection with
the solicitation of voting instructions from owners of such variable
contracts ("variable contract owners") for use at the Special Meeting of
Shareholders of JP Fund to be held at the Jefferson-Pilot Building (4th
Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina,
27420, at 10:00 A.M., local time, on December 3, 1996, and any
adjournments thereof (the "Meeting"). The Board has set October 10, 1996,
as the date for the determination of JP Fund shareholders entitled to
notice of, and to vote at, the Meeting (the "Record Date"). It is
expected that this Proxy Statement and Prospectus will be mailed to
variable contract owners on or about October __, 1996. Although JPLIC is
the sole record owner of JP Fund shares, variable contract owners are
permitted to give JPLIC voting instructions. Variable contract owners are
sometimes referred to in this Proxy Statement and Prospectus as
"shareholders".
At the Meeting, shareholders of JP Fund will be asked to consider and vote
upon the approval or disapproval of the Agreement and Plan of
Reorganization, dated as of ________, 1996 (the "Reorganization
Agreement"), by and among JP Fund, Jefferson-Pilot Corporation,
Oppenheimer Variable Account Funds, on behalf of its series, Oppenheimer
Growth Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the
transactions contemplated by the Reorganization Agreement (the
"Reorganization").
The Reorganization Agreement provides for the transfer of substantially
all the assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund having a value equal to the aggregate net asset value of
the outstanding shares of JP Fund, the distribution of such shares of
Oppenheimer Fund to JPLIC and Account A in liquidation of JP Fund and the
cancellation of the outstanding shares of JP Fund. A copy of the
Reorganization Agreement is attached hereto as Exhibit A and is
incorporated by reference herein. As a result of the proposed
Reorganization, each shareholder of JP Fund will receive that number of
shares of Oppenheimer Fund having an aggregate net asset value equal to
the net asset value of such shareholder's shares of JP Fund. This
transaction has been structured in a manner intended to qualify as a tax-
free reorganization for federal income tax purposes. See "Approval or
Disapproval of the Reorganization." At the Meeting, shareholders of JP
Fund will also be asked to elect five directors and ratify the selection
of independent auditors.
JPLIC and Account A of JPLIC are the sole record holders of shares of JP
Fund. However, variable contract owners are the beneficial owners of
shares held by Account A. JPLIC will vote the shares of JP Fund at the
Meeting in accordance with the timely instructions received from variable
contract owners entitled to give voting instructions under variable
contracts. JPLIC will vote shares attributable to variable contracts for
which no voting instructions are received in proportion (for, against or
abstain) to those for which instructions are received. JPLIC also will
vote shares not attributable to variable contracts (i.e., representing
seed money investments in JP Fund made by JPLIC) in proportion to those
for which instructions are received from variable contract owners. If a
Voting Instruction Form is received that does not specify a choice, JPLIC
will consider its timely receipt as an instruction to vote in favor of the
proposal(s) to which it relates and for each nominee as director. In
certain circumstances, JPLIC may have the right to disregard voting
instructions, from certain variable contract owners. JPLIC does not
believe that these circumstances exist with respect to matters currently
before shareholders. Variable contract owners may revoke voting
instructions given to JPLIC at any time prior to the Meeting by notifying
the Secretary of JP Fund in writing.
Oppenheimer Fund's investment objective is to seek capital appreciation
by emphasizing investments in securities of well-known and established
companies. Current income is a secondary consideration in the selection
of portfolio securities for Oppenheimer Fund. JP Fund's primary
investment objective is to seek long term capital appreciation; current
income through the receipt of interest or dividends from investments is
only a secondary objective. JP Fund proposes to achieve these objectives
by investing substantially all of its assets in common stocks of companies
recognized as leaders in their respective industries as more fully
described herein. Shareholders of JP Fund should consider the differences
in investment objectives and policies of Oppenheimer Fund and JP Fund.
See "Investment Objectives and Policies," "Principal Risk Factors" and
"Comparison Between Oppenheimer Fund and JP Fund - Comparison of
Investment Objectives, Policies and Restrictions."
Oppenheimer Fund has filed with the Securities and Exchange Commission
(the "SEC") a Registration Statement on Form N-14 (the "Registration
Statement") relating to the registration of shares of Oppenheimer Fund to
be offered to the shareholders of JP Fund pursuant to the Reorganization
Agreement. This Proxy Statement and Prospectus relating to the
Reorganization also constitutes a Prospectus of Oppenheimer Fund filed as
part of such Registration Statement. Information contained or incorporated
by reference herein relating to Oppenheimer Fund has been prepared by and
is the responsibility of Oppenheimer Fund. Information contained or
incorporated by reference herein relating to JP Fund has been prepared by
and is the responsibility of JP Fund.
This Proxy Statement and Prospectus sets forth concisely information about
Oppenheimer Fund that a prospective investor should know before voting on
the Reorganization. The following documents have been filed with the SEC
and are available without charge upon written request to JP Investment
Management Company, the investment adviser and transfer agent for JP Fund,
at P.O. Box 21008, North Carolina 27420, or by calling 1-800-458-4498 (a
toll-free number): (i) a Prospectus for JP Fund, dated May 1, 1996
(information about JP Fund is incorporated herein by reference to JP
Fund's May 1, 1996 Prospectus), and (ii) a Statement of Additional
Information about JP Fund, dated May 1, 1996 (the "JP Fund Additional
Statement"). The most recent Annual Report and Semi-Annual Report for JP
Fund, dated as of December 31, 1995 and June 30, 1996, respectively, are
also available without charge upon request to JPIS by calling 1-800-458-
4498 (toll-free).
The following documents have been filed with the SEC and are available
without charge upon written request to the transfer agent for Oppenheimer
Fund, OppenheimerFunds Services ("OFS"), at P.O. Box 5270, Denver,
Colorado 80217, or by calling 1-800-525-7048 (a toll free number): (i) a
Prospectus for the Trust, dated May 1, 1996, which is incorporated herein
by reference as it relates to the Oppenheimer Fund series of the Trust
(the shares of the owner series of Oppenheimer Variable Account Funds are
not being offered pursuant to the Reorganization) and a copy of which also
accompanies this Proxy Statement and Prospectus; (ii) a Statement of
Additional Information about the Trust, dated May 1, 1996 (the "The Trust
Additional Statement"), which contains more detailed information about
Oppenheimer Fund and its management, and (iii) a Statement of Additional
Information relating to the Reorganization described in this Proxy
Statement and Prospectus (the "Reorganization Additional Statement"),
dated ______, 1996, incorporated herein by reference and filed as part of
the Registration Statement, which includes, among other things, the
Prospectus for JP Fund, the JP Fund Additional Statement and the
Oppenheimer Fund Additional Statement.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
Shares of Oppenheimer Fund are not deposits or obligations of any bank,
are not guaranteed or endorsed by any bank, and are not insured by the
F.D.I.C. or any other agency, and involve investment risks, including the
possible loss of the principal amount invested.
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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated October __, 1996.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
COMPARATIVE FEE TABLES
SYNOPSIS
Purpose of the Meeting
Parties to the Reorganization
The Reorganization
Vote Required
Tax Consequences of the Reorganization
Dissenters' Rights
Investment Objectives and Policies
Investment Advisory Fees
Purchases and Redemptions
PRINCIPAL RISK FACTORS
Stock Investment Risks
Foreign Securities
Small, Unseasoned Companies
Borrowing for Leverage
Options and Futures; Derivatives
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1)
Background
Acquisition Agreement
Board Approval of the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Dissenters' Rights
Capitalization Table (Unaudited)
COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND
Comparison of Investment Objectives, Policies and Restrictions
Special Investment Methods
Investment Restrictions
Oppenheimer Fund Performance
Other Investors in Oppenheimer Fund
Additional Comparative Information
ELECTION OF DIRECTORS (Proposal 2)
Information Concerning the Board
Officers of JP Fund
Other Information
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal
3)
INFORMATION CONCERNING THE MEETING
The Meeting
Record Date; Vote Required; Share Information
Voting Instructions
Costs of the Solicitation and the Reorganization
MISCELLANEOUS
Financial Information
Public Information
SHAREHOLDER PROPOSALS
OTHER BUSINESS
EXHIBIT A - Agreement and Plan of Reorganization, dated as of ________,
1996, by and among Oppenheimer Variable Account Funds, on
behalf of Oppenheimer Growth Fund, JP Capital Appreciation
Fund, Inc., OppenheimerFunds, Inc. and Jefferson-Pilot
Corporation
ENCLOSURE- Prospectus of The Trust, dated May 1, 1996
<PAGE>
COMPARATIVE FEE TABLES
Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses
Shareholders of the funds do not pay any sales load, redemption fee or
exchange fee. See the Account A prospectus for fees that apply to
variable contract owners. Each fund pays a variety of expenses directly
for management of its assets, administration, and other services, and
those expenses are reflected in the net asset value per share of each of
Oppenheimer Fund and JP Fund. The following calculations are based on the
expenses of JP Fund and Oppenheimer Fund for the 12 months ended December
31, 1995 and the six months ended June 30, 1996. These amounts are shown
as a percentage of the average net assets of JP Fund and Oppenheimer Fund
for those periods (for the six months ended June 30, 1996, the percentages
are annualized). Proforma expenses for the combined fee after giving
effect to the Reorganization are not shown as they do not differ from the
fees indicated below for Oppenheimer Fund. The table does not reflect
expenses that apply at the separate account level or that are charged by
Account A or by JPLIC under the variable contracts.
<TABLE>
<CAPTION>
JP Fund Oppenheimer Fund
12 months 6 months 12 months 6 months
ended ended ended ended
12/31/95 6/30/96(1) 12/31/95 6/30/96(1)
<S> <C> <C> <C> <C>
Management Fees(1) 0.50% 0.50% 0.75% 0.75%
Other Expenses 0.12% 0.10% 0.04% 0.03%
Total Fund Operating
Expenses(1) 0.62% 0.60% 0.79% 0.78%
</TABLE>
(1) Annualized
Examples
To attempt to show these expenses over time, the examples shown below have
been created. Assume that you make a $1,000 investment in either JP Fund
or Oppenheimer Fund and that the annual return is 5% and that the
operating expenses for each fund are the ones shown in the chart above for
the six months ended June 30, 1996 and the 12 months ended December 31,
1995.
Based on the rate of "Total Fund Operating Expenses" shown above for the
six months ended June 30, 1996, if you were to redeem your shares at the
end of each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $43 $97
JP Fund $6 $19 $33 $75
</TABLE>
If you did not redeem your investment, it would incur the following
expenses by the end of the applicable period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $43 $97
JP Fund $6 $19 $33 $75
</TABLE>
Based on the rate of "Total Fund Operating Expenses" shown above for the
12 months ended December 31, 1995, if you were to redeem your shares at
the end of each period shown below, your investment would incur the
following expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $44 $98
JP Fund $6 $20 $35 $77
</TABLE>
If you did not redeem your investment, it would incur the following
expenses by the end of the applicable period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Fund $8 $25 $44 $98
JP Fund $6 $20 $35 $77
</TABLE>
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus and
presents key considerations for shareholders of JP Fund to assist them in
determining whether to approve or disapprove the Reorganization. This
synopsis is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
Proxy Statement and Prospectus and the Reorganization Agreement which is
Exhibit A hereto. Shareholders should carefully review this Proxy
Statement and Prospectus and the Reorganization Agreement in their
entirety and, in particular, the current Prospectus of the Trust which
accompanies this Proxy Statement and Prospectus and is incorporated by
reference herein.
Purpose of the Meeting
At the Meeting, shareholders of JP Fund will be asked to approve or
disapprove the Reorganization. In addition, shareholders will be
requested to elect five directors of JP Fund and ratify the selection of
JP Fund's independent auditors.
Parties to the Reorganization
Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account
Funds, a diversified, open-end, management investment company organized
in 1984 as a multi-series Massachusetts business trust. Oppenheimer Fund
was organized in 1984 and is one of nine separate series of the Trust.
Oppenheimer Fund is located at 3410 South Galena Street, Denver, Colorado
80231. OppenheimerFunds, Inc. ("OFI") acts as investment adviser to
Oppenheimer Fund. OFI is located at Two World Trade Center, New York, New
York 10048-0203. Additional information about Oppenheimer Fund is set
forth below.
JP Fund is a diversified, open-end, management investment company
organized in 1982 as a North Carolina corporation. JP Fund is located at
100 North Greene Street, Greensboro, North Carolina 27420. JP Investment
Management Company ("JPM") acts as investment adviser and transfer agent
to JP Fund. JPM is located at 100 North Greene Street, Greensboro, North
Carolina 27401. Additional information about JP Fund is set forth below.
The Reorganization
The Reorganization Agreement provides for the transfer of substantially
all the assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
liabilities of JP Fund. JP Fund will retain a small Cash Reserve
sufficient to pay any liabilities and expenses of dissolution. The
Reorganization Agreement also provides for the distribution by JP Fund of
these shares of Oppenheimer Fund to JP Fund shareholders in liquidation
of JP Fund. As a result of the Reorganization, each JP Fund shareholder
will receive that number of full and fractional Oppenheimer Fund shares
equal in value to such shareholder's pro rata interest in the net assets
transferred to Oppenheimer Fund as of the Valuation Date (as hereinafter
defined). For further information about the Reorganization see "Approval
or Disapproval of the Reorganization" below.
For the reasons set forth below under "Approval or Disapproval of the
Reorganization - Board Approval of the Reorganization," the Board,
including the Directors who are not "interested persons" of JP Fund (the
"Independent Directors"), as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), has concluded that the
Reorganization is in the best interests of JP Fund and its shareholders
and that the interests of existing JP Fund shareholders will not be
diluted as a result of the Reorganization, and recommends approval of the
Reorganization by JP Fund shareholders. The Board of Trustees of the
Trust has also approved the Reorganization and determined that the
interests of existing Oppenheimer Fund shareholders will not be diluted
as a result of the Reorganization. If the Reorganization is not approved,
JP Fund will continue in existence and the Board will determine whether
to pursue alternative actions. The section below entitled "Approval or
Disapproval of the Reorganization" sets forth certain information with
respect to the background of the Reorganization, including other
transactions and agreements entered into, or contemplated to be entered
into, by OFI, JPM and certain affiliates of JPM.
Vote Required
Approval of the Reorganization will require the affirmative vote of a
majority of the shares of JP Fund entitled to vote at the Meeting. See
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information."
Tax Consequences of the Reorganization
As a condition to the closing of the Reorganization, JP Fund and
Oppenheimer Fund will have received an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization for federal
income tax purposes. As a result of such tax-free reorganization, no gain
or loss would be recognized by JP Fund, Oppenheimer Fund, or the
shareholders of either fund for federal income tax purposes. Moreover,
the Reorganization will not have an adverse impact on the tax status of
the variable contracts under which contract values are indirectly invested
in JP Fund. For further information about the tax consequences of the
Reorganization, see "Approval or Disapproval of the Reorganization -Tax
Aspects of the Reorganization" below.
Dissenters' Rights
Dissenters' rights of appraisal are generally not available to
shareholders of JP Fund with respect to the Reorganization. See, "The
Reorganization - Dissenters' Rights."
Investment Objectives and Policies
Oppenheimer Fund's investment objective is a fundamental policy, and JP
Fund's investment objectives and policies are also fundamental policies.
Fundamental policies are those that cannot be changed without the approval
of shareholders of that fund. Oppenheimer Fund's investment policies
described below are not fundamental unless this Proxy Statement and
Prospectus indicates a particular policy is fundamental.
Oppenheimer Fund seeks to achieve capital appreciation by emphasizing
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 Oppenheimer Fund's portfolio securities.
Oppenheimer Fund's investments may also include securities of "growth-
type" companies.
JP Fund's primary investment objective is long-term capital appreciation.
Current income through the receipt of interest or dividends from
investments is only a secondary objective. JP Fund proposes to achieve
these objectives by investing substantially all its assets in publicly-
held common stocks of companies recognized as leaders in their respective
industries with proven and capable management and that are providing
significant products and services to their customers. JP Fund's
investments will be made predominantly in securities listed on registered
securities exchanges, but it may purchase securities traded in the over-
the-counter market. Investments may be made in other equity securities,
including rights, warrants, preferred stock and those debt securities
convertible into or carrying rights, warrants, or options to purchase
common stock or to participate in earnings. JP Fund may also hold cash or
invest in short-term securities.
Oppenheimer Fund's and JP Fund's investments may also include securities
of foreign governments and companies (limited, in the case of JP Fund, to
securities issued by Canadian companies) and, subject to certain
limitations, repurchase agreements. Oppenheimer Fund may also write
covered call options and use certain derivative investments, including
options and futures, because they offer the potential for increased income
and principal value, and may use hedging instruments to try to manage
investment risks.
Shareholders of JP Fund should consider the differences in investment
objectives and policies between JP Fund and Oppenheimer Fund. Oppenheimer
Fund invests in a wider variety of securities, some of which have greater
investment risks than the types of securities JP Fund usually holds. See
"Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP
Fund - Comparison of Investment Objectives, Policies and Restrictions."
Investment Advisory Fees
Oppenheimer Fund and JP Fund each obtain investment management services
from their respective investment advisers pursuant to the terms of their
respective investment advisory agreements. Each agreement provides that
a management fee is payable to the investment adviser monthly.
Oppenheimer Fund pays a management fee to OFI computed on its net asset
value as of the close of business each day, which fee declines on
additional assets as Oppenheimer Fund increases its asset base, at the
annual rate of 0.75% of the first $200 million of net assets, 0.72% of the
next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, and 0.60% of net assets over $800 million. The management fee
payable by JP Fund to JPM is at an annual rate of 1/2 of 1% of JP Fund's
average daily net asset value. JPM is reimbursed by JP Fund for
performing certain shareholder accounting services. JPM has contractually
agreed that if in any fiscal year the total of JP Fund's ordinary business
expenses (with specified exceptions) exceeds 1% of JP Fund's average daily
net asset value, JPM will pay the excess by reducing its management fee
by a corresponding amount. OFI has voluntarily undertaken that the total
expenses of Oppenheimer Fund in any fiscal year will not exceed 2.5% of
the first $30 million of average net assets, 2.0% of the next $70 million
and 1.5% of average net assets over $100 million and OFI's management fee
will be reduced or eliminated during any fiscal year in which the payment
of such fee would cause Oppenheimer Fund's expenses to exceed this
limitation. OFI's undertaking to Oppenheimer Fund is revocable and may
be changed or eliminated at any time. Neither fund's management fees were
reduced during the past fiscal year.
Purchases and Redemptions
Purchases. Shares of Oppenheimer Fund are currently offered only for
purchase by separate accounts as an investment medium for variable life
insurance policies and variable annuity contracts, and separate accounts
for retirement plans. Purchases of JP Fund's shares are currently
restricted to the separate accounts that are sponsored by the insurance
subsidiaries of JPC and any of their affiliates and to pension plans for
employees of said companies and their affiliates. Shares of JP Fund and
Oppenheimer Fund are offered at their respective offering price, which is
net asset value (without sales charge).
Redemptions. Shares of Oppenheimer Fund and shares of JP Fund may be
redeemed at their respective net asset values per share calculated after
the redemption order is received and accepted.
Oppenheimer Fund may redeem accounts valued at less than $200 if the
account has fallen below such stated amount for reasons other than market
value fluctuations. For JP Fund, the corresponding minimum is $250 once
the account has been open at least 12 months.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in
Oppenheimer Fund, JP Fund shareholders should carefully consider the
following summary of risk factors, relating to both Oppenheimer Fund and
JP Fund, in addition to the other information set forth in this Proxy
Statement and Prospectus. Additional information of risk factors for each
fund is set forth in the respective Prospectus of each fund and in
addition for Oppenheimer Fund, the Trust Additional Statement.
As a general matter, Oppenheimer Fund and JP Fund are intended for
investors seeking capital appreciation and, secondarily, current income,
who are willing to accept greater risks of loss in the hopes of greater
gains. There is no assurance that either Oppenheimer Fund or JP Fund will
achieve its investment objectives and investment in the funds is subject
to investment risks, including the possible loss of the principal
invested.
Stock Investment Risks
Because the funds may invest a substantial portion of their assets in
stocks, the value of a fund's portfolio will be affected by changes in the
stock markets. At times, the stock markets can be volatile, and stock
prices can change substantially. This market risk will affect the fund's
net asset value per share, which will fluctuate as the values of the
fund's portfolio securities change.
Foreign Securities
Oppenheimer Fund may invest in equity (and debt) securities issued or
guaranteed by foreign governments or foreign companies or other agencies;
it is currently intended that such investments will not exceed 25% of
Oppenheimer Fund's total assets. JP Fund may not invest in foreign
securities other than securities issued by Canadian companies. 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, 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. In addition, there are risks of changes
in foreign currency values. A change in value of a foreign currency
against the U.S. dollar will result in a change in the U.S. dollar value
of a fund's securities denominated in a foreign currency. Both funds'
investment income and proceeds from foreign securities may be received in
foreign currencies and the funds will be required to absorb the cost of
currency fluctuations. If a fund suffers a loss on foreign currencies
after it has distributed its income during the year, the fund may find
that it has distributed more income than was available from actual
investment income, and the shareholders will have received a return of
capital. The foreign securities Oppenheimer Fund may invest in, such as
emerging market securities, have speculative characteristics and involve
more risk than other foreign securities, including extended settlement
periods for securities transactions, increased illiquidity and increased
volatility.
Small, Unseasoned Companies
The funds may invest in securities of companies that have been in
operation for less than three years (including the operations of
predecessors). Securities of these companies may have limited liquidity
(which means that a fund may have difficulty selling them at an acceptable
price when it wants to) and the prices of these securities may be
volatile. Oppenheimer Fund currently intends to invest no more than 5%
of its net assets in the next year in the securities of small, unseasoned
issuers. JP Fund is prohibited from investing more than 5% of its assets
in the securities of such issuers.
Borrowing for Leverage
Oppenheimer Fund may borrow up to 5% of the value of its total assets from
banks to buy securities, but only if it can do so without putting up
assets as security for a loan. This is a speculative investment method
known as "leverage." This investment technique may subject Oppenheimer
Fund to greater risks and costs than funds that do not borrow. These
risks may include the possibility that Oppenheimer Fund's net asset value
per share will fluctuate more than the net asset value of funds that do
not borrow, since Oppenheimer Fund pays interest on borrowings and
interest expense affects Oppenheimer Fund's share price. JP Fund is not
permitted to borrow for leverage and may only borrow money in an amount
up to 5% of its total assets for extraordinary or emergency purposes.
Options and Futures; Derivatives
Oppenheimer Fund may purchase and sell certain kinds of futures contracts,
put and call options, forward contracts and options on securities,
broadly-based stock indices, stock index futures and foreign currency.
The foregoing instruments, referred to as "hedging instruments," may be
considered derivative investments. Oppenheimer Fund may also invest in
certain derivative investments because they offer the potential for
increased income and principal value. Hedging instruments and derivative
investments and their special risks are described below in "Comparison
Between Oppenheimer Fund and JP Fund."
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION
(Proposal 1)
Background
JPC, in the course of a review of its business, concluded that it should
concentrate on its core insurance business and communications operations
and not continue, through its existing subsidiaries, in the business of
managing mutual fund investment portfolios. JPC is a publicly-held
holding company that is the parent of JPM. In addition to JP Fund, JPM
manages another mutual fund, JP Investment Grade Bond Fund, Inc. (with JP
Fund, the "Insurance Funds") that sells its shares exclusively to Account
A to support variable annuity contracts. JPM also manages two mutual
funds that are sold on a retail basis through a broker-dealer network.
In aggregate, these four mutual funds had net assets at June 30, 1996 of
approximately $172 million. Managing mutual fund investment portfolios
in an efficient and profitable manner requires significant assets per fund
and in the aggregate. Usually several billion dollars in aggregate net
assets is necessary to cover normal operating costs and provide resources
for capital investment in new products and services. With regard to
retail mutual funds, financing certain classes of shares and providing
sales support to dealers are additional expenses that can only be
supported from a relatively large asset base. Consequently, it has become
increasingly difficult for a relatively small mutual fund operation such
as that managed by JPM to compete. JPC evaluated the capital investment
that would be required of it or its subsidiaries to achieve such an asset
base and determined that: (1) the best investment of its resources would
not be in expanding the mutual fund assets under JPM's management, and (2)
if, through JPM (or another subsidiary), it could not be extremely
competitive in the business of managing mutual fund investment portfolios,
it should sell the assets of JPM and facilitate making other arrangements
for the management of the assets of the four mutual funds (including JP
Fund) managed by JPM. Sometime after these determinations by JPC were
made, representatives of JPC and JPM met with OFI to discuss OFI acquiring
JPM's mutual fund-related assets. Representatives of OFI and JPM held
meetings beginning in December 1995. Following the negotiation of the
terms of an acquisition agreement and related agreements, an acquisition
agreement (the "Acquisition Agreement") was executed by OFI, JPC, JPM and
JPLIC on _______________, 1996.
The Reorganization described in this Proxy Statement and Prospectus is one
aspect of the overall Acquisition (as hereinafter defined) contemplated
by the Acquisition Agreement described below. The consummation of the
Reorganization is one condition, among others, to the closing of the
Acquisition. Likewise, the consummation of the Acquisition is one
condition, among others, to the closing of the Reorganization.
Accordingly, unless the parties otherwise agree, the Reorganization may
not be effected, despite shareholder approval, if the Acquisition does not
close. In such case, JP Fund will continue in existence and the Board
will take such further action as it, in its discretion, deems necessary
or advisable. The description of the Acquisition Agreement set forth
below is a summary only.
Acquisition Agreement
The Acquisition Agreement contemplates the sale to OFI of all the assets
of JPM (the "Purchased Assets") and the assumption by OFI of certain
liabilities of JPM and JPC relating to the Purchased Assets ("Assumed
Liabilities") (the foregoing sale and assumption constitute the
"Acquisition"). The Acquisition Agreement contemplates that each of the
four mutual funds advised by JPM (including JP Fund) (each, a "Reorganized
Fund") will be reorganized with a mutual fund currently advised by OFI.
A condition to the obligation of the parties to close under the
Acquisition Agreement (the "Acquisition Closing") is the approval of the
reorganizations of the Reorganized Funds (including the Reorganization
described in this Proxy Statement and Prospectus) by their respective
shareholders and the approval of the reorganizations of the Insurance
Funds by applicable state insurance regulatory authorities. The
Acquisition Agreement sets forth certain other conditions to each party's
obligation to close.
JPM, JPC and JPLIC have agreed pursuant to an Agreement Not to Compete not
to, among other things, sell or offer to sell shares of or other security
interests in investment companies or investment oriented insurance
policies to persons who were shareholders of a Reorganized Fund or owned
variable annuity contracts issued by JPLIC invested in the Insurance
Funds, in each case, immediately prior to the reorganization of such fund
for a period to end on the fourth anniversary of the Acquisition Closing.
Further, JPM, JPC and JPLIC may not act as an investment adviser to funds
established, formed, sold, sponsored or distributed by them and their
affiliates with certain exceptions. OFI, on the one hand, and JPM, JPC
and JPLIC, on the other, have agreed to indemnify the other for certain
liabilities.
Board Approval of the Reorganization
At its meeting on August 26, 1996, the Board, including the Independent
Directors, unanimously approved the Reorganization and the Reorganization
Agreement, determined that the Reorganization is in the best interests of
JP Fund and its shareholders and resolved to recommend that JP Fund
shareholders vote for approval of the Reorganization. The Board further
determined that the Reorganization would not result in dilution of JP
Fund's shareholders' interests.
In evaluating the Reorganization, the Board requested and reviewed, with
the assistance of independent legal counsel, materials furnished by OFI
and JPM. These materials included financial statements as well as other
written information regarding OFI and its personnel, operations and
financial condition. The Board also reviewed the same type of information
about JPM. Consideration was given to comparative information concerning
other mutual funds with similar investment objectives to JP Fund and
Oppenheimer Fund. The Board also considered information with respect to
the relative historical performance of JP Fund, Oppenheimer Fund and other
mutual funds having similar investment objectives. The Board also
reviewed and discussed the terms and provisions of the investment advisory
agreement pursuant to which OFI provides investment management services
to Oppenheimer Fund and compared and contrasted them to the existing
management arrangements for JP Fund as well as the management arrangements
of other similar mutual funds, particularly with respect to the allocation
of various types of expenses, levels of fees and resulting expense ratios.
In reaching its determination, the Board gave careful consideration to the
following factors, among others: (1) because JPC intends to sell JPM or
otherwise leave the business of managing mutual fund investment
portfolios, new arrangements for the management of JP Fund's assets were
necessary; (2) the Reorganization would afford variable contract owners,
as indirect investors in Oppenheimer Fund, the capabilities and resources
of OFI and its affiliates in the area of investment management and
shareholder servicing and marketing; (3) the terms and conditions of the
Reorganization, including that (a) there would be no sales charge imposed
in effecting the Reorganization, (b) the Reorganization is intended to
qualify as a tax-free exchange, and (c) all expenses of the Reorganization
would be paid by OFI and JPM and not by Oppenheimer Fund or JP Fund; and
(4) the similarities and differences of the investment objectives,
policies and methods of JP Fund and Oppenheimer Fund. The Board also
considered that the annual operating expenses for Oppenheimer Fund are
higher, as a percentage of net assets, and would be higher on a pro forma
basis after giving effect to the Reorganization, than the operating
expenses of JP Fund due to the fact that Oppenheimer Fund is subject to
a higher management fee rate than JP Fund. For operating expenses and
other expense information relating to Oppenheimer Fund and JP Fund, see
"Comparative Fee Tables - Expenses of Oppenheimer Fund and JP Fund; Pro
Forma Expenses."
The Board was also advised regarding the provisions of Section 15(f) of
the 1940 Act as they relate to the Acquisition. Section 15(f) of the 1940
Act provides, in effect, that an investment adviser of a registered
investment company, or an affiliated person of such adviser, may receive
any amount or benefit in connection with the sale of the adviser's
business provided that two conditions are satisfied. First, an "unfair
burden" must not be imposed on the investment company for which the
investment adviser acts in such capacity as a result of the sale, or any
express or implied terms, conditions or understandings applicable thereto.
The term "unfair burden" as defined in the 1940 Act, includes any
arrangement during the two-year period after the transaction whereby the
investment adviser (or predecessor or successor advisers), or any
interested person of such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from any person in connection with
the purchase or sale of securities or other property to, from or on behalf
of the investment company (other than ordinary fees for bona fide
principal underwriting services), or from the investment company or its
securities holders (other than fees for bona fide investment advisory and
other services).
Management of the Reorganized Funds (including JP Fund) and management of
the mutual funds managed by OFI into which the Reorganized Funds will be
reorganized (including Oppenheimer Fund) are aware of no circumstances
arising from the Acquisition or preparatory transactions to the
Acquisition that might result in the imposition of an "unfair burden" on
the Reorganized Funds (including JP Fund) or the mutual funds managed by
OFI into which the Reorganized Funds will be reorganized (including
Oppenheimer Fund). Moreover, the Acquisition Agreement provides that OFI,
JPM and JPC will conduct their businesses (and use their reasonable
efforts to cause their respective affiliates to conduct their businesses)
so as to assure, insofar as is in their control, that no "unfair burden"
will be imposed on the Reorganized Fund (including JP Fund) or any mutual
fund managed by OFI into which a Reorganized Fund would be reorganized
(including Oppenheimer Fund) as a result of the transactions contemplated
by the Acquisition Agreement.
The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable,
at least 75% of the subject investment company's board of directors must
not be "interested persons" (as defined in the 1940 Act) of the investment
company's investment adviser or predecessor adviser. The current
composition of the Board of Trustees of each mutual fund managed by OFI
into which a Reorganized Fund would be organized (including Oppenheimer
Fund) is in compliance with such condition.
After consideration of the above factors, and such other factors and
information as the directors deemed relevant, the Board, including the
Independent Directors, unanimously approved the Reorganization and the
Reorganization Agreement and voted to recommend its approval to the
shareholders of JP Fund.
The Trust's Board of Trustees, on behalf of Oppenheimer Fund, including
the trustees who are not "interested persons" of Oppenheimer Fund,
unanimously approved the Reorganization and the Reorganization Agreement
and determined that the Reorganization is in the best interests of
Oppenheimer Fund and its shareholders. The Board of Trustees further
determined that the Reorganization would not result in dilution of the
Oppenheimer Fund shareholders' interests. The Board of Trustees
considered, among other things, that an increase in Oppenheimer Fund's
asset base as a result of the Reorganization could benefit Oppenheimer
Fund shareholders due to the economies of scale available to a larger
fund. Over time, these economies of scale may result in slightly lower
costs per account for each Oppenheimer Fund shareholder through lower
operating expenses and transfer agency expenses.
The Reorganization
The following summary of the Reorganization Agreement is qualified in its
entirety by reference to the Reorganization Agreement (a copy of which is
set forth in full as Exhibit A to this Proxy Statement and Prospectus).
The Reorganization Agreement contemplates a reorganization under which (1)
substantially all of the assets of JP Fund would be transferred to
Oppenheimer Fund in exchange for shares of Oppenheimer Fund having a value
equal to the value of the JP Fund assets transferred, (2) these shares
would be distributed among shareholders of JP Fund in liquidation of JP
Fund and (3) the outstanding shares of JP Fund would be cancelled. Prior
to the Closing Date (as hereinafter defined), JP Fund will endeavor to
discharge all of its liabilities and obligations when and as due prior to
such date. Oppenheimer Fund will not assume any liabilities or
obligations of JP Fund except for portfolio securities purchased which
have not settled in the ordinary course of business. In this regard, JP
Fund will retain a cash reserve (the "Cash Reserve") in an amount which
is deemed sufficient in the discretion of the Board for the payment of (a)
JP Fund's expenses of liquidation (if any) and (b) JP Fund's liabilities,
other than those assumed by Oppenheimer Fund. The Cash Reserve will be
accounted for as a liability of JP Fund in determining its net asset
value. The number of full and fractional shares of Oppenheimer Fund to be
issued to JP Fund will be determined on the basis of Oppenheimer Fund's
and JP Fund's relative net asset values per share, computed as of the
close of business of The New York Stock Exchange Inc. on the business day
preceding the Closing Date (the "Valuation Date"). The Closing Date for
the Reorganization will be the date of the closing of the Acquisition
under the Acquisition Agreement or such other date as may be mutually
agreed upon in writing.
The valuation procedures set forth in the Trust's Prospectus and the Trust
Additional Statement will be utilized to determine the value of JP Fund's
assets to be transferred to Oppenheimer Fund pursuant to the
Reorganization, the value of Oppenheimer Fund's assets and the net asset
value of shares of Oppenheimer Fund. Such values will be computed by JPM
and OFI, respectively, as of the Valuation Date in a manner consistent
with OFI's regular practice in pricing Oppenheimer Fund.
The Reorganization Agreement provides for coordination between the funds
as to their respective portfolios so that, on and after the Closing Date,
Oppenheimer Fund will be in compliance with all of its investment policies
and restrictions. JP Fund will recognize capital gain or loss on any
sales made pursuant to this condition. If JP Fund realizes net gain from
the sale of securities, such gain, to the extent not offset by capital
loss carry-forwards, will be distributed to shareholders prior to the
Closing Date and will be taxable to shareholders as long-term capital gain
or, if the assets disposed of had not been held for more than one year,
as ordinary income. For a discussion of the tax consequences of such
distributions to variable contract owners, see "Tax Aspects of the
Reorganization" below and "Federal Tax Status" in the Account A current
prospectus.
Contemporaneously with the closing, JP Fund will be liquidated (except for
the Cash Reserve) and JP Fund will distribute or cause to be distributed
pro rata to JP Fund shareholders of record on the Valuation Date the full
and fractional shares of Oppenheimer Fund received by JP Fund. Upon such
liquidation, all issued and outstanding shares of the JP Fund will be
cancelled on JP Fund's books and JP Fund shareholders will have no further
rights as shareholders of JP Fund. To assist JP Fund in the distribution
of Oppenheimer Fund shares, Oppenheimer Fund will, in accordance with a
shareholder list supplied by JP Fund, cause Oppenheimer Fund's transfer
agent to credit and confirm an appropriate number of shares of Oppenheimer
Fund to each shareholder of JP Fund. After the closing of the
Reorganization, JP Fund will not conduct any business except in connection
with the winding up of its affairs.
Under the Reorganization Agreement, within one year after the Closing
Date, JP Fund shall either (i) transfer any remaining amount of the Cash
Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the
estimated cost of distributing it to shareholders) is not material (as
defined below), or (ii) distribute such remaining amount to the
shareholders of JP Fund who were such on the Valuation Date. Such
remaining amount shall be deemed to be material if the amount to be
distributed, after deducting the estimated expenses of the distribution,
equals or exceeds one cent per share of JP Fund outstanding on the
Valuation Date. After this transfer or distribution and after all final
reports and tax returns have been filed and the winding up of JP Fund's
affairs has been completed, JP Fund will be dissolved as a corporation
under North Carolina law.
The consummation of the Reorganization is subject to the conditions set
forth in the Reorganization Agreement, including, without limitation,
approval of the Reorganization by JP Fund's shareholders. Notwithstanding
approval of JP Fund's shareholders, the Reorganization may be terminated
at any time prior to the Closing Date (1) by mutual written consent of JP
Fund, and the Trust, on behalf of Oppenheimer Fund, (2) by JP Fund or the
Trust, on behalf of Oppenheimer Fund, if the Closing shall not have
occurred on or before December 31, 1996, (3) by JP Fund or the Trust, on
behalf of Oppenheimer Fund, if the other party shall fail to perform in
any material respect its agreements contained in the Reorganization
Agreement required to be performed on or prior to the Closing Date, the
other party materially breaches any representation, warranty, or covenant
contained in the Reorganization Agreement, the JP Fund shareholders fail
to approve the Reorganization Agreement, or if a condition in the
Reorganization Agreement expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met prior to the Closing Date, or (4) if a
suspension in the redemption of shares shall continue for 60 days beyond
the Valuation Date. The Reorganization Agreement will automatically
terminate prior to the Closing if the Acquisition Agreement is terminated
or the Acquisition is not consummated. Termination of the Reorganization
Agreement pursuant to (1), (2) or (4) above, or an automatic termination
as described in the preceding sentence, will terminate all obligations of
the parties thereto and there will be no liability for damages. In such
case JP Fund and Oppenheimer Fund will be reimbursed for its expenses
incurred with respect to the Reorganization by JPM and OFI, respectively.
In the event of a termination pursuant to (3) above, all obligations of
Oppenheimer Fund and JP Fund under the Reorganization Agreement will be
terminated without liability for damages except that the party in breach
(other than a breach due to JP Fund shareholders not approving the
Reorganization) of the Reorganization Agreement will, upon demand,
reimburse (such reimbursement to be made by such party's investment
adviser) the non-breaching party for all expenses and reasonable out-of-
pocket fees (if any) incurred in connection with the transactions
contemplated by the Reorganization Agreement.
Pursuant to the Reorganization Agreement, JPC has agreed to indemnify and
hold harmless JP Fund, Oppenheimer Fund, their investment advisers and
their respective trustees, officers and shareholders against claims
resulting from certain actions or a failure to act by JP Fund and OFI has
agreed to indemnify and hold harmless JP Fund and its investment adviser
and their respective directors, officers and shareholders against claims
resulting from certain actions or a failure to act by Oppenheimer Fund.
In addition, JPC has separately agreed with JP Fund and the Independent
Directors that, if indemnification from the assets of JP Fund or liability
insurance is not available to the Independent Directors after the Closing
Date, JPC will indemnify and hold the Independent Directors harmless to
the same extent as provided under the JP Fund's Articles of Incorporation.
Approval of the Reorganization will require the vote specified below in
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information." If the Reorganization is not approved by the shareholders
of JP Fund, the Board will consider other possible courses of action.
Tax Aspects of the Reorganization
At or prior to the Closing Date, JP Fund will declare a dividend in an
amount large enough so that it will have declared a dividend of all of its
investment company taxable income and net capital gain, if any, for the
taxable period ending on the Closing Date (determined without regard to
any deduction for dividends paid). Such dividends will be included in the
taxable income of JP Fund's shareholders as ordinary income and long-term
capital gain, respectively.
The exchange of the assets of JP Fund for shares of Oppenheimer Fund and
the assumption by Oppenheimer Fund of certain liabilities of JP Fund is
intended to qualify for federal income tax purposes as a reorganization
under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). JP Fund has represented to Sutherland, Asbill & Brennan,
tax counsel to JP Fund, that there is no plan or intention by any JP Fund
shareholder who owns 5% or more of JP Fund's outstanding shares and, to
JP Fund's best knowledge, there is no plan or intention on the part of the
remaining JP Fund shareholders, to redeem, sell or otherwise dispose of
a number of Oppenheimer Fund shares received in the transaction that would
reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a
number of shares having a value, as of the Closing Date, of less than 50%
of the value of all the formerly outstanding JP Fund shares as of the same
date. JP Fund has also represented that Oppenheimer Fund will acquire at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by JP Fund immediately
prior to the Reorganization. JP Fund and Oppenheimer Fund have each
further represented to Sutherland, Asbill & Brennan the fact that, as of
the Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated
investment companies or will meet the diversification test of Section
368(a)(2)(F)(ii) of the Code. As of the Record Date, JPLIC and Account
A of JPLIC were the only record shareholders of JP Fund.
As a condition to the closing of the Reorganization, Oppenheimer Fund and
JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the
effect that, based on the Reorganization Agreement, information given by
JPC, the above representations and other representations as such firm
shall reasonably request, existing provisions of the Code, Treasury
Regulations issued thereunder, current Revenue Rulings, Revenue Procedures
and court decisions, for federal income tax purposes:
(a) The reorganization contemplated by the Reorganization Agreement will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code and JP Fund and Oppenheimer Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for shares
of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer of its
assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer
Fund and the assumption by Oppenheimer Fund of certain identified
liabilities of JP Fund (if any) and the subsequent distribution by JP Fund
of such shares to the shareholders of JP Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon the
exchange of the JP Fund shares solely for the shares of Oppenheimer Fund.
(Section 354)
(e) The basis of the shares of Oppenheimer Fund to be received by each JP
Fund shareholder pursuant to the reorganization will be the same as the
adjusted basis of that shareholder's JP Fund shares surrendered in
exchange therefor. (Section 358)
(f) The holding period of shares of Oppenheimer Fund to be received by
each JP Fund shareholder will include the shareholder's holding period for
the JP Fund shares surrendered in exchange therefor, provided such JP Fund
shares were held as capital assets on the Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund
will be the same as JP Fund's tax basis for the assets immediately prior
to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items of
JP Fund described in Section 381(c) of the Code, including the earnings
and profits, or deficit therein, of JP Fund as of the Closing Date,
subject to the conditions and limitations specified in Sections 381, 382,
383 and 384 of the Code.
(j) No gain or loss will be recognized by owners of variable contracts
issued by JPLIC through Account A or the transfer of JP Fund's assets to
Oppenheimer Fund in exchange solely for the shares of Oppenheimer Fund and
Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and
the subsequent distribution by JP Fund of those shares to Account A.
Owners of variable contracts should consult their tax advisers regarding
the effect, if any, of the Reorganization in light of their individual
circumstances, which may be affected by the type of variable contract they
own or by their status. See also "Federal Tax Status" in the Account A
prospectus. Since the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, shareholders of JP Fund
should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
Dissenters' Rights
Under the North Carolina Business Corporation Act (the "NCBCA"), the state
statute governing JP Fund, shareholders of a company acquired in a
reorganization who do not vote to approve the reorganization could have,
under certain circumstances, "appraisal rights" (where they may elect to
have the "fair value" of their shares as of the day prior to such
reorganization, determined in accordance with the NCBCA, judicially
appraised and paid to them). Variable contract owners, however, do not
have such rights under the NCBCA.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of Oppenheimer Fund and JP
Fund and indicates the pro forma combined capitalization as of June 30,
1996 as if the Reorganization had occurred on that date.
<TABLE>
<CAPTION>
Net Asset
Shares Value
Net Assets Outstanding Per Share
<S> <C> <C> <C>
Oppenheimer Fund $144,722,208 5,972,737 $24.23
JP Fund $ 81,751,500 4,205,010 $19.44
Pro Forma Combined
Fund* $226,473,708 9,346,716 $24.23
</TABLE>
- ------------------
*Reflects issuance of 3,373,979 shares of Oppenheimer Fund in a tax-free
exchange for the net assets of JP Fund, aggregating $81,751,500 for shares
of JP Fund.
The pro forma ratio of expenses to average annual net assets of the
combined funds at June 30, 1996 would have been .78%.
COMPARISON BETWEEN Oppenheimer FUND AND JP FUND
Comparative information about Oppenheimer Fund and JP Fund is presented
below. More complete information about Oppenheimer Fund and JP Fund is
set forth in their respective Prospectuses (which, as to Oppenheimer Fund,
accompanies this Proxy Statement and Prospectus and is incorporated herein
by reference) and Statements of Additional Information. To obtain copies
of either Prospectus, see "Miscellaneous - Public Information."
Comparison of Investment Objectives, Policies and Restrictions
As its investment objective, Oppenheimer Fund seeks to achieve capital
appreciation by investing in securities of well-known and established
companies. Current income is a secondary consideration in the selection
of Oppenheimer Fund's portfolio securities. JP Fund's primary investment
objective is long-term capital appreciation; current income through the
receipt of interest or dividends from investments is only a secondary
objective. In seeking their investment objectives, which are fundamental
policies, Oppenheimer Fund and JP Fund employ the investment policies as
described in detail below.
Oppenheimer Fund. Oppenheimer Fund seeks its investment objective by
emphasizing investment in common stocks issued by 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).
Oppenheimer Fund may also invest in 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. With respect
to the percentage of assets that may be invested in the securities of one
or more issuers, Oppenheimer Fund is subject to certain diversification
requirements as set forth in "Investment Restrictions" below.
JP Fund. JP Fund proposes to achieve its investment objectives by
investing substantially all its assets in common stocks of companies
recognized as leaders in their respective industries with proven and
capable management and that are providing significant products and
services to their customers. JP Fund's investments will be made
predominantly in securities listed on registered securities exchanges, but
it may purchase securities traded in the over-the-counter market.
Investments may be made in other equity securities, including rights,
warrants, preferred stock and those debt securities convertible into or
carrying rights, warrants, or options to purchase common stock or to
participate in earnings. JP Fund may also hold cash or invest in short-
term securities. JP Fund's investments (other than cash and U.S.
Government securities) are diversified among the securities issued by
different companies and governments to the extent that no more than 5% of
its total assets may be invested in securities issued by any one issuer.
In addition, JPM generally selects investments for JP Fund from among many
different industries and may invest up to 25% of JP Fund's assets in a
single industry.
Special Investment Methods
Oppenheimer Fund and JP Fund may use certain special investment methods
as summarized below.
Loans. Oppenheimer Fund may lend its portfolio securities to brokers,
dealers and other financial institutions, subject to certain conditions.
Oppenheimer Fund must receive collateral for the loans. Oppenheimer Fund
presently does not intend that the value of portfolio securities loaned
will exceed 5% of the value of the total assets of Oppenheimer Fund in the
coming year and is otherwise subject to a 25% limit with respect to such
loans. JP Fund is prohibited from making loans except to the extent of
investing in repurchase agreements or purchasing a portion of an issue of
a debt security distributed to the public.
Repurchase Agreements. Both Oppenheimer Fund and JP Fund may enter into
repurchase agreements. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on
the delivery date, the funds may experience costs or delays in disposing
of the collateral and may experience losses to the extent that the
proceeds from the sale of the collateral is less than the repurchase
price.
There is no limit on the amount of either fund's net assets that may be
subject to repurchase agreements of seven days or less. Neither fund will
purchase illiquid or restricted securities (which are subject to legal or
contractual restrictions on resale) that will cause more than 10% of its
net assets to be invested in such securities. As to Oppenheimer Fund,
this percentage limit may increase to 15% with respect to all illiquid or
restricted securities if certain state laws are change or Oppenheimer
Fund's shares are no longer sold in those states. Repurchase agreements
with maturities longer than seven days are considered illiquid. JP Fund
has no present intention of acquiring restricted securities. For
Oppenheimer Fund, certain restricted securities, eligible for resale to
qualified institutional purchasers, are not subject to the foregoing
limitation. However, investing in such restricted securities could have
the effect of increasing the level of fund illiquidity to the extent that
qualified institutional buyers become, for a time uninterested in
purchasing thee securities.
Short Sales Against-the Box. In a short sale, the seller does not own the
security that is sold, but normally borrows the security to fulfill its
delivery obligation. The seller later buys the security to repay the
loan, in the expectation that the price of the security will be lower when
the purchase is made, resulting in a gain. Oppenheimer Fund may not sell
securities short except that it may sell securities short in
collateralized transactions referred to as "short sales against-the-box."
No more than 15% of Oppenheimer Fund's net assets will be held as
collateral for such short sales at any one time. JP Fund may not enter
into these transactions.
Hedging. Oppenheimer Fund may purchase and sell: futures contracts that
relate to broadly-based securities indices; certain put and call options;
and options on securities, stock index futures, broadly-based stock
indices, and foreign currency. These are all referred to as "hedging
instruments." Oppenheimer Fund does not use hedging instruments for
speculative purposes. Up to 100% of Oppenheimer Fund's total assets may
be subject to covered calls. Oppenheimer Fund may only purchase a call
or put if, after such purchase, the value of all call and put options held
by Oppenheimer Fund would not exceed 5% of Oppenheimer Fund's total
assets. Further, Oppenheimer Fund will not write puts if, as a result,
more than 50% of its net assets would be required to be segregated to
cover the puts. Other limits on the use of hedging instruments are
described in the Trust's Prospectus and the Trust Additional Statement.
JP Fund does not invest in hedging instruments.
Hedging instruments may be used to manage Oppenheimer Fund's exposure to
the possibility that the prices of its portfolio securities may decline,
or to establish a position in the securities market as a temporary
substitute for purchasing individual securities; to hedge the Fund's
portfolio against price fluctuations; and to increase the Fund's exposure
to the securities market. Forward contracts are used to try to manage
foreign currency risks on the Fund's foreign investments. Oppenheimer
Fund's foreign currency options are used to try to protect against
declines in the dollar value of foreign securities Oppenheimer Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Oppenheimer Fund may write covered call options to provide
income for liquidity purposes or to raise cash to distribute to
shareholders.
The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than those required for normal
portfolio management. If Oppenheimer Fund uses a hedging instrument at
the wrong time or judges market conditions incorrectly, hedging strategies
may reduce the Fund's return. Oppenheimer Fund could also experience
losses if the prices of its futures and options positions were not
correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option. Options
trading involves the payment of premiums, and options, futures and forward
contracts are subject to special tax rules that may affect the amount,
timing and character of Oppenheimer Fund's distributions to its
shareholders. There are also special risks in particular hedging
strategies. If a covered call written by Oppenheimer Fund is exercised
on an investment that has increased in value, Oppenheimer Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price.
Derivative Investments. Oppenheimer Fund can invest in a number of
different kinds of "derivative investments." Some types of derivatives
are hedging instruments and may be used for hedging purposes, as described
above. Oppenheimer Fund may invest in others because they offer the
potential for increased income and principal value. In general, a
"derivative investment" is a specially-designed security or contract the
performance of which is linked to the performance of another investment
or security, such as an option contract, futures contract, index, currency
or commodity. In the broadest sense, derivative investments include the
hedging instruments in which Oppenheimer Fund may invest. Other types of
derivatives in which Oppenheimer Fund may invest include index-linked or
commodity-linked notes, debt exchangeable for common stock, equity-linked
debt securities and currency indexed securities. JP fund does not have a
policy with regard to investments in such other types of derivatives
investments such as hedging instruments. Nonetheless, JP Fund has never
invested in such derivative investments and JPM has no intention of having
JP Fund invest in such investments.
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of the
instrument. There is also the risk that the underlying investment or
security might not perform the way the investment adviser expected it to
perform. The performance of derivative investments may also be influenced
by interest rate changes in the U.S. and abroad. All of these risks can
mean that Oppenheimer Fund will realize less income than expected from its
investments, or that it can lose part or all of the value of its
investments, which will affect its share price.
When-Issued and Delayed Delivery Transactions. JP Fund and Oppenheimer
Fund may purchase securities on a "when-issued" basis and may purchase or
sell such securities on a "delayed delivery" basis. These terms refer to
securities that have been created and for which a market exists, but which
are not available for immediate delivery or are to be delivered at a later
date. There may be a risk of loss to either fund if the value of the
security changes prior to the settlement date. Although JP Fund may
purchase securities on a "when-issued" basis and may purchase or sell such
securities on a "delayed delivery" basis, it has not done so to date and
JPM has no intention of having JP Fund do so in the foreseeable future.
Investment Restrictions
Both Oppenheimer Fund and JP Fund have certain investment restrictions
that, together with their respective investment objectives are fundamental
policies changeable only by shareholder approval. The investment
restrictions of Oppenheimer Fund and JP Fund are set forth below.
Oppenheimer 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 Oppenheimer Fund's total assets would be invested in
securities of that issuer, or (b) Oppenheimer 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; (2) lend money except in
connection with the acquisition of debt securities which Oppenheimer
Fund's investment policies and restrictions permit it to purchase;
Oppenheimer Fund may also make 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) deviate from the
percentage requirements and other restrictions listed under "Warrants and
Rights," and the first paragraph under "Special Risks-Borrowing for
Leverage" of the Trust Prospectus; (5) invest in oil or gas exploration
or development programs; (6) invest in real estate or in interests in real
estate, but may purchase securities of issuers holding real estate or
interests therein; (7) invest in companies for the purpose of acquiring
control of management thereof; (8) 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; (9) 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 (10) 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.
JP Fund cannot: (1) issue senior securities; (2) purchase securities on
margin or sell short, except it may obtain such short-term credits as are
necessary for the clearance of transactions; (3) write, purchase or sell
puts, calls or combinations thereof; (4) borrow money except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, JP Fund may borrow up to 5% of the value of its total
assets; (5) act as an underwriter of securities of other issuers, except
JP Fund may invest up to 10% of the value of its net assets (at time of
investment) in portfolio securities which JP Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933; (6) purchase or sell real estate or interests in
real estate, nor interests in real estate investment trusts or real estate
limited partnerships (however, JP Fund may purchase interests in real
estate investment trusts whose securities are registered under the
Securities Act of 1933 and are readily marketable); (7) engage in the
purchase and sale of commodities or commodity contracts; (8) make loans,
except to the extent that either of the following is deemed to constitute
a loan: (a) purchase of a portion of an issue of a debt security
distributed to the public; or (b) investment in "repurchase agreements";
(9) purchase the securities (except U.S. Government securities) of any one
issuer if immediately after and as a result of such purchase (a) the value
of the holdings of JP Fund in the securities of such issuer exceeds 5% of
the value of JP Fund's total assets, or (b) JP Fund owns more than 10% of
the outstanding voting securities of any one class of securities of such
issuer; (10) purchase the securities of open-end investment companies
(except JP Fund may purchase the securities of other investment companies
provided that (a) immediately after such purchase JP Fund and companies
controlled by JP Fund, or other investment companies having the same
investment adviser as JP Fund, do not own more than 10% of the investment
company whose securities are being purchased; (b) JP Fund cannot invest
more than 10% of its total assets in the securities of other investment
companies; and (c) such purchases are made in the open market where no
commission or profit to a sponsor or dealer results other than the
customary broker's commission; notwithstanding the foregoing, restrictions
10(a), 10(b) and 10(c) do not apply in connection with a merger,
consolidation, or plan of reorganization); (11) mortgage, pledge,
hypothecate, or in any manner transfer, as security for indebtedness, any
securities owned or held by JP Fund; (12) participate on a joint or joint
and several basis in any trading account in securities or effect a short
sale of any security, except in connection with an underwriting in which
it is a participant in the circumstances specified in "5" above; and (13)
purchase or retain the securities of any issuer if those officers and
directors of JP Fund, its adviser or underwriter owning individually more
than 0.5% of the securities of such issuer together own more than 5% of
the securities of such issuer. As non-fundamental policies changeable
without shareholder approval, JP Fund cannot: (a) invest in companies for
the purpose of exercising control or management; (b) invest in foreign
securities other than securities issued by Canadian companies; and (c)
invest in interests of oil, gas or other mineral exploration or
development programs (including oil, gas or mineral leases).
Oppenheimer Fund Performance
Oppenheimer Fund does not maintain a fixed dividend rate and there can be
no assurance as to the payment of any dividends or the realization of any
capital gains.
During Oppenheimer Fund's fiscal year ended December 31, 1995, Oppenheimer
Fund's strategy of looking for growth at reasonable prices lead it to
invest substantially in the technology and financial services sectors.
Oppenheimer Fund's investment performance will vary over time depending
on market conditions, the composition of the portfolio and expenses. Past
performance should not be considered a prediction of future performance.
Included in the prospectus for the Trust, a copy of which accompanies this
Proxy Statement and Prospectus and those portions that pertain to
Oppenheimer Fund being incorporated herein by reference, in the section
entitled "Performance of the Funds," is a performance graph which depicts
the performance of a hypothetical $10,000 investment in shares of
Oppenheimer Fund over a ten-year period through December 31, 1995.
Oppenheimer Fund's performance is compared to the performance of the S&P
500 Index, a broad-based index of equity securities widely regarded as a
general measurement of the performance of the U.S. equity securities
market. Index performance reflects the reinvestment of dividends but does
not consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Oppenheimer Fund's
performance data reflects reinvestment of all dividends and capital gains
distributions, and the effect of fund business and operating expenses.
While index comparisons may be useful to provide a benchmark for
Oppenheimer Fund's performance, it must be noted that Oppenheimer Fund's
investments are not limited to the securities in the S&P 500 index.
Moreover, the index data does not reflect any assessment of the risk of
the investments included in the index.
Information on JP Fund performance is set forth in JP Fund's current
Prospectus and in its Annual Report as of December 31, 1995, which may be
obtained without charge as set forth in "Miscellaneous - Public
Information." Such information is incorporated herein by reference.
Other Investors in Oppenheimer Fund
Shares of Oppenheimer Fund are sold to separate accounts of insurance
companies that are not affiliated with JPLIC or each other, a practice
known as "shared funding." They are also sold to separate accounts to
serve as the underlying investment for both variable annuity contracts and
variable life insurance contracts, a practice known as "mixed funding."
As a result, there is a possibility that a material conflict may arise
between the interests of owners of various different types of variable
contracts, whose contract values are indirectly invested in Oppenheimer
Fund. Likewise, there is a possibility that a material conflict may arise
between the interests of owners of variable contracts having contract
values indirectly invested in Oppenheimer Fund through a separate account
of one insurance company and the interests of owners of other variable
contract whose contract values are indirectly invested in the fund through
one or more separate accounts or other insurance companies. Shares of
Oppenheimer Fund may also be sold to separate accounts of certain pension
and retirement plans qualifying under Section 401 of the Code. As a
result, there is a possibility that a material conflict may arise between
the interests of owners of various types of variable contracts (including
variable contracts issued by insurance companies other than JPLIC), and
such retirement plans or participants in such retirement plans. There are
certain other risks associated with mixed and shared funding and with the
sale of shares to qualified pension and retirement plans. These are
discussed in Oppenheimer Fund's prospectus under the caption "Other
Investment Restrictions".
Additional Comparative Information
General. For a discussion of the organization and operation of
Oppenheimer Fund, including brokerage practices, see "Investment
Objectives and Policies" and "How the Funds are Managed" in the Trust's
current Prospectus and "Brokerage Policies of the Funds" in the Trust
Additional Statement. For a discussion of the organization and operation
of JP Fund, including brokerage practices, see "Investment Objectives and
Policies," and "Who Manages The Funds" in JP Fund's current Prospectus and
"Brokerage" in the JP Fund Additional Statement.
Financial Information. For certain financial information about
Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Financial
Highlights" and "Performance of the Funds" in Oppenheimer Fund's current
Prospectus, and as to JP Fund, "Condensed Financial Information" and
"Performance" in JP Fund's current Prospectus.
Management of Oppenheimer Fund and JP Fund. For information about the
management of Oppenheimer Fund and JP Fund, including their respective
Boards of Trustees or Directors, investment adviser and portfolio
managers, see, as to Oppenheimer Fund, "How the Funds are Managed" in the
Trust's current Prospectus and "How the Funds are Managed," "Trustees and
Officers of the Trust" and "The Manager and Its Affiliates" in the Trust's
Additional Statement, and as to JP Fund "Portfolio Managers" and "Who
Manages the Funds" in JP Fund's current Prospectus and "The Investment
Adviser," and "The Fund's Directors and Officers" in the JP Fund
Additional Statement.
Description of Shares of Oppenheimer Fund and JP Fund. Oppenheimer Fund
is a series of the Trust, Oppenheimer Variable Account Funds, a
Massachusetts business trust. Oppenheimer Fund and its shareholders are
governed principally by the Trust's Declaration of Trust, and ByLaws and
other governing documents. Each share of Oppenheimer Fund represents an
interest in Oppenheimer Fund proportionately equal to the interest of each
other share and entitles the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to a vote at
shareholder meetings. Shares of Oppenheimer Fund and of the Trust's other
series vote together in the aggregate on certain matters at shareholder
meetings, such as the election of Trustees and ratification of appointment
of auditors. Shareholders of a particular series vote separately on
proposals which affect that series, and shareholders of a series which is
not affected by that matter are not entitled to vote on the proposal.
Shareholders of Oppenheimer Fund together with shareholders of the Trust's
other series have the right, under certain circumstances, to remove a
Trustee and will be assisted in communicating with other shareholders for
such purpose.
Oppenheimer Fund is authorized to issue an unlimited number of shares of
beneficial interest. Shares are freely transferable and shares do not
have cumulative voting rights or preemptive or subscription rights.
Oppenheimer Fund is governed by a Board of Trustees that has the power,
without shareholder approval, to establish and designate one or more
series. Oppenheimer Fund has only one class of shares which are offered
for purchase only by separate accounts such as Separate Account A. Under
certain circumstances, a shareholder of Oppenheimer Fund may be held
personally liable as a partner for the obligations of Oppenheimer Fund,
and under the Trust's Declaration of Trust, such a shareholder is entitled
to indemnification rights by Oppenheimer Fund; the risk of a shareholder
incurring any such loss is limited to the remote circumstances in which
Oppenheimer Fund is unable to meet its obligations. For further
information about the shares of Oppenheimer Fund, see "How the Fund is
Managed" in the Trust's current Prospectus and the Trust Additional
Statement.
JP Fund is a North Carolina corporation with 100,000,000 shares of common
stock, par value $1.00 per share, authorized, which shares are divided
initially into two classes, consisting of 50,000,000 shares of Class A and
50,000,000 shares of Class B. JP Fund and its shareholders are governed
by its Articles of Incorporation and ByLaws and by the NCBCA. The shares
of common stock issued and outstanding on the date Class B shares are
first issued will be reclassified as Class A; no Class B shares have been
issued as of the date hereof. Each share entitles the holder to
participate equally in dividends and distributions declared by JP Fund and
in its remaining net assets on liquidation after satisfaction of
outstanding liabilities. JP Fund shares are fully paid and nonassessable
when issued; have no preemptive or conversion rights; are transferable
without restriction; and are redeemable at net asset value. On matters
submitted for a shareholder vote, each shareholder is entitled to one vote
for each share owned. Fractional shares have proportionately the same
rights as do full shares.
Oppenheimer Fund is not required to hold, and does not plan to hold,
regular annual meetings of shareholders. In contrast, JP Fund is required
to hold an annual meeting of shareholders each year or in lieu thereof,
a special meeting of shareholders.
Dividends, Distributions and Taxes. The Trust intends to declare
dividends from net investment income on an annual basis. Any net long-
term and short-term capital gains may be distributed by Oppenheimer Fund
annually in December and supplemental distributions of capital gains and
ordinary income may be made following the end of Oppenheimer Fund's fiscal
year. JP Fund's policy is to pay dividends from net investment income
semi-annually in February and August. Each December each Fund makes a
distribution of the capital gains, if any realized during the 12-month
period ended the preceding October 31. For a discussion of the policies
of Oppenheimer Fund and JP Fund with respect to dividends and
distributions, and a discussion of the tax consequences of an investment
in Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Dividends,
Capital Gains and Taxes" in the Oppenheimer Fund current Prospectus and
as to JP Fund "Dividends, Distribution and Taxes" in the JP Fund current
Prospectus. For a discussion of the tax consequences of an investment in
Account A, see "Federal Tax Status" in the Account A current Prospectus.
Purchases and Redemptions of Shares. Information on purchases and
redemptions of shares of Oppenheimer Fund and JP Fund is provided under
"Synopsis -- Purchases and Redemptions" in this Proxy Statement and
Prospectus. For an additional discussion of how shares of Oppenheimer Fund
and JP Fund may be purchased and redeemed, see, as to Oppenheimer Fund,
"How to Buy Shares," and "How to Sell Shares," in the Trust's current
Prospectus and the Trust Additional Statement and, as to JP Fund, "How to
Purchase Shares," and "How to Redeem Shares" in JP Fund's current
Prospectus.
Shareholder Inquiries. For a description of how shareholder inquiries
should be made, see as to Oppenheimer Fund, "How the Funds are Managed"
in the Trust's current Prospectus and, as to JP Fund, the back cover page
of the JP Fund current Prospectus.
The Board of Directors recommends that shareholders approve the
Reorganization Agreement.
ELECTION OF DIRECTORS
(Proposal 2)
The Board of directors of JP Fund recommends that shareholders elect the
following nominees to serve as the 5 directors of the full Board of
directors of JP Fund: John C. Ingram, J. Lee Lloyd, Richard W. McEnally,
William E. Moran and E.J. Yelton. Each of the nominees is presently a
Director of JP Fund and has been previously elected by shareholders of JP
Fund. If elected, the directors will serve until the earlier of the
dissolution of JP Fund or the next shareholder meeting called for the
purpose of electing directors, or until the election and qualification of
their successors. If the enclosed voting instructions is duly executed
and received in time for the Meeting, and if no contrary specification is
made as provided therein, it will be voted in favor of the election as
directors of the foregoing nominees. If any nominee should be unwilling
or unable to serve, which is not now anticipated, the Proxy may be voted
with discretionary authority for a substitute or substitutes as shall be
designated by the Board of Directors. Certain information concerning the
directors and executive officers of JP Fund is set forth below.
Information Concerning the Board
JP Fund's current Board of directors consists of 5 directors, all of whom
are elected at annual meetings. The Board of directors does not have a
standing audit, nominating or compensation committee. The following list
of JP Fund's directors and executive officers, all of whom are also
directors and/or officers of JP Investment Grade Bond Fund, Inc.,
Jefferson-Pilot Investment Grade Bond Fund, Inc., and Jefferson-Pilot
Capital Appreciation Fund, Inc. (collectively with JP Fund, the
"Jefferson-Pilot Funds"), includes information as to their principal
occupations during the past five years and their principal affiliations.
<TABLE>
<CAPTION>
Name and Other Position/Office Principal Occupation(s) Officer or
Information with JP Fund During the Past 5 Years Director Since
<S> <C> <C>
John C. Ingram* Director Senior Vice President, 1989
3802 Woodcote Dr. JPLIC since November 1988.
Greensboro, N.C.
Age-52
J. Lee Lloyd Director Managing Director, Lloyd & Company 1994
16 Irving Park Lane since April 1991.
Greensboro, NC 27455
Age-36
Richard W. McEnally Director Professor of Investment Banking, 1984
401 Brookside Drive University of North Carolina at
Chapel Hill, NC at Chapel Hill.
Age-54
William E. Moran Director Senior Vice President, Connors 1983
5206 Barnfield Road Investor Service, Inc.
Greensboro, NC since January 1995; prior thereto, Chancellor
Age-64 University of North Carolina at
Greensboro.
W. Hardee Mills, Jr. Vice President Vice President of JPLIC 1987
5 St. Francis Court since February 1994; prior
Greensboro, NC 27408 thereto, Second Vice President,
Age-46 JPLIC.
J. Gregory Poole Secretary Assistant Secretary of JPC and 1994
1805 Gate Post Drive Associate Counsel and Assistant
Greensboro, NC 27455 Secretary of JPLIC since February
Age-32 1994; prior thereto, various
positions at JPC and JPLIC.
E.J. Yelton* Director, Senior Vice President - Investments 1994
3204 St. Regis Road President, of JPC and Executive Vice President
Greensboro, NC 27408 Treasurer - Investments of JPLIC since October
Age-57 1993; prior thereto, President and
CEO, ING North America
Investment Centre/Member of
ING Group (investment banking firm).
</TABLE>
* Messrs. Ingram and Yelton are directors that are "interested persons"
(as that term is defined in the 1940 Act) of JP Fund due to the following
positions with JPM and JPC: Mr. Ingram -Senior Vice President, Treasurer
and Director of JPM, and Mr. Yelton - President and Director, JPM and
Senior Vice President - Investments, JPC.
The nominees for directors are beneficial owners of the following
shares in JPC, the parent of JP Fund's investment adviser: Yelton, _____;
Ingram, ______; Moran, ____; Lloyd, ____; and McEnally, ____. During the
period January 1, 1995 to December 31, 1995, the Directors of JP Fund
purchased and/or sold shares of JPM, JPC and subsidiaries of JPC as
follows: [identify only if securities purchased/sold exceed 1% of
outstanding shares of entity]
Officers of JP Fund
The following officers of JP Fund also serve as officers and/or directors
of JPM and JPIS: E.J. Yelton, President and Treasurer of JP Fund, is
President and a Director of JPM and a Director of JPIS; W. Hardee Mills,
Jr., Vice President of JP Fund, is Vice President of JPM and J. Gregory
Poole, Secretary of JP Fund, is Secretary of JPIS and JPM. Messrs.
Yelton, Poole and Mills hold positions with the other Jefferson-Pilot
Funds similar to the positions held with JP Fund. The other Jefferson-
Pilot Funds have the same investment adviser as JP Fund.
The following table provides information regarding the compensation each
nominee for director was paid by JP Fund and the other Jefferson-Pilot
Funds for the year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Retirement Estimated Annual Total Compensation
Person, Compensation Benefits Accrued as Benefits upon From Jefferson-Pilot
Position from JP Fund Part of JP Fund Expenses Retirement______ Funds
<S> <C> <C> <C>
John C. Ingram $0 $0 $0 $0
Director
J. Lee Lloyd 1,220 0 0 4,880
Director
Richard W. McEnally 1,220 0 0 4,880
Director
William E. Moran 1,220 0 0 4,880
Director
E.J. Yelton 0 0 0 0
Director,
President,
Treasurer
</TABLE>
Other Information
The Board of Directors met five items during the fiscal year ended
December 31, 1995 and all of the Directors were present for at least 75%
of those meetings. During the year ended December 31, 1995, directors who
are not employed by JP Fund or its affiliates received a $100 director's
fee for each meeting attended, amounting to an aggregate of $500. In
addition, each of the Independent Directors receives a fee of $720 per
year payable in equal monthly installments.
As of the Record Date, JP Fund's directors and officers owned Account A
contracts holding JP Fund shares in the amounts indicated: John C.
Ingram,______ shares; J. Lee Lloyd, None; Richard W. McEnally, _____
shares; William E. Moran, ______shares; E.J. Yelton, ______shares; W.
Hardee Mills, Jr., None; J. Gregory Poole, _______shares; and all
directors and officers as a group,_____shares.
The percentage of shares beneficially owned by each such individual, and
all directors and officers as a group, did not exceed 1% of JP Fund's
outstanding shares.
JP Fund's investment adviser and transfer agent is JPM, P.O. Box 21008,
Greensboro, North Carolina 27420, a North Carolina corporation organized
on January 13, 1970. JPM is a wholly-owned subsidiary of JPC, an
insurance holding company. JPM presently serves the other Jefferson-Pilot
Funds in these capacities as well.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO
64105-1716 (phone: 1-800-292-6701), serves as JP Fund's custodian.
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 3)
The Board of Directors of JP Fund recommends that the shareholders ratify
the selection of McGladrey & Pullen LLP ("McGladrey & Pullen"), Certified
Public Accountants, to continue to serve as the independent auditors of
JP Fund for the fiscal year ending December 31, 1996. That firm or its
predecessor has served as JP Fund's independent auditors from the time of
JP Fund's incorporation on July 19, 1982. JP Fund has been advised by
McGladrey & Pullen that neither the said firm nor any of its members have
a direct or indirect financial interest in JP Fund. McGladrey & Pullen
also serves as independent auditors for JPM.
INFORMATION CONCERNING THE MEETING
The Meeting
The Meeting will be held at the Jefferson-Pilot Building (4th Floor, Room
B-2), 100 North Greene Street, Greensboro, North Carolina 27420, at 10:00
A.M., local time, on December 3, 1996. At the Meeting, JP Fund
shareholders will be asked to consider and vote upon approval or
disapproval of the Reorganization Agreement, and the transactions
contemplated thereby, including the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund, the distribution by JP Fund of such shares to its
shareholders in liquidation of JP Fund and the cancellation of the
outstanding shares of JP Fund. At the meeting, shareholders of JP Fund
will also be asked to elect five directors and ratify or reject the
selection of independent accountants.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on October 10, 1996 as the
Record Date for the determination of shareholders entitled to notice of,
and to vote at, the Meeting. The affirmative vote of a majority of the
JP Fund shares entitled to vote at the Meeting is required for approval
of Proposal 1. The affirmative vote of a majority of JP Fund shares voted
(in person or by proxy) at the Meeting, if a quorum is present at the
Meeting, is required to approve Proposal 3. A plurality of all the votes
cast at the Meeting, if a quorum is present at the Meeting, is sufficient
to elect the nominees for director (Proposal 2). JPLIC will be entitled
to one vote for each share and a fractional vote for each fractional share
held of record at the close of business on the Record Date. Only JP Fund
shareholders will vote on the Reorganization and the other Proposals. The
vote of shareholders of Oppenheimer Fund is not being solicited.
At the close of business on the Record Date, there were approximately
_________ shares of JP Fund issued and outstanding. The presence in
person or by proxy of the holders of one-third of JP Fund's shares
constitutes a quorum for the transaction of business at the Meeting. As
of the Record Date, JPLIC owned of record all of JP Fund's outstanding
shares; the beneficial owners of all of JP Fund's outstanding shares (with
the exception of less than 1% beneficially owned by JPLIC) are the owners
of variable contracts issued by JPLIC through Account A.) To the
knowledge of JP Fund, as of the Record Date, none of such beneficial
owners owned beneficially 5% or more of the outstanding JP Fund shares.
As of the close of business on the Record Date, there were approximately
____ shares of Oppenheimer Fund issued and outstanding. As of the Record
Date, the holders of 5% or more of the outstanding shares of Oppenheimer
Fund were separate accounts of (i) Monarch Life Insurance Company,
Springfield, MA which owned _____________ shares; (ii) The Life Insurance
Company of Virginia, Richmond, VA which owned _____________ shares; (iii)
Aetna Life Insurance and Annuity Company, Hartford, CT which owned
____________ shares; and (iv) Massachusetts Mutual Life Insurance Company,
Springfield, MA ("MassMutual") and subsidiary insurance companies of
MassMutual which owned ___________ shares. OFI is wholly-owned by
Oppenheimer Acquisition Corp., a holding company controlled by MassMutual.
As of the Record Date, the officers and Trustees of the Trust beneficially
owned as a group less than 1% of the outstanding shares of the Trust and
Oppenheimer Fund.
[In the event a quorum does not exist on the date originally scheduled for
the Meeting, or, subject to approval of the Board, for other reasons, one
or more adjournments of the Meeting may be sought by the Board.]
Voting Instructions
JPLIC is the sole record holder and JPLIC and Account A of JPLIC are the
only beneficial shareholders of JP Fund. JPLIC will vote the shares of JP
Fund at the Meeting in accordance with the timely instructions received
from persons entitled to give voting instructions under variable
contracts. JPLIC will vote shares attributable to variable contracts as
to which no voting instructions are received in proportion (for, against
or abstain) to those for which instructions are received. JPLIC also will
vote shares not attributable to variable contracts (i.e, representing seed
money investments in JP Fund made by JPLIC) in proportion to those for
which instructions are received from owners. If a Voting Instruction Form
is received that does not specify a choice, JPLIC will consider its timely
receipt as an instruction to vote in favor of the proposal(s) to which it
relates. Variable contract owners may revoke voting instructions given
to JPLIC at any time prior to the Meeting by notifying the Secretary of
JP Fund in writing.
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be borne by OFI and JPM.
Similarly, any costs associated with documents included in that mailing,
such as existing prospectuses or annual reports, will be borne by OFI and
JPM. In addition to the solicitation of proxies by mail, proxies may be
solicited by officers and employees of JPM or JPM affiliates, personally
or by telephone or telecopy.
In addition to the proxy solicitation expenses (as described above), OFI
and JPM will bear the cost of the tax opinion, as well as any other
expenses associated with the Reorganization, including legal and
accounting expenses.
MISCELLANEOUS
Financial Information
The Reorganization will be accounted for by Oppenheimer Fund in its
financial statements similar to a pooling without restatement. Further
financial information as to JP Fund is contained in JP Fund's current
Prospectus, which is available without charge upon written request to JPIS
at P.O. Box 22086, Greensboro, North Carolina 27420, and in its audited
financial statements as of December 31, 1995, which are included in the
JP Fund Additional Statement. Financial information for Oppenheimer Fund
is contained in its current Prospectus accompanying this Proxy Statement
and Prospectus and incorporated herein as to information with respect to
Oppenheimer Fund, and in its audited financial statements as of December
31, 1995, which are included in the Trust Additional Statement.
Public Information
Additional information about Oppenheimer Fund and JP Fund is available,
as applicable, in the following documents: (1) the Trust's Prospectus
dated May 1, 1996 accompanying this Proxy Statement and Prospectus and
incorporated by reference herein as to information with respect to
Oppenheimer Fund; (2) JP Fund Prospectus dated May 1, 1996, which may be
obtained without charge by writing to [JPM] at the address indicated
above; (3) the Trust's Annual Report as of December 31, 1995 and Semi-
Annual Report as of June 30, 1996, which may be obtained without charge
by writing to OFS at the address on the cover of this Proxy Statement and
Prospectus; and (4) JP Fund's Annual Report as of December 31, 1995 and
Semi-Annual Report as of June 30, 1996, which may be obtained without
charge by writing to [JPM] at the address indicated above. All of the
foregoing documents may be obtained by calling the toll-free number for
Oppenheimer Fund and JP Fund, as applicable, on the cover of this Proxy
Statement and Prospectus.
Additional information about the following matters is contained in the
Reorganization Additional Statement, which is incorporated herein by
reference and includes the Trust Additional Statement, the JP Fund
Prospectus dated May 1, 1996, the JP Fund Additional Statement and the
Annual Reports and Semi-Annual Reports described in the preceding
paragraph: the organization and operation of Oppenheimer Fund and JP Fund;
more information on investment policies, practices and risks; information
about the Board of Trustees of the Trust and the Board of Directors of JP
Fund, and their responsibilities; a further description of the services
provided by Oppenheimer Fund's and JP Fund's respective investment adviser
and transfer and shareholder servicing agent; dividend policies; tax
matters; and an explanation of the method of determining the offering
price of the shares of Oppenheimer Fund and JP Fund. The Reorganization
Additional Statement may be obtained by calling 1-800-525-7098 ( a toll-
free number).
Oppenheimer Fund and JP Fund are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith, file reports and other information with the SEC. Proxy
material, reports and other information about Oppenheimer Fund and JP Fund
which are of public record can be inspected and copied at public reference
facilities maintained by the SEC in Washington, D.C. and certain of its
regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, Washington, D.C. 20549.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the next
annual meeting of shareholders of JP Fund (if one is held) and who wishes
to have it set forth in a proxy statement and identified in the form of
proxy prepared by JP Fund must notify JP Fund in such a manner so that
such notice is received by JP Fund by ___________, and in such form as is
required under the rules and regulations promulgated by the SEC.
OTHER BUSINESS
Management of JP Fund knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not
known at the time of the solicitation may come before the Meeting, the
proxy as solicited confers discretionary authority with respect to such
matters as properly come before the Meeting, and it is the intention of
the persons named as attorneys-in-fact in the proxy to vote this proxy in
accordance with their judgment on such matters if no voting instructions
are provided.
By Order of the Board of Directors
J. Gregory Poole, Secretary
October __, 1996
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________________, 1996 by and between JP Capital Appreciation Fund, Inc.
("JP Fund"), a North Carolina corporation, Oppenheimer Variable Account
Funds (the "Oppenheimer Trust"), a Massachusetts business trust, on behalf
of its series Oppenheimer Growth Fund ("Oppenheimer Fund"), and (solely
for purposes of Section 21 of this Agreement) Jefferson-Pilot Corporation
("JPC"), a North Carolina corporation, and OppenheimerFunds, Inc. ("OFI"),
a Colorado corporation.
W I T N E S S E T H:
WHEREAS, JP Fund and Oppenheimer Fund are each open-end investment
companies of the management type; and
WHEREAS, JP Fund and Oppenheimer Fund desire to provide for the
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), of JP Fund through the acquisition by
Oppenheimer Fund of substantially all of the assets of JP Fund in exchange
solely for voting shares of beneficial interest ("shares") of Oppenheimer
Fund and the assumption by Oppenheimer Fund of certain liabilities of JP
Fund, which shares of Oppenheimer Fund are thereafter to be distributed
by JP Fund pro rata to its shareholders in complete liquidation of JP Fund
and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. JP Fund and Oppenheimer Fund hereby adopt this Agreement and
Plan of Reorganization (the "Agreement") pursuant to Section 368(a)(1) of
the Code as follows: The reorganization will be comprised of the
acquisition by Oppenheimer Fund of substantially all of the assets of JP
Fund in exchange for the issuance of shares of Oppenheimer Fund to JP Fund
and the assumption by Oppenheimer Fund of certain liabilities of JP Fund,
followed by the distribution by JP Fund of such shares of Oppenheimer Fund
to the shareholders of JP Fund in exchange for their shares of JP Fund,
all upon and subject to the terms hereinafter set forth.
2. On the Closing Date (as hereinafter defined) (i) JP Fund shall
transfer and deliver (or cause to be so transferred and delivered) to
Oppenheimer Fund, free and clear of all liens, encumbrances, restrictions
and claims (other than Assumed Liabilities (as hereinafter defined)), the
assets of JP Fund including but not limited to portfolio securities, cash
(excluding the Cash Reserve as defined below), cash equivalents and
receivables as the same shall exist on that date (the "Assets") and (ii)
Oppenheimer Fund shall deliver to JP Fund (in accordance with Section 5
hereof) in exchange therefor, the shares of Oppenheimer Fund to be issued
hereunder. The Assets shall exclude a cash reserve (the "Cash Reserve")
which shall be retained by JP Fund for the payment by it in respect of the
Liabilities (as hereinafter defined) of JP Fund, if any, and which Cash
Reserve shall not exceed the amount contemplated by Section 10E. The
aggregate number of shares of Oppenheimer Fund to be delivered by
Oppenheimer Fund at the Closing (as hereinafter defined) shall be such
number as shall have, as of the Valuation Date, an aggregate net asset
value equal to the value of the Assets so transferred and delivered. Such
Oppenheimer Fund shares shall be issued without the imposition of any
sales charge or load. Oppenheimer Fund agrees that, if the reorganization
becomes effective, Oppenheimer Fund will treat each shareholder of JP Fund
who received any of Oppenheimer Fund's shares as a result of the
reorganization as having made the minimum initial purchase of shares of
Oppenheimer Fund received by such shareholder for the purpose of making
additional investments in shares of Oppenheimer Fund, regardless of the
value of the shares of Oppenheimer Fund received. Promptly following the
execution of the Agreement, JP Fund shall provide Oppenheimer Fund with
a list of the Assets including, as to portfolio securities, a description
thereof, units held and their value, as of the most reasonably practicable
date.
3. The net asset value of shares of Oppenheimer Fund and the value
of the Assets shall in each case be determined as of the close of business
of The New York Stock Exchange on the business day immediately preceding
the Closing Date (the "Valuation Date"). The foregoing valuations shall
be prepared using the procedures set forth in Oppenheimer Fund's then
current prospectus and statement of additional information and shall be
computed in accordance with the regular practice and pricing services
utilized by OppenheimerFunds, Inc. in pricing the Oppenheimer Fund. In
accordance with the foregoing, Oppenheimer Fund and JP Fund shall each
respectively prepare a report setting forth, as of the Valuation Date, its
respective total net assets, the number of its shares outstanding, the net
asset value of Oppenheimer Fund shares or the net asset value of JP Fund
shares, respectively, and as to each of its portfolio securities, the
cusip or ticket number, description thereof, units held and value
determined as aforesaid (the "Valuation Report"). A Valuation Report shall
be delivered by each of Oppenheimer Fund and JP Fund to the other on the
Closing Date.
JP Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to JP Fund's
shareholders all of JP Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing of the transactions contemplated herein (the
"Closing") shall be at the office of OppenheimerFunds, Inc., Two World
Trade Center, Suite 3400, New York, New York 10048, at the date and time
of the closing of the acquisition contemplated by that certain Acquisition
Agreement (the "Acquisition Agreement") dated [the date of the Agreement]
by and among OppenheimerFunds, Inc., JP Investment Management Company,
Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Corporation (or
such other date, time and place as JP Fund and Oppenheimer Fund may
otherwise designate) (the "Closing Date").
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940, as amended (the "1940
Act"), or any rule, regulation or order thereunder, suspended the
redemption of its shares or postponed payment therefor, the Closing Date
shall be postponed until the first business day after the date when JP
Fund and Oppenheimer Fund have ceased such suspension or postponement;
provided, however, that if such suspension shall continue for a period of
60 days beyond the Valuation Date, then the other party to the Agreement
shall be permitted to terminate the Agreement as set forth in Section 20.
5. Shares of Oppenheimer Fund representing the number of shares
of Oppenheimer Fund being delivered against the Assets, registered in the
name of JP Fund, shall be transferred to JP Fund on the Closing Date. In
connection with the Closing, JP Fund shall distribute on a pro rata basis
to the shareholders of JP Fund on the Valuation Date the shares of
Oppenheimer Fund received by JP Fund on the Closing Date in exchange for
the Assets in complete liquidation of JP Fund; for the purpose of the
distribution by JP Fund of shares of Oppenheimer Fund to its shareholders,
Oppenheimer Fund will promptly cause its transfer agent to: (a) credit an
appropriate number of shares of Oppenheimer Fund on the books of
Oppenheimer Fund to each shareholder of JP Fund in accordance with a list
(the "Shareholder List") of JP Fund shareholders received from JP Fund;
and (b) confirm an appropriate number of shares of Oppenheimer Fund to
each shareholder of JP Fund; certificates for shares of Oppenheimer Fund
will be issued upon written request of a former shareholder of JP Fund and
surrender of the JP Fund certificates but only for whole shares, with
fractional shares credited to the name of the shareholder on the books of
Oppenheimer Fund. JP Fund covenants and agrees to cause the cancellation
of all of its outstanding shares upon the Closing.
The Shareholder List shall be certified by the Secretary of JP Fund
and by an authorized signatory of Investors Fiduciary Trust Company, JP
Fund's transfer agent, and shall indicate, as of the Valuation Date, the
name, address and taxpayer identification number of each shareholder of
JP Fund, indicating his or her share balance. JP Fund agrees to supply the
Shareholder List to Oppenheimer Fund not later than the Closing Date in
such form (including computer diskette) as Oppenheimer Fund shall request.
JP Fund further agrees to deliver to Oppenheimer Fund or its designee (i)
on or before the Closing Date all such other information and documents
available to JP Fund relating to such shareholders as may be necessary for
Oppenheimer Fund and its designee to perform all necessary shareholder
accounting, communication and related services subsequent to the Closing
and (ii) as soon as practicable after the Closing all original
documentation (including Internal Revenue Service forms, certificates and
correspondence) relating to the taxpayer identification numbers of JP Fund
shareholders on the Shareholder List and their liability for or exemption
from backup withholding. Shareholders of JP Fund holding certificates
representing their shares shall not be required to surrender their
certificates to anyone in connection with the reorganization. After the
Closing Date, however, it will be necessary for such shareholders to
surrender their certificates in order to redeem, transfer, exchange or
pledge the shares of Oppenheimer Fund which they received.
The share transfer books of JP Fund will be permanently closed
as of the Valuation Date and only redemption requests received in proper
form on or prior to the Valuation Date shall be fulfilled by JP Fund;
redemption requests received by JP Fund after that date shall be treated
as requests for the redemption of the shares of Oppenheimer Fund that
shall have been distributed to the shareholder in question as set forth
in this Section 5.
6. Within one year after the Closing Date, JP Fund shall (a) either
pay or make provision for payment of all of its Liabilities (other than
Assumed Liabilities) and (b) either (i) transfer any remaining amount of
the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced
by the estimated cost of distributing it to shareholders) is not material
(as defined below) or (ii) distribute such remaining amount to the
shareholders of JP Fund on the Valuation Date. Such remaining amount shall
be deemed to be material if the amount to be distributed, after deduction
of the estimated expenses of the distribution, equals or exceeds one cent
per share of JP Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
JP Fund and Oppenheimer Fund as to their respective portfolios so that,
after the Closing, Oppenheimer Fund will not hold assets inconsistent with
its investment objectives and will be in compliance with all of its
investment policies and restrictions.
8. Portfolio securities or written evidence acceptable to
Oppenheimer Fund of record ownership thereof by The Depository Trust
Company or through the Federal Reserve Book Entry System or any other
depository approved by JP Fund pursuant to Rule 17f-4 and Rule 17f-5 under
the 1940 Act shall be endorsed and delivered, or transferred by
appropriate transfer or assignment documents, by JP Fund on the Closing
Date to Oppenheimer Fund, or at its direction, to Oppenheimer Fund's
custodian bank, in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any.
The cash of JP Fund shall be delivered on the Closing Date to Oppenheimer
Fund by bank wire or inter-bank transfer of immediately available funds
to Oppenheimer Fund's custodian bank payable to the order of Oppenheimer
Fund for the account of Oppenheimer Fund.
If, at the Closing Date, JP Fund is unable to make delivery
under this Section 8 to Oppenheimer Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased
by JP Fund, or the cash proceeds of a sale of portfolio securities, prior
to the Closing Date have not yet been delivered in the ordinary course of
business to it or JP Fund's custodian, then the delivery requirements of
this Section 8 with respect to said undelivered securities or cash will
be waived and JP Fund will deliver to Oppenheimer Fund by or on the
Closing Date and with respect to said undelivered securities or cash
executed copies of an agreement or agreements of assignment as to such
securities or cash proceeds in a form reasonably satisfactory to
Oppenheimer Fund, together with such other documents, including a due bill
or due bills and brokers' confirmation slips as may reasonably be required
by Oppenheimer Fund.
9. Oppenheimer Fund shall not assume and shall not otherwise be
responsible for any liabilities (except the obligations, if any, to pay
the purchase price of portfolio securities purchased by JP Fund which have
not settled in the ordinary course of business ("Assumed Liabilities")),
taxes, obligations, expenses, contracts, claims, commitments, agreements
and arrangements relating to (i) the Assets or (ii) JP Fund, its
predecessors, affiliates, directors, officers, employees and agents, in
each case whether fixed, contingent, accrued or otherwise ("Liabilities").
JP Fund expressly agrees to remain liable for and discharge all its
Liabilities whether incurred prior to or subsequent to the Closing Date.
With respect to any expenses applicable to, or incurred by JP Fund and
Oppenheimer Fund hereto in connection with entering into and carrying out
the provisions of the Agreement ("Expenses"), including legal, accounting
and registration fees and Blue Sky expenses and expenses of the proxy
solicitation, including the cost of printing and mailing the Proxy
Statement and Prospectus (as hereinafter defined) and related proxy
materials, it is hereby agreed that except as otherwise provided in
Section 20 of the Agreement, the respective investment adviser for
Oppenheimer Fund and JP Fund shall reimburse the Fund for which it acts
as investment adviser for such Fund's Expenses and, as to the rights and
obligations of said investment advisers inter se, the terms of the
Acquisition Agreement shall govern. It is understood and acknowledged that
in no event shall JP Fund or Oppenheimer Fund be liable for the payment
of any Expenses.
10. As soon as practicable after it fulfills its obligations set
forth in Section 6 hereof, JP Fund shall file Articles of Dissolution with
the North Carolina Secretary of State (the "Department") and shall file
an application for an order of the Securities and Exchange Commission
("SEC") pursuant to Section 8(f) of the 1940 Act, declaring that it has
ceased to be an investment company, and shall take, in accordance with
North Carolina law and the 1940 Act, all such other actions as may be
necessary or appropriate to effect a complete liquidation and dissolution
of JP Fund and to deregister JP Fund under the 1940 Act.
11. Any reporting, filing or other obligation of JP Fund under the
federal securities laws and state laws shall remain the responsibility of
JP Fund until it is deregistered under the 1940 Act or liquidated and
dissolved, respectively.
12. The obligations of Oppenheimer Fund hereunder shall be subject
to the following conditions:
A. The shareholders of JP Fund shall have approved the
Agreement and the transactions contemplated herein; such shareholder
approval shall have been by the affirmative vote of a majority of the
outstanding voting shares of JP Fund in conformity with the provisions of
the North Carolina Business Corporation Act ("NCBCA") at a meeting for
which proxies have been solicited by the Proxy Statement and Prospectus
(as hereinafter defined); and JP Fund shall have furnished to Oppenheimer
Fund copies of resolutions with respect to each of the foregoing and
copies of resolutions of the Board of Directors of JP Fund with respect
to approvals of the Agreement and the transactions contemplated herein,
in each case certified by the Secretary or an Assistant Secretary of JP
Fund.
B. Oppenheimer Fund shall have received an opinion of counsel
to JP Fund dated the Closing Date, to the effect that: (i) JP Fund is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of North Carolina with full powers to carry on its
business as described by its charter and then being conducted and to enter
into and perform the Agreement (North Carolina counsel may be relied upon
in delivering such opinion); (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable on JP
Fund and to authorize effectively the transactions contemplated by the
Agreement have been taken by JP Fund; (iii) the Agreement has been duly
authorized, executed and delivered by JP Fund and, assuming due
authorization, execution and delivery of the Agreement by Oppenheimer
Trust, constitutes a valid and binding obligation of JP Fund, enforceable
against JP Fund in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws affecting creditors rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity (the
"Bankruptcy Exception")); and (iv) the execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated
by the Agreement will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, (b) any
loan, credit agreement, note, bond, mortgage, indenture, lease or contract
applicable to JP Fund, its assets and properties (other than any such
conflicts, violations or defaults that individually or in the aggregate
would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
C. The representations and warranties of JP Fund contained
herein shall be true and correct at and as of the Closing Date (with all
representations and warranties that were made as of the date of the
Agreement or as of another date being made again as of the Closing Date)
and JP Fund shall have performed, in all material respects, each of the
covenants required to be performed by JP Fund at or prior to Closing, and
Oppenheimer Fund shall have been furnished with a certificate of the
President, or a Vice President, or the Secretary or the Assistant
Secretary or the Treasurer of JP Fund, dated the Closing Date, to that
effect.
D. On the Closing Date, JP Fund shall have furnished to
Oppenheimer Fund a certificate of the Treasurer or Assistant Treasurer of
JP Fund as to the amount of the capital loss carry-over, if any, and net
unrealized appreciation or depreciation, if any, with respect to JP Fund
as of the Closing Date.
E. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
F. A Registration Statement on Form N-14 (the "N-14
Registration Statement") filed by Oppenheimer Trust under the Securities
Act of 1933, as amended (the "1933 Act"), containing a preliminary form
of the proxy statement and prospectus required under the 1940 Act to
request the approval of shareholders of JP Fund of the reorganization
contemplated in the Agreement, shall have become effective under the 1933
Act not later than _________________, 1996.
G. On the Closing Date, Oppenheimer Fund shall have received
a letter of a senior executive officer of JP Investment Management Company
(JP Fund's investment adviser) in form acceptable to Oppenheimer Fund,
stating that between the date of the Agreement and the Closing Date there
has been no material adverse change in the Assets, the operations or the
financial condition of JP Fund (it being understood that a decrease in the
size of JP Fund due to a diminution in the value of its portfolio and/or
redemption of its shares shall not be considered a material adverse
change) and that nothing has come to his or her attention which would
indicate that as of the Closing Date there were any Liabilities of JP Fund
not fully covered by the Cash Reserve or expected not to be so covered or
pending or threatened claims, actions, suits, proceedings or
investigations with respect to or affecting JP Fund, or any director,
officer, employee or agent of JP Fund.
<PAGE>
H. Oppenheimer Fund shall have received an opinion, dated the
Closing Date, of Sutherland, Asbill & Brennan, to the same effect as the
opinion contemplated by Section i of the Agreement.
I. Except as otherwise provided in the last paragraph of
Section 8, Oppenheimer Fund shall have received at the Closing all of the
Assets to be conveyed hereunder, free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever
except the Assumed Liabilities.
J. At or prior to the Closing Date, JP Fund shall have
delivered to Oppenheimer Fund two copies of a list setting forth the
securities, cash and receivables then owned by JP Fund and the respective
federal income tax bases thereof.
13. The obligations of JP Fund hereunder shall be subject to the
following conditions:
A. Oppenheimer Fund shall have furnished to JP Fund copies of
resolutions of the Board of Trustees of Oppenheimer Trust with respect to
approvals of the Agreement and the transactions contemplated herein
certified by the Secretary or an Assistant Secretary of Oppenheimer Trust.
B. JP Fund's shareholders shall have approved the Agreement
and the transactions contemplated hereby, by an affirmative vote of a
majority of the outstanding voting shares of JP Fund.
C. JP Fund shall have received an opinion of counsel to
Oppenheimer Fund dated the Closing Date, to the effect that (i)
Oppenheimer Fund is a series of Oppenheimer Trust, a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full powers to carry on its business
as then being conducted and to enter into and perform the Agreement
(Massachusetts counsel may be relied upon in delivering such opinion);
(ii) all action necessary to make the Agreement, according to its terms,
valid, binding and enforceable upon Oppenheimer Trust and to authorize
effectively the transactions contemplated by the Agreement have been taken
by Oppenheimer Trust; (iii) the shares of Oppenheimer Fund to be issued
hereunder are duly authorized and when issued as provided for herein will
be validly issued, fully-paid and non-assessable, except as otherwise set
forth on Schedule 13C hereto with respect to potential liability of
shareholders of a Massachusetts business trust (Massachusetts counsel may
be relied upon in delivering such opinion); (iv) the Agreement has been
duly authorized, executed and delivered by Oppenheimer Trust on behalf of
Oppenheimer Fund and, assuming due authorization, execution and delivery
of the Agreement by JP Fund, constitutes a valid and binding obligation
of Oppenheimer Trust, enforceable against Oppenheimer Trust in accordance
with its terms, subject to the Bankruptcy Exception and (v) the execution
and delivery of the Agreement does not, and consummation of the
transactions contemplated by the Agreement will not, conflict with, or
result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under: (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, (b) any loan, credit agreement, note, bond,
mortgage, indenture, lease, or contract applicable to Oppenheimer Fund,
its assets and properties (other than any such conflicts, violations or
defaults that individually or in the aggregate would not have a material
adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order of decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. The representations and warranties of Oppenheimer Trust on
behalf of Oppenheimer Fund contained herein shall be true and correct at
and as of the Closing Date (with all representations and warranties that
were made as of the date of the Agreement or as of another date being made
again as of the Closing Date), and Oppenheimer Trust shall have performed,
in all material respects, each of the covenants required to be performed
by Oppenheimer Trust at or prior to Closing, and JP Fund shall have been
furnished with a certificate of the President, a Vice President or the
Secretary or an Assistant Secretary or the Treasurer of Oppenheimer Trust
to that effect dated the Closing Date.
E. JP Fund shall have received an opinion of Sutherland,
Asbill & Brennan to the effect that the Federal tax consequences of the
transaction, if carried out in the manner outlined in the Agreement and
in accordance with (i) JP Fund's representation that there is no plan or
intention by any JP Fund shareholder who owns 5% or more of JP Fund's
outstanding shares, and, to JP Fund's best knowledge, there is no plan or
intention on the part of the remaining JP Fund shareholders, to redeem,
sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares
received in the transaction that would reduce JP Fund shareholders'
ownership of Oppenheimer Fund shares to a number of shares having a value,
as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding JP Fund shares as of the same date, (ii) the
representation that Oppenheimer Fund will acquire at least 90% of the fair
market value of the net assets and at least 70% of the fair market value
of the gross assets held by JP Fund immediately prior to the
reorganization, (iii) the representation by each of JP Fund and
Oppenheimer Fund that, as of the Closing Date, JP Fund and Oppenheimer
Fund will qualify as regulated investment companies and will meet the
diversification test of Section 368(a)(2)(F)(ii) of the Code, and (iv)
such other representations as shall be made by each of JP Fund and
Oppenheimer Fund to Sutherland, Asbill & Brennan and accompany or be set
forth in the opinion, will generally be as follows:
(a) The reorganization contemplated by the Agreement will constitute
a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code and JP Fund and Oppenheimer Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for
shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of
certain identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer
of its assets to Oppenheimer Fund in exchange solely for shares of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
identified liabilities of JP Fund (if any) and the subsequent
distribution by JP Fund of such shares to the shareholders of JP
Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon
the exchange of the JP Fund shares solely for the shares of
Oppenheimer Fund. (Section 354)
(e) The basis of the shares of Oppenheimer Fund received by each JP
Fund shareholder pursuant to the reorganization will be the same as
the adjusted basis of that shareholder's JP Fund shares surrendered
in exchange therefor. (Section 358)
(f) The holding period of shares of Oppenheimer Fund to be received
by each JP Fund shareholder will include the shareholder's holding
period for the JP Fund shares surrendered in exchange therefor,
provided such JP Fund shares were held as capital assets on the
Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP
Fund will be the same as JP Fund's tax basis for the assets
immediately prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items
of JP Fund described in Section 381(c) of the Code, including the
earnings and profits, or deficit in earnings and profits, of JP Fund
as of the date of the transaction, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the Code.
(j) No gain or loss will be recognized by the owners of variable
contracts issued by Jefferson-Pilot Life Insurance Company through
the variable account on the transfer of JP Fund's assets to
Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund
and Oppenheimer Fund's assumption of certain JP Fund liabilities (if
any) and the subsequent distribution by JP Fund of those shares to
the variable account.
Notwithstanding anything herein to the contrary, neither Oppenheimer Fund
nor JP Fund may waive the material conditions set forth in this Section
13E although the actual wording of such opinion may differ to the extent
agreed to by Oppenheimer Fund and JP Fund.
F. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
G. The N-14 Registration Statement shall have become effective
under the 1933 Act not later than ______________________, 1996.
H. JP Fund shall acknowledge receipt of the shares of
Oppenheimer Fund.
I. On the Closing Date, JP Fund shall have received a letter
of a senior officer of OFI in form acceptable to it, stating that between
the date of the Agreement and the Closing Date there has been no material
adverse change in the operations or financial condition of Oppenheimer
Fund (it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material adverse change) and that nothing
has come to his or her attention that would indicate that as of the
Closing Date there were any pending or threatened litigation or claims
with respect to Oppenheimer Fund.
14. JP Fund hereby represents and warrants that:
A. The financial statements of JP Fund as at December 31, 1995
(audited) and June 30, 1996 (unaudited) heretofore furnished to
Oppenheimer Fund, present fairly the financial position, results of
operations, and changes in net assets of JP Fund as of such dates, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year and six-month period; and that
from December 31, 1995 through the date hereof there has not been any
material adverse change in the Assets, the operations or financial
condition of JP Fund, it being agreed that a decrease in the size of JP
Fund due to a diminution in the value of its portfolio and/or redemption
of its shares shall not be considered a material adverse change.
B. JP Fund has good and valid title to the Assets, subject to
no liens, security interests or other encumbrances, and contingent upon
approval of the Agreement and the transactions contemplated hereby by JP
Fund's shareholders, JP Fund has authority to transfer the Assets to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever (excluding the Assumed
Liabilities).
C. The Prospectus of JP Fund dated May 1, 1996, as amended and
supplemented on __________, 1996, and Statement of Additional Information
of JP Fund dated May 1, 1996, contained in JP Fund's Registration
Statement under the 1933 Act, as amended, are true, correct and complete,
conform to the requirements of the 1933 Act and the 1940 Act and do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement of JP Fund,
as amended, was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the requirements of
the 1933 Act and the 1940 Act, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
was, as of its filing, and continues to be, in full force and effect.
D. There is no material Liability of JP Fund in existence
except as set forth in the financial statements of JP Fund as at December
31, 1995 and June 30, 1996 and as of such dates there were no Liabilities
of JP Fund (contingent or otherwise) not disclosed therein that would be
required in conformity with generally accepted accounting principles to
be disclosed therein. No such material Liability of JP Fund has arisen
since December 31, 1995 and June 30, 1996 except as set forth on Exhibit
14D hereto. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of JP Fund, threatened by,
against or involving JP Fund or any director, officer, employee, or agent
of JP Fund. JP Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects, or is likely to materially and
adversely affect, its business or its ability to consummate the
transactions herein contemplated.
E. There are no contracts, agreements or commitments in
existence, whether written or oral, to which JP Fund (or a predecessor)
is a party or has succeeded to a party by assumption or assignment or in
which it has a beneficial interest other than the Agreement and those
entered into by JP Fund in the ordinary conduct of its business and JP
Fund has delivered or made available to Oppenheimer Fund, as to each such
contract, agreement or other commitment, a true and complete copy or
description thereof and as to any oral contract, agreement or other
commitment, a true and complete description thereof.
F. JP Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of North
Carolina, with the requisite corporate power and authority to enter into
and perform the Agreement and, subject to approval of its shareholders,
to consummate the transactions contemplated hereby; all corporate action
necessary to make the Agreement, according to its terms, valid, binding
and enforceable on JP Fund and to authorize the transactions contemplated
by the Agreement, including without limitation necessary approvals of the
Board of Directors of JP Fund, have been taken by JP Fund subject to
approval of the Agreement by the shareholders of JP Fund; the Agreement
has been duly executed and delivered by JP Fund and constitutes a valid
and binding obligation of JP Fund, enforceable against JP Fund in
accordance with its terms, subject to the approval of its shareholders and
the Bankruptcy Exception; and the execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated by the
Agreement will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, or (b)
any loan, credit agreement, note, bond, mortgage, indenture, lease or
contract applicable to JP Fund, its assets and properties (other than any
such conflicts, violations or defaults that individually or in the
aggregate would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
G. All Federal and other tax returns and reports of JP Fund
required by law to be filed have been filed, and all Federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of JP Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of JP Fund ended
December 31, 1995 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due. There are no claims, levies, liabilities or amounts due for
corporate, excise, income or other federal, state or local taxes
outstanding or threatened against JP Fund (other than those reflected in
its most recent audited financial statements) and to the best of JP Fund's
knowledge there are no facts that might form the basis for such claims,
levies, liabilities or amounts due.
H. JP Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, JP Fund has met the
requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and JP Fund intends to meet such
requirements with respect to its current taxable year.
I. All issued and outstanding shares of common stock of JP
Fund, par value $1.00 per share, are, and at the Closing Date will be,
duly authorized and validly issued and outstanding, fully paid and non-
assessable with no personal liability attaching to the ownership thereof.
All such shares will, at the time of Closing, be held by the persons or
entities and in the amounts set forth on the Shareholder List submitted
to Oppenheimer Fund pursuant to Section 5. There are no outstanding
rights, options, warrants, conversion rights, preemptive rights or
agreements with respect to shares of JP Fund. Set forth on Exhibit 14I
hereto are the names, addresses and share ownership amounts of each
shareholder of JP Fund that beneficially (as that term is defined pursuant
to Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules thereunder) owns 1% or more of JP Fund's outstanding shares.
J. The copies of the Certificate of Incorporation and By-laws
of JP Fund, and all amendments thereto, previously delivered to
Oppenheimer Fund are true, complete and correct.
K. There is no plan or intention by any JP Fund shareholder
who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's
best knowledge, there is no plan or intention on the part of the remaining
JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of
a number of Oppenheimer Fund shares received in the transaction that would
reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a
number of shares having a value, as of the Closing Date, of less than 50%
of the value of all of the formerly outstanding JP Fund shares as of the
same date. With respect to the foregoing representation, attached hereto
as Exhibit 14K are true and complete copies of representation letters
signed by each such 5% or greater shareholder.
L. There are no unresolved or outstanding shareholder claims
or complaints related to JP Fund other than as disclosed by JP Fund in
writing to Oppenheimer Fund and which are determined by Oppenheimer Fund
to not be material with respect to the Agreement and the transactions
contemplated herein.
M. Except as previously disclosed to Oppenheimer Fund in
writing, and except as have been corrected as required by applicable law,
there have been no miscalculations of the net asset value of JP Fund
during the twelve-month period preceding the Closing Date and all such
calculations have been done in accordance with the applicable provisions
of the 1940 Act.
N. All of the issued and outstanding shares of JP Fund have
been offered and sold in compliance with applicable registration
requirements of the 1933 Act and state securities laws, are registered
under the 1933 Act, the 1940 Act and in all jurisdictions in which they
are required to be registered under state securities laws and other laws,
and said registrations, including any periodic reports or supplemental
filings, are complete, current and have been continuously effective, all
fees required to be paid have been paid, and JP Fund is not subject to any
stop order and is fully qualified to sell its shares in each state in
which its shares have been registered.
O. JP Fund has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder.
P. No violation of applicable federal, state and local
statute, law or regulation, exists that individually, or in the aggregate,
would have a material adverse effect on the business or operations of JP
Fund.
Q. JP Fund is in compliance with its investment objectives,
policies and restrictions as described in its current Prospectus and
Statement of Additional Information.
R. JP Fund is duly registered under the 1940 Act and such
registration has not been revoked or rescinded and is in full force and
effect.
S. Except for the shareholder approvals specified in Section
12F, no consent, approval, governmental filing, authorization or permit
from any person or entity is necessary for the execution and delivery of
the Agreement and the consummation of the transactions contemplated by the
Agreement.
15. Oppenheimer Trust on behalf of Oppenheimer Fund hereby
represents and warrants that:
A. The financial statements of Oppenheimer Fund as at December
31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to
JP Fund, present fairly the financial position, results of operations, and
changes in net assets of Oppenheimer Fund, as of such dates, in conformity
with generally accepted accounting principles applied on a basis
consistent with the preceding year and six-month period; and that from
December 31, 1995 through the date hereof there has not been any material
adverse changes in the business or financial condition of Oppenheimer
Fund, it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material or adverse change.
B. The Prospectus of Oppenheimer Fund, dated May 1, 1996, and
the Statement of Additional Information of Oppenheimer Fund, dated May 1,
1996, contained in Oppenheimer Trust's Registration Statement under the
1933 Act, are true, correct and complete, conform to the requirements of
the 1933 Act and the 1940 Act and do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Registration Statement of Oppenheimer Trust, as amended, was, as of the
date of the filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the 1933 Act and the 1940 Act
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
C. Oppenheimer Fund is a series of Oppenheimer Trust, a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts with the
requisite power and authority granted to business trusts to enter into and
perform the Agreement and consummate the transactions contemplated hereby;
all necessary action necessary to make the Agreement, according to its
terms, valid, binding and enforceable on Oppenheimer Trust on behalf of
Oppenheimer Fund and to authorize the transactions contemplated by the
Agreement, including without limitation necessary approvals of the Board
of Trustees of Oppenheimer Trust, have been taken by Oppenheimer Trust;
the Agreement has been duly executed and delivered by Oppenheimer Trust
on behalf of Oppenheimer Fund and constitutes a valid and binding
obligation of Oppenheimer Fund, enforceable against Oppenheimer Trust in
accordance with its terms, subject to the Bankruptcy Exception; and the
execution and delivery of the Agreement does not, and the consummation of
the transactions contemplated by the Agreement will not, conflict with,
or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, or (b) any loan, credit agreement, note,
bond, mortgage, indenture, lease or contract applicable to Oppenheimer
Fund, its assets and properties (other than any such conflicts, violations
or defaults that individually or in the aggregate would not have a
material adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order or decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. All Federal and other tax returns and reports of
Oppenheimer Fund required by law to be filed have been filed, and all
Federal and other taxes shown due on said returns and reports have been
paid or provision shall have been made for the payment thereof and to the
best of the knowledge of Oppenheimer Fund no such return is currently
under audit and no assessment has been asserted with respect to such
returns and to the extent such tax returns with respect to the taxable
year of Oppenheimer Fund ended December 31, 1995 have not been filed, such
returns will be filed when required and the amount of tax shown as due
thereon shall be paid when due.
E. Oppenheimer Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations,
Oppenheimer Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and
Oppenheimer Fund intends to meet such requirements with respect to its
current taxable year.
F. Oppenheimer Fund (i) at the time of the reorganization will
have no plan or intention to dispose of any of the assets transferred by
JP Fund, other than in the ordinary course of business, and (ii) has no
plan or intention to redeem or reacquire any of the shares issued by it
in the reorganization other than pursuant to valid requests of
shareholders.
G. After consummation of the transactions contemplated by the
Agreement and for a period of one year thereafter, Oppenheimer Fund
intends to operate its business in a substantially unchanged manner
subject to such changes as may be required in the ordinary course of its
business or as may be approved by the Board of Trustees of Oppenheimer
Trust.
H. The copies of the Declaration of Trust and By-Laws of
Oppenheimer Trust, and any amendments thereto, previously delivered to JP
Fund by Oppenheimer Fund are true, complete and correct.
I. The shares of Oppenheimer Fund which it issues to JP Fund
pursuant to the Agreement will be duly authorized, validly issued, fully-
paid and non-assessable, except as otherwise set forth in Schedule 13C
hereto with respect to potential liability of shareholders of a
Massachusetts business trust, will conform to the description thereof
contained in Oppenheimer Trust's Registration Statement and will be duly
registered under the 1933 Act.
J. All of the issued and outstanding shares of Oppenheimer
Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state
securities laws, are registered in all jurisdictions in which they are
required to be registered and such registrations, including any periodic
reports or supplemental filings, are complete and current, all fees
required to be paid have been paid, and Oppenheimer Fund is not subject
to any stop order and is fully qualified to sell its shares in each state
in which its shares are currently sold.
K. Oppenheimer Trust is duly registered under the 1940 Act and
such registration has not been revoked or rescinded and is in full force
and effect.
16. (a) Each party hereby represents to the other that no broker
or finder has been employed by it with respect to the Agreement or the
transactions contemplated hereby.
(b) Oppenheimer Trust on behalf of Oppenheimer Fund represents
and warrants that the information concerning it in the Proxy Statement and
Prospectus will not as of the date of the Proxy Statement and Prospectus
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements concerning it therein in light of the circumstances in which
they are made not misleading. Oppenheimer Trust on behalf of Oppenheimer
Fund represents and warrants that its financial statements in the N-14
Registration Statement (described below) fairly present the information
shown in accordance with generally accepted accounting principles applied
on a basis consistent with previous periods.
(c) JP Fund represents and warrants that the information
concerning it in the Proxy Statement and Prospectus will not as of the
date of the Proxy Statement and Prospectus contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements concerning it therein in light
of the circumstances in which they are made not misleading. JP Fund
represents and warrants that its financial statements in the N-14
Registration Statement fairly present the information shown in accordance
with generally accepted accounting principles applied on a basis
consistent with previous periods.
17. Oppenheimer Trust on behalf of Oppenheimer Fund agrees that it
will prepare and file the N-14 Registration Statement which shall contain
a preliminary form of Proxy Statement and Prospectus contemplated by Rule
145 under the 1933 Act. JP Fund shall be responsible for preparation of
the notice of meeting, Proxy Statement and Prospectus and form of proxy
to be sent to JP Fund shareholders. The final form of such Proxy Statement
and Prospectus is referred to in the Agreement as the "Proxy Statement and
Prospectus." Each party agrees that it will use its best efforts to have
the N-14 Registration Statement declared effective and to supply such
information concerning itself for inclusion in the Proxy Statement and
Prospectus as may be necessary or desirable in this connection. JP Fund
covenants and agrees to deregister, or cause to have deregistered, the
shares of JP Fund under the 1940 Act as soon as practicable.
18. (a) JP Fund covenants and agrees to afford to Oppenheimer Fund,
its counsel, accountants and other representatives reasonable access,
during normal business hours throughout the period prior to the Closing
Date, to the books, records, employees and representatives of JP Fund.
(b) JP Fund covenants and agrees that during the period from
the date hereof until the Closing Date its investment objectives,
investment policies and investment restrictions, as disclosed in its most
current Prospectus dated May 1, 1996, as amended and supplemented on
__________, 1996, and Statement of Additional Information, dated May 1,
1996, will not be changed in any manner whatsoever except pursuant to a
statutory amendment or regulatory requirement during such time and upon
prior notice to Oppenheimer Fund.
(c) JP Fund covenants that during the period from the date
hereof until the Closing Date, except as approved in writing by
Oppenheimer Fund or expressly provided for in the Agreement, JP Fund (i)
will not conduct its business other than in the ordinary course
substantially in the manner heretofore conducted and consistent with JP
Fund's investment objectives, policies and restrictions as set forth in
its most current Prospectus dated May 1, 1996, as amended and supplemented
on _____________, 1996, and Statement of Additional Information, dated May
1, 1996, (ii) will not permit or allow any of the Assets to be subjected
to any encumbrance, (iii) will not enter into any material transaction or
otherwise incur any material Liability other than in the normal course of
business consistent with past practice, (iv) will not declare, set aside
or pay any dividend or make any other distribution except for payment of
its dividends in ordinary course consistent with past practice and except
for the final dividend and distribution to be made pursuant to Section 3
of the Agreement, and (v) will not agree, whether in writing or otherwise,
to do any of the foregoing. Notwithstanding the foregoing, JP Fund
covenants that (x) between the date of the Agreement and the Closing Date,
promptly following any transaction involving an acquisition or disposition
by JP Fund of portfolio securities, JP Fund shall provide to Oppenheimer
Fund a written report detailing such transaction and (y) upon the written
request of Oppenheimer Fund, to promptly sell one or more portfolio
securities acquired by JP Fund between the date of the Agreement and the
Closing Date and (z) to transfer to Oppenheimer Fund on the Closing Date
only those Assets the acquisition of which will permit Oppenheimer Fund
to be in compliance with all of its investment policies and restrictions.
(d) JP Fund covenants and agrees to comply with all applicable
laws, rules and regulations.
(e) JP Fund covenants and agrees to maintain in the ordinary
course of business consistent with past practice its books and records
through to the date of its dissolution and liquidation and to prepare and
file all documents, reports and instruments and take such action,
including, without limitation, under the federal securities laws and state
laws, that is required or appropriate to be filed or taken by it prior to,
and/or in connection with, its dissolution and liquidation.
19. (a) Oppenheimer Fund covenants that during the period from the
date hereof until the Closing Date it will conduct its business in the
ordinary course, it being understood that such ordinary course of business
will include customary dividends and other distributions and such changes,
if any, that have been approved by trustees of Oppenheimer Fund of which
JP Fund has been advised.
(b) Oppenheimer Fund covenants and agrees to comply with all
applicable laws, rules and regulations.
20. The Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing (i)
by the mutual written consent of Oppenheimer Trust on behalf of
Oppenheimer Fund and JP Fund, (ii) by either Oppenheimer Trust on behalf
of Oppenheimer Fund or JP Fund, by notice in writing to the other, if the
Closing shall not have occurred on or before December 31, 1996, (iii) by
either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by
notice in writing to the other, if (A) the other party shall fail to
perform in any material respect its agreements contained herein required
to be performed on or prior to the Closing Date, (B) the other party
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, (C) the JP Fund shareholders
fail to approve the Agreement or (D) any other condition herein expressed
to be precedent to the obligations of the terminating party has not been
met (other than through the failure of the terminating party to comply
with its obligations under the Agreement) and it reasonably appears that
it will not or cannot be met or (iv) pursuant to Section 4 of the
Agreement. Termination of the Agreement pursuant to (i), (ii) or (iv)
shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, JP Fund or
their respective trustees, directors or officers to any other party or its
trustees, directors, or officers and it is understood and agreed that each
party shall be reimbursed for its Expenses pursuant to Section 9 of the
Agreement. Termination of the Agreement pursuant to (iii) shall terminate
all obligations of Oppenheimer Fund and JP Fund hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
any other party or its trustees, directors or officers, except that the
party in breach of the Agreement shall, upon demand, reimburse the non-
breaching party for all Expenses, including reasonable out-of-pocket
expenses and fees incurred in connection with the transactions
contemplated by the Agreement, and the provisions of Section 9 as to
Expenses shall be of no force or effect. For the purposes of the foregoing
sentence, the non-fulfillment of the condition requiring approval of JP
Fund shareholders set forth in Sections 10A and 11B shall not be deemed
a breach entitling a party to reimbursement of fees and expenses.
The Agreement shall automatically terminate prior to the Closing in
the event the Acquisition Agreement is terminated or the acquisition
contemplated by the Acquisition Agreement is not consummated, and in such
event all obligations of Oppenheimer Fund and JP Fund shall terminate and
there shall be no liability on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
the other or its respective trustees, directors or officers, it being
understood and agreed that each party shall be reimbursed for its Expenses
pursuant to Section 9 of the Agreement.
21. (a) JPC shall indemnify and hold harmless JP Fund, Oppenheimer
Trust, Oppenheimer Fund, their investment advisers and their respective
trustees, officers and shareholders, against any and all claims to the
extent such claims are based upon, arise out of or relate to (i) any
untruthful or inaccurate representation made by JP Fund in the Agreement
or any breach by JP Fund of any warranty or any failure by JP Fund to
perform or comply with any of its obligations, covenants, conditions or
agreements set forth in the Agreement or (ii) the failure of JP Fund to
comply with applicable legal requirements, including, without limitation,
registration under the 1933 Act and the 1940 Act and state securities
laws. Notwithstanding the foregoing, JPC shall not be obligated to so
indemnify any officer or director of JP Fund if such claims result from
such person's willful misfeasance, bad faith or gross negligence.
(b) OFI shall indemnify and hold harmless JP Fund and its
investment adviser and their respective trustees, officers and
shareholders, against any and all claims to the extent such claims are
based upon, arise out of or relate to any untruthful or inaccurate
representation made by Oppenheimer Trust in the Agreement or any breach
by Oppenheimer Trust of any warranty or any failure by Oppenheimer Trust
to perform or comply with any of its obligations, covenants, conditions
or agreements set forth in the Agreement. Notwithstanding the foregoing,
OFI shall not be obligated to so indemnify any officer or director of JP
Fund or its investment adviser if such claims result from such person's
willful misfeasance, bad faith or gross negligence.
(c) As used in this section, the word "claim" means any and all
liabilities, obligations, losses, damages, deficiencies, demands, claims,
penalties, assessments, judgments, actions, proceedings and suits of
whatever kind and nature and all costs and expenses (including, without
limitation, reasonable attorneys' fees).
22. The Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
23. All prior or contemporaneous agreements and representations are
merged into the Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
24. JP Fund understands that the obligations of Oppenheimer Trust
under the Agreement are not binding upon any Trustee or shareholder of
Oppenheimer Trust and OppenheImer Fund personally, but bind only
Oppenheimer Trust, Oppenheimer Fund and Oppenheimer Fund's property. JP
Fund represents that it has notice of the provisions of the Declaration
of Trust of Oppenheimer Trust disclaiming shareholder and Trustee
liability for acts or obligations of Oppenheimer Trust.
25. Neither of the parties shall make any press release of the
transactions contemplated by the Agreement, or any discussion in
connection therewith, without the prior written consent of the other
party, which consent shall not be unreasonably withheld. The preceding
sentence shall not apply to any disclosures required to be made by
applicable laws, as determined by counsel; however, the applicable party
shall consult with the other party concerning the timing and content of
such disclosure before making it.
26. The representations, warranties and covenants set forth in the
Agreement shall survive the closing.
27. The Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of
laws principles of such State.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
Attest: JEFFERSON-PILOT CAPITAL APPRECIATION
FUND, INC.
__________________________ By: _____________________________
Attest: OPPENHEIMER VARIABLE ACCOUNT FUNDS,
ON BEHALF OF OPPENHEIMER GROWTH FUND
__________________________ By: _____________________________
Attest: For purposes of Section 21 only:
JEFFERSON-PILOT CORPORATION
___________________________ By: ______________________________
Attest: For purposes of Section 21 only:
OPPENHEIMERFUNDS, INC.
____________________________ By: __________________________
<PAGE>
Preliminary Copy
JP Capital Appreciation Fund, Inc.
VOTING INSTRUCTIONS FORM FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD DECEMBER 3, 1996
The undersigned variable contract owner indirectly invested in JP Capital
Appreciation Fund, Inc. ("JP Fund"), does hereby direct Jefferson-Pilot
Life Insurance Company "JPLIC") to vote shares of JP Fund held to support
his or her variable contract at the Special Meeting of Shareholders of JP
Fund to be held on December 3, 1996, at the Jefferson-Pilot Building (4th
Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina
27420 at 10:00 A.M., local time, and at all adjournments thereof, and to
vote the shares held in the name of JPLIC for the undersigned on the
record date for said meeting on the Proposals specified on the reverse
side.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS A VOTE
FOR THE PROPOSALS ON THE REVERSE SIDE AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE
REVERSE SIDE OR FOR EACH PROPOSAL AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR IF NO CHOICE IS INDICATED.
Please mark your voting instructions form, date and sign it on the reverse
side and return it promptly in the accompanying envelope, which requires
no postage if mailed in the United States.
Proposal 1:
To consider and vote upon the approval or disapproval of the Agreement and
Plan of Reorganization dated as of _________, 1996 (the "Reorganization
Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer
Variable Account Funds, on behalf of its series Oppenheimer Growth Fund
("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions
contemplated thereby, including (i) the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for shares of
Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund
to shareholders of JP Fund in liquidation of JP Fund, and (iii) the
cancellation of the outstanding shares of JP Fund.
FOR____ AGAINST____ ABSTAIN____
Proposal 2:
To elect to the Board of Directors the following five (5) directors to
hold office until the earlier of (i) the dissolution of JP Fund or (ii)
the next annual meeting of shareholders of JP Fund called for the purpose
of electing directors, or until their successors are elected and
qualified.
A) E.J. Yelton D) William Edward Moran
B) John C. Ingram E) J. Lee Lloyd
C) Richard Wolcott McEnally
_______For all nominees listed ____WITHHOLD AUTHORITY
except as marked to the contrary at to vote for all nominees
left. Instruction: To withhold listed at left.
authority to vote for any individual
nominee, line out that nominee's name
at left.
Proposal 3:
To ratify or reject the selection of McGladrey & Pullen LLP as JP Fund's
independent auditors for the current fiscal year.
FOR____ AGAINST____ ABSTAIN____
Dated:________________________, 1996
(Month) (Day)
______________________________
Signature(s)
______________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
<PAGE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Prospectus dated May 1, 1996
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end
investment company consisting of nine separate funds, seven of which
(collectively, the "Funds") are as follows:
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 its 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.
This Prospectus may be used to offer or sell shares of only those
Funds listed above. 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 explains concisely what you should know before
investing in the Trust and the Funds. Please read this Prospectus
carefully and keep it for future reference. You can find more detailed
information about the Funds in the May 1, 1996 Statement of Additional
Information. For a free copy, call OppenheimerFunds Services, the Funds'
Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at the
address on the back cover. The Statement of Additional Information has
been filed with the Securities and Exchange Commission and is incorporated
into this Prospectus by reference (which means that it is legally part of
this Prospectus).
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.
<PAGE>
Contents
About the Funds
Overview of the Funds
Financial Highlights
Investment Objectives and Policies
How the Funds are Managed
Performance of the Funds
About Your Account
How to Buy Shares
How to Sell Shares
Dividends, Capital Gains and Taxes
Appendix A: Description of Terms
Appendix B: Description of Securities Ratings
<PAGE>
ABOUT THE FUNDS
Overview of the Funds
Some of the important facts about the Funds are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing. Keep the Prospectus for
reference after you invest.
- What Are the Funds' Investment Objectives? Money Fund's
investment objective is to seek current income from investments in "money
market" securities consistent with low capital risk and the maintenance
of liquidity. High Income Fund's investment objective is to seek a high
level of current income from investment in high yield fixed-income
securities. Bond Fund's investment objective is to seek a high level of
current income from investment in high yield fixed-income securities rate
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's. As
a secondary investment objective, Bond Fund seeks capital growth when
consistent with its primary objective. Capital Appreciation Fund's
investment objective is to achieve capital appreciation by investing in
"growth-type" companies. Growth Fund's investment objective is to seek
to achieve capital appreciation by investing in securities of well-known
established companies. Multiple Strategies Fund's investment objective
is to seek a total investment return (which includes current income and
capital appreciation in the value of its shares) from investment in common
stocks and other equity securities, bonds and other debt securities, and
"money market" securities. Global Securities Fund's investment objective
is to seek 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.
- What Do the Funds Invest In? To seek their respective investment
objectives, the Funds invest as follows. Money Fund primarily invests in
money market securities. High Income Fund primarily invests in high yield
fixed-income securities, including unrated securities or high risk
securities in the lower rating categories, commonly known as "junk bonds."
Bond Fund primarily invests in high yield fixed-income securities rated
"Baa" or better by Moody's or "BBB" or better by Standard & Poor's.
Capital Appreciation Fund primarily invests in "growth-type" companies.
Growth Fund primarily invests in securities of well-known established
companies. Multiple Strategies Fund primarily invests in common stocks
and other equity securities, bonds and other debt securities, and money
market securities. Global Securities Fund primarily invests in securities
of foreign issuers, "growth-type" companies, cyclical industries and
special situations. These investments are more fully explained for each
Fund in "Investment Objectives and Policies," starting on page ___.
- Who Manages the Funds? The Funds' investment adviser is
OppenheimerFunds, Inc., which (including a subsidiary) advises investment
company portfolios having over $50 billion in assets. Each Fund's
portfolio manager is primarily responsible for the selection of securities
of that Fund. The portfolio managers are as follows: for Money Fund,
Dorothy Warmack; for High Income Fund, Bond Fund and Multiple Strategies
Fund, David Negri (joined by Richard Rubinstein for Multiple Strategies
Fund); for Capital Appreciation Fund, Paul LaRocco; for Growth Fund, Jane
Putnam; for Global Securities Fund, William Wilby. The Manager is paid
an advisory fee by each Fund, based on its assets. The Trust's Board of
Trustees, elected by shareholders, oversees the investment adviser and the
portfolio manager. Please refer to "How The Funds Are Managed," starting
on page ____ for more information about the Manager and its fees.
- How Risky Are The Funds? While different types of investments
have risks that differ in type and magnitude, all investments carry risk
to some degree. Changes in overall market movements or interest rates,
or factors affecting a particular industry or issuer, can affect the value
of the Funds' investments and their price per share. Equity investments
are generally subject to a number of risks including the risk that values
will fluctuate as a result of changing expectations for the economy and
individual issuers. For both equity and income investments, foreign
investments are subject to the risk of adverse currency fluctuation and
additional risks and expenses in comparison to domestic investments. In
comparing levels of risk among the equity and equity- income funds, Growth
Fund is most conservative, followed by Multiple Strategies Fund, Capital
Appreciation Fund and Global Securities Fund. Fixed-income investments
are generally subject to the risk that values will fluctuate with
inflation, with lower-rated fixed-income investments being subject to a
greater risk that the issuer will default in its interest or principal
payment obligations. In comparing levels of risk among the fixed-income
funds, Bond Fund is most conservative, followed by High Income Fund.
Money Fund is the most conservative of all seven Funds in that Money Fund
intends to maintain a stable net asset value, although there is no
assurance that it will be able to do so.
- How Can I Buy or Sell 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. Account owners should
refer to the accompanying Account Prospectus on how to buy or sell shares
of the Funds.
- How Have the Funds Performed? Money Fund, High Income Fund and
Bond Fund measure their performance by quoting their yields. All of the
Funds with the exception of Money Fund may measure their performance by
quoting average annual total return and cumulative total return, which
measure historical performance. Those returns can be compared to the
returns (over similar periods) of other funds. Of course, other funds may
have different objectives, investments, and levels of risk. The
performance of all the Funds except Money Fund can also be compared to
broad market indices, which we have done starting on page ___. Please
remember that past performance does not guarantee future results.
<PAGE>
Financial Highlights
The tables on the following pages present selected financial
information, including per share data and expense ratios and other data
about the Funds, and is based on each Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Funds'
independent auditors, whose report on the Funds' financial statements for
the fiscal year ended December 31, 1995, is included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
-----------------------------------------------------------------------------
Year Ended
December 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15 $10.33
Income (loss) from investment operations:
Net investment income .72 .76 .65 .87 .95
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.07 (.98) .76 (.17) .80
-----------------------------------------------------------------------------
Total income (loss) from investment
operations 1.79 (.22) 1.41 .70 1.75
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.73) (.62) (.75) (.86) (.93)
Distributions from net realized gain on
investments and foreign currency
transactions -- (.03) -- -- --
-----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.73) (.65) (.75) (.86) (.93)
-----------------------------------------------------------------------------
Net asset value, end of period $11.84 $10.78 $11.65 $10.99 $11.15
==========================================================
===================
TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04% 6.50%
17.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354 $32,762
Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687 $22,169
Ratios to average net assets:
Net investment income 6.91% 7.30% 7.20% 7.81% 8.73%
Expenses .80% .57% .46% .56% .64%
Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3% 7.6%
<CAPTION>
----------------------------------------------------------------------------
1990 1989 1988 1987 1986
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15 $11.27
Income (loss) from investment operations:
Net investment income .97 .98 .94 .97 .97
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (.18) .32 (.05) (.71) .09
----------------------------------------------------------------------------
Total income (loss) from investment
operations .79 1.30 .89 .26 1.06
----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03)
Distributions from net realized gain on
investments and foreign currency
transactions -- -- -- (.05) (.15)
----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.95) (.96) (.93) (1.22) (1.18)
----------------------------------------------------------------------------
Net asset value, end of period $10.33 $10.49 $10.15 $10.19 $11.15
==========================================================
==================
TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97% 2.53%
10.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415 $7,377
Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748 $4,647
Ratios to average net assets:
Net investment income 9.30% 9.34% 9.08% 9.17% 8.71%
Expenses .61% .64% .70% .75% .75%
Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9% 27.7%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
<PAGE>
Oppenheimer Variable Account Funds
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer
Growth
Fund
-----------------------------------------------------------------------------
Year Ended
December 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.68 $17.70 $16.96 $15.17 $12.54
Income (loss) from investment operations:
Net investment income .25 .22 .46 .16 .30
Net realized and unrealized gain (loss) on
investments 6.10 (.05) .74 1.99 2.82
-----------------------------------------------------------------------------
Total income (loss) from investment
operations 6.35 .17 1.20 2.15 3.12
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.22) (.15) (.14) (.36) (.49)
Distributions from net realized gain on
investments and foreign currency
transactions (.26) (.04) (.32) -- --
-----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.48) (.19) (.46) (.36) (.49)
-----------------------------------------------------------------------------
Net asset value, end of period $23.55 $17.68 $17.70 $16.96 $15.17
==========================================================
===================
TOTAL RETURN, AT NET ASSET VALUE(1) 36.65% .97% 7.25% 14.53%
25.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $117,710 $63,283 $56,701 $36,494 $22,032
Average net assets (in thousands) $88,803 $59,953 $46,389 $25,750 $18,810
Ratios to average net assets:
Net investment income 1.46% 1.38% 1.13% 1.36% 2.82%
Expenses .79% .58% .50% .61% .70%
Portfolio turnover rate(2) 58.2% 53.8% 12.6% 48.7% 133.9%
Average brokerage commission rate(3) $0.07 -- -- -- --
<CAPTION>
---------------------------------------------------------------------------
1990 1989 1988 1987 1986
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $16.38 $13.64 $11.21 $12.53 $10.95
Income (loss) from investment operations:
Net investment income .56 .66 .29 .20 .13
Net realized and unrealized gain (loss) on
investments (1.79) 2.50 2.19 .24 1.76
---------------------------------------------------------------------------
Total income (loss) from investment
operations (1.23) 3.16 2.48 .44 1.89
---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62) (.35) -- (.34) (.15)
Distributions from net realized gain on
investments and foreign currency
transactions (1.99) (.07) (.05) (1.42) (.16)
---------------------------------------------------------------------------
Total dividends and distributions to
shareholders (2.61) (.42) (.05) (1.76) (.31)
---------------------------------------------------------------------------
Net asset value, end of period $12.54 $16.38 $13.64 $11.21 $12.53
==========================================================
================
TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)% 23.59% 22.09% 3.32%
17.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $15,895 $19,301 $17,746 $14,692 $8,287
Average net assets (in thousands) $17,235 $18,596 $15,585 $15,121 $3,744
Ratios to average net assets:
Net investment income 4.09% 3.72% 2.39% 1.56% 2.62%
Expenses .71% .70% .70% .75% .75%
Portfolio turnover rate(2) 267.9% 148.0% 132.5% 191.0% 100.9%
Average brokerage commission rate(3) -- -- -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3. Total brokerage commissions paid on purchases and sales of portfolio
securities for the period divided by the total number of related shares
purchased and sold.
<PAGE>
Investment Objectives and Policies
Investment Objective and Policies - Money Fund. The objective of Money
Fund is to seek the maximum current income from investments in "money
market" securities consistent with low capital risk and the maintenance
of liquidity. The Securities and Exchange Commission Rule 2a-7 ("Rule 2a-
7") under 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,
OppenheimerFunds, Inc. (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 reassessment
of the credit risk presented by a security and may require its sale. See
"Investment Objectives 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 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 by 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 "Other 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 Objectives and Policies - High Income Fund and 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 (see "Participation Interests,"
below). 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 Investors 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 under "Risk Factors" below. High Income Fund's portfolio
at December 31, 1995 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): AAA, 0.34%; AA, 0.22%; BBB,
1.85%; BB, 9.14%; B, 39.45%; CCC, 13.37%; C, 0.93%; and D, 0.53%. 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 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.
Other Fixed-Income Strategies and Techniques. High Income Fund and Bond
Fund (collectively, the "Income Funds") can also use the investment
techniques and strategies described below. The Statement of Additional
Information contains more information about these practices.
- International Securities. The Income Funds 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
and special risks of "emerging markets" is set forth below under "Other
Investment Techniques and Strategies - 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. Certain of these obligations, including U.S. Treasury
notes and bonds, and mortgage-backed securities guaranteed by the
Government National Mortgage Association ("Ginnie Maes"), are supported
by the full faith and credit of the United States. Certain other U.S.
Government Securities, issued or guaranteed by Federal agencies or
government-sponsored enterprises, are not supported by the full faith and
credit of the United States. These latter securities may include
obligations supported by the right of the issuer to borrow from the U.S.
Treasury, such as obligations of Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association bonds
("Fannie Maes"). U.S. Government Securities in which the Fund may invest
include zero coupon U.S. Treasury securities, mortgage-backed securities
and money market instruments.
Zero coupon Treasury securities are: (i) U.S. Treasury notes and
bonds which have been stripped of their unmatured interest coupons and
receipts; or (ii) certificates representing interests in such stripped
debt obligations or coupons. Because a zero coupon security pays no
interest to its holder during its life or for a substantial period of
time, it usually trades at a deep discount from its face or par value and
will be subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities
which make current distributions of interest. Because the Fund accrues
taxable income from these securities without receiving cash, the Fund may
be required to sell portfolio securities in order to pay cash dividends
or to meet redemptions. The Income Funds 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 Income Funds' 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 Income Funds' investments may include securities which represent
participation interests in loans made to corporations (see "Participation
Interests," below) and in pools of residential mortgage loans which may
be guaranteed by agencies or instrumentalities of the U.S. Government
(e.g. Ginnie Maes, Freddie Macs and Fannie Maes), including collateralized
mortgage-backed obligations ("CMOs"), or which may not be guaranteed.
Such securities differ from conventional debt securities which provide for
periodic payment of interest in fixed amounts (usually semi-annually) with
principal payments at maturity or specified call dates. Mortgage-backed
securities provide monthly payments which are, in effect, a "pass-through"
of the monthly interest and principal payments (including any prepayments)
made by the individual borrowers on the pooled mortgage loans. The Funds'
reinvestment of scheduled principal payments and unscheduled prepayments
they receive may occur at lower rates than the original investment, thus
reducing the Funds' yields. CMOs in which the Funds 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 Income Funds may also invest in CMOs that are "stripped." That
means that the security is divided into two parts, one of which receives
some or all of the principal payments (and is known as a "P/O") and the
other which receives some or all of the interest (and is known as an
"I/O"). P/Os and I/Os are generally referred to as "derivative
investments," discussed further below.
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the Fund
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall, and
in times of rapidly falling interest rates, the Fund might receive back
less than its investment.
The value of "principal only" securities generally increases as
interest rates decline and prepayment rates rise. The price of these
securities is typically more volatile than that of coupon-bearing bonds
of the same maturity.
Stripped securities are generally purchased and sold by institutional
investors through investment banking firms. At present, established
trading markets have not yet developed for these securities. Therefore,
some stripped securities may be deemed "illiquid." If any Fund holds
illiquid stripped securities, the amount it can hold will be subject to
the Funds' investment policy limiting investments in illiquid securities
to 15% of that Fund's assets.
The Income Funds may also enter into "forward roll" transactions with
banks or other buyers that provide for future delivery of the mortgage-
backed securities in which the Funds may invest. The Funds are required
to identify cash, U.S. Government securities or other high-grade debt
securities to its custodian bank in an amount equal to its obligation
under the forward roll. The main risk of this investment strategy is risk
of default by the counterparty.
The Income Funds 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 principally
invests are considered speculative and involve greater risk than lower
yielding, higher rated fixed-income securities, while providing higher
yields than such securities. Lower rated securities may be less liquid,
and significant losses could be experienced if a substantial number of
other holders of such securities decide to sell at the same time. Other
risks may involve the default of the issuer or price changes in the
issuer's securities due to changes in the issuer's financial strength or
economic conditions. Issuers of lower rated or unrated securities are
generally not as financially secure or creditworthy as issuers of higher-
rated securities. This Fund is not obligated to dispose of securities when
issuers are in default or if the rating of the security is reduced. These
risks are discussed in more detail in the Statement of Additional
Information.
Investment Objectives and 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 interests,
asset-backed securities, private-label mortgage-backed securities and
CMOs, zero coupon securities and U.S. government obligations, described
above under "Investment Objectives and Policies - High Income Fund and
Bond Fund" and under "Participation Interests" below) and cash and cash
equivalents (identified above as the types of instruments in which the
Money Fund may invest).
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 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 "Other Investment Techniques and Strategies - Foreign
Securities") and thus the relative amount of such investments will change
from time to time. It is currently anticipated that Global Securities
Fund may invest as much as 80% or more of its total assets in foreign
securities. See "Investment Policies and Strategies - Foreign
Securities," below, for further discussion as to the possible rewards and
risks of investing in foreign securities and as to additional
diversification requirements for the Fund's foreign investments.
- Can the Funds' Investment Objectives and Policies Change? The
Funds have investment objectives, described above, as well as investment
policies each follows to try to achieve its objectives. Additionally, the
Funds use certain investment techniques and strategies in carrying out
those investment policies. The Funds' investment policies and techniques
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
Each Fund's investment objectives are fundamental policies.
The Trust's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus. Fundamental policies are those
that cannot be changed without the approval of a "majority" of the Fund's
outstanding voting shares. The term "majority" is defined in the
Investment Company Act to be a particular percentage of outstanding voting
shares (and this term is explained in the Statement of Additional
Information).
Other Investment Techniques and Strategies. Some of the Funds can also use
the investment techniques and strategies described below. These
techniques involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations on
their use that are designed to reduce some of the risks.
- Special Risks - Borrowing for Leverage. From time to time, Capital
Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global
Securities Fund may borrow money from banks to buy securities. These
Funds will borrow only if they can do so without putting up assets as
security for a loan. This is a speculative investment method known as
"leverage." This investing technique may subject the Fund to greater
risks and costs than funds that do not borrow. These risks may include the
possibility that a Fund's net asset value per share will fluctuate more
than funds that don't borrow, since a Fund pays interest on borrowings and
interest expense affects a Fund's share price and yield. 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. Borrowing for
Leverage is subject to regulatory limits described in more detail in
"Borrowing" in the Statement of Additional Information.
Each of the above Funds has undertaken to limit borrowing by that
Fund to 25% of the value of its net assets, which is further limited to
10% if the borrowing is for a purpose other than to facilitate
redemptions. Neither percentage limitation is a fundamental policy.
- Investments In Small, Unseasoned Companies. Money Fund, Capital
Appreciation Fund, Multiple Strategies Fund, Growth Fund and Global
Securities Fund may each invest in securities of small, unseasoned
companies. These are companies that have been in operation for less than
three years, counting the operations of any predecessors. Securities of
these companies may have limited liquidity (which means that the Fund may
have difficulty selling them at an acceptable price when it wants to) and
the prices of these securities may be volatile. 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 and Global Securities Fund are not subject
to this restriction.
- Participation Interests. 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 the banks or brokers that have made the loan or are
members of the lending syndicate. No more than 5% of a Fund's net assets
can be invested in participation interests of the same borrower. The
Manager has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. The value of loan
participation interests 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 Fund could experience a decline in the
net asset value of its shares. 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 subject to
each Fund's limitations on investments in illiquid securities. See
"Illiquid and Restricted Securities" below.
- 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, and securities
issued by U.S. corporations denominated in non-U.S. currencies.
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. 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, other than in hedging transactions
(see "Hedging" below).
It is currently intended that each Fund (other than Global Securities
Fund and Multiple Strategies Fund) will invest no more than 25% of its
total assets in foreign securities or in government securities of any
foreign country or in obligations of foreign banks. Multiple Strategies
Fund will invest no more than 35% of its total assets in foreign
securities or in government securities of any foreign country or in
obligations of foreign banks. Global Securities Fund has no restrictions
on the amount of its assets that may be invested in foreign securities.
Investments in securities of issuers in non-industrialized countries
generally involve more risk and may be considered highly speculative.
The Funds have undertaken to comply with the foreign country
diversification guidelines of Section 10506 of the California Insurance
Code, as follows: Whenever a Fund's investment in foreign securities
exceeds 25% of its net assets, it will invest its assets in securities of
issuers located in a minimum of two different foreign countries; this
minimum is increased to three foreign countries if foreign investments
comprise 40% or more of a Fund's net assets, to four if 60% or more and
to five if 80% or more. In addition, no such Fund will have more than 20%
of its net assets invested in securities of issuers located in any one
foreign country; that limit is increased to 35% for Australia, Canada,
France, Japan, the United Kingdom or Germany.
The percentage of each Fund's assets that will be allocated to
foreign securities will vary depending on the relative yields of foreign
and U.S. securities, the economies of foreign countries, the condition of
their financial markets, the interest rate climate of such countries, and
the relationship of such countries' currencies to the U.S. dollar. These
factors are judged on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political
data. Subsequent foreign currency losses may result in a Fund having
previously distributed more income in a particular period than was
available from investment income, which could result in a return of
capital to shareholders. Each such Fund's portfolio of foreign securities
may include those of a number of foreign countries or, depending upon
market conditions and subject to the above diversification requirements
those of a single country. In summary, foreign securities markets may be
less liquid and more volatile than the markets in the U.S. Risks of
foreign securities investing may include foreign withholding taxation,
changes in currency rates or currency blockage, currency exchange costs,
difficulty in obtaining and enforcing judgments against foreign issuers,
relatively greater brokerage and custodial costs, risk of expropriation
or nationalization of assets, less publicly available information, and
differences between domestic and foreign legal, auditing, brokerage and
economic standards. See "Investment Objectives and Policies - Foreign
Securities" in the Statement of Additional Information for further
details.
- Special Risks of "Emerging Markets". Investments in securities
traded in "emerging markets" (which are trading markets that are
relatively new in counties with developing economies) involve more risks
than other foreign securities. Emerging markets may have extended
settlement periods for securities transactions so that a Fund might not
receive the repayment of principal or income on its investments on a
timely basis, which could affect its net asset value. There may be a lack
of liquidity for emerging market securities. Interest rates and foreign
currency exchange rates may be more volatile. Government limitations on
foreign investments may be more likely to be imposed than in more
developed countries. Emerging markets may respond in a more volatile
manner to economic changes than those of more developed countries.
- Warrants and Rights. Warrants basically are options to purchase
stock at set prices that are valid for a limited period of time. Rights
are options to purchase securities, normally granted to current holders
by the issuer. Each of the Funds (except Money Fund) may invest up to 5%
of its total assets in warrants and rights. That 5% does not apply to
warrants and rights that have been acquired as part of units with other
securities or that were 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 about these investments, 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. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the vendor
fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there
is any delay in its ability to do so. No Fund will enter into a
repurchase agreement that causes more than 15% of its net assets (10% of
net assets for Money Fund) to be subject to repurchase agreements having
a maturity beyond seven days. There is no limit on the amount of a Fund's
net assets that may be subject to repurchase agreements of seven days or
less.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Board of Trustees, the Manager determines
the liquidity of certain of a Fund's investments. Investments may be
illiquid because of the absence of a trading market, making it difficult
to value them or dispose of them promptly at an acceptable price. A
restricted security is one that has a contractual restriction on resale
or cannot be sold publicly until it is registered under the Securities Act
of 1933. No Fund will invest more than 15% of its net assets in illiquid
or restricted securities; no Fund presently intends to invest more than
10% of its net assets in illiquid or 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 and Global Securities Funds);
it does not apply to certain restricted securities that are eligible for
resale to qualified institutional purchasers.
- Loans of Portfolio Securities. To attempt to increase its income,
each Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. Each Fund must receive collateral for such loans.
These loans are limited to 25% of the Fund's net assets and are subject
to other conditions described in the Statement of Additional Information.
The Funds presently do not intend to lend portfolio securities, but if any
Fund does, the value of securities loaned is not expected to exceed 5% of
the value of that Fund's total assets.
- "When-Issued" or Delayed Delivery Transactions. Each Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to a Fund
if the value of the security changes prior to the settlement date.
- Hedging. As described below, the Funds (other than Money Fund)
may purchase and sell certain kinds of futures contracts, put and call
options, forward contracts, and options on futures and broadly-based stock
or bond indices, or enter into interest rate swap agreements. These are
all referred to as "hedging instruments." The Funds do not use hedging
instruments for speculative purposes, and have limits on the use of them,
described below. The hedging instruments the Funds may use are described
below and in greater detail in "Other Investment Techniques and
Strategies" in the Statement of Additional Information.
The Funds may buy and sell options, futures and forward contracts for
a number of purposes. They may do so to try to manage their exposure to
the possibility that the prices of their portfolio securities may decline,
or to establish a position in the securities market as a temporary
substitute for purchasing individual securities. High Income Fund, Bond
Fund and Multiple Strategies Fund may do so to try to manage their
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Funds'
portfolios against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Funds' exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on Funds'
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Funds own,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Funds for liquidity purposes or to raise cash to distribute to
shareholders.
- Futures. Global Securities Fund, Capital Appreciation Fund,
Growth Fund and Multiple Strategies Fund may buy and sell futures
contracts that relate to broadly-based stock indices (these are referred
to as Stock Index Futures). Multiple Strategies Fund, Global Securities
Fund, Bond Fund and High Income Fund may buy and sell futures contracts
that relate to broadly-based securities indices (these are referred to as
Stock Index Futures and Bond Index Futures) or to interest rates (these
are referred to as Interest Rate Futures). These types of Futures are
described in "Hedging" in the Statement of Additional Information.
- Put and Call Options. The Funds may buy and sell certain kinds
of put options (puts) and call options (calls).
The Funds may buy calls only on securities, broadly-based stock and
bond indices, foreign currencies and Futures that the Fund is permitted
to buy and sell (as explained above) or to terminate their obligation on
a call that the Fund previously wrote. Each Fund may write (that is,
sell) covered call options on up to 100% of its assets. When a Fund
writes a call, it receives cash (called a premium). The call gives the
buyer the ability to buy the investment on which the call was written from
that Fund at the call price during the period in which the call may be
exercised. If the value of the investment does not rise above the call
price, it is likely that the call will lapse without being exercised,
while the Fund keeps the cash premium (and the investment).
The Funds may purchase put options. Buying a put on an investment
gives that Fund the right to sell the investment at a set price to a
seller of a put on that investment. The Funds can buy only those puts
that relate to (1) securities (whether or not that Fund owns such
securities), (2) Futures that the Fund is permitted to buy and sell (as
explained above), (3) broadly-based stock or bond indices or (4) foreign
currencies. A Fund can buy a put on a Future whether or not that Fund
owns the particular Future in its portfolio. A Fund may not sell a put
other than a put that it previously purchased.
The Funds may buy and sell puts and calls only if certain conditions
are met: (1) calls the Funds buy or sell must be listed on a securities
or commodities exchange, or quoted on the Automated Quotation System of
the National Association of Securities Dealers, Inc. ("NASDAQ"); (2) in
the case of puts and calls on foreign currency, they must be traded on a
securities or commodities exchange, or in the over-the-counter market, or
quoted by recognized dealers in those options; (3) none of the Funds will
write puts if, as a result, more than 50% of its net assets would be
required to be segregated liquid assets; (4) each call the Funds write
must be "covered" while it is outstanding: that means a Fund must own the
security on which the call was written; calls on Futures must be covered
by securities or other liquid assets a Fund owns and segregates to enable
it to satisfy its obligations if the call is exercised; (5) a Fund may
write calls on Futures contracts it owns, but these calls must be covered
by securities or other liquid assets the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised; (6) a call
or put option may not be purchased if the value of all of a Fund's put and
call options would exceed 5% of that Fund's total assets.
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.
- Forward Contracts. Forward contracts are foreign currency
exchange contracts. They are used to buy or sell foreign currency for
future delivery at a fixed price. The Funds (other than Money Fund) use
them to "lock-in" the U.S. dollar price of a security denominated in a
foreign currency that a Fund has bought or sold, or to protect against
losses from changes in the relative values of the U.S. dollar and a
foreign currency. Such Funds may also use "cross hedging," where a Fund
hedges against changes in currencies other than the currency in which a
security it holds is denominated.
- Interest Rate Swaps. High Income Fund and Bond Fund can also
enter into interest rate swap transactions. In an interest rate swap, a
Fund and another party exchange their right to receive or their obligation
to pay interest on a security. For example, they may swap a right to
receive floating rate payments for fixed rate payments. A Fund enters
into swaps only on securities it owns. Each of these Funds may not enter
into swaps with respect to more than 50% of its total assets. Also, each
Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily,
as needed.
Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce that Fund's return. A Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Funds. There are also special risks in particular hedging
strategies. If a covered call written by a Fund is exercised on a
security that has increased in value, that Fund will be required to sell
the security at the call price and will not be able to realize any profit
if the security has increased in value above the call price. The 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.
To limit its exposure in foreign currency exchange contracts, each Fund
limits its exposure to the amount of its assets denominated in the foreign
currency. Interest rate swaps are subject to credit risks (if the other
party fails to meet its obligations) and also to interest rate risks. The
Funds could be obligated to pay more under their swap agreements they
receive under them, as a result of interest rate changes. These risks are
described in greater detail in the Statement of Additional Information.
- Derivative Investments. Each Fund (other than Money Fund) can
invest in a number of different kinds of "derivative investments." Such
Funds may use some types of derivatives for hedging purposes, and may
invest in others because they offer the potential for increased income and
principal value. In general, a "derivative investment" is a specially-
designed investment whose performance is linked to the performance of
another investment or security, such as an option, future, index or
currency. In the broadest sense, derivative investments include exchange-
traded options and futures contracts (please refer to "Hedging").
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of the
instrument. There is also the risk that the underlying investment or
security might not perform the way the Manager expected it to perform.
The performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks can mean
that a Fund will realize less income than expected from its investments,
or that it can lose part of the value of its investments, which will
affect that Fund's share price. Certain derivative investments held by
the Funds may trade in the over-the-counter markets and may be illiquid.
If that is the case, the Funds' investment in them will be limited, as
discussed in "Illiquid and Restricted Securities."
Another type of derivative the Funds (other than Money Fund) may
invest in is an "index-linked" note. On the maturity of this type of debt
security, payment is made based on the performance of an underlying index,
rather than based on a set principal amount for a typical note. Another
derivative investment such Funds may invest in are currency-indexed
securities. These are typically short-term or intermediate-term debt
securities. Their value at maturity or the interest rates at which they
pay income are determined by the change in value of the U.S. dollar
against one or more foreign currencies or an index. In some cases, these
securities may pay an amount at maturity based on a multiple of the amount
of the relative currency movements. This variety of index security offers
the potential for greater income but at a greater risk of loss.
Other derivative investments the Funds (other than Money Fund) may
invest in include "debt exchangeable for common stock" of an issuer or
"equity-linked debt securities" of an issuer. At maturity, the debt
security is exchanged for common stock of the issuer or is payable in an
amount based on the price of the issuer's common stock at the time of
maturity. In either case there is a risk that the amount payable at
maturity will be less than the principal amount of the debt (because the
price of the issuer's common stock is not as high as was expected).
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." The Funds may engage frequently in
short-term trading to try to achieve their objectives. 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 and High Income Fund. The
"Financial Highlights," above show the portfolio turnover for the past
fiscal years for each Fund. If any Fund derives 30% or more of its gross
income from the sale of securities held less than three months, it may
fail to qualify under the tax laws as a regulated investment company (see
"Dividends, Capital Gains and Taxes," below).
- Short Sales Against-the-Box. In a short sale, the seller does not
own the security that is sold, but normally borrows the security to
fulfill its delivery obligation. The seller later buys the security to
repay the loan, in the expectation that the price of the security will be
lower when the purchase is made, resulting in a gain. The Funds may not
sell securities short except that each Fund (except Money Fund) may sell
securities short in collateralized transactions referred to as "short
sales against-the-box." No more than 15% of any Fund's net assets will
be held as collateral for such short sales at any one time.
Other Investment Restrictions
Each of the Funds has certain investment restrictions which, together
with its investment objective, are fundamental policies. 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'; (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; and (5) deviate from the
percentage requirements and other restrictions listed under "Warrants and
Rights," and the first paragraph under "Special Risks-Borrowing for
Leverage." None of the percentage limitations and restrictions described
above and in the Statement of Additional Information for the Funds with
respect to writing covered calls, hedging, short sales and derivatives is
a fundamental policy.
All of the percentage restrictions described above and elsewhere in
this Prospectus, other than those described under "Other Investment
Techniques and Strategies--Special Risks-Borrowing for Leverage," apply
only at the time a Fund purchases a security. A Fund need not dispose of
a security merely because the size of the Fund's assets has changed or the
security has increased in value relative to the size of the 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. There are other fundamental policies
discussed in the Statement of Additional Information.
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.
How the Funds are Managed
Organization and History. The Trust was organized in 1984 as a
Massachusetts business trust. The Trust is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest. It consists of nine separate Funds; as
noted above, this Prospectus describes seven of them: 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 and
Global Securities Fund, organized in 1990.
The Trust is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law. The
Trustees meet periodically throughout the year to oversee the Funds'
activities, review performance, and review the actions of the Manager.
"Trustees and Officers of the Trust" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Trust. Although the Trust will normally not hold
annual meetings of its shareholders, it may hold shareholder meetings from
time to time on important matters, and shareholders have the right to call
a meeting to remove a Trustee or to take other action described in the
Trust's Declaration of Trust.
The Manager and Its Affiliates. The Funds are managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Funds'
investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees,
under Investment Advisory Agreements for each Fund which state the
Manager's responsibilities. The Agreements set forth the fees paid by
each Fund to the Manager and describe the expenses that each Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $50 billion
as of March 31, 1996, held in more than 2.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company.
- Portfolio Managers. The Portfolio Manager of High Income Fund,
Bond Fund and Multiple Strategies Fund is David P. Negri, joined by
Richard H. Rubinstein for Multiple Strategies Fund. They are the persons
principally responsible for the day-to-day management of those Funds since
July 1989, January 1990 and July 1989 (April 1991 for Mr. Rubinstein),
respectively. During the past five years, Mr. Negri has also served as
an officer of other Oppenheimer funds. During the past five years, Mr.
Rubinstein has served as an officer of other Oppenheimer funds and was
formerly Vice President and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corp., an investment adviser. The Portfolio Manager
of Global Securities Fund is William Wilby. He has been the person
principally responsible for the day-to-day management of that Fund's
portfolio since December, 1995. During the past five years, Mr. Wilby has
also served as an officer and portfolio manager for other Oppenheimer
funds, prior to which he was an international investment strategist at
Brown Brothers Harriman & Co., and a Managing Director and Portfolio
Manager at AIG Global Investors. The Portfolio Manager of the Money Fund
is Dorothy G. Warmack. On May 1, 1996, she became the person principally
responsible for the day-to-day management of that Fund's portfolio.
During the past five years, she has served as an officer of other
Oppenheimer funds. The Portfolio Manager of Growth Fund is Jane Putnam.
She has been the person principally responsible for the day-to-day
management of that Fund's portfolio since May 1994. During the past five
years, Ms. Putnam has also served as an Associate Portfolio Manager for
other Oppenheimer funds and formerly served as a portfolio manager and
equity research analyst for Chemical Bank. The Portfolio Manager of
Capital Appreciation Fund is Paul LaRocco. He has been the person
principally responsible for the day-to-day management of that Fund's
portfolio since January 1994. During the past five years, he has also
served as an Associate Portfolio Manager for other Oppenheimer funds and
formerly served as a securities analyst with Columbus Circle Investors,
prior to which he was an investment analyst for Chicago Title & Trust Co.
Messrs. Negri, LaRocco and Rubinstein and Ms. Warmack are Vice Presidents
of the Manager, Mr. Wilby is a Senior Vice President of the Manager, and
Ms. Putnam is an Assistant Vice President of the Manager. Each of the
Portfolio Managers named above are also Vice Presidents of the Trust.
- Fees and Expenses. The monthly management fee payable to the
Manager is computed separately on the net assets of each Fund as of the
close of business each day. The management feerates are as follows: (i)
for Money Fund: 0.450% of the first $500 million of net assets, 0.425%
of the next $500 million, 0.400% of the next $500 million, and 0.375% of
net assets over $1.5
billion; (ii) for Capital Appreciation Fund, Growth Fund, Multiple
Strategies Fund and Global Securities Fund: 0.75% of the first $200
million of net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of net assets over
$800 million; and (iii) for High Income Fund and Bond Fund: 0.75% of the
first $200 million of net assets, 0.72% of the next $200 million, 0.69%
of the next $200 million, 0.66% of the next $200 million, 0.60% of the
next $200 million, and 0.50% of net assets over $1 billion.
During the fiscal year ended December 31, 1995, the management fee
(computed on an annualized basis as a percentage of the net assets of all
the Funds as of the close of business each day) and the total operating
expenses as a percentage of average net assets of each Fund, when restated
to reflect the current management fee rates described above and the
current limitation on expenses described in the Statement of Additional
Information, were as follows:
<TABLE>
<CAPTION>
Total
Management Operating
Fees Expenses(1)
<S> <C> <C>
Money Fund .45% .51%
High Income Fund .75% .81%
Bond Fund .75% .80%
Capital Appreciation.74% .78%
Fund
Growth Fund .75% .79%
Multiple Strategies .74% .77%
Fund
Global Securities Fund .74% .89%
</TABLE>
____________________
(1) This table does not reflect expenses that apply at the separate
account level or to related insurance products.
The Funds pay expenses related to their daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Funds' assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement is contained in the Statement of Additional Information.
There is also information about the Funds' brokerage policies and
practices in "Brokerage Policies of the Funds" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Funds' portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreements to consider whether brokers have sold shares of the Funds or
any other funds for which the Manager serves as investment adviser.
- 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 in the accompanying
Account Prospectus.
Performance of the Funds
Explanation of Performance Terminology. Money Fund uses the term "yield"
to illustrate its performance. High Income Fund and Bond Fund use the
terms "yield," "total return," and "average annual total return" to
illustrate performance. All the Funds, except Money Fund, use the terms
"average annual total return" and "total return" to illustrate their
performance. This performance information may be useful to help you see
how well your investment has done and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the Funds' total returns and yields
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Funds' performance. Each Fund's investment performance will vary over
time, depending on market conditions, the composition of the portfolio and
expenses.
- Yields. 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.
Yield for High Income Fund or Bond Fund 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.
- Total Returns. There are different types of total returns used to
measure each Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Funds' actual year-by-year
performance.
How Have the Funds Performed? Below is a discussion by the Manager of the
Funds' performance during their last fiscal year ended December 31, 1995,
followed by a graphical comparison of each Fund's performance (except
Money Fund) to an appropriate broad-based market index.
Management's Discussion of Performance. During the Fund's fiscal year
ended December 31, 1995, the bond markets and the equity markets
experienced overall price increases in response to declines in interest
rates and favorable corporate profits in the face of slower economic
growth. During that period, the Manager emphasized the following
investment strategies and techniques. High Income Fund focused on the
higher quality tiers of below-investment grade bonds and sought value in
the housing, gaming and energy sectors, and invested in bonds of growth
companies such as foreign cable companies. Bond Fund reacted to a strong
rally in treasury securities by reducing its treasury allocation in favor
of increased allocations in different categories of U.S. Government and
corporate bonds. It reduced its holdings in utilities and cyclical
companies such as mining and metals companies in favor of companies
expected to experience earnings growth, such as cable, communications,
broadcasting and media firms. Capital Appreciation Fund experienced
increased investor interest in small-cap stocks beginning in the third
quarter of 1995, prior to which small-cap stocks were not participating
fully in the stock market rally. Its focus throughout the fiscal year was
on individual companies that appear to have carved out a unique market
niche rather than on broad industry sectors. Growth Fund's strategy of
looking for growth at reasonable price lead it to invest substantially in
the technology and financial services sectors. Multiple Strategies Fund's
equity investments reflected large positions in technology and health care
stocks while its fixed-income positions were strategically positioned at
year-end fairly equally across U.S. treasuries, foreign bonds and
corporate high yield bonds, in part in reaction to higher yields available
outside of the U.S. Global Securities Fund's investments reflected
perceived worldwide trends such as telecommunications expansion, emerging
consumer markets, infrastructure development and global integration, with
increased exposure to Japanese and European export-oriented companies and
high-quality technology stocks.
- Comparing each Fund's Performance to the Market. The charts below
show the performance of hypothetical $10,000 investments in each Fund
(except for Money Fund) held until December 31, 1995. Performance
information does not reflect charges that apply to separate accounts
investing in the Funds; if these charges were taken into account,
performance would be lower.
High Income Fund's performance is compared to the performance of the
Salomon Brothers High Yield Market Index which 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. Bond
Fund's performance is compared to the performance of the Lehman Brothers
Corporate Bond Index, which 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
performance of Capital Appreciation Fund and Growth Fund is compared to
the performance of the S&P 500 Index, a broad-based index of equity
securities widely regarded as a general measurement of the performance of
the U.S. equity securities market. Multiple Strategies Fund's performance
is compared to the S&P 500 Index and the Lehman Brothers Aggregate Bond
Index, 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.
Global Securities Fund's performance is compared to the Morgan Stanley
World Index, 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. Index performance reflects
the reinvestment of dividends but does not consider the effect of capital
gains or transaction costs, and none of the data below shows the effect
of taxes. Also, a Fund's performance reflects the effect of that Fund's
business and operating expenses. While index comparisons may be useful
to provide a benchmark for a Fund's performance, it must be noted that the
Fund's investments are not limited to the securities in the one index.
Moreover, the index performance data does not reflect any assessment of
the risk of the investments included in the index.
Comparison of Change in Value of $10,000 Hypothetical Investments in High
Income Fund Versus Salomon Brothers High Yield Market Index
(Graph comparing total return of High Income Fund shares to performance
of Salomon Brothers High Yield Market Index)
Average Annual Total Return at 12/31/95(1)
1 year 5 years Life of Fund
20.37% 18.38% 13.27%
(1) The inception date of the Fund was 4/30/86. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Comparison of Change in Value of $10,000 Hypothetical Investments in Bond
Fund Versus Lehman Brothers Corporate Bond Index
(Graph comparing total return of Bond Fund shares to performance of Lehman
Brothers Corporate Bond Index)
Average Annual Total Returns at 12/31/95(1)
1 year 5 years Life of Fund
17% 10.19% 9.35%
(1) The inception date of the Fund was 4/3/85. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Comparison of Change in Value of $10,000 Hypothetical Investments in
Capital Appreciation Fund Versus S&P 500 Index
(Graph comparing total return of Capital Appreciation Fund shares to
performance of S&P 500 Index)
Average Annual Total Returns at 12/31/95(1)
1 year 5 years Life of Fund
32.52% 22.73% 15.20%
(1) The inception date of the Fund was 8/15/86. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Comparison of Change in Value of $10,000 Hypothetical Investments in
Growth Fund Versus S&P 500 Index
(Graph comparing total return of Growth Fund shares to performance of S&P
500 Index)
Average Annual Total Returns at 12/31/95(1)
1 year 5 years Life of Fund
36.65% 16.30% 13.57%
(1) The inception date of the Fund was 4/3/85. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Comparison of Change in Value of $10,000 Hypothetical Investments in
Multiple Strategies Fund Versus S&P 500 Index and Lehman Brothers
Aggregate Bond Index
(Graph comparing total return of Multiple Strategies Fund shares to
performance of S&P 500 Index and Lehman Brothers Aggregate Bond Index)
Average Annual Total Returns at 12/31/95(1)
1 year 5 years Life of Fund
21.36% 12.05% 11.09%
(1) The inception date of the Fund was 2/9/87. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
Comparison of Change in Value of $10,000 Hypothetical Investments in
Global Securities Fund Versus Morgan Stanley World Index
(Graph comparing total return of Global Securities Fund shares to
performance of Morgan Stanley World Index)
Average Annual Total Returns at 12/31/95(1)
1 year 5 years Life of Fund
2.24% 9.53% 9.36%
(1) The inception date of the Fund was 11/12/90. The average annual total
returns and the ending account value in the graph reflect reinvestment of
all dividends and capital gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
ABOUT YOUR ACCOUNT
How to Buy 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).
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 the close of
The New York Stock Exchange, which is normally 4:00 P.M., New York time,
but may be earlier on some days. 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. 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; there can be no assurance that Money Fund's net asset value
will not vary. Further details are in "About Your Account- How to Buy
Shares - Money Fund Net Asset Valuation" in the
Statement of Additional Information.
How to Sell 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, OppenheimerFunds Services (the "Transfer Agent"),
of redemption instructions in proper form, except under unusual
circumstances as determined by the Securities and Exchange Commission.
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, Capital Gains And Taxes
Dividends of Money Fund. The Trust intends to declare Money Fund's
dividends from its net investment income 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. Although
distributions from net realized gains on securities, if any, will be paid
at least once each year, and may be made more frequently, Money Fund does
not expect to realize long-term capital gains, and therefore does not
contemplate payment of any capital gains distribution. Distributions from
net realized gains will not be distributed unless Money Fund's capital
loss carry forwards, if any, have been used or have expired. 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 "Dividends, Capital Gains and Taxes" in the Statement of
Additional Information).
Dividends and Distributions of High Income Fund, Bond Fund and Multiple
Strategies Fund. The Trust intends to declare High Income Fund, 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.
Capital Gains. 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.
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 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., "Other Investment Techniques and Strategies - 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.
<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 Objectives and Policies -- Money Fund", and (ii) additional
rating categories that apply principally to investments by High Income
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 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>
APPENDIX TO PROSPECTUS
Graphic material included in Prospectus of Oppenheimer Variable
Account Funds: "Comparison of Total Return of Oppenheimer Variable Account
Funds with Broad-Based Indices - Changes in Value of a $10,000
Hypothetical Investment"
Linear graphs will be included in the Prospectus of Oppenheimer
Variable Account Funds (the "Funds") depicting the initial account value
and subsequent account value of a hypothetical $10,000 investment in
shares of the Funds for the life of each Fund (except Oppenheimer Money
Fund) and comparing such values with the same investments over the same
time periods in 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 Broad-Based
Indices, is set forth in the Prospectus under "How Have the Funds
Performed? - Management's Discussion of Performance."
<TABLE>
<CAPTION>
Lehman
Brothers
Fiscal Corporate
Year Ended Bond Fund Bond Index
<S> <C> <C>
04/03/85 $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
12/31/94 $24,825 $26,139
12/31/95 $24,444 $27,063
</TABLE>
<TABLE>
<CAPTION>
Fiscal
Year Ended Growth Fund S&P 500 Index
<S> <C> <C>
04/30/85 $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 $34,668
12/31/94 $28,726 $35,081
12/31/95 $35,851 $39,495
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds 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 LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, 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 Trust, OppenheimerFunds, Inc.
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>
Oppenheimer Variable Account Funds
3410 South Galena Street, Denver, Colorado 80231-5099
1-800-525-7048
PART B
STATEMENT OF ADDITIONAL INFORMATION
________, 1996
___________________________________
This Statement of Additional Information of Variable
Account Funds consists of this cover page and the following documents:
1. Statement of Additional Information of Oppenheimer Variable Account
Funds dated May 1, 1996, filed herewith and incorporated herein by
reference.
2. Oppenheimer Variable Account Funds' Annual Report as of December 31,
1995, filed herewith and incorporated herein by reference.
3. Oppenheimer Variable Account Funds' Semi-Annual Report as of June 30,
1996, filed herewith and incorporated herein by reference.
4. Prospectus of JP Family of Funds dated May 1, 1996, filed herewith and
incorporated by reference.
5. Statement of Additional Information of JP Capital Appreciation Fund,
Inc., dated May 1, 1996, filed herewith and incorporated herein by
reference.
6. Statement of Additional Information of JP Investment Grade Bond Fund,
Inc., dated May 1, 1996, filed herewith and incorporated by reference.
7. Annual Report of JP Family of Funds as of December 31, 1995, filed
herewith and incorporated herein by reference.
8. Semi-Annual Report of JP Family of Funds as of June 30, 1996, filed
herewith and incorporated herein by reference.
9. Pro Forma Financial Statements.
This Statement of Additional Information (the "Statement of
Additional Information") is not a Prospectus. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement and Prospectus, which may be obtained by written request to
OppenheimerFunds Services ("OFS"), P.O. Box 5270, Denver, Colorado 80217,
or by calling OFS at the toll-free number shown above.
<PAGE>
Oppenheimer Variable Account Funds
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated May 1, 1996.
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is an investment company
consisting of nine 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 Growth & Income Fund ("Growth & Income 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 is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated May 1, 1996. It should be read
together with the Trust's Prospectus, which may be obtained by writing to
the Funds' Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270,
Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free
number shown above, and the Account Prospectus.
TABLE OF CONTENTS
Page
About the Funds
Investment Objectives and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 11
Other Investment Restrictions 19
How the Funds are Managed 20
Organization and History 20
Trustees and Officers of the Trust 20
The Manager and Its Affiliates 26
Brokerage Policies of the Funds 28
Performance of the Funds 30
About Your Account
How to Buy Shares 33
Dividends, Capital Gains and Taxes 36
Additional Information About the Funds 36
Financial Information About the Funds
Independent Auditors' Report 38
Financial Statements 39
Appendix A: Industry Classifications A-1
<PAGE>
ABOUT THE FUNDS
Investment Objectives and Policies
Investment Policies and Strategies. 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.
-- 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 OppenheimerFunds, Inc. (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 Service, Inc., Fitch
Investors Service, L.P., 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. 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 "Other Investment
Techniques and Strategies - Illiquid and Restricted Securities" in the
Prospectus.
-- Floating Rate/Variable Rate Notes. Money Fund may invest in
instruments with floating or variable interest rates. The interest rate
on a floating rate obligation is based on a stated prevailing market rate,
such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, the rate
of return on commercial paper or bank certificates of deposit, or some
other standard, and is adjusted automatically each time such market rate
is adjusted. The interest rate on a variable rate obligation is also
based on a stated prevailing market rate but is adjusted automatically at
a specified interval of no less than one year. Some variable rate or
floating rate obligations in which Money Fund may invest have a demand
feature entitling the holder to demand payment at an amount approximately
equal to amortized cost or the principal amount thereof plus accrued
interest at any time, or at specified intervals not exceeding one year.
These notes may or may not be backed by bank letters of credit. The
interest rates on these notes fluctuate from time to time. The issuer of
such obligations normally has a corresponding right, after a given period,
to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice
to the holders of such obligations. Generally, the changes in the
interest rate on such securities reduce the fluctuation in their market
value. As interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than that for fixed-rate obligations
of the same maturity.
-- Master Demand Notes. Master demand notes are corporate
obligations that permit the investment of fluctuating amounts by Money
Fund at varying rates of interest pursuant to direct arrangements between
Money Fund, as lender, and the corporate borrower that issues the note.
These notes permit daily changes in the amounts borrowed. 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
borrower 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 lending arrangements between the lender
and the borrower. There is no secondary market for these notes, although
they are redeemable and thus immediately repayable by the borrower at
face value, plus accrued interest, at any time. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, Money Fund's right to redeem is dependent upon the ability
of the borrower to pay principal and interest on demand. In evaluating
the master demand arrangements, the Manager considers the earning power,
cash flow, and other liquidity ratios of the issuer. If they are not
rated by Rating Organizations, Money Fund may invest in them only if, at
the time of an investment, they are Eligible Securities. The Manager will
continuously monitor the borrower's financial ability to meet all of its
obligations because Money Fund's liquidity might be impaired if the
borrower were unable to pay principal and interest on demand. There is
no limit on the amount of the Money Fund's assets that may be invested in
floating rate and variable rate obligations. Floating rate or variable
rate obligations which do not provide for recovery of principal and
interest within seven days' notice will be subject to the limitations
applicable to illiquid securities described in "Other Investment
Techniques and Strategies -Illiquid and Restricted Securities" in the
Prospectus.
-- 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.
-- Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund,
Growth & Income Fund, Strategic Bond Fund and Global Securities Fund. The
investment risks and rewards of certain of the investment policies of
these six 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 Companies. Each of these six Funds may invest
in securities of small unseasoned companies. These are companies that
have been in operation for less than three years, even after including the
operations of any of their predecessors. Securities of these companies
may have a limited liquidity (which means that a Fund may have difficulty
selling them at an acceptable price when it wants to) and the price of
those securities may be volatile.
-- Domestic Securities. Investments by Strategic Bond Fund, Growth
& Income Fund and Multiple Strategies Fund 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.
-- Investment Policies - Collateralized Securities. Each of these
Funds may invest in the collateralized securities described below. High
Income Fund, Bond Fund and Strategic Bond Fund are most likely to make
such investments.
-- 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.
-- Participation Interests. Strategic Bond Fund, Global Securities
Fund, High Income Fund, Multiple Strategies Fund and Growth & Income Fund
may invest in participation interests, subject to the limitation,
described in "Illiquid and Restricted 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 the net assets of Multiple Strategies
Fund, Growth & Income Fund or Strategic Bond Fund can be invested in
participation interests of the same borrower. 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.
-- Foreign Securities. As noted in the Prospectus, each Fund, other
than Money Fund, may invest in securities (which may be denominated in
U.S. dollars or non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (described below) and foreign
governments or their agencies or instrumentalities, and in securities
issued by U.S. corporations denominated in non-U.S. currencies. All of
these are considered to be "foreign securities." Money Fund may invest in
certain U.S. dollar-denominated foreign securities, as described in the
Prospectus. 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, Multiple Strategies Fund, Growth & Income 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. If a Fund's
portfolio securities are held abroad, the countries in which they may be
held and the sub-custodians or depositories holding them must be approved
by the Trust's Board of Trustees to the extent that the approval is
required under applicable rules of the Securities and Exchange Commission.
Under normal market conditions, Global Fund will invest its assets
in securities of issuers located in a minimum of five different foreign
countries; this minimum may be reduced to four foreign countries when
foreign country investments comprise less than 80% of the Fund's net
assets; to three foreign countries when such investments comprise less
than 60% of its net assets, to two foreign countries when such investments
comprise less than 40% of its net assets and to one foreign country when
such investments comprise less than 20% of its net assets. In addition,
no more than 20% of Global Fund's net assets shall be invested in
securities of issuers located in any one foreign country; that limit shall
be increased to 35% for securities located in Australia, Canada, France,
Japan, the United Kingdom or Germany. None of the above percentage limits
are fundamental policies.
-- Warrants and Rights. As described in the Prospectus, each Fund
other than Money Fund may invest in warrants and rights. Warrants
basically are options to purchase equity securities at set prices valid
for a specified period of time. Their prices do not necessarily move in
a manner 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 Agreements. 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 or broker-dealer which has been designated a primary dealer in
government securities which must meet the credit requirements set by the
Trust's Board of Trustees from time to time) for delivery on an agreed-
upon future date. The resale 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 impose creditworthiness requirements to confirm that
the vendor is financially sound and will continuously monitor the
collateral's value.
-- Loans of Portfolio Securities. Each Fund may lend its respective
portfolio securities subject to the restrictions stated 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', administrative or other fees the Fund pays in connection with
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.
-- Borrowing. From time to time, each of Capital Appreciation Fund,
Strategic Bond Fund, Growth Fund, Multiple Strategies Fund, Growth &
Income Fund and Global Fund may borrow from banks on an unsecured basis
to invest the borrowed funds in portfolio securities. Borrowing is
subject to the restrictions stated in the Prospectus. Any such borrowing
will be made only from banks. In addition to the percentage restrictions
stated in the Prospectus, the Investment Company Act requires that any
such borrowing will be made only 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, when computed in that manner, 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. To do so, the Fund may have to sell a portion of its
investments at a time when it would otherwise not want to sell the
securities. Borrowing for investment increases both investment
opportunity and risk. Interest on money borrowed is an expense these six
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.
-- 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. The commitment to purchase a security for
which payment will be made on a future date may be deemed a separate
security and involve risk of loss if the value of the security declines
prior to the settlement 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 identify assets to 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.
Other Investment Techniques and Strategies
Covered Calls and Hedging
As described in the Prospectus, each Fund (except Money Fund) may
each write covered calls and may also employ one or more types of Hedging
Instruments, including the futures identified in the Prospectus
("Futures").
The 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 a Fund to establish a position in the securities markets as a
temporary substitute for purchasing individual securities (which that Fund
will normally purchase, and then terminate that hedging position), or to
attempt to protect against the possibility that a Fund's portfolio debt
securities are not fully included in a rise in the 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, a 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, the Funds
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 any of the Funds (except Money Fund)
write 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.
The Funds may also write (and purchase) calls on foreign currencies.
A call written on a foreign currency by any of the 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 any of
the 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 Funds' 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.
A 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. Set forth below are the Hedging Instruments which the Funds
(except Money 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 a 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.
The 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.
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 Bond Fund,
High Income Fund and 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. These Funds 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 a 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. These Funds 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. The Rule does not limit the percentage of
each Fund's assets that may be used for Futures margin and related options
premiums for a bona fide hedging position. However, under the Rule each
Fund must limit its aggregate initial futures margin and related option
premiums to no more than 5% of that Fund's net assets for hedging
strategies that are not considered bona fide hedging strategies under the
Rule. Under the restrictions, each 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. That qualification enables each Fund to "pass-
through" its income and realized capital gains to shareholders without the
Fund having to pay tax on them. One of the tests for each Fund's
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. To comply with that 30% cap, 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. Each Fund (except Money Fund) may
sell securities short in "short sales against-the-box." In a short sale,
the seller does not own the security that is sold, but normally borrows
the security to fulfill the delivery obligation. The seller later buys
the security to repay the loan, in the expectation that the price of the
security will be lower when the purchase is made, resulting in a gain.
In a short sale against-the-box, the Fund owns an equivalent amount of the
securities sold short. This technique is primarily used for tax purposes.
Other Investment Restrictions
The significant investment restrictions of all the Funds are set
forth in the Prospectus. The following investment restrictions are also
fundamental policies. Fundamental policies and the Funds' investment
objectives cannot be changed without the vote of a "majority" 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: (1) 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 (2) more than 50% of the outstanding shares.
Under these additional restrictions, each of the Funds cannot: (1)
invest in oil or gas exploration or development programs; (2) invest in
real estate or in interests in real estate, but may purchase securities
of issuers holding real estate or interests therein; (3) invest in
companies for the purpose of acquiring control of management thereof; (4)
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; (5) 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 (6) 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.
For purposes of the Funds' policy not to concentrate described under
investment restriction number four in the Prospectus, the Funds have
adopted the industry classifications set forth in Appendix A to the
Statement of Additional Information. This is not a fundamental policy.
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 each Fund has
undertaken to comply with the diversification requirements of Section
10506 of the California Insurance Code (see "Other Investment Techniques
and Strategies -- Foreign Securities" in the Prospectus) and with the
regulations adopted under those statutes.
How the Funds are Managed
Organization and History. As a Massachusetts business trust, the Trust
is not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Trust will hold meetings when required to
do so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. At all shareholder meetings, shareholders only vote on
matters affecting their Fund. 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 record holders of 10% of its outstanding shares. In addition, if
the Trustees receive a request from at least 10 shareholders (who have
been shareholders for at least six months) holding shares of the Trust
valued at $25,000 or more or holding at least 1% of the Trust's
outstanding shares, whichever is less, stating 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 set forth under Section 16(c) of the Investment Company
Act. At all shareholder meetings, shareholders only vote on matters
affecting their Fund, and each Fund votes separately on such matters.
However, matters that require a vote by all shareholders of the Trust are
submitted to all the shareholders, without individual voting by Fund.
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 business trust (such as the
Trust) to be held personally liable as a "partner" under certain
circumstances, the risk of a Trust 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 its 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.
Trustees and Officers of the Trust. The Trust's Trustees and officers and
their principal occupations and business affiliations during the past five
years are set forth below. Each Trustee is also a Trustee, Director or
Managing General Partner of Daily Cash Accumulation Fund, Inc., Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Oppenheimer Total Return Fund, Inc., Oppenheimer Equity
Income Fund, Oppenheimer Champion Income Fund, Oppenheimer High Yield
Fund, Oppenheimer Cash Reserves, Oppenheimer Main Street Funds, Inc.,
Oppenheimer International Bond Fund, Oppenheimer Integrity Funds,
Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income & Growth
Fund, Centennial America Fund, L.P., Oppenheimer Tax-Exempt Fund,
Oppenheimer Limited-Term Government Fund, and The New York Tax-Exempt
Income Fund, Inc. (collectively, the "Denver-based Oppenheimer Funds")
except for Ms. Macaskill and Mr. Fossel, who are Trustees, Directors of
Managing General Partners of all the Denver-based Oppenheimer funds except
Oppenheimer Integrity Funds and Oppenheimer Strategic Income Fund. Ms.
Macaskill is President and Mr. Swain is Chairman of each of the Denver-
based Oppenheimer funds. As of March 31, 1996, none of the Trustees or
officers were Account owners and thus none owned any Fund shares.
Robert G. Avis, Trustee*, Age: 64
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; Age: 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems, Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, Trustee*: Age: 53
Two World Trade Center, New York, New York 10048-0203
Chairman and a director of the Manager; Director of Oppenheimer
Acquisition Corp. ("OAC"), the Manager's parent holding company of
Shareholder Services, Inc. ("SSI") and of Shareholder Financial Services,
Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly
President and Chief Executive Officer of the Manager.
Raymond J. Kalinowski, Trustee; Age: 66
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; 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.
__________________
*A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.
C. Howard Kast, Trustee; Age: 74
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age: 74
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Trustee*; Age 47
President, Chief Executive Officer and a Director of the Manager; Chairman
and a Director of SSI; President and a Director of OAC and HarbourView
Asset Management Corporation ("HarbourView"), a subsidiary of the Manager,
and a Director of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; formerly Executive Vice President of
the Manager.
Ned M. Steel, Trustee; Age: 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee*; Age: 62
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; formerly President and a director of
Centennial Asset Management Corporation, an investment adviser subsidiary
of the Manager ("Centennial"); formerly Chairman of the Board of SSI.
Andrew J. Donohue, Vice President and Secretary; Age: 44
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
Oppenheimer funds; President and a director of Centennial; formerly Senior
Vice President and Associate General Counsel of the Manager and OFDI;
formerly a Partner in Kraft & McManimon (a law firm), prior to which he
was an officer of First Investors Corporation (a broker-dealer) and First
Investors Management Company, Inc. (broker-dealer and investment adviser)
and a director and an officer of the First Investors Family of Funds and
First Investors Life Insurance Company.
George C. Bowen, Vice President and Treasurer; Age: 59
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 Oppenheimer
funds.
__________________
*A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.
Paul LaRocco, Vice President; Capital Appreciation Fund Portfolio Manager;
Age: 37
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; Associate Portfolio Manager for other
Oppenheimer funds; formerly a securities analyst with Columbus Circle
Investors, prior to which he was investment analyst for Chicago Title &
Trust Co.
Jane Putnam, Vice President; Growth Fund Portfolio Manager; Age 34
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; Associate Portfolio Manager of other
Oppenheimer funds; formerly a portfolio manager and equity research
analyst for Chemical Bank.
Michael S. Levine, Growth & Income Fund Assistant Portfolio Manager; Age:
29
Two World Trade Center, New York, New York 10048-0203
Assistant Vice President and Associate Portfolio Manager of the Manager;
formerly portfolio manager and research associate for Amas Securities,
Inc.; before which he was an analyst for Shearson Lehman Hutton, Inc.
David P. Negri, Vice President; High Income Fund, Bond Fund, Multiple
Strategies Fund and Strategic Bond Fund Portfolio Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds.
Richard H. Rubinstein, Vice President; Multiple Strategies Fund Portfolio
Manager; Age: 46
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other Oppenheimer
funds; formerly Vice President and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corporation (an investment adviser).
William L. Wilby, Vice President; Global Securities Fund Portfolio
Manager; Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager and HarbourView; formerly an
international investment strategist at Brown Brothers, Harriman & Co.,
prior to which he was a Managing Director and Portfolio Manager at AIG
Global Investors.
Robert C. Doll, Jr., Vice President; Growth & Income Fund Portfolio
Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Executive Vice President of the Manager; an officer of other Oppenheimer
funds.
Robert J. Milnamow, Vice President; Growth & Income Fund Portfolio
Manager;Age 45
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; previously a portfolio manager with Phoenix
Securities Group.
Robert G. Zack, Assistant Secretary; Age: 47
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., an
accounting firm, and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
Dorothy Warmack, Vice President; Money Fund Portfolio Manager; Age: 59
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager and Centennial; an officer of other
Oppenheimer funds.
-- Remuneration of Trustees. The officers of the Trust are
affiliated with the Manager; they and the Trustees of the Trust who are
affiliated with the Manager (Ms. Macaskill and Messrs. Swain and Fossel,
the first two of which are both officers and Trustees) receive no salary
or fee from the Trust. The Trustees of the Trust (excluding Ms. Macaskill
and Messrs. Fossel and Swain) received the total amounts shown below (i)
from the Trust during its fiscal year ended 12/31/95, and (ii) from all
21 of the Denver-based Oppenheimer funds (including the Trust) listed in
the first paragraph of this section, and from Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income
Fund, which ceased operations following the acquisition of their assets
by other Oppenheimer funds for services in the positions shown:
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From All
Compensation Denver-based
Name Position From Trust OppenheimerFunds 1
<S> <C> <C> <C>
Robert G. Avis Trustee $2,666.66 $53,000.00
William A. Baker Audit and Review $3,687.00 $73,254.66
Committee Chairman
and Trustee
Charles Conrad, Jr. Audit and Review $3,240.66 $64,309.17
Committee Member
and Trustee
Raymond J. Kalinowski Derivative Instruments
Oversight Committee
Member and
Trustee $3,272.06 $65,000.00
C. Howard Kast Derivative Instruments
Oversight Committee$3,272.06 $65,000.00
Member and
Trustee
Robert M. Kirchner Audit and Review $3,435.83 $68,292.00
Committee Member
and Trustee
Ned M. Steel Trustee $2,666.66 $53,000.00
</TABLE>
1 For the 1995 calendar year.
- -- Major Shareholders. As of March 20, 1996, the holders of 5% or more
of the outstanding shares of any Fund were separate accounts of (i)
Monarch Life Insurance Company ("Monarch"), Springfield, MA; (ii) Bankers
Security Life Insurance Society ("Bankers Security"), Arlington, VA; (iii)
The Life Insurance Company of Virginia ("Life of Virginia"), Richmond, VA;
(iv) Nationwide Life Insurance Company ("Nationwide"), Columbus, OH; (v)
Aetna Life Insurance and Annuity Company ("Aetna"), Hartford, CT; and (vi)
Massachusetts Mutual Life Insurance Company, Springfield, MA
("MassMutual"), and their respective subsidiaries. Such shares were held
as follows:
<TABLE>
<CAPTION>
Bankers Life of
Monarch Security Virginia Nationwide Aetna MassMutual
<S> <C> <C> <C> <C> <C> <C>
Money Fund 28,843,348.48013,945,774.4404,075,557.190 --22,435,463.4605,016,974.190
High Income 1,042,439.7122,325,060.0074,927,997.184 --3,298,397.248618,371.7263
Fund
Bond Fund * *2,213,298.74914,330,870.7511,564,766.511 *
Capital 744,912.2061,503,923.9492,927,071.615 --1,607,759.3813,583,873.584
Appreciation Fund
Growth Fund 1,017,311.860 *1,703,213.267 --1,891,039.097 506,904.991
506,904.99160
Multiple Strategies3,337,080.4493,547,546.0683,058,431.34512,567,058.4023,684,304.065652,683.866
Fund
Global Securities *1,710,533.795 --14,641,525.6083,055,954.3126,962,582.634
Fund
Strategic Bond -- * -- --3,189,527.12210,050,632.176
Fund
Growth & Income -- -- -- -- -- 619,575.663
Fund
</TABLE>
__________________
* Less than 5% of the outstanding shares of that Fund.
The Manager and Its Affiliates. The Manager is wholly-owned by
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 also
serve as officers of the Trust, and three of whom (Ms. Macaskill and
Messrs. Swain and Mr. Fossel) serve as Trustees of the Trust.
The Manager and the Funds have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of a Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
-- The Investment Advisory Agreements. The investment advisory
agreements between the Manager and the Trust for each of the nine Funds
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 corporate administration for 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.
Expenses not expressly assumed by the Manager under the advisory
agreement are paid by the Trust. The advisory 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 costs. Expenses with respect to any two or more
Funds are allocable 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 (except for Growth & Income Fund, which
commenced operations after December 31, 1994) were as follows:
<TABLE>
<CAPTION>
Fiscal year ended December 31,
1993 1994 1995
<S> <C> <C> <C>
Money Fund $212,358 $ 341,324 $ 338,483
High Income Fund $382,629 $ 617,198 $ 866,154
Bond Fund $361,258 $ 630,514 $1,280,422
Capital Appreciation Fund $407,611 $ 803,231 $1,790,785
Growth Fund $193,110 $ 307,904 $ 644,977
Multiple Strategies Fund $831,139 $1,433,107 $2,540,311
Global Securities Fund $227,226 $1,517,234 $2,451,556
Strategic Bond Fund (1) $ 18,509(1) $ 105,760 $ 281,335
Growth & Income Fund (2) $ 6,710(2)
____________________
</TABLE>
(1) From May 3, 1993 (commencement of operations) to December 31, 1993.
(2) From July 5, 1995 (commencement of operations) to December 31, 1995.
The advisory 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 advisory agreements, the Manager has voluntarily
undertaken since January 1, 1995 that the total expenses of any Fund shall
not exceed 2.5% of the first $30 million of average net assets of that
Fund, 2.0% of the next $70 million and 1.5% of average net assets over
$100 million. In addition, the Manager has voluntarily undertaken since
September 1, 1994 that it will limit the management fee charged under
Strategic Bond Fund's Agreement so that the ordinary operating expenses
of that Fund would not exceed 1.0% of its average net assets in any fiscal
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
a Fund to exceed its expense limitation. Other expense limits were in
effect prior to January 1, 1995. The Manager reserves the right to
terminate or amend the undertakings at any time. Any assumption of a
Fund's expenses under these limitations would lower that Fund's overall
expense ratio and increase its total return during any period in which
expenses are limited. The expense limitations in effect prior to the
above dates are contained in note 8 to the Funds' financial statements,
below.
-- The Transfer Agent. OppenheimerFunds Services, the Trust's
Transfer Agent, is responsible for maintaining the Trust's shareholder
registry and shareholder accounting records.
Brokerage Policies of the Funds
Brokerage Provisions of the Investment Advisory Agreements Affecting
Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund, Growth
& Income Fund, Global Securities Fund and Strategic Bond Fund. One of the
duties of the Manager under the advisory agreements is to arrange the
portfolio transactions for the Funds. The advisory agreements contain
provisions relating to the employment of broker-dealers ("brokers") to
effect the Funds' portfolio transactions. In doing so, the Manager is
authorized by the advisory agreements to employ broker-dealers, including
"affiliated" brokers, 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 minimize the commissions
paid to the extent consistent with the interests and policies of the Funds
as established by the Board of Trustees. 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.
Under the advisory agreements, the Manager is authorized to select
brokers that 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 fair and
reasonable in relation to the services provided.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreements, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. 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 or for certain fixed-income agency
transactions in the secondary market, and are otherwise paid only if it
appears likely that a better price or execution can be obtained. When
Funds engage in an option transaction, ordinarily the same broker will be
used for the purchase or sale of the option and any transaction in the
securities to which the option relates. When 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 of 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 Fund normally deals directly with the selling or
purchasing principal or market maker unless the Manager determines that
a better price or execution can be obtained by using a broker. Purchases
of these securities from underwriters include a commission or concession
paid by the issuer to the underwriter. Purchases from dealers include a
spread between the bid and asked prices. The Funds seek to obtain prompt
execution of these 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 received 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 and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, 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 in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed price offerings to obtain research in the same
manner as is permitted for agency transactions. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to the
Manager that: (i) the trade is not from or for the broker's own inventory,
(ii) the trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
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 by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Trust (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 or 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 transactions 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.
During the Funds' fiscal years ended December 31, 1993, 1994 and
1995, total brokerage commissions paid by the Funds (not including spreads
or concessions on principal transactions on a net trade basis) were
$139,429, $1,570,251 and $4,083,132, respectively, for Capital
Appreciation Fund; $6,723, $13,640 and $104,203, respectively, for High
Income Fund; $33,497, $96,732 and $152,870, respectively, for Growth Fund;
$176,858, $332,782 and $400,275, respectively, for Multiple Strategies
Fund; $352,908, $2,245,838 and $2,826,016, respectively for Global
Securities Fund; 0, $3,742 and $13,074, respectively, for Strategic Bond
Fund; $3,742 for Bond Fund; and $42,952 for Growth & Income Fund. During
the fiscal year ended December 31, 1995, $85,181, $76,831, $124,622,
$2,390,090, $84 and $1,121 was paid by Capital Appreciation Fund,Growth
Fund, Multiple Strategies Fund, Global Securities Fund, High Income Fund
and Growth & Income Fund, respectively, to dealers as brokerage
commissions in return for research services; the aggregate amount of those
transactions was $13,766,311, $44,158,624, $40,912,338, $637,535,747,
$30,381 and $695,038 for Capital Appreciation Fund, Growth Fund, Multiple
Strategies Fund, Global Securities Fund, High Income Fund and Growth &
Income Fund, respectively.
Performance of the Funds
-- 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, 1995, Money Fund's "current yield" was 5.29% and its
compounded "effective yield" for that period was 5.43%.
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:
Standardized Yield = 2 [ a-b + 1)6 - 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,
1995, the yield of High Income Fund, Bond Fund and Strategic Bond Fund,
calculated as described above, was 9.64%, 5.95% and 7.88%, 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.
-- Dividend Yield and Distribution Return. 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, Bond Fund and
Strategic Bond Fund for the quarter ended December 31, 1995, was 11.29%,
6.76% and 7.83%, respectively.
Total Return. Each Fund, except 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 cumulative "total return" calculation measures the change in value of
a hypothetical investment of $1,000 over a stated period. Its calculation
uses some of the same factors as average annual total return, but it does
not average the rate of return on an annual basis. Cumulative 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:
<TABLE>
<CAPTION>
Average Annual Total Return for:
Cumulative
Total
Fiscal Year Five Year Return From
Ended Period Inception(1)Inception(1)
Fund 12/31/95 Ended 12/31/95 to 12/31/95to 12/31/95
<S> <C> <C> <C>
High Income Fund 20.37% 18.38% 13.27% 233.69%
Bond Fund 17.00% 10.19% 10.43% 190.45%
Capital Appreciation Fund32.52% 22.73% 15.20% 276.81%
Growth Fund 36.65% 16.30% 13.57% 292.56%
Multiple Strategies Fund 21.36% 12.05% 11.09% 154.75%
Global Securities Fund 2.24% 9.53% 9.36% 58.30%
Strategic Bond Fund 15.33% N/A 5.63% 15.69%
Growth & Income Fund N/A N/A N/A 25.25%
</TABLE>
______________
(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; November
12, 1990 for Global Securities Fund; May 3, 1993 for Strategic Bond Fund;
and 7/5/95 for Growth & Income Fund.
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.
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 alternatives 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.
Other Performance Comparisons. 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 Funds, and
ranks their performance for various periods based on categories relating
to investment objectives. The performance of the Funds is ranked against
all other funds underlying variable insurance products. 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 Trust cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including Lipper.
From time to time the Trust may publish the ranking of the performance
of any of the separate accounts that offer any of the Funds by
Morningstar, Inc., an independent mutual fund monitoring service, that
ranks mutual funds, including the Funds, monthly in broad investment
categories (equity, taxable bond, municipal bond and hybrid) based on
risk-adjusted investment return. Investment return measures a fund's
three, five and ten-year average annual total returns (when available) in
excess of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill monthly returns. Risk and return are combined to produce
star rankings reflecting performance relative to the average fund in a
fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" (next
35%), two stars is "below average" (next 22.5%) and one star is "lowest"
(bottom 10%). Rankings are subject to change.
About Your Account
How To Buy 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 Statement of Additional Information and 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 the
close of business of The New York Stock Exchange (the "Exchange") on each
day that the Exchange is open, by dividing the value of the Fund's net
assets by the number of shares that are outstanding. The Exchange
normally closes at 4:00 P.M., New York time, but may close earlier on some
days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which
is subject to change) states that it will close on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers may conduct trading at times when the Exchange is closed
(including weekends and holidays). 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 on those days, the net asset values per share of the Funds may
be significantly affected at times when shareholders may not purchase or
redeem shares.
The Trust's Board of Trustees has established procedures for the
valuation of each Fund's (other than the Money Fund's) securities,
generally as follows: (i) equity securities traded on a U.S. securities
exchange or on NASDAQ for which last sale information is regularly
reported are valued at the last reported sale price 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) securities actively traded on a
foreign securities exchange are valued at the last sales price available
to the pricing service approved by the Board of Trustees or to the Manager
as reported by the principal exchange on which the security is traded;
(iii) unlisted foreign securities or listed foreign securities not
actively traded are valued at the mean between "bid" and "asked" prices
determined by a pricing service approved by the Board of Trustees or by
the Manager; (iv) long-term debt securities having a remaining 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 Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (v) debt instruments having a maturity of
more than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a remaining
maturity of 60 days or less are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (vi) money market-type debt securities having
a maturity of less than one year when issued that having a remaining
maturity of 60 days or less are valued at cost, adjusted for amortization
of premiums and accretion of discounts; and (vii) securities (including
restricted securities) not having readily-available market quotations are
valued at fair value under the Board's procedures; (viii) securities
denominated in foreign currency are converted to U.S. dollars at the
prevailing rates of exchange at the closing price on the London foreign
exchange market as provided by a reliable bank, dealer or pricing
services; and (ix) foreign currency, including forward contracts, will be
valued at the closing price in the London foreign exchange market as
provided by a reliable bank, dealer or pricing service.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of The New York
Stock Exchange. Events affecting the values of foreign securities traded
in stock markets that occur between the time their prices are determined
and the close of the Exchange will not be reflected in a Fund's
calculation of net asset value unless the Board of Trustees or the
Manager, under procedures established by the Board of Trustees, determines
that the particular event would materially affect a Fund's net asset
value, in which case an adjustment would be made, if necessary.
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.
Puts, calls and Futures held by a Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ as
applicable, as determined by a pricing service approved by the Board of
Trustees or by the Manager, 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.
In determining a Fund's gain on investments, if a call written by that
Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by a Fund expires, that Fund has a gain in the
amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the premium
was more or less than the cost of the closing transaction. If a Fund
exercises a put it holds, the amount that Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by the
Fund.
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 Trust'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, 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 Money Fund shares 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 Money Fund shares will tend to be higher than that of a
portfolio priced at market value.
Dividends, Capital Gains and Taxes
Distributions and Taxes. 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.
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.
Additional Information About the Funds
The Custodian and the Transfer Agent. The Bank of New York is the
custodian of the Trust's securities. 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.
OppenheimerFunds Services, a subsidiary of the Manager, is responsible
as Transfer Agent for maintaining the Trust's shareholder registry and
shareholder accounting records, and for administrative functions. It also
acts as the shareholder servicing agent for the other Oppenheimer funds.
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>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Variable Account
Funds:
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, of Oppenheimer Bond Fund and
Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable
Account Funds) as of December 31, 1995, the related statements of
operations for the year then ended, the statements of changes in net
assets for the years ended December 31, 1995 and 1994, and the financial
highlights for the applicable periods ended December 31, 1995, 1994,
1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986. These financial
statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned at December 31, 1995 by
correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Oppenheimer Money Fund, Oppenheimer High Income Fund, Oppenheimer Bond
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund,
Oppenheimer Multiple Strategies Fund, Oppenheimer Global Securities
Fund, Oppenheimer Strategic Bond Fund and Oppenheimer Growth & Income
Fund at December 31, 1995, the results of their operations, the
changes in their net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
- -----------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
January 22, 1996
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) (Note 1)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit - 1.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank CD:
19%, 1/19/96 (2) IDR 2,853,750,000 $ 1,248,126
27.40%, 3/22/96 (2) HUF 139,510,000 1,021,112
- ------------------------------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD, Zero Coupon,
15.914%, 6/17/96 (2)(3) IDR 2,000,000,000 805,011
- ------------------------------------------------------------------------------------------------------------------------------------
Krungthai Thanakit CD, Zero Coupon, 11.533%, 2/29/96
(2)(3) THB 25,000,000 968,966
-----------------
Total Certificates of Deposit (Cost $4,063,089) 4,043,215
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Obligations - 18.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Agency - 11.5%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored - 7.7%
------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
7%, 11/1/25 1,888,319 1,903,653
7%, 11/1/25 7,990,664 8,055,548
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 8.75%
11/25/05 3,000,000 3,262,500
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, 10.40%, 4/25/19 2,000,000 2,193,120
Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl.
2, 11.79%, 2/1/24 (4) 2,638,404 739,990
-----------------
16,154,811
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed - 3.8%
------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
6%, 10/20/25 4,986,569 5,036,435
6%, 10/20/24 2,939,612 3,009,429
-----------------
8,045,864
- ------------------------------------------------------------------------------------------------------------------------------------
Private - 6.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial - 3.1%
------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-
Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25 (5) 1,500,000 1,617,187
Cl. 2-E, 8.70%, 9/25/25 (5) 1,500,000 1,604,531
------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through
Certificates, Series 1995-C2, Cl. C, 7.70%, 6/15/21 (6) 993,670
1,025,033
------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,053,588
1,079,599
Series 1992-CHF, Cl. E, 8.25%, 12/25/20 931,256
913,795
Series 1994-C1, Cl. A, 7.25%, 6/25/26 302,117
301,740
-----------------
6,541,885
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family - 3.7%
------------------------------------------------------------------------------------------------------------------------------
Countrywide Funding Corp., Series 1993-12, Cl. Bl, 1,000,000
942,500
6.625%, 2/25/24
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Mortgage-Backed Obligations (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Private (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family (Continued)
------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 $ 2,295,071 $
2,429,907
Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000
1,603,594
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000
2,865,000
-----------------
7,841,001
-----------------
Total Mortgage-Backed Obligations (Cost $37,340,024)
38,583,561
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations - 40.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury - 40.3%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
6.875%, 8/15/25 8,000,000 9,027,495
7.125%, 2/15/23 3,000,000 3,427,500
8%, 11/15/21 5,000,000 6,259,375
------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
6%, 12/31/97 3,000,000 3,047,811
6.25%, 5/31/00 10,000,000 10,343,750
6.375%, 6/30/97 1,000,000 1,017,187
6.50%, 5/15/05-8/15/05 18,000,000 19,182,809
6.875%, 3/31/00 5,000,000 5,289,065
7.25%, 5/15/04-8/15/04 7,000,000 7,787,812
7.375%, 11/15/97 2,000,000 2,076,250
7.50%, 2/15/05 5,000,000 5,676,559
7.75%, 12/31/99-1/31/00 6,000,000 6,519,374
7.875%, 6/30/96-11/15/04 3,000,000 3,329,999
9.25%, 8/15/98 2,000,000 2,193,124
-----------------
Total U.S. Government Obligations (Cost $79,215,729)
85,178,110
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government Obligations - 13.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Australia (Commonwealth of) Bonds, 12.50%, 1/15/98 AUD 960,000
782,889
------------------------------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds:
7.75%, 9/1/99 CAD 347,000 266,514
Series A-76, 9%, 6/1/25 CAD 321,000 274,798
------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) 1989-1990 Integrated Loan Facility
Bonds, 6.875%, 7/1/01 (6)(7) 1,714,400 1,594,392
------------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento Sr. Unsec. Debs.:
6.625%, 10/14/98 (5) 1,000,000 999,375
7.25%, 4/30/98 (5) 1,000,000 998,125
------------------------------------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds:
7%, 11/10/24 DKK 6,300,000 1,014,039
8%, 3/15/06 DKK 1,880,000 357,728
------------------------------------------------------------------------------------------------------------------------------
Financiera Energetica Nacional:
Nts., 6.625%, 12/13/96 2,350,000 2,347,062
SA Medium-Term Nts., 9%, 11/8/99 400,000
419,500
------------------------------------------------------------------------------------------------------------------------------
France (Government of) Obligation Assimilable du Tresor
Debs., 9.50%, 6/25/98 FRF 1,196,000 267,600
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Foreign Government Obligations (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Germany (Republic of) Bonds:
7.75%, 10/1/04 DEM $ 5,350,000 $ 4,106,853
Series 94, 6.25%, 1/4/24 DEM 2,900,000 1,887,370
------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development
Bonds, 12.50%, 7/25/97 NZD 1,000,000
696,248
------------------------------------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds, Buoni del Tesoro
Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 2,872,821
------------------------------------------------------------------------------------------------------------------------------
National Treasury Management Agency (Irish Government)
Bonds, 8%, 10/18/00 IEP 405,000 682,226
------------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 1,720,000
1,155,621
------------------------------------------------------------------------------------------------------------------------------
Norwegian Government Bonds, 9.50%, 10/31/02 NOK 11,340,000
2,124,639
------------------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Debs., 7.75%, 7/13/00 1,500,000
1,530,000
------------------------------------------------------------------------------------------------------------------------------
Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio
Prazo, 11.875%, 2/23/00 PTE 65,000,000 468,838
------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000
1,082,500
------------------------------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del
Estado, 12.25%, 3/25/00 ESP 156,000,000
1,405,755
------------------------------------------------------------------------------------------------------------------------------
Sweden (Kingdom of) Bonds, Series 1028, 11%, 1/21/99 SEK 4,400,000
714,422
------------------------------------------------------------------------------------------------------------------------------
United Kingdom Treasury:
Debs., 8.50%, 12/7/05 GBP 337,000 562,305
Nts., 10%, 2/26/01 GBP 310,000 544,176
------------------------------------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, Series 98,
12.50%, 4/1/98 AUD 200,000 164,222
-----------------
Total Foreign Government Obligations (Cost $28,915,289)
29,320,018
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds and Notes - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Pinole, California Redevelopment Agency Tax Allocation
Taxable Bonds, Pinole Vista Redevelopment, Series B,
8.35%, 8/1/17 670,000 733,429
------------------------------------------------------------------------------------------------------------------------------
Dade County, Florida Educational Facilities Authority:
Exchangeable Revenue Bonds, University of Miami
Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000
201,294
Revenue Bonds, University of Miami, MBIA Insured, 7.65%
4/1/10 205,000 230,154
Taxable Exchange Revenue Bonds, University of Miami,
MBIA Insured, 9.70%, 4/1/10 120,000 134,724
------------------------------------------------------------------------------------------------------------------------------
Port of Portland, Oregon Special Obligation Taxable
Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000
546,886
-----------------
Total Municipal Bonds and Notes (Cost $1,663,728)
1,846,487
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes - 16.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industry - 2.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.2%
------------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000
2,389,670
- ------------------------------------------------------------------------------------------------------------------------------------
Paper - 1.5%
------------------------------------------------------------------------------------------------------------------------------
Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000
850,994
------------------------------------------------------------------------------------------------------------------------------
Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000
805,629
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Corporate Bonds and Notes (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industry (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Paper (Continued)
------------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized
Nts., 7/20/15 $ 1,546,483 $ 1,571,753
-----------------
3,228,376
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Related - 2.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Food/Beverages/Tobacco - 0.8%
------------------------------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc.
Nts., 11/1/02 (8) 1,315,000 1,239,388
------------------------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000
507,702
-----------------
1,747,090
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare - 0.6%
------------------------------------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000
1,189,530
- ------------------------------------------------------------------------------------------------------------------------------------
Hotel/Gaming - 0.2%
------------------------------------------------------------------------------------------------------------------------------
Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000
379,439
- ------------------------------------------------------------------------------------------------------------------------------------
Textile/Apparel - 0.5%
------------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000
1,108,417
- ------------------------------------------------------------------------------------------------------------------------------------
Toys - 0.5%
------------------------------------------------------------------------------------------------------------------------------
Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,017,927
- ------------------------------------------------------------------------------------------------------------------------------------
Energy - 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000
551,957
------------------------------------------------------------------------------------------------------------------------------
Coastal Corp.:
11.75% Sr. Debs., 6/15/06 2,000,000 2,126,614
9.75% Sr. Debs., 8/1/03 200,000 238,950
------------------------------------------------------------------------------------------------------------------------------
Enron Corp., 9.875% Debs., 6/15/03 375,000
457,052
------------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 400,000
454,472
------------------------------------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts.
1/15/02 1,000,000 1,146,689
------------------------------------------------------------------------------------------------------------------------------
Sonat, Inc., 9.50% Nts., 8/15/99 250,000 278,659
------------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000
585,022
------------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc.:
10% Debs., 3/15/08 400,000 497,656
7.875% Nts., 10/1/02 650,000 709,766
-----------------
7,046,837
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services - 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Banks & Thrifts - 1.0%
------------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec. Nts.
9.931%, 6/15/96 (3)(5) 500,000 479,040
------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 100,000
102,362
------------------------------------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Capital Nts., 6/15/99 200,000
224,742
------------------------------------------------------------------------------------------------------------------------------
First Chicago Corp.:
11.25% Sub. Nts., 2/20/01 750,000 923,495
9% Sub. Nts., 6/15/99 150,000 165,177
------------------------------------------------------------------------------------------------------------------------------
First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 165,000
176,247
------------------------------------------------------------------------------------------------------------------------------
First Fidelity Bancorporation, 8.50% Sub. Capital Nts.,
4/1/98 100,000 105,456
-----------------
2,176,519
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial - 0.7%
------------------------------------------------------------------------------------------------------------------------------
American Car Line Co., 8.25% Equipment Trust
Certificates, Series 1993-A, 4/15/08 627,000 659,134
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Corporate Bonds and Notes (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial (Continued)
------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 $ 700,000 $
744,198
-----------------
1,403,332
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.9%
------------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Debs., 8/1/17 800,000
898,110
------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
5.50% Nts., 12/15/01 300,000 289,647
7.75% Nts., 4/15/97 700,000 713,318
-----------------
1,901,075
- ------------------------------------------------------------------------------------------------------------------------------------
Media - 3.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television - 2.2%
------------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment LP/Time Warner, Inc., 8.375%
Sr. Debs., 3/15/23 1,850,000 2,009,405
------------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000
2,588,914
-----------------
4,598,319
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Media - 1.3%
------------------------------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (5) 1,151,691
1,389,228
------------------------------------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
10.125% Gtd. Sr. Debs., 10/15/12 500,000 608,130
12% Sr. Nts., 12/15/01 500,000 558,673
------------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.15% Debs., 2/1/23 300,000
342,093
-----------------
2,898,124
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment/Film - 0.4%
------------------------------------------------------------------------------------------------------------------------------
Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub.
Nts., 2/1/98 500,000 541,242
------------------------------------------------------------------------------------------------------------------------------
Eastman Kodak Co., 10% Nts., 6/15/01 250,000
254,730
-----------------
795,972
- ------------------------------------------------------------------------------------------------------------------------------------
Retail - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Drug Stores - 0.3%
------------------------------------------------------------------------------------------------------------------------------
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000
657,191
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Railroads - 0.2%
------------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000
455,554
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.0%
------------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000
779,528
------------------------------------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 150,000
144,552
------------------------------------------------------------------------------------------------------------------------------
New Zealand Electric Corp., 10% Debs., 6/15/9 NZD 650,000
426,765
------------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds,
3/1/22 750,000 852,330
-----------------
2,203,175
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications - 0.3%
------------------------------------------------------------------------------------------------------------------------------
GTE Corp., 9.375% Debs., 12/1/00 500,000
567,703
-----------------
Total Corporate Bonds and Notes (Cost $34,673,470)
35,764,250
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for Common
Stock of Lyondell Petrochemical Co., 9/15/97 $ 15,000 $
352,500
------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 8.375%, Series K 25,000
646,875
-----------------
Total Preferred Stocks (Cost $1,076,533) 999,375
Principal
Amount(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Instruments - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99
(representing debt of Chemical Banking Corp., sub. capital
nts., and equity of Citicorp, 7.75% preferred, series 22) (Cost
$1,100,540) (7)(9) $ 1,000,000 1,151,000
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement - 4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.90%, dated 12/29/95, to be repurchased at $8,505,572 on
1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%,
12/31/96-11/5/04, with a value of $4,613,862, U.S. Treasury
Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of
$2,796,111, and U.S. Treasury Bills maturing 11/14/96, with
a value of $1,267,996 (Cost $8,500,000) 8,500,000
8,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $196,548,402) 97.2%
205,386,016
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 2.8 5,845,754
-------------- -----------------
Net Assets 100.0% $ 211,231,770
==============
=================
</TABLE>
1. Principal amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollarh
CAD - Canadian Dollar
DEM - German Deutsche Mark
DKK - Danish Krone
ESP - Spanish Peseta
FRF - French Franc
GBP - British Pound Sterling
HUF - Hungarian Forint
IDR - Indonesian Rupiah
IEP - Irish Punt
ITL - Italian Lira
NOK - New Zealand Dollar
PTE - Portuguese Escudo
SEK - Swedish Krona
THB - Thai Baht
2. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign currency.
3. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
4. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline.
The principal amount of the underlying pool represents the notional amount
on which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates disclosed represent current yields based upon the current cost basis
and estimated timing and amount of future cash flows.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
5. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $7,087,486 or 3.36% of the Fund's
net assets, at December 31, 1995.
6. Represents the current interest rate for a variable rate security.
7. Identifies issues considered to be illiquid - See Note 7 of Notes to
Financial Statements.
8. Denotes a step bond: a zero coupon bond that converts to a fixed rate
of interest at a designated future date.
9. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents
total underlying principal.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Common Stocks - 80.1%
- ---------------------------------------------------------------------------------------------------
Basic Materials - 6.3%
- ---------------------------------------------------------------------------------------------------
Chemicals - 4.5%
---------------------------------------------------------------------------------------------
FMC Corp. (1) 4,000 $ 270,500
---------------------------------------------------------------------------------------------
Georgia Gulf Corp. 19,000 584,250
---------------------------------------------------------------------------------------------
IMC Global, Inc. 16,000 654,000
---------------------------------------------------------------------------------------------
Morton International, Inc. 29,000 1,040,375
---------------------------------------------------------------------------------------------
PPG Industries, Inc. 18,000 823,500
---------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (1) 80,600 654,875
---------------------------------------------------------------------------------------------
Terra Industries, Inc. 46,000 649,750
---------------------------------------------------------------------------------------------
Union Carbide Corp. 17,000 637,500
----------------
5,314,750
- ---------------------------------------------------------------------------------------------------
Metals - 0.3%
---------------------------------------------------------------------------------------------
Reynolds Metals Co. 7,000 396,375
- ---------------------------------------------------------------------------------------------------
Paper - 1.5%
---------------------------------------------------------------------------------------------
Boise Cascade Corp. 17,000 588,625
---------------------------------------------------------------------------------------------
Bowater, Inc. 5,000 177,500
---------------------------------------------------------------------------------------------
Federal Paper Board Co. 7,000 363,125
---------------------------------------------------------------------------------------------
Willamette Industries, Inc. 11,000 618,750
----------------
1,748,000
- ---------------------------------------------------------------------------------------------------
Consumer Cyclicals - 10.7%
---------------------------------------------------------------------------------------------
Autos & Housing - 1.4%
---------------------------------------------------------------------------------------------
Pulte Corp. 17,000 571,625
---------------------------------------------------------------------------------------------
Toll Brothers, Inc. (1) 46,000 1,058,000
----------------
1,629,625
- ---------------------------------------------------------------------------------------------------
Leisure & Entertainment - 3.3%
---------------------------------------------------------------------------------------------
Applebee's International, Inc. 18,000 409,500
---------------------------------------------------------------------------------------------
Callaway Golf Co. 25,000 565,625
---------------------------------------------------------------------------------------------
ITT Corp. (New) 5,000 265,000
---------------------------------------------------------------------------------------------
McDonald's Corp. 11,000 496,375
---------------------------------------------------------------------------------------------
Walt Disney Co. 25,000 1,475,000
---------------------------------------------------------------------------------------------
Wendy's International, Inc. 33,800 718,250
----------------
3,929,750
- ---------------------------------------------------------------------------------------------------
Media - 0.2%
---------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B (1) 3,667 173,724
- ---------------------------------------------------------------------------------------------------
Retail: General - 3.2%
---------------------------------------------------------------------------------------------
Jones Apparel Group, Inc. (1) 17,100 673,312
---------------------------------------------------------------------------------------------
May Department Stores Co. 6,000 253,500
---------------------------------------------------------------------------------------------
Nautica Enterprises, Inc. 10,200 446,250
---------------------------------------------------------------------------------------------
Tommy Hilfiger Corp. 22,500 953,437
---------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 26,000 581,750
---------------------------------------------------------------------------------------------
Warnaco Group, Inc. (The), Cl. A 33,000 825,000
----------------
3,733,249
- ---------------------------------------------------------------------------------------------------
Retail: Specialty - 2.6%
---------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. (1) 9,000 349,312
---------------------------------------------------------------------------------------------
Gap, Inc. (The) 10,000 420,000
---------------------------------------------------------------------------------------------
General Nutrition Cos., Inc. (1) 40,000 920,000
---------------------------------------------------------------------------------------------
Home Depot, Inc. 24,000 1,149,000
---------------------------------------------------------------------------------------------
OfficeMax, Inc. (1) 8,000 179,000
----------------
3,017,312
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals - 17.6%
- ---------------------------------------------------------------------------------------------------
Beverages - 1.4%
---------------------------------------------------------------------------------------------
Boston Beer Co., Inc., Cl. A (1) 6,600 $ 156,750
---------------------------------------------------------------------------------------------
Coca-Cola Co. (The) 10,000 742,500
---------------------------------------------------------------------------------------------
PepsiCo, Inc. 10,000 558,750
---------------------------------------------------------------------------------------------
Whitman Corp. 8,000 186,000
----------------
1,644,000
- ---------------------------------------------------------------------------------------------------
Food - 3.1%
---------------------------------------------------------------------------------------------
ConAgra, Inc. 4,000 165,000
---------------------------------------------------------------------------------------------
H.J. Heinz Co. 15,000 496,875
---------------------------------------------------------------------------------------------
IBP, Inc. 20,000 1,010,000
---------------------------------------------------------------------------------------------
Kroger Co. (1) 14,000 525,000
---------------------------------------------------------------------------------------------
Safeway, Inc. (1) 16,000 824,000
---------------------------------------------------------------------------------------------
Smithfield Foods, Inc. (1) 21,000 666,750
----------------
3,687,625
- ---------------------------------------------------------------------------------------------------
Healthcare/Drugs - 5.6%
---------------------------------------------------------------------------------------------
Abbott Laboratories 27,000 1,127,250
---------------------------------------------------------------------------------------------
Amgen, Inc. 8,000 475,000
---------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 6,500 558,187
---------------------------------------------------------------------------------------------
Johnson & Johnson 12,000 1,027,500
---------------------------------------------------------------------------------------------
Pfizer, Inc. 26,500 1,669,500
---------------------------------------------------------------------------------------------
Schering-Plough Corp. 16,000 876,000
---------------------------------------------------------------------------------------------
Warner-Lambert Co. 6,000 582,750
---------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. (1) 6,000 294,000
----------------
6,610,187
- ---------------------------------------------------------------------------------------------------
Healthcare/Supplies & Services - 4.2%
---------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 12,000 609,000
---------------------------------------------------------------------------------------------
Cordis Corp. (1) 2,000 201,000
---------------------------------------------------------------------------------------------
HealthCare COMPARE Corp. (1) 20,000 870,000
---------------------------------------------------------------------------------------------
Lincare Holdings, Inc. (1) 35,000 875,000
---------------------------------------------------------------------------------------------
Medtronic, Inc. 34,000 1,899,750
---------------------------------------------------------------------------------------------
Nellcor Puritan Bennett, Inc. (1) 8,800 510,400
----------------
4,965,150
- ---------------------------------------------------------------------------------------------------
Household Goods - 0.9%
---------------------------------------------------------------------------------------------
Procter & Gamble Co. 13,000 1,079,000
- ---------------------------------------------------------------------------------------------------
Tobacco - 2.4%
---------------------------------------------------------------------------------------------
Philip Morris Cos., Inc. 16,000 1,448,000
---------------------------------------------------------------------------------------------
UST, Inc. 41,000 1,368,375
----------------
2,816,375
- ---------------------------------------------------------------------------------------------------
Energy - 1.5%
---------------------------------------------------------------------------------------------
Oil-Integrated - 1.5%
---------------------------------------------------------------------------------------------
Mobil Corp. 6,000 672,000
---------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 3,500 493,938
---------------------------------------------------------------------------------------------
USX-Marathon Group 25,000 487,500
---------------------------------------------------------------------------------------------
YPF Sociedad Anonima, Sponsored ADR 5,000 108,125
----------------
1,761,563
- --------------------------------------------------------------------------------------------------
Financial - 13.7%
---------------------------------------------------------------------------------------------
Banks - 4.3%
---------------------------------------------------------------------------------------------
Bank of Boston Corp. 23,000 1,063,750
---------------------------------------------------------------------------------------------
Chase Manhattan Corp. 6,000 363,750
----------------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Financial (Continued)
- ---------------------------------------------------------------------------------------------------
Banks (Continued)
---------------------------------------------------------------------------------------------
Chemical Banking Corp. 9,000 $ 528,750
---------------------------------------------------------------------------------------------
First Interstate Bancorp 6,500 887,250
---------------------------------------------------------------------------------------------
Midlantic Corp. 12,000 787,500
---------------------------------------------------------------------------------------------
NationsBank Corp. 10,000 696,250
---------------------------------------------------------------------------------------------
State Street Boston Corp. 16,600 747,000
----------------
5,074,250
- ---------------------------------------------------------------------------------------------------
Diversified Financial - 7.4%
---------------------------------------------------------------------------------------------
Advanta Corp., Cl. A 15,000 573,750
---------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette, Inc. (1) 6,200 193,750
---------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 8,000 668,000
---------------------------------------------------------------------------------------------
Federal National Mortgage Assn. 8,000 993,000
---------------------------------------------------------------------------------------------
First USA, Inc. 25,000 1,109,375
---------------------------------------------------------------------------------------------
Green Tree Financial Corp. 56,000 1,477,000
---------------------------------------------------------------------------------------------
Money Store, Inc. (The) 23,000 359,375
---------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc. 3,000 241,875
---------------------------------------------------------------------------------------------
Price (T. Rowe) Associates 20,400 1,004,700
---------------------------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 29,000 583,625
---------------------------------------------------------------------------------------------
Travelers Group, Inc. 24,000 1,509,000
----------------
8,713,450
- ---------------------------------------------------------------------------------------------------
Insurance - 2.0%
---------------------------------------------------------------------------------------------
AFLAC, Inc. 5,250 227,719
---------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 5,000 241,875
---------------------------------------------------------------------------------------------
MGIC Investment Corp. 14,100 764,925
---------------------------------------------------------------------------------------------
SunAmerica, Inc. 24,000 1,140,000
----------------
2,374,519
- ---------------------------------------------------------------------------------------------------
Industrial - 7.1%
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 2.2%
---------------------------------------------------------------------------------------------
Emerson Electric Co. 17,500 1,430,625
---------------------------------------------------------------------------------------------
General Electric Co. 13,000 936,000
---------------------------------------------------------------------------------------------
Honeywell, Inc. 2,000 97,250
---------------------------------------------------------------------------------------------
Kemet Corp. 6,000 143,250
----------------
2,607,125
- ---------------------------------------------------------------------------------------------------
Industrial Materials - 1.6%
---------------------------------------------------------------------------------------------
Ball Corp. 10,000 275,000
---------------------------------------------------------------------------------------------
Centex Corp. 14,000 486,500
---------------------------------------------------------------------------------------------
Fluor Corp. 8,000 528,000
---------------------------------------------------------------------------------------------
Rayonier, Inc. 19,400 647,475
----------------
1,936,975
- ---------------------------------------------------------------------------------------------------
Industrial Services - 1.0%
---------------------------------------------------------------------------------------------
Danka Business System PLC, Sponsored ADR 21,000 777,000
---------------------------------------------------------------------------------------------
Manpower, Inc. 12,500 351,563
----------------
1,128,563
- ---------------------------------------------------------------------------------------------------
Manufacturing - 0.8%
---------------------------------------------------------------------------------------------
ITT Industries, Inc. 5,000 120,000
---------------------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. 20,000 465,000
---------------------------------------------------------------------------------------------
Varity Corp. (1) 9,000 334,125
----------------
919,125
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Transportation - 1.5%
---------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 7,000 $ 546,000
---------------------------------------------------------------------------------------------
Canadian Pacific Ltd. 47,000 851,875
---------------------------------------------------------------------------------------------
Illinois Central Corp. 10,000 383,750
----------------
1,781,625
- ---------------------------------------------------------------------------------------------------
Technology - 22.1%
- ---------------------------------------------------------------------------------------------------
Aerospace/Defense - 0.7%
---------------------------------------------------------------------------------------------
Goodrich (B.F.) Co. 12,000 817,500
- ---------------------------------------------------------------------------------------------------
Computer Hardware - 5.3%
---------------------------------------------------------------------------------------------
3Com Corp. (1) 10,000 466,250
---------------------------------------------------------------------------------------------
Adaptec, Inc. (1) 20,000 820,000
---------------------------------------------------------------------------------------------
Cabletron Systems, Inc. (1) 22,000 1,782,000
---------------------------------------------------------------------------------------------
Cisco Systems, Inc. (1) 7,000 522,375
---------------------------------------------------------------------------------------------
Compaq Computer Corp. (1) 22,000 1,056,000
---------------------------------------------------------------------------------------------
EMC Corp. (1) 36,000 553,500
---------------------------------------------------------------------------------------------
Gateway 2000, Inc. (1) 22,000 539,000
---------------------------------------------------------------------------------------------
Sun Microsystems, Inc. (1) 12,000 547,500
----------------
6,286,625
- ---------------------------------------------------------------------------------------------------
Computer Software - 9.6%
---------------------------------------------------------------------------------------------
Automatic Data Processing, Inc. 19,000 1,410,750
---------------------------------------------------------------------------------------------
BMC Software, Inc. (1) 30,000 1,282,500
---------------------------------------------------------------------------------------------
Cheyenne Software, Inc. (1) 41,000 1,071,125
---------------------------------------------------------------------------------------------
Computer Associates International, Inc. 6,000 341,250
---------------------------------------------------------------------------------------------
First Data Corp. 20,000 1,337,500
---------------------------------------------------------------------------------------------
Informix Corp. (1) 35,000 1,050,000
---------------------------------------------------------------------------------------------
Microsoft Corp. (1) 30,000 2,632,500
---------------------------------------------------------------------------------------------
Oracle Corp. (1) 33,600 1,423,800
---------------------------------------------------------------------------------------------
Sterling Software, Inc. (1) 12,000 748,500
----------------
11,297,925
- ---------------------------------------------------------------------------------------------------
Electronics - 3.8%
---------------------------------------------------------------------------------------------
Arrow Electronics, Inc. (1) 11,000 474,375
---------------------------------------------------------------------------------------------
Cypress Semiconductor Corp. (1) 50,000 637,500
---------------------------------------------------------------------------------------------
General Instrument Corp. (1) 15,000 350,625
---------------------------------------------------------------------------------------------
Intel Corp. 26,000 1,475,500
---------------------------------------------------------------------------------------------
Motorola, Inc. 15,000 855,000
---------------------------------------------------------------------------------------------
Phillips Electronics NV, ADR 19,000 681,625
----------------
4,474,625
- ---------------------------------------------------------------------------------------------------
Telecommunications-Technology - 2.7%
---------------------------------------------------------------------------------------------
AT&T Corp. 18,000 1,165,500
---------------------------------------------------------------------------------------------
Hong Kong Telecommunications Ltd., Sponsored ADR 5,000 88,750
---------------------------------------------------------------------------------------------
L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 643,500
---------------------------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 485,625
---------------------------------------------------------------------------------------------
Tellabs, Inc. 21,800 806,600
----------------
3,189,975
- ---------------------------------------------------------------------------------------------------
Utilities - 1.1%
- ---------------------------------------------------------------------------------------------------
Telephone Utilities - 1.1%
---------------------------------------------------------------------------------------------
BellSouth Corp. 5,000 217,500
---------------------------------------------------------------------------------------------
Cincinnati Bell, Inc. 17,000 590,750
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Utilities - (Continued)
- ---------------------------------------------------------------------------------------------------
Telephone Utilities - (Continued)
---------------------------------------------------------------------------------------------
Telefonos de Mexico SA, Sponsored ADR 13,500 $ 430,313
----------------
1,238,563
----------------
Total Common Stocks (Cost $70,729,607) 94,347,530
Principal
Amount
- ---------------------------------------------------------------------------------------------------
Repurchase Agreements - 19.9%
---------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.90%, dated 12/29/95, to be repurchased at
$18,011,800 on 1/2/96, collateralized by
U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04,
with a value of $9,770,530, U.S. Treasury Bonds,
6.25%-11.25%, 8/15/03-8/15/23, with a
value of $5,921,176, and U.S. Treasury
Bills maturing 11/14/96, with a
value of $2,685,168 $18,000,000 18,000,000
---------------------------------------------------------------------------------------------
Repurchase agreement with PaineWebber, Inc., 5.90%, dated
12/29/95, to be repurchased at $5,473,586 on 1/2/96,
collateralized by U.S. Treasury Nts., 6.875%, 8/31/99,
with a value of $1,954,613, and U.S. Treasury
Bonds, 7.125%-7.625%, 11/15/22-2/15/23, with
a value of $3,682,864 5,470,000 5,470,000
----------------
---------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $23,470,000) 23,470,000
---------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $94,199,607) 100.0% 117,817,530
---------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets 0.0 (107,640)
----------- -----------------
Net Assets 100.0% $117,709,890
=========== =================
</TABLE>
1. Non-income producing security.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost * ) (including repurchase
agreements **) - see accompanying statements:
Unaffiliated companies $205,386,016 $117,817,530
Affiliated companies -- --
Unrealized appreciation on forward foreign currency
exchange contracts - Note 5 -- --
Cash 475,368 49,380
Receivables:
Dividends and interest 3,482,730 106,959
Shares of beneficial interest sold 1,549,125 364,845
Investments sold 1,271,263 595,258
Other 7,575 5,982
--------------------------------
Total assets 212,172,077 118,939,954
--------------------------------
LIABILITIES:
Options written, at value (premiums received ***)
- see accompanying statements - Note 4 -- --
Unrealized depreciation on forward foreign currency
exchange contracts - Note 5 15,522 --
Payables and other liabilities:
Dividends -- --
Investments purchased 779,747 970,555
Shares of beneficial interest redeemed 98,746 231,518
Other 46,292 27,991
--------------------------------
Total liabilities 940,307 1,230,064
--------------------------------
NET ASSETS $211,231,770 $117,709,890
================================
COMPOSITION OF NET ASSETS:
Paid-in capital $201,057,454 $84,252,418
Undistributed (distributions in excess of) net
investment income 1,342,481 1,290,629
Accumulated net realized gain (loss) from investments
and foreign currency transactions 5,361 8,548,920
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies 8,826,474 23,617,923
--------------------------------
NET ASSETS $211,231,770 $117,709,890
================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 17,842,418 4,997,725
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.84 $23.55
*Cost:
Unaffiliated companies $196,548,402 $94,199,607
Affiliated companies -- --
**Repurchase Agreements $8,500,000 $23,470,000
***Premiums Received -- --
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Operations
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of withholding taxes of *) $13,096,739 $1,001,964
Dividends:
Unaffiliated companies (net of withholding taxes of **) 81,190 992,690
Affiliated companies (net of withholding taxes of **) -- --
--------------------------------
Total income 13,177,929 1,994,654
--------------------------------
EXPENSES:
Management fees - Note 6 1,280,422 664,977
Custodian fees and expenses 37,714 --
Shareholder reports 8,042 3,864
Legal and auditing fees 12,506 12,202
Insurance expenses 5,140 3,525
Trustees' fees and expenses 2,637 1,901
Registration and filing fees 16,773 8,881
Other 1,193 1,585
--------------------------------
Total expenses 1,364,427 696,935
--------------------------------
NET INVESTMENT INCOME 11,813,502 1,297,719
--------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments:
Unaffiliated companies 861,074 8,674,291
Affiliated companies -- --
Closing and expiration of options written - Note 4 (14,352) --
Foreign currency transactions 463,409 --
Net change in unrealized appreciation or
depreciation on:
Investments 13,439,159 16,396,856
Translation of assets and liabilities denominated
in foreign currencies (120,740) --
--------------------------------
Net realized and unrealized gain 14,628,550 25,071,147
--------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,442,052 $26,368,866
================================
*Interest $7,577 --
**Dividends:
Unaffiliated companies -- $9,674
Affiliated companies -- --
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $11,813,502 $8,900,922 $1,297,719 $824,976
Net realized gain (loss) 1,310,131 (2,370,155) 8,674,291 1,441,127
Net change in unrealized appreciation or depreciation 13,318,419 (8,824,731) 16,396,856 (1,915,053)
----------------------------------------------------------
Net increase (decrease) in net assets resulting from
from operations 26,442,052 (2,293,964) 26,368,866 351,050
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment income (11,209,883) (7,101,380) (821,641) (516,871)
Distributions from net realized gain -- (283,274) (973,385) (127,540)
Distributions in excess of net realized gain -- -- -- --
BENEFICIAL INTEREST TRANSACTIONS:
Net increase (decrease) in net assets resulting from
beneficial interest transactions - Note 2 60,932,217 32,899,881 29,852,876 6,875,487
----------------------------------------------------------
NET ASSETS:
Total increase (decrease) 76,164,386 23,221,263 54,426,716 6,582,126
Beginning of period 135,067,384 111,846,121 63,283,174 56,701,048
----------------------------------------------------------
End of period $211,231,770 $135,067,384 $117,709,890 $63,283,174
=====================================================
=====
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
-----------------------------------------------------------------------------
Year Ended
December 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15
$10.33
Income (loss) from investment operations:
Net investment income .72 .76 .65 .87 .95
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.07 (.98) .76 (.17) .80
-----------------------------------------------------------------------------
Total income (loss) from investment
operations 1.79 (.22) 1.41 .70 1.75
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.73) (.62) (.75) (.86) (.93)
Distributions from net realized gain on
investments and foreign currency
transactions -- (.03) -- -- --
-----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.73) (.65) (.75) (.86) (.93)
-----------------------------------------------------------------------------
Net asset value, end of period $11.84 $10.78 $11.65 $10.99
$11.15
=====================================================
========================
TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04%
6.50% 17.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354
$32,762
Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687
$22,169
Ratios to average net assets:
Net investment income 6.91% 7.30% 7.20% 7.81%
8.73%
Expenses .80% .57% .46% .56% .64%
Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3%
7.6%
<CAPTION>
----------------------------------------------------------------------------
1990 1989 1988 1987 1986
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15
$11.27
Income (loss) from investment operations:
Net investment income .97 .98 .94 .97 .97
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (.18) .32 (.05) (.71) .09
----------------------------------------------------------------------------
Total income (loss) from investment
operations .79 1.30 .89 .26 1.06
----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03)
Distributions from net realized gain on
investments and foreign currency
transactions -- -- -- (.05) (.15)
----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.95) (.96) (.93) (1.22) (1.18)
----------------------------------------------------------------------------
Net asset value, end of period $10.33 $10.49 $10.15 $10.19
$11.15
=====================================================
=======================
TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97%
2.53% 10.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415
$7,377
Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748
$4,647
Ratios to average net assets:
Net investment income 9.30% 9.34% 9.08% 9.17%
8.71%
Expenses .61% .64% .70% .75% .75%
Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9%
27.7%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer
Growth
Fund
- -----------------------------------------------------------------------------
Year Ended
December 31,
1995
1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.68
$17.70 $16.96 $15.17 $12.54
Income (loss) from investment operations:
Net investment income .25
.22 .46 .16 .30
Net realized and unrealized gain (loss) on
investments 6.10
(.05) .74 1.99 2.82
- -----------------------------------------------------------------------------
Total income (loss) from investment
operations 6.35
.17 1.20 2.15 3.12
- -----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.22)
(.15) (.14) (.36) (.49)
Distributions from net realized gain on
investments and foreign currency
transactions (.26)
(.04) (.32) -- --
- -----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.48)
(.19) (.46) (.36) (.49)
- -----------------------------------------------------------------------------
Net asset value, end of period $23.55
$17.68 $17.70 $16.96 $15.17
=============================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 36.65%
.97% 7.25% 14.53% 25.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $117,710
$63,283 $56,701 $36,494 $22,032
Average net assets (in thousands) $88,803
$59,953 $46,389 $25,750 $18,810
Ratios to average net assets:
Net investment income 1.46%
1.38% 1.13% 1.36% 2.82%
Expenses .79%
.58% .50% .61% .70%
Portfolio turnover rate(2) 58.2%
53.8% 12.6% 48.7% 133.9%
Average brokerage commission rate(3) $0.07
- -- -- -- --
<CAPTION>
- ---------------------------------------------------------------------------
1990 1989
1988 1987 1986
- ---------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $16.38 $13.64
$11.21 $12.53 $10.95
Income (loss) from investment operations:
Net investment income .56 .66
.29 .20 .13
Net realized and unrealized gain (loss) on
investments (1.79) 2.50
2.19 .24 1.76
- ---------------------------------------------------------------------------
Total income (loss) from investment
operations (1.23) 3.16
2.48 .44 1.89
- ---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62)
(.35) -- (.34) (.15)
Distributions from net realized gain on
investments and foreign currency
transactions (1.99)
(.07) (.05) (1.42) (.16)
- ---------------------------------------------------------------------------
Total dividends and distributions to
shareholders (2.61)
(.42) (.05) (1.76) (.31)
- ---------------------------------------------------------------------------
Net asset value, end of period $12.54 $16.38
$13.64 $11.21 $12.53
===========================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)%
23.59% 22.09% 3.32% 17.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $15,895 $19,301
$17,746 $14,692 $8,287
Average net assets (in thousands) $17,235 $18,596
$15,585 $15,121 $3,744
Ratios to average net assets:
Net investment income 4.09%
3.72% 2.39% 1.56% 2.62%
Expenses .71%
.70% .70% .75% .75%
Portfolio turnover rate(2) 267.9%
148.0% 132.5% 191.0% 100.9%
Average brokerage commission rate(3) --
- -- -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3. Total brokerage commissions paid on purchases and sales of portfolio
securities for the period divided by the total number of related shares
purchased and sold.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF),
Oppenheimer Bond Fund (OBF), Oppenheimer Capita Appreciation Fund (OCAP),
Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund
(OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic
Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF)
(collectively, the Funds) are separate series of Oppenheimer Variable
Account Funds (the Trust), a diversified, open-end management
investment company registered under the Investment Company Act of 1940,
as amended. The Trust's investment advisor is OppenheimerFunds, Inc.
(the Manager). The following is a summary of significant accounting
policies consistently followed by the Funds.
The Funds' objectives are as follows:
Oppenheimer Money Fund seeks the maximum current income from investments
in money market" securities consistent with low capital risk and
the maintenance of liquidity. Oppenheimer High Income Fund seeks a
high level of current income from investments in high yield
fixed-income securities.
Oppenheimer Bond Fund primarily seeks a high level of current income
from investments 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 seeks to achieve capital
appreciation by investing in "growth-type" companies.
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing
in securities of well-known established companies.
Oppenheimer 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 seeks long-term capital appreciation
by investing a substantial portion of assets in securities of foreign
issuers, "growth-type" companies, cyclical industries and special
institutions which are considered to have appreciation possibilities.
Oppenheimer 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: (i) debt
securities, (ii) U.S. Government securities, and (iii) lower-rated
high yield domestic debt securities.
Oppenheimer Growth & Income Fund seeks a high total return (which
includes growth in the value of its shares as well as current income)
from equity and debt securities. From time to time this Fund may focus
on small to medium capitalization common stocks, bonds and convertible
securities.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
Investment Valuation.
Portfolio securities of OMF are valued on the basis of amortized cost,
which approximates market value. Portfolio securities of OHIF, OBF,
OCAP, OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the
New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are valued
at the last sale price of the day or, in the absence of sales, at values
based on the closing bid or asked price or the last sale price on the
prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service approved by the
Board of Trustees. Such securities which cannot be valued by the
approved portfolio pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the firm rendering the
quotes is reliable and that the quotes reflect current market value, or
are valued under consistently applied procedures established by the Board
of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or
less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount. Options
are valued based upon the last sale price on the principal exchange
on which the option is traded or, in the absence of any transactions that
day, the value is based upon the last sale on the prior trading date
if it is within the spread between the closing bid and asked prices.
If the last sale price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used. Forward foreign
currency exchange contracts are valued based on the closing prices of
the forward currency contract rates in the London foreign exchange
markets on a daily basis as provided by a reliable bank or dealer.
Securities Purchased on a When-Issued Basis.
Delivery and payment for securities that have been purchased by OSBF
on a forward commitment or when-issued basis can take place a month or
more after the transaction date. During the period, such securities
do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. OSBF maintains,
in a segregated account with its custodian, assets with a market value
equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase
the volatility of OSBF's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested.
In connection with its ability to purchase securities on a when-issued
or forward commitment basis, OSBF may enter into mortgage
"dollar-rolls" in which the Fund sells securities for delivery in
the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Fund records
each dollar-roll as a sale and a new purchase transaction.
Security Credit Risk.
OHIF, OMSF and OSBF invest in high yield securities, which may be
subject to a greater degree of credit risk, greater market fluctuations
and risk of loss of income and principal, and may be more sensitive to
economic conditions than lower yielding, higher rated fixed income
securities. The Funds may acquire securities in default, and are not
obligated to dispose of securities whose issuers subsequently default. At
December 31, 1995, securities with an aggregate market value of
$491,444 for OHIF and $67,873 for OSBF, representing 0.37% and 0.11%
respectively, of the Funds' net assets, were in default.
Foreign Currency Translation.
The accounting records of the Funds are maintained in U.S. dollars.
Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and
OGIF that are denominated in foreign currencies are translated into
U.S. dollars at the closing rates of exchange. Amounts related to
the purchase and sale of securities and investment income are
translated at the rates of exchange prevailing on the respective dates
of such transactions.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in
foreign currency exchange rates on investments is separately identified
from the fluctuations arising from changes in market values of
securities held and reported with all other foreign currency gains
and losses in the Funds' Statements of Operations.
Repurchase Agreements.
The Funds require the custodian to take possession, to have
legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the
underlying securities is required to be at least 102% of the resale
price at the time of purchase. If the seller of the agreement
defaults and the value of the collateral declines, or if the seller
enters an insolvency proceeding, realization of the value of the
collateral by the Funds may be delayed or limited.
Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any
net realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise tax provision is
required. At December 31, 1995, the following Funds had available for
federal income tax purposes unused capital loss carryovers expiring in
2002 and 2003:
OHIF -- $ 3,033,760
OGSF -- $17,569,501
OSBF -- $ 1,609,951
Distributions to Shareholders.
Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF,
OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF
intends to declare dividends from net investment income each day the
New York Stock Exchange is open for business and pay such dividends
monthly. To effect its policy of maintaining a net asset value of $1.00
per share, OMF may withhold dividends or make distributions of net
realized gains. Classification of Distributions to Shareholders.
Net investment income (loss) and net realized gain (loss) may
differ for financial statement and tax purposes primarily because
of premium amortization, paydown gains and losses and the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for
tax purposes. The character of the distributions made during the
year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes.
Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income
or realized gain (loss) was recorded by the Funds. Changes in
classification made during the fiscal year ended December 31, 1995 are
shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Adjustments for the Fiscal Year Ended December 31, 1995
-----------------------------------------------------------------------------------
Undistributed Net
Investment Income Undistributed Net Realized Paid-in
(Loss) Gain (Loss) on Investments Capital
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer High Income Fund 186,751 (186,751) --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Bond Fund (1,093,371) 1,093,371 --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth Fund -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund (204,481) 204,481 --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund (2,845,512) 6,264,762 (3,419,250)
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 9,220 (9,220) --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 37 (37) --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
Other.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded
on the ex-dividend date. Discount on securities purchased by OHIF, OBF,
OCAP, OGF, OMSF, OGSF, OSBF and OGIF is amortized over the life of
the respective securities, in accordance with federal income tax
requirements. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis,
which is the same basis used for federal income tax purposes.
Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on
payment-in-kind debt instruments is accrued as income at the coupon
rate, and a market adjustment is made on the ex-date. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities of the date of the financial statements
and the reported amounts of income and expenses during the reporting
period.
Actual results could differ from those estimates.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest
The Funds have authorized an unlimited number of no par value shares
ofbeneficial interest. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Oppenheimer Money Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 202,748,102 $202,748,102 175,917,558 $175,917,558
Dividends and
distributions
reinvested 4,222,747 4,222,747 3,640,684 3,640,684
Redeemed (231,260,663) (231,260,663) (151,084,269) (151,084,269)
-------------------------------------------------------------
Net increase
(decrease) (24,289,814) $(24,289,814) 28,473,973 $ 28,473,973
==========================================================
===
Oppenheimer High Income Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 5,873,231 $60,932,670 9,936,582 $ 81,477,904
Dividends and
distributions
reinvested 1,162,957 12,040,152 841,101 8,686,931
Redeemed (4,263,757) (44,560,679) (9,441,490) (75,726,156)
-------------------------------------------------------------
Net increase
(decrease) 2,772,431 $28,412,143 1,336,193 $ 14,438,679
==========================================================
===
Oppenheimer Bond Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 7,311,733 $83,544,442 5,002,623 $56,466,171
Dividends and
distributions
reinvested 976,291 11,209,883 666,678 7,384,654
Redeemed (2,972,687) (33,822,108) (2,744,016) (30,950,944)
-------------------------------------------------------------
Net increase 5,315,337 $60,932,217 2,925,285 $32,899,881
==========================================================
===
Oppenheimer Capital Appreciation Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 8,882,212 $260,650,476 7,912,557 $173,453,586
Dividends and
distributions
reinvested 40,594 1,082,642 614,575 17,331,023
Redeemed (6,567,729) (191,565,283) (5,695,411) (114,272,197)
-------------------------------------------------------------
Net increase 2,355,077 $70,167,835 2,831,721 $ 76,512,412
==========================================================
===
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest (Continued)
<TABLE>
<CAPTION>
Oppenheimer Growth Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 4,302,304 $89,007,340 2,577,268 $45,230,951
Dividends and
distributions
reinvested 95,991 1,795,026 36,305 644,411
Redeemed (2,980,080) (60,949,490) (2,236,767) (38,999,875)
----------------------------------------------------------
Net increase 1,418,215 $29,852,876 376,806 $ 6,875,487
==========================================================
===
Oppenheimer Multiple Strategies Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 6,445,242 $88,771,497 9,807,084 $84,443,396
Dividends and
distributions
reinvested 1,818,313 24,783,721 1,140,244 14,981,165
Redeemed (4,671,097) (64,421,131) (6,353,523) (37,006,732)
-------------------------------------------------------------
Net increase 3,592,458 $49,134,087 4,593,805 $62,417,829
==========================================================
===
Oppenheimer Global Securities Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 11,235,722 $166,766,446 22,151,454 $336,310,887
Dividends and
distributions
reinvested 585,961 8,174,158 178,687 2,801,813
Redeemed (7,497,205) (112,360,172) (8,503,911) (112,426,012)
-------------------------------------------------------------
Net increase 4,324,478 $62,580,432 13,826,230 $226,686,688
==========================================================
===
Oppenheimer Strategic Bond Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 9,417,090 $44,897,472 3,749,500 $18,415,292
Dividends and
distributions
reinvested 661,301 3,151,540 247,485 1,178,372
Redeemed (2,245,623) (10,642,846) (1,508,782) (7,350,665)
-------------------------------------------------------------
Net increase 7,832,768 $37,406,166 2,488,203 $12,242,999
==========================================================
===
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest (Continued)
<TABLE>
<CAPTION>
Oppenheimer Growth &
Income Fund
-------------------------------------------
Year Ended
December 31, 1995(1)
-------------------------------------------
Shares Amount
-------------------------------------------
<S> <C> <C>
Sold 358,253 $3,933,459
Dividends and
distributions
reinvested 404 4,928
Redeemed (15,863) (181,994)
-------------------------------------------
Net increase 342,794 $3,756,393
============================================
</TABLE>
1. For the period from July 5, 1995 (commencement of operations)
to December 31, 1995.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
3. Unrealized Gains and Losses on Investments and Options Written
At December 31, 1995, net unrealized appreciation or depreciation
on investments and options written consisted of the following:
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer
Oppenheimer Oppenheimer Capital Oppenheimer Multiple Global Strategic Growth &
High Income Bond Appreciation Growth Strategies Securities Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Gross appreciation $7,814,322 $9,892,102 $70,829,161 $25,616,239 $53,305,284 $37,997,341 $2,340,864
$599,103
Gross depreciation (2,103,465) (1,054,488) (7,853,814) (1,998,316) (11,146,651) (14,351,638) (493,040) (94,247)
-------------------------------------------------------------------------------------------------------------
Net unrealized
appreciation $5,710,857 $8,837,614 $62,975,347 $23,617,923 $42,158,633 $23,645,703 $1,847,824
$504,856
==========================================================
===================================================
Purchases and sales of investment securities (excluding short-term securities) for the year ended December 31, 1995
were as follows:
Purchases $145,095,379 $196,515,342 $318,974,082 $78,667,711 $123,862,840 $491,709,775 $67,228,738
$3,421,021
==========================================================
===================================================
Sales $112,222,617 $120,210,417 $255,116,481 $41,669,055 $117,669,946 $416,155,747 $26,588,452
$400,564
==========================================================
===================================================
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
4. Option Activity
The Funds (except OMF, OCAP and OGF) may buy and sell put and call
options, or write covered put and call options on portfolio securities
in order to produce incremental earnings or protect against changes
in the value of portfolio securities.
The Funds generally purchase put options or write covered call options
to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Funds receive a premium and become
obligated to sell or purchase the underlying security at a fixed price,
upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized
appreciation or depreciation is recorded. The Funds will realize
a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call
option, the purchase cost for a written put option, or the cost of the
security for a purchased put or call option is adjusted by the amount
of premium received or paid.
Securities designated to cover outstanding call options are noted
in the Statements of Investments where applicable. Shares subject to
call, expiration date, exercise price, premium received and market
value are detailed in a footnote to the Statement of Investments.
Options written are reported as a liability in the Statement of Assets
and Liabilities. Gains and losses are reported in the Statement of
Operations.
The risk in writing a call option is that the Funds give up the
opportunity for profit if the market price of the security increases
and the option is exercised. The risk in writing a put option is that
the Funds may incur a loss if the market price of the security decreases
and the option is exercised. The risk in buying an option is that the
Funds pay a premium whether or not the option is exercised. The Funds
also have the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist. The Funds may
also write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of the counterparty.
OHIF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 -- $ --
Options written 28,600 5,389
Options canceled in closing transactions (28,500) (3,959)
---------------------------
Options outstanding at December 31, 1995 100 $ 1,430
===========================
</TABLE>
OBF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 -- $ --
Options written 82,000 17,019
Options canceled in closing transactions (82,000 (17,019)
---------------------------
Options outstanding at December 31, 1995 -- $ --
===========================
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
4. Option Activity (Continued)
OMSF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 2,255 $ 607,682
Options written 8,275 2,150,503
Options canceled in closing transactions (1,894) (448,093)
Options expired prior to exercise (2,353) (451,021)
Options exercised (2,680) (758,976)
---------------------------
Options outstanding at December 31, 1995 3,603 $1,100,095
===========================
</TABLE>
OSBF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 307 $ 1,600
Options written 3,314 35,871
Options canceled in closing transactions (2,141) (20,467)
Options expired prior to exercise (190) (763)
Options exercised (290) (1,942)
---------------------------
Options outstanding at December 31, 1995 1,000 $ 14,299
===========================
</TABLE>
5. Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Funds (except OMF) use forward contracts to seek to manage foreign
currency risks. They may also be used to tactically shift portfolio
currency risk. The Funds generally enter into forward contracts as a
hedge upon the purchase or sale of a security denominated in a foreign
currency. In addition, the Funds may enter into such contracts as a
hedge against changes in foreign currency exchange rates on portfolio
positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on
a daily basis as provided by a reliable bank or dealer. The Funds will
realize a gain or loss upon the closing or settlement of the forward
transaction.
Securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statements of Investments
where applicable.
Unrealized appreciation or depreciation on forward contracts is reported
in the Statements of Assets and Liabilities. Realized gains and losses
are reported with all other foreign currency gains and losses in the
Funds' Statements of Operations.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
5. Forward Foreign Currency Exchange Contracts (Continued)
Risks include the potential inability of the counterparty to meet the
terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At December 31, 1995, outstanding forward contracts to purchase and sell
foreign currencies were as follows:
Oppenheimer High Income Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen (JPY) 1/4/96 55,250 JPY $535,752 $ (9,657)
New Zealand Dollar (NZD) 12/18/96 892 NZD 567,334 2,150
--------
$ (7,507)
--------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Deutsche Mark (DEM) 1/4/96-2/21/96 3,670 DEM $2,562,764 $ (3,622)
Japanese Yen (JPY) 12/18/96 54,625 JPY 553,249 11,934
--------
8,312
--------
Net Unrealized Appreciation $ 805
========
</TABLE>
Oppenheimer Bond Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar (AUD) 1/4/96 59 AUD $43,775 $ 190
Deutsche Mark (DEM) 1/4/96-2/21/96 11 DEM 7,661,169 (15,712)
--------
$(15,522)
========
</TABLE>
Oppenheimer Multiple Strategies Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong Dollar (HKD) 1/2/96 707 HKD $91,439 $ 2
========
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
5. Forward Foreign Currency Exchange Contracts (Continued)
Oppenheimer Global Securities Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong Dollar (HKD) 1/2/96-1/3/96 8,904 HKD $1,151,601 $ (218)
Italian Lira (ITL) 1/31/96 3,888,129 ITL 2,438,922 (9,912)
Japanese Yen (JPY) 1/4/96-1/5/96 75,155 JPY 728,792 (2,948)
Singapore Dollar (SGD) 1/2/96-1/5/96 830 SGD 586,556 (853)
Greek Drachma (GRD) 1/2/96-1/4/96 49,496 GRD 209,220 432
--------
$(13,499)
--------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Austrian Schilling (ATS) 1/2/96 17,770 ATS $1,764,559 $(12,653)
Swiss Franc (CHF) 1/4/96 279 CHF 242,200 (1,139)
Deutsche Mark (DEM) 1/4/96 1,598 DEM 1,116,140 (5,709)
Japanese Yen (JPY) 3/29/96 3,043,800 JPY 29,807,684 192,316
Norwegian Krone (NOK) 1/2/96-1/4/96 8,521 NOK 1,348,728 (9,042)
---------
163,773
---------
Net Unrealized Appreciation $150,274
=========
</TABLE>
Oppenheimer Strategic Bond Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen (JPY) 1/4/96 33,988 JPY $329,572 $(5,982)
New Zealand Dollar (NZD) 12/18/96 541 NZD 344,380 1,096
-------
$(4,886)
-------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Australian Dollar (AUD) 1/4/96 22 AUD $16,134 $ (25)
Deutsche Mark (DEM) 2/13/96 1,605 DEM 1,119,976 (5,393)
Japanese Yen (JPY) 12/18/96 33,175 JPY 336,001 7,283
Swiss Franc (CHF) 2/13/96 860 CHF 748,739 (8,636)
--------
(6,771)
--------
Net Unrealized Depreciation $(11,657)
========
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
6. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the
investment advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF,
OHIF, OGSF, OSBF and OGIF, the annual fees are .75% of the first $200
million of net assets, .72% of the next $200 million, .69% of the next
$200 million, .66% of the next $200 million and .60% of net assets in
excess of $800 million. In addition, management fees for OHIF, OBF
and OSBF are .50% of net assets in excess of $1 billion. Management fees
for OMF are .45% of the first $500 million, .425% of the next $500
million, .40% of the next $500 million and .375% of net assets in excess
of $1.5 billion. For OSBF, the Manager has agreed to limit the management
fee charged so that the ordinary operating expenses of the Fund will not
exceed 1.0% of its average net assets in any fiscal year.
7. Illiquid and Restricted Securities
At December 31, 1995, investments in securities included issues
that are illiquid or restricted. The securities are often purchased in
private placement transactions, are not registered under the
Securities Act of 1933, may have contractual restrictions on resale, and
are valued under methods approved by the Board of Trustees as reflecting
fair value. The Funds intend to invest no more than 10% of net assets
(determined at the time of purchase) in illiquid and restricted
securities. Information concerning these securities is as follows:
Oppenheimer High Income Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ames Department Stores, Inc., Excess Cash Flow Payment 12/30/92 $ 0.00 $ .01
Certificates, Series AG-7A
Ames Department Stores, Inc., Litigation Trust 12/30/92 0.00 .01
Colombia (Republic of) 1989-1990 Integrated Loan Facility 12/5/95 92.00 93.00
Bonds, 6.875%, 7/1/01
ECM Fund, L.P.I 4/14/92 100.00 1,000.00
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 100.00 110.00
Farley, Inc., Zero Coupon Sub. Debs., 14.151%, 12/30/12 1/1/93-3/6/95 7.44 9.88
Gillett Holdings, Inc., C1.2 12/1/92 10.50 20.00
Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75
Trust, 11.30%, 4/1/00
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/14/95 100.00 100.75
Triangle Wire & Cable, Inc. 5/2/94 9.50 1.00
Trinidad & Tobago Loan Participation Agreement, Tranche B, 12/13/95 .84 .82
1.563%, 9/30/00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $3,708,444 or 2.78% of
the Fund's net assets. Pursuant to guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
7. Illiquid and Restricted Securities (Continued)
Oppenheimer Bond Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00
Facility Bonds, 6.875%, 7/1/01
Merrill Lynch & Co., Inc. 5/15/95 110.05 115.10
Units, 9.75% 6/15/99
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $2,745,392 or 1.30% of
the Fund's net assets. Pursuant to guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
Oppenheimer Multiple Strategies Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Anita Realty Enterprises, Inc., Units 5/28/93-2/9/95 $16.99 $11.88
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $475,000 or 0.12% of the
Fund's net assets. Pursuant to guidelines adopted by the Board of
Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
Oppenheimer Global Securities Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plant Genetics Systems 5/27/92-3/7/95 $13.77 $11.91
Plant Genetics, Inc. Wts., Exp. 12/99 3/7/95 0.00 1.99
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995, was $1,180,542, or 0.33% of
the Fund's net assets. Pursuant to the guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
Oppenheimer Strategic Bond Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00
Facility Bonds, 6.875%, 7/1/01
Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75
Trust, 11.30%, 4/1/00
Jamaica (Government of) 1990 Refinancing Agreement 8/15/95 89.75 90.00
Nts., Tranche A, 6.75%, 10/16/00
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/15/95 100.00 100.75
Trinidad & Tobago Loan Participation Agreement,
Tranche A, 1.563%, 9/30/00 12/13/95-12/18/95 .84 .82
United Mexican States, Combined Facility 3, Loan 10/25/94 89.00 75.75
Participation Agreement, Tranche A, 6.50%, 9/20/97
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995, was $1,221,735, or 2.03% of
the Fund's net assets. Pursuant to the guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
<PAGE>
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER
VARIABLE ACCOUNT FUNDS
ANNUAL REPORT
DECEMBER 31, 1995
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of
Oppenheimer Variable Account Funds:
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, of Oppenheimer Bond Fund and
Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable
Account Funds) as of December 31, 1995, the related statements of
operations for the year then ended, the statement of changes in net assets
for the years ended December 31, 1995 and 1994, and the financial
highlights for the applicable periods ended December 31, 1995, 1994, 1993,
1992, 1991, 1990, 1989, 1988, 1987 and 1986. These financial statements
and financial highlights are the responsibility of the Funds' management.
Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1995 by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Bond Fund and Oppenheimer Growth Fund at December 31, 1995, the results
of their operations, the changes in their net periods, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche
- --------------------------
Deloitte & Touche
Denver, Colorado
January 22, 1996
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) (Note 1)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit - 1.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank CD:
19%, 1/19/96 (2) IDR 2,853,750,000 $ 1,248,126
27.40%, 3/22/96 (2) HUF 139,510,000 1,021,112
- ------------------------------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD, Zero Coupon,
15.914%, 6/17/96 (2)(3) IDR 2,000,000,000 805,011
- ------------------------------------------------------------------------------------------------------------------------------------
Krungthai Thanakit CD, Zero Coupon, 11.533%, 2/29/96
(2)(3) THB 25,000,000 968,966
-----------------
Total Certificates of Deposit (Cost $4,063,089) 4,043,215
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Obligations - 18.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Agency - 11.5%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored - 7.7%
------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
7%, 11/1/25 1,888,319 1,903,653
7%, 11/1/25 7,990,664 8,055,548
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 8.75%
11/25/05 3,000,000 3,262,500
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, 10.40%, 4/25/19 2,000,000 2,193,120
Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl.
2, 11.79%, 2/1/24 (4) 2,638,404 739,990
-----------------
16,154,811
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed - 3.8%
------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
6%, 10/20/25 4,986,569 5,036,435
6%, 10/20/24 2,939,612 3,009,429
-----------------
8,045,864
- ------------------------------------------------------------------------------------------------------------------------------------
Private - 6.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial - 3.1%
------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-
Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25 (5) 1,500,000 1,617,187
Cl. 2-E, 8.70%, 9/25/25 (5) 1,500,000 1,604,531
------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through
Certificates, Series 1995-C2, Cl. C, 7.70%, 6/15/21 (6) 993,670
1,025,033
------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,053,588
1,079,599
Series 1992-CHF, Cl. E, 8.25%, 12/25/20 931,256
913,795
Series 1994-C1, Cl. A, 7.25%, 6/25/26 302,117
301,740
-----------------
6,541,885
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family - 3.7%
------------------------------------------------------------------------------------------------------------------------------
Countrywide Funding Corp., Series 1993-12, Cl. Bl, 1,000,000
942,500
6.625%, 2/25/24
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Mortgage-Backed Obligations (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Private (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family (Continued)
------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 $ 2,295,071 $
2,429,907
Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000
1,603,594
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000
2,865,000
-----------------
7,841,001
-----------------
Total Mortgage-Backed Obligations (Cost $37,340,024)
38,583,561
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations - 40.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury - 40.3%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
6.875%, 8/15/25 8,000,000 9,027,495
7.125%, 2/15/23 3,000,000 3,427,500
8%, 11/15/21 5,000,000 6,259,375
------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
6%, 12/31/97 3,000,000 3,047,811
6.25%, 5/31/00 10,000,000 10,343,750
6.375%, 6/30/97 1,000,000 1,017,187
6.50%, 5/15/05-8/15/05 18,000,000 19,182,809
6.875%, 3/31/00 5,000,000 5,289,065
7.25%, 5/15/04-8/15/04 7,000,000 7,787,812
7.375%, 11/15/97 2,000,000 2,076,250
7.50%, 2/15/05 5,000,000 5,676,559
7.75%, 12/31/99-1/31/00 6,000,000 6,519,374
7.875%, 6/30/96-11/15/04 3,000,000 3,329,999
9.25%, 8/15/98 2,000,000 2,193,124
-----------------
Total U.S. Government Obligations (Cost $79,215,729)
85,178,110
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government Obligations - 13.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Australia (Commonwealth of) Bonds, 12.50%, 1/15/98 AUD 960,000
782,889
------------------------------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds:
7.75%, 9/1/99 CAD 347,000 266,514
Series A-76, 9%, 6/1/25 CAD 321,000 274,798
------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) 1989-1990 Integrated Loan Facility
Bonds, 6.875%, 7/1/01 (6)(7) 1,714,400 1,594,392
------------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento Sr. Unsec. Debs.:
6.625%, 10/14/98 (5) 1,000,000 999,375
7.25%, 4/30/98 (5) 1,000,000 998,125
------------------------------------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds:
7%, 11/10/24 DKK 6,300,000 1,014,039
8%, 3/15/06 DKK 1,880,000 357,728
------------------------------------------------------------------------------------------------------------------------------
Financiera Energetica Nacional:
Nts., 6.625%, 12/13/96 2,350,000 2,347,062
SA Medium-Term Nts., 9%, 11/8/99 400,000
419,500
------------------------------------------------------------------------------------------------------------------------------
France (Government of) Obligation Assimilable du Tresor
Debs., 9.50%, 6/25/98 FRF 1,196,000 267,600
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Foreign Government Obligations (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Germany (Republic of) Bonds:
7.75%, 10/1/04 DEM $ 5,350,000 $ 4,106,853
Series 94, 6.25%, 1/4/24 DEM 2,900,000 1,887,370
------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development
Bonds, 12.50%, 7/25/97 NZD 1,000,000
696,248
------------------------------------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds, Buoni del Tesoro
Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 2,872,821
------------------------------------------------------------------------------------------------------------------------------
National Treasury Management Agency (Irish Government)
Bonds, 8%, 10/18/00 IEP 405,000 682,226
------------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 1,720,000
1,155,621
------------------------------------------------------------------------------------------------------------------------------
Norwegian Government Bonds, 9.50%, 10/31/02 NOK 11,340,000
2,124,639
------------------------------------------------------------------------------------------------------------------------------
Poland (Republic of) Debs., 7.75%, 7/13/00 1,500,000
1,530,000
------------------------------------------------------------------------------------------------------------------------------
Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio
Prazo, 11.875%, 2/23/00 PTE 65,000,000 468,838
------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000
1,082,500
------------------------------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del
Estado, 12.25%, 3/25/00 ESP 156,000,000
1,405,755
------------------------------------------------------------------------------------------------------------------------------
Sweden (Kingdom of) Bonds, Series 1028, 11%, 1/21/99 SEK 4,400,000
714,422
------------------------------------------------------------------------------------------------------------------------------
United Kingdom Treasury:
Debs., 8.50%, 12/7/05 GBP 337,000 562,305
Nts., 10%, 2/26/01 GBP 310,000 544,176
------------------------------------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, Series 98,
12.50%, 4/1/98 AUD 200,000 164,222
-----------------
Total Foreign Government Obligations (Cost $28,915,289)
29,320,018
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds and Notes - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Pinole, California Redevelopment Agency Tax Allocation
Taxable Bonds, Pinole Vista Redevelopment, Series B,
8.35%, 8/1/17 670,000 733,429
------------------------------------------------------------------------------------------------------------------------------
Dade County, Florida Educational Facilities Authority:
Exchangeable Revenue Bonds, University of Miami
Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000
201,294
Revenue Bonds, University of Miami, MBIA Insured, 7.65%
4/1/10 205,000 230,154
Taxable Exchange Revenue Bonds, University of Miami,
MBIA Insured, 9.70%, 4/1/10 120,000 134,724
------------------------------------------------------------------------------------------------------------------------------
Port of Portland, Oregon Special Obligation Taxable
Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000
546,886
-----------------
Total Municipal Bonds and Notes (Cost $1,663,728)
1,846,487
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes - 16.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industry - 2.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.2%
------------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000
2,389,670
- ------------------------------------------------------------------------------------------------------------------------------------
Paper - 1.5%
------------------------------------------------------------------------------------------------------------------------------
Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000
850,994
------------------------------------------------------------------------------------------------------------------------------
Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000
805,629
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Corporate Bonds and Notes (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Industry (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Paper (Continued)
------------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized
Nts., 7/20/15 $ 1,546,483 $ 1,571,753
-----------------
3,228,376
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Related - 2.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Food/Beverages/Tobacco - 0.8%
------------------------------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc.
Nts., 11/1/02 (8) 1,315,000 1,239,388
------------------------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000
507,702
-----------------
1,747,090
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare - 0.6%
------------------------------------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000
1,189,530
- ------------------------------------------------------------------------------------------------------------------------------------
Hotel/Gaming - 0.2%
------------------------------------------------------------------------------------------------------------------------------
Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000
379,439
- ------------------------------------------------------------------------------------------------------------------------------------
Textile/Apparel - 0.5%
------------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000
1,108,417
- ------------------------------------------------------------------------------------------------------------------------------------
Toys - 0.5%
------------------------------------------------------------------------------------------------------------------------------
Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,017,927
- ------------------------------------------------------------------------------------------------------------------------------------
Energy - 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000
551,957
------------------------------------------------------------------------------------------------------------------------------
Coastal Corp.:
11.75% Sr. Debs., 6/15/06 2,000,000 2,126,614
9.75% Sr. Debs., 8/1/03 200,000 238,950
------------------------------------------------------------------------------------------------------------------------------
Enron Corp., 9.875% Debs., 6/15/03 375,000
457,052
------------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 400,000
454,472
------------------------------------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts.
1/15/02 1,000,000 1,146,689
------------------------------------------------------------------------------------------------------------------------------
Sonat, Inc., 9.50% Nts., 8/15/99 250,000 278,659
------------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000
585,022
------------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc.:
10% Debs., 3/15/08 400,000 497,656
7.875% Nts., 10/1/02 650,000 709,766
-----------------
7,046,837
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services - 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Banks & Thrifts - 1.0%
------------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec. Nts.
9.931%, 6/15/96 (3)(5) 500,000 479,040
------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 100,000
102,362
------------------------------------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Capital Nts., 6/15/99 200,000
224,742
------------------------------------------------------------------------------------------------------------------------------
First Chicago Corp.:
11.25% Sub. Nts., 2/20/01 750,000 923,495
9% Sub. Nts., 6/15/99 150,000 165,177
------------------------------------------------------------------------------------------------------------------------------
First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 165,000
176,247
------------------------------------------------------------------------------------------------------------------------------
First Fidelity Bancorporation, 8.50% Sub. Capital Nts.,
4/1/98 100,000 105,456
-----------------
2,176,519
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial - 0.7%
------------------------------------------------------------------------------------------------------------------------------
American Car Line Co., 8.25% Equipment Trust
Certificates, Series 1993-A, 4/15/08 627,000 659,134
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Principal Market Value
Corporate Bonds and Notes (Continued) Amount(1) (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial (Continued)
------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 $ 700,000 $
744,198
-----------------
1,403,332
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.9%
------------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Debs., 8/1/17 800,000
898,110
------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
5.50% Nts., 12/15/01 300,000 289,647
7.75% Nts., 4/15/97 700,000 713,318
-----------------
1,901,075
- ------------------------------------------------------------------------------------------------------------------------------------
Media - 3.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television - 2.2%
------------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment LP/Time Warner, Inc., 8.375%
Sr. Debs., 3/15/23 1,850,000 2,009,405
------------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000
2,588,914
-----------------
4,598,319
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Media - 1.3%
------------------------------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (5) 1,151,691
1,389,228
------------------------------------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
10.125% Gtd. Sr. Debs., 10/15/12 500,000 608,130
12% Sr. Nts., 12/15/01 500,000 558,673
------------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.15% Debs., 2/1/23 300,000
342,093
-----------------
2,898,124
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment/Film - 0.4%
------------------------------------------------------------------------------------------------------------------------------
Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub.
Nts., 2/1/98 500,000 541,242
------------------------------------------------------------------------------------------------------------------------------
Eastman Kodak Co., 10% Nts., 6/15/01 250,000
254,730
-----------------
795,972
- ------------------------------------------------------------------------------------------------------------------------------------
Retail - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Drug Stores - 0.3%
------------------------------------------------------------------------------------------------------------------------------
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000
657,191
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Railroads - 0.2%
------------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000
455,554
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.0%
------------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000
779,528
------------------------------------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 150,000
144,552
------------------------------------------------------------------------------------------------------------------------------
New Zealand Electric Corp., 10% Debs., 6/15/9 NZD 650,000
426,765
------------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds,
3/1/22 750,000 852,330
-----------------
2,203,175
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications - 0.3%
------------------------------------------------------------------------------------------------------------------------------
GTE Corp., 9.375% Debs., 12/1/00 500,000
567,703
-----------------
Total Corporate Bonds and Notes (Cost $34,673,470)
35,764,250
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for Common
Stock of Lyondell Petrochemical Co., 9/15/97 $ 15,000 $
352,500
------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 8.375%, Series K 25,000
646,875
-----------------
Total Preferred Stocks (Cost $1,076,533) 999,375
Principal
Amount(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Instruments - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99
(representing debt of Chemical Banking Corp., sub. capital
nts., and equity of Citicorp, 7.75% preferred, series 22) (Cost
$1,100,540) (7)(9) $ 1,000,000 1,151,000
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement - 4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.90%, dated 12/29/95, to be repurchased at $8,505,572 on
1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%,
12/31/96-11/5/04, with a value of $4,613,862, U.S. Treasury
Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of
$2,796,111, and U.S. Treasury Bills maturing 11/14/96, with
a value of $1,267,996 (Cost $8,500,000) 8,500,000
8,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $196,548,402) 97.2%
205,386,016
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 2.8 5,845,754
-------------- -----------------
Net Assets 100.0% $ 211,231,770
==============
=================
</TABLE>
1. Principal amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollarh
CAD - Canadian Dollar
DEM - German Deutsche Mark
DKK - Danish Krone
ESP - Spanish Peseta
FRF - French Franc
GBP - British Pound Sterling
HUF - Hungarian Forint
IDR - Indonesian Rupiah
IEP - Irish Punt
ITL - Italian Lira
NOK - New Zealand Dollar
PTE - Portuguese Escudo
SEK - Swedish Krona
THB - Thai Baht
2. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign currency.
3. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
4. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline.
The principal amount of the underlying pool represents the notional amount
on which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates disclosed represent current yields based upon the current cost basis
and estimated timing and amount of future cash flows.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund
Statement of Investments (Continued)
December 31, 1995
5. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $7,087,486 or 3.36% of the Fund's
net assets, at December 31, 1995.
6. Represents the current interest rate for a variable rate security.
7. Identifies issues considered to be illiquid - See Note 7 of Notes to
Financial Statements.
8. Denotes a step bond: a zero coupon bond that converts to a fixed rate
of interest at a designated future date.
9. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents
total underlying principal.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Common Stocks - 80.1%
- ---------------------------------------------------------------------------------------------------
Basic Materials - 6.3%
- ---------------------------------------------------------------------------------------------------
Chemicals - 4.5%
---------------------------------------------------------------------------------------------
FMC Corp. (1) 4,000 $ 270,500
---------------------------------------------------------------------------------------------
Georgia Gulf Corp. 19,000 584,250
---------------------------------------------------------------------------------------------
IMC Global, Inc. 16,000 654,000
---------------------------------------------------------------------------------------------
Morton International, Inc. 29,000 1,040,375
---------------------------------------------------------------------------------------------
PPG Industries, Inc. 18,000 823,500
---------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (1) 80,600 654,875
---------------------------------------------------------------------------------------------
Terra Industries, Inc. 46,000 649,750
---------------------------------------------------------------------------------------------
Union Carbide Corp. 17,000 637,500
----------------
5,314,750
- ---------------------------------------------------------------------------------------------------
Metals - 0.3%
---------------------------------------------------------------------------------------------
Reynolds Metals Co. 7,000 396,375
- ---------------------------------------------------------------------------------------------------
Paper - 1.5%
---------------------------------------------------------------------------------------------
Boise Cascade Corp. 17,000 588,625
---------------------------------------------------------------------------------------------
Bowater, Inc. 5,000 177,500
---------------------------------------------------------------------------------------------
Federal Paper Board Co. 7,000 363,125
---------------------------------------------------------------------------------------------
Willamette Industries, Inc. 11,000 618,750
----------------
1,748,000
- ---------------------------------------------------------------------------------------------------
Consumer Cyclicals - 10.7%
---------------------------------------------------------------------------------------------
Autos & Housing - 1.4%
---------------------------------------------------------------------------------------------
Pulte Corp. 17,000 571,625
---------------------------------------------------------------------------------------------
Toll Brothers, Inc. (1) 46,000 1,058,000
----------------
1,629,625
- ---------------------------------------------------------------------------------------------------
Leisure & Entertainment - 3.3%
---------------------------------------------------------------------------------------------
Applebee's International, Inc. 18,000 409,500
---------------------------------------------------------------------------------------------
Callaway Golf Co. 25,000 565,625
---------------------------------------------------------------------------------------------
ITT Corp. (New) 5,000 265,000
---------------------------------------------------------------------------------------------
McDonald's Corp. 11,000 496,375
---------------------------------------------------------------------------------------------
Walt Disney Co. 25,000 1,475,000
---------------------------------------------------------------------------------------------
Wendy's International, Inc. 33,800 718,250
----------------
3,929,750
- ---------------------------------------------------------------------------------------------------
Media - 0.2%
---------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B (1) 3,667 173,724
- ---------------------------------------------------------------------------------------------------
Retail: General - 3.2%
---------------------------------------------------------------------------------------------
Jones Apparel Group, Inc. (1) 17,100 673,312
---------------------------------------------------------------------------------------------
May Department Stores Co. 6,000 253,500
---------------------------------------------------------------------------------------------
Nautica Enterprises, Inc. 10,200 446,250
---------------------------------------------------------------------------------------------
Tommy Hilfiger Corp. 22,500 953,437
---------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 26,000 581,750
---------------------------------------------------------------------------------------------
Warnaco Group, Inc. (The), Cl. A 33,000 825,000
----------------
3,733,249
- ---------------------------------------------------------------------------------------------------
Retail: Specialty - 2.6%
---------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. (1) 9,000 349,312
---------------------------------------------------------------------------------------------
Gap, Inc. (The) 10,000 420,000
---------------------------------------------------------------------------------------------
General Nutrition Cos., Inc. (1) 40,000 920,000
---------------------------------------------------------------------------------------------
Home Depot, Inc. 24,000 1,149,000
---------------------------------------------------------------------------------------------
OfficeMax, Inc. (1) 8,000 179,000
----------------
3,017,312
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals - 17.6%
- ---------------------------------------------------------------------------------------------------
Beverages - 1.4%
---------------------------------------------------------------------------------------------
Boston Beer Co., Inc., Cl. A (1) 6,600 $ 156,750
---------------------------------------------------------------------------------------------
Coca-Cola Co. (The) 10,000 742,500
---------------------------------------------------------------------------------------------
PepsiCo, Inc. 10,000 558,750
---------------------------------------------------------------------------------------------
Whitman Corp. 8,000 186,000
----------------
1,644,000
- ---------------------------------------------------------------------------------------------------
Food - 3.1%
---------------------------------------------------------------------------------------------
ConAgra, Inc. 4,000 165,000
---------------------------------------------------------------------------------------------
H.J. Heinz Co. 15,000 496,875
---------------------------------------------------------------------------------------------
IBP, Inc. 20,000 1,010,000
---------------------------------------------------------------------------------------------
Kroger Co. (1) 14,000 525,000
---------------------------------------------------------------------------------------------
Safeway, Inc. (1) 16,000 824,000
---------------------------------------------------------------------------------------------
Smithfield Foods, Inc. (1) 21,000 666,750
----------------
3,687,625
- ---------------------------------------------------------------------------------------------------
Healthcare/Drugs - 5.6%
---------------------------------------------------------------------------------------------
Abbott Laboratories 27,000 1,127,250
---------------------------------------------------------------------------------------------
Amgen, Inc. 8,000 475,000
---------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 6,500 558,187
---------------------------------------------------------------------------------------------
Johnson & Johnson 12,000 1,027,500
---------------------------------------------------------------------------------------------
Pfizer, Inc. 26,500 1,669,500
---------------------------------------------------------------------------------------------
Schering-Plough Corp. 16,000 876,000
---------------------------------------------------------------------------------------------
Warner-Lambert Co. 6,000 582,750
---------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. (1) 6,000 294,000
----------------
6,610,187
- ---------------------------------------------------------------------------------------------------
Healthcare/Supplies & Services - 4.2%
---------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 12,000 609,000
---------------------------------------------------------------------------------------------
Cordis Corp. (1) 2,000 201,000
---------------------------------------------------------------------------------------------
HealthCare COMPARE Corp. (1) 20,000 870,000
---------------------------------------------------------------------------------------------
Lincare Holdings, Inc. (1) 35,000 875,000
---------------------------------------------------------------------------------------------
Medtronic, Inc. 34,000 1,899,750
---------------------------------------------------------------------------------------------
Nellcor Puritan Bennett, Inc. (1) 8,800 510,400
----------------
4,965,150
- ---------------------------------------------------------------------------------------------------
Household Goods - 0.9%
---------------------------------------------------------------------------------------------
Procter & Gamble Co. 13,000 1,079,000
- ---------------------------------------------------------------------------------------------------
Tobacco - 2.4%
---------------------------------------------------------------------------------------------
Philip Morris Cos., Inc. 16,000 1,448,000
---------------------------------------------------------------------------------------------
UST, Inc. 41,000 1,368,375
----------------
2,816,375
- ---------------------------------------------------------------------------------------------------
Energy - 1.5%
---------------------------------------------------------------------------------------------
Oil-Integrated - 1.5%
---------------------------------------------------------------------------------------------
Mobil Corp. 6,000 672,000
---------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 3,500 493,938
---------------------------------------------------------------------------------------------
USX-Marathon Group 25,000 487,500
---------------------------------------------------------------------------------------------
YPF Sociedad Anonima, Sponsored ADR 5,000 108,125
----------------
1,761,563
- --------------------------------------------------------------------------------------------------
Financial - 13.7%
---------------------------------------------------------------------------------------------
Banks - 4.3%
---------------------------------------------------------------------------------------------
Bank of Boston Corp. 23,000 1,063,750
---------------------------------------------------------------------------------------------
Chase Manhattan Corp. 6,000 363,750
----------------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Financial (Continued)
- ---------------------------------------------------------------------------------------------------
Banks (Continued)
---------------------------------------------------------------------------------------------
Chemical Banking Corp. 9,000 $ 528,750
---------------------------------------------------------------------------------------------
First Interstate Bancorp 6,500 887,250
---------------------------------------------------------------------------------------------
Midlantic Corp. 12,000 787,500
---------------------------------------------------------------------------------------------
NationsBank Corp. 10,000 696,250
---------------------------------------------------------------------------------------------
State Street Boston Corp. 16,600 747,000
----------------
5,074,250
- ---------------------------------------------------------------------------------------------------
Diversified Financial - 7.4%
---------------------------------------------------------------------------------------------
Advanta Corp., Cl. A 15,000 573,750
---------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette, Inc. (1) 6,200 193,750
---------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 8,000 668,000
---------------------------------------------------------------------------------------------
Federal National Mortgage Assn. 8,000 993,000
---------------------------------------------------------------------------------------------
First USA, Inc. 25,000 1,109,375
---------------------------------------------------------------------------------------------
Green Tree Financial Corp. 56,000 1,477,000
---------------------------------------------------------------------------------------------
Money Store, Inc. (The) 23,000 359,375
---------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc. 3,000 241,875
---------------------------------------------------------------------------------------------
Price (T. Rowe) Associates 20,400 1,004,700
---------------------------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 29,000 583,625
---------------------------------------------------------------------------------------------
Travelers Group, Inc. 24,000 1,509,000
----------------
8,713,450
- ---------------------------------------------------------------------------------------------------
Insurance - 2.0%
---------------------------------------------------------------------------------------------
AFLAC, Inc. 5,250 227,719
---------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 5,000 241,875
---------------------------------------------------------------------------------------------
MGIC Investment Corp. 14,100 764,925
---------------------------------------------------------------------------------------------
SunAmerica, Inc. 24,000 1,140,000
----------------
2,374,519
- ---------------------------------------------------------------------------------------------------
Industrial - 7.1%
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 2.2%
---------------------------------------------------------------------------------------------
Emerson Electric Co. 17,500 1,430,625
---------------------------------------------------------------------------------------------
General Electric Co. 13,000 936,000
---------------------------------------------------------------------------------------------
Honeywell, Inc. 2,000 97,250
---------------------------------------------------------------------------------------------
Kemet Corp. 6,000 143,250
----------------
2,607,125
- ---------------------------------------------------------------------------------------------------
Industrial Materials - 1.6%
---------------------------------------------------------------------------------------------
Ball Corp. 10,000 275,000
---------------------------------------------------------------------------------------------
Centex Corp. 14,000 486,500
---------------------------------------------------------------------------------------------
Fluor Corp. 8,000 528,000
---------------------------------------------------------------------------------------------
Rayonier, Inc. 19,400 647,475
----------------
1,936,975
- ---------------------------------------------------------------------------------------------------
Industrial Services - 1.0%
---------------------------------------------------------------------------------------------
Danka Business System PLC, Sponsored ADR 21,000 777,000
---------------------------------------------------------------------------------------------
Manpower, Inc. 12,500 351,563
----------------
1,128,563
- ---------------------------------------------------------------------------------------------------
Manufacturing - 0.8%
---------------------------------------------------------------------------------------------
ITT Industries, Inc. 5,000 120,000
---------------------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. 20,000 465,000
---------------------------------------------------------------------------------------------
Varity Corp. (1) 9,000 334,125
----------------
919,125
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Transportation - 1.5%
---------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 7,000 $ 546,000
---------------------------------------------------------------------------------------------
Canadian Pacific Ltd. 47,000 851,875
---------------------------------------------------------------------------------------------
Illinois Central Corp. 10,000 383,750
----------------
1,781,625
- ---------------------------------------------------------------------------------------------------
Technology - 22.1%
- ---------------------------------------------------------------------------------------------------
Aerospace/Defense - 0.7%
---------------------------------------------------------------------------------------------
Goodrich (B.F.) Co. 12,000 817,500
- ---------------------------------------------------------------------------------------------------
Computer Hardware - 5.3%
---------------------------------------------------------------------------------------------
3Com Corp. (1) 10,000 466,250
---------------------------------------------------------------------------------------------
Adaptec, Inc. (1) 20,000 820,000
---------------------------------------------------------------------------------------------
Cabletron Systems, Inc. (1) 22,000 1,782,000
---------------------------------------------------------------------------------------------
Cisco Systems, Inc. (1) 7,000 522,375
---------------------------------------------------------------------------------------------
Compaq Computer Corp. (1) 22,000 1,056,000
---------------------------------------------------------------------------------------------
EMC Corp. (1) 36,000 553,500
---------------------------------------------------------------------------------------------
Gateway 2000, Inc. (1) 22,000 539,000
---------------------------------------------------------------------------------------------
Sun Microsystems, Inc. (1) 12,000 547,500
----------------
6,286,625
- ---------------------------------------------------------------------------------------------------
Computer Software - 9.6%
---------------------------------------------------------------------------------------------
Automatic Data Processing, Inc. 19,000 1,410,750
---------------------------------------------------------------------------------------------
BMC Software, Inc. (1) 30,000 1,282,500
---------------------------------------------------------------------------------------------
Cheyenne Software, Inc. (1) 41,000 1,071,125
---------------------------------------------------------------------------------------------
Computer Associates International, Inc. 6,000 341,250
---------------------------------------------------------------------------------------------
First Data Corp. 20,000 1,337,500
---------------------------------------------------------------------------------------------
Informix Corp. (1) 35,000 1,050,000
---------------------------------------------------------------------------------------------
Microsoft Corp. (1) 30,000 2,632,500
---------------------------------------------------------------------------------------------
Oracle Corp. (1) 33,600 1,423,800
---------------------------------------------------------------------------------------------
Sterling Software, Inc. (1) 12,000 748,500
----------------
11,297,925
- ---------------------------------------------------------------------------------------------------
Electronics - 3.8%
---------------------------------------------------------------------------------------------
Arrow Electronics, Inc. (1) 11,000 474,375
---------------------------------------------------------------------------------------------
Cypress Semiconductor Corp. (1) 50,000 637,500
---------------------------------------------------------------------------------------------
General Instrument Corp. (1) 15,000 350,625
---------------------------------------------------------------------------------------------
Intel Corp. 26,000 1,475,500
---------------------------------------------------------------------------------------------
Motorola, Inc. 15,000 855,000
---------------------------------------------------------------------------------------------
Phillips Electronics NV, ADR 19,000 681,625
----------------
4,474,625
- ---------------------------------------------------------------------------------------------------
Telecommunications-Technology - 2.7%
---------------------------------------------------------------------------------------------
AT&T Corp. 18,000 1,165,500
---------------------------------------------------------------------------------------------
Hong Kong Telecommunications Ltd., Sponsored ADR 5,000 88,750
---------------------------------------------------------------------------------------------
L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 643,500
---------------------------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 485,625
---------------------------------------------------------------------------------------------
Tellabs, Inc. 21,800 806,600
----------------
3,189,975
- ---------------------------------------------------------------------------------------------------
Utilities - 1.1%
- ---------------------------------------------------------------------------------------------------
Telephone Utilities - 1.1%
---------------------------------------------------------------------------------------------
BellSouth Corp. 5,000 217,500
---------------------------------------------------------------------------------------------
Cincinnati Bell, Inc. 17,000 590,750
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund
Statement of Investments (Continued)
December 31, 1995
<TABLE>
<CAPTION>
Market Value
Common Stocks (Continued) Shares (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Utilities - (Continued)
- ---------------------------------------------------------------------------------------------------
Telephone Utilities - (Continued)
---------------------------------------------------------------------------------------------
Telefonos de Mexico SA, Sponsored ADR 13,500 $ 430,313
----------------
1,238,563
----------------
Total Common Stocks (Cost $70,729,607) 94,347,530
Principal
Amount
- ---------------------------------------------------------------------------------------------------
Repurchase Agreements - 19.9%
---------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.90%, dated 12/29/95, to be repurchased at
$18,011,800 on 1/2/96, collateralized by
U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04,
with a value of $9,770,530, U.S. Treasury Bonds,
6.25%-11.25%, 8/15/03-8/15/23, with a
value of $5,921,176, and U.S. Treasury
Bills maturing 11/14/96, with a
value of $2,685,168 $18,000,000 18,000,000
---------------------------------------------------------------------------------------------
Repurchase agreement with PaineWebber, Inc., 5.90%, dated
12/29/95, to be repurchased at $5,473,586 on 1/2/96,
collateralized by U.S. Treasury Nts., 6.875%, 8/31/99,
with a value of $1,954,613, and U.S. Treasury
Bonds, 7.125%-7.625%, 11/15/22-2/15/23, with
a value of $3,682,864 5,470,000 5,470,000
----------------
---------------------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $23,470,000) 23,470,000
---------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $94,199,607) 100.0% 117,817,530
---------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets 0.0 (107,640)
----------- -----------------
Net Assets 100.0% $117,709,890
=========== =================
</TABLE>
1. Non-income producing security.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost * ) (including repurchase
agreements **) - see accompanying statements:
Unaffiliated companies $205,386,016 $117,817,530
Affiliated companies -- --
Unrealized appreciation on forward foreign currency
exchange contracts - Note 5 -- --
Cash 475,368 49,380
Receivables:
Dividends and interest 3,482,730 106,959
Shares of beneficial interest sold 1,549,125 364,845
Investments sold 1,271,263 595,258
Other 7,575 5,982
--------------------------------
Total assets 212,172,077 118,939,954
--------------------------------
LIABILITIES:
Options written, at value (premiums received ***)
- see accompanying statements - Note 4 -- --
Unrealized depreciation on forward foreign currency
exchange contracts - Note 5 15,522 --
Payables and other liabilities:
Dividends -- --
Investments purchased 779,747 970,555
Shares of beneficial interest redeemed 98,746 231,518
Other 46,292 27,991
--------------------------------
Total liabilities 940,307 1,230,064
--------------------------------
NET ASSETS $211,231,770 $117,709,890
================================
COMPOSITION OF NET ASSETS:
Paid-in capital $201,057,454 $84,252,418
Undistributed (distributions in excess of) net
investment income 1,342,481 1,290,629
Accumulated net realized gain (loss) from investments
and foreign currency transactions 5,361 8,548,920
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies 8,826,474 23,617,923
--------------------------------
NET ASSETS $211,231,770 $117,709,890
================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 17,842,418 4,997,725
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.84 $23.55
*Cost:
Unaffiliated companies $196,548,402 $94,199,607
Affiliated companies -- --
**Repurchase Agreements $8,500,000 $23,470,000
***Premiums Received -- --
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Operations
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of withholding taxes of *) $13,096,739 $1,001,964
Dividends:
Unaffiliated companies (net of withholding taxes of **) 81,190 992,690
Affiliated companies (net of withholding taxes of **) -- --
--------------------------------
Total income 13,177,929 1,994,654
--------------------------------
EXPENSES:
Management fees - Note 6 1,280,422 664,977
Custodian fees and expenses 37,714 --
Shareholder reports 8,042 3,864
Legal and auditing fees 12,506 12,202
Insurance expenses 5,140 3,525
Trustees' fees and expenses 2,637 1,901
Registration and filing fees 16,773 8,881
Other 1,193 1,585
--------------------------------
Total expenses 1,364,427 696,935
--------------------------------
NET INVESTMENT INCOME 11,813,502 1,297,719
--------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments:
Unaffiliated companies 861,074 8,674,291
Affiliated companies -- --
Closing and expiration of options written - Note 4 (14,352) --
Foreign currency transactions 463,409 --
Net change in unrealized appreciation or
depreciation on:
Investments 13,439,159 16,396,856
Translation of assets and liabilities denominated
in foreign currencies (120,740) --
--------------------------------
Net realized and unrealized gain 14,628,550 25,071,147
--------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,442,052 $26,368,866
================================
*Interest $7,577 --
**Dividends:
Unaffiliated companies -- $9,674
Affiliated companies -- --
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Statements of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Bond Growth
Fund Fund
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $11,813,502 $8,900,922 $1,297,719 $824,976
Net realized gain (loss) 1,310,131 (2,370,155) 8,674,291 1,441,127
Net change in unrealized appreciation or depreciation 13,318,419 (8,824,731) 16,396,856 (1,915,053)
----------------------------------------------------------
Net increase (decrease) in net assets resulting from
from operations 26,442,052 (2,293,964) 26,368,866 351,050
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment income (11,209,883) (7,101,380) (821,641) (516,871)
Distributions from net realized gain -- (283,274) (973,385) (127,540)
Distributions in excess of net realized gain -- -- -- --
BENEFICIAL INTEREST TRANSACTIONS:
Net increase (decrease) in net assets resulting from
beneficial interest transactions - Note 2 60,932,217 32,899,881 29,852,876 6,875,487
----------------------------------------------------------
NET ASSETS:
Total increase (decrease) 76,164,386 23,221,263 54,426,716 6,582,126
Beginning of period 135,067,384 111,846,121 63,283,174 56,701,048
----------------------------------------------------------
End of period $211,231,770 $135,067,384 $117,709,890 $63,283,174
=====================================================
=====
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer
Bond
Fund
-----------------------------------------------------------------------------
Year Ended
December 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15
$10.33
Income (loss) from investment operations:
Net investment income .72 .76 .65 .87 .95
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.07 (.98) .76 (.17) .80
-----------------------------------------------------------------------------
Total income (loss) from investment
operations 1.79 (.22) 1.41 .70 1.75
-----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.73) (.62) (.75) (.86) (.93)
Distributions from net realized gain on
investments and foreign currency
transactions -- (.03) -- -- --
-----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.73) (.65) (.75) (.86) (.93)
-----------------------------------------------------------------------------
Net asset value, end of period $11.84 $10.78 $11.65 $10.99
$11.15
=====================================================
========================
TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04%
6.50% 17.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354
$32,762
Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687
$22,169
Ratios to average net assets:
Net investment income 6.91% 7.30% 7.20% 7.81%
8.73%
Expenses .80% .57% .46% .56% .64%
Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3%
7.6%
<CAPTION>
----------------------------------------------------------------------------
1990 1989 1988 1987 1986
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15
$11.27
Income (loss) from investment operations:
Net investment income .97 .98 .94 .97 .97
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (.18) .32 (.05) (.71) .09
----------------------------------------------------------------------------
Total income (loss) from investment
operations .79 1.30 .89 .26 1.06
----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03)
Distributions from net realized gain on
investments and foreign currency
transactions -- -- -- (.05) (.15)
----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.95) (.96) (.93) (1.22) (1.18)
----------------------------------------------------------------------------
Net asset value, end of period $10.33 $10.49 $10.15 $10.19
$11.15
=====================================================
=======================
TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97%
2.53% 10.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415
$7,377
Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748
$4,647
Ratios to average net assets:
Net investment income 9.30% 9.34% 9.08% 9.17%
8.71%
Expenses .61% .64% .70% .75% .75%
Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9%
27.7%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Oppenheimer
Growth
Fund
- -----------------------------------------------------------------------------
Year Ended
December 31,
1995
1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.68
$17.70 $16.96 $15.17 $12.54
Income (loss) from investment operations:
Net investment income .25
.22 .46 .16 .30
Net realized and unrealized gain (loss) on
investments 6.10
(.05) .74 1.99 2.82
- -----------------------------------------------------------------------------
Total income (loss) from investment
operations 6.35
.17 1.20 2.15 3.12
- -----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.22)
(.15) (.14) (.36) (.49)
Distributions from net realized gain on
investments and foreign currency
transactions (.26)
(.04) (.32) -- --
- -----------------------------------------------------------------------------
Total dividends and distributions to
shareholders (.48)
(.19) (.46) (.36) (.49)
- -----------------------------------------------------------------------------
Net asset value, end of period $23.55
$17.68 $17.70 $16.96 $15.17
=============================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 36.65%
.97% 7.25% 14.53% 25.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $117,710
$63,283 $56,701 $36,494 $22,032
Average net assets (in thousands) $88,803
$59,953 $46,389 $25,750 $18,810
Ratios to average net assets:
Net investment income 1.46%
1.38% 1.13% 1.36% 2.82%
Expenses .79%
.58% .50% .61% .70%
Portfolio turnover rate(2) 58.2%
53.8% 12.6% 48.7% 133.9%
Average brokerage commission rate(3) $0.07
- -- -- -- --
<CAPTION>
- ---------------------------------------------------------------------------
1990 1989
1988 1987 1986
- ---------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $16.38 $13.64
$11.21 $12.53 $10.95
Income (loss) from investment operations:
Net investment income .56 .66
.29 .20 .13
Net realized and unrealized gain (loss) on
investments (1.79) 2.50
2.19 .24 1.76
- ---------------------------------------------------------------------------
Total income (loss) from investment
operations (1.23) 3.16
2.48 .44 1.89
- ---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62)
(.35) -- (.34) (.15)
Distributions from net realized gain on
investments and foreign currency
transactions (1.99)
(.07) (.05) (1.42) (.16)
- ---------------------------------------------------------------------------
Total dividends and distributions to
shareholders (2.61)
(.42) (.05) (1.76) (.31)
- ---------------------------------------------------------------------------
Net asset value, end of period $12.54 $16.38
$13.64 $11.21 $12.53
===========================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)%
23.59% 22.09% 3.32% 17.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $15,895 $19,301
$17,746 $14,692 $8,287
Average net assets (in thousands) $17,235 $18,596
$15,585 $15,121 $3,744
Ratios to average net assets:
Net investment income 4.09%
3.72% 2.39% 1.56% 2.62%
Expenses .71%
.70% .70% .75% .75%
Portfolio turnover rate(2) 267.9%
148.0% 132.5% 191.0% 100.9%
Average brokerage commission rate(3) --
- -- -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation.
3. Total brokerage commissions paid on purchases and sales of portfolio
securities for the period divided by the total number of related shares
purchased and sold.
See accompanying Notes to Financial Statements.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF),
Oppenheimer Bond Fund (OBF), Oppenheimer Capita Appreciation Fund (OCAP),
Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund
(OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic
Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF)
(collectively, the Funds) are separate series of Oppenheimer Variable
Account Funds (the Trust), a diversified, open-end management
investment company registered under the Investment Company Act of 1940,
as amended. The Trust's investment advisor is OppenheimerFunds, Inc.
(the Manager). The following is a summary of significant accounting
policies consistently followed by the Funds.
The Funds' objectives are as follows:
Oppenheimer Money Fund seeks the maximum current income from investments
in money market" securities consistent with low capital risk and
the maintenance of liquidity. Oppenheimer High Income Fund seeks a
high level of current income from investments in high yield
fixed-income securities.
Oppenheimer Bond Fund primarily seeks a high level of current income
from investments 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 seeks to achieve capital
appreciation by investing in "growth-type" companies.
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing
in securities of well-known established companies.
Oppenheimer 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 seeks long-term capital appreciation
by investing a substantial portion of assets in securities of foreign
issuers, "growth-type" companies, cyclical industries and special
institutions which are considered to have appreciation possibilities.
Oppenheimer 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: (i) debt
securities, (ii) U.S. Government securities, and (iii) lower-rated
high yield domestic debt securities.
Oppenheimer Growth & Income Fund seeks a high total return (which
includes growth in the value of its shares as well as current income)
from equity and debt securities. From time to time this Fund may focus
on small to medium capitalization common stocks, bonds and convertible
securities.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
Investment Valuation.
Portfolio securities of OMF are valued on the basis of amortized cost,
which approximates market value. Portfolio securities of OHIF, OBF,
OCAP, OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the
New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are valued
at the last sale price of the day or, in the absence of sales, at values
based on the closing bid or asked price or the last sale price on the
prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service approved by the
Board of Trustees. Such securities which cannot be valued by the
approved portfolio pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the firm rendering the
quotes is reliable and that the quotes reflect current market value, or
are valued under consistently applied procedures established by the Board
of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or
less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount. Options
are valued based upon the last sale price on the principal exchange
on which the option is traded or, in the absence of any transactions that
day, the value is based upon the last sale on the prior trading date
if it is within the spread between the closing bid and asked prices.
If the last sale price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used. Forward foreign
currency exchange contracts are valued based on the closing prices of
the forward currency contract rates in the London foreign exchange
markets on a daily basis as provided by a reliable bank or dealer.
Securities Purchased on a When-Issued Basis.
Delivery and payment for securities that have been purchased by OSBF
on a forward commitment or when-issued basis can take place a month or
more after the transaction date. During the period, such securities
do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. OSBF maintains,
in a segregated account with its custodian, assets with a market value
equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase
the volatility of OSBF's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested.
In connection with its ability to purchase securities on a when-issued
or forward commitment basis, OSBF may enter into mortgage
"dollar-rolls" in which the Fund sells securities for delivery in
the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Fund records
each dollar-roll as a sale and a new purchase transaction.
Security Credit Risk.
OHIF, OMSF and OSBF invest in high yield securities, which may be
subject to a greater degree of credit risk, greater market fluctuations
and risk of loss of income and principal, and may be more sensitive to
economic conditions than lower yielding, higher rated fixed income
securities. The Funds may acquire securities in default, and are not
obligated to dispose of securities whose issuers subsequently default. At
December 31, 1995, securities with an aggregate market value of
$491,444 for OHIF and $67,873 for OSBF, representing 0.37% and 0.11%
respectively, of the Funds' net assets, were in default.
Foreign Currency Translation.
The accounting records of the Funds are maintained in U.S. dollars.
Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and
OGIF that are denominated in foreign currencies are translated into
U.S. dollars at the closing rates of exchange. Amounts related to
the purchase and sale of securities and investment income are
translated at the rates of exchange prevailing on the respective dates
of such transactions.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in
foreign currency exchange rates on investments is separately identified
from the fluctuations arising from changes in market values of
securities held and reported with all other foreign currency gains
and losses in the Funds' Statements of Operations.
Repurchase Agreements.
The Funds require the custodian to take possession, to have
legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of the
underlying securities is required to be at least 102% of the resale
price at the time of purchase. If the seller of the agreement
defaults and the value of the collateral declines, or if the seller
enters an insolvency proceeding, realization of the value of the
collateral by the Funds may be delayed or limited.
Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any
net realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise tax provision is
required. At December 31, 1995, the following Funds had available for
federal income tax purposes unused capital loss carryovers expiring in
2002 and 2003:
OHIF -- $ 3,033,760
OGSF -- $17,569,501
OSBF -- $ 1,609,951
Distributions to Shareholders.
Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF,
OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF
intends to declare dividends from net investment income each day the
New York Stock Exchange is open for business and pay such dividends
monthly. To effect its policy of maintaining a net asset value of $1.00
per share, OMF may withhold dividends or make distributions of net
realized gains. Classification of Distributions to Shareholders.
Net investment income (loss) and net realized gain (loss) may
differ for financial statement and tax purposes primarily because
of premium amortization, paydown gains and losses and the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for
tax purposes. The character of the distributions made during the
year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes.
Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income
or realized gain (loss) was recorded by the Funds. Changes in
classification made during the fiscal year ended December 31, 1995 are
shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Adjustments for the Fiscal Year Ended December 31, 1995
-----------------------------------------------------------------------------------
Undistributed Net
Investment Income Undistributed Net Realized Paid-in
(Loss) Gain (Loss) on Investments Capital
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer High Income Fund 186,751 (186,751) --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Bond Fund (1,093,371) 1,093,371 --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth Fund -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund (204,481) 204,481 --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund (2,845,512) 6,264,762 (3,419,250)
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 9,220 (9,220) --
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 37 (37) --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
1. Significant Accounting Policies (Continued)
Other.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded
on the ex-dividend date. Discount on securities purchased by OHIF, OBF,
OCAP, OGF, OMSF, OGSF, OSBF and OGIF is amortized over the life of
the respective securities, in accordance with federal income tax
requirements. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis,
which is the same basis used for federal income tax purposes.
Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on
payment-in-kind debt instruments is accrued as income at the coupon
rate, and a market adjustment is made on the ex-date. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities of the date of the financial statements
and the reported amounts of income and expenses during the reporting
period.
Actual results could differ from those estimates.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest
The Funds have authorized an unlimited number of no par value shares
ofbeneficial interest. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Oppenheimer Money Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 202,748,102 $202,748,102 175,917,558 $175,917,558
Dividends and
distributions
reinvested 4,222,747 4,222,747 3,640,684 3,640,684
Redeemed (231,260,663) (231,260,663) (151,084,269) (151,084,269)
-------------------------------------------------------------
Net increase
(decrease) (24,289,814) $(24,289,814) 28,473,973 $ 28,473,973
==========================================================
===
Oppenheimer High Income Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 5,873,231 $60,932,670 9,936,582 $ 81,477,904
Dividends and
distributions
reinvested 1,162,957 12,040,152 841,101 8,686,931
Redeemed (4,263,757) (44,560,679) (9,441,490) (75,726,156)
-------------------------------------------------------------
Net increase
(decrease) 2,772,431 $28,412,143 1,336,193 $ 14,438,679
==========================================================
===
Oppenheimer Bond Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 7,311,733 $83,544,442 5,002,623 $56,466,171
Dividends and
distributions
reinvested 976,291 11,209,883 666,678 7,384,654
Redeemed (2,972,687) (33,822,108) (2,744,016) (30,950,944)
-------------------------------------------------------------
Net increase 5,315,337 $60,932,217 2,925,285 $32,899,881
==========================================================
===
Oppenheimer Capital Appreciation Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 8,882,212 $260,650,476 7,912,557 $173,453,586
Dividends and
distributions
reinvested 40,594 1,082,642 614,575 17,331,023
Redeemed (6,567,729) (191,565,283) (5,695,411) (114,272,197)
-------------------------------------------------------------
Net increase 2,355,077 $70,167,835 2,831,721 $ 76,512,412
==========================================================
===
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest (Continued)
<TABLE>
<CAPTION>
Oppenheimer Growth Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 4,302,304 $89,007,340 2,577,268 $45,230,951
Dividends and
distributions
reinvested 95,991 1,795,026 36,305 644,411
Redeemed (2,980,080) (60,949,490) (2,236,767) (38,999,875)
----------------------------------------------------------
Net increase 1,418,215 $29,852,876 376,806 $ 6,875,487
==========================================================
===
Oppenheimer Multiple Strategies Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 6,445,242 $88,771,497 9,807,084 $84,443,396
Dividends and
distributions
reinvested 1,818,313 24,783,721 1,140,244 14,981,165
Redeemed (4,671,097) (64,421,131) (6,353,523) (37,006,732)
-------------------------------------------------------------
Net increase 3,592,458 $49,134,087 4,593,805 $62,417,829
==========================================================
===
Oppenheimer Global Securities Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 11,235,722 $166,766,446 22,151,454 $336,310,887
Dividends and
distributions
reinvested 585,961 8,174,158 178,687 2,801,813
Redeemed (7,497,205) (112,360,172) (8,503,911) (112,426,012)
-------------------------------------------------------------
Net increase 4,324,478 $62,580,432 13,826,230 $226,686,688
==========================================================
===
Oppenheimer Strategic Bond Fund
-------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Sold 9,417,090 $44,897,472 3,749,500 $18,415,292
Dividends and
distributions
reinvested 661,301 3,151,540 247,485 1,178,372
Redeemed (2,245,623) (10,642,846) (1,508,782) (7,350,665)
-------------------------------------------------------------
Net increase 7,832,768 $37,406,166 2,488,203 $12,242,999
==========================================================
===
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
2. Shares of Beneficial Interest (Continued)
<TABLE>
<CAPTION>
Oppenheimer Growth &
Income Fund
-------------------------------------------
Year Ended
December 31, 1995(1)
-------------------------------------------
Shares Amount
-------------------------------------------
<S> <C> <C>
Sold 358,253 $3,933,459
Dividends and
distributions
reinvested 404 4,928
Redeemed (15,863) (181,994)
-------------------------------------------
Net increase 342,794 $3,756,393
============================================
</TABLE>
1. For the period from July 5, 1995 (commencement of operations)
to December 31, 1995.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
3. Unrealized Gains and Losses on Investments and Options Written
At December 31, 1995, net unrealized appreciation or depreciation
on investments and options written consisted of the following:
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer
Oppenheimer Oppenheimer Capital Oppenheimer Multiple Global Strategic Growth &
High Income Bond Appreciation Growth Strategies Securities Bond Income
Fund Fund Fund Fund Fund Fund Fund Fund
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Gross appreciation $7,814,322 $9,892,102 $70,829,161 $25,616,239 $53,305,284 $37,997,341 $2,340,864
$599,103
Gross depreciation (2,103,465) (1,054,488) (7,853,814) (1,998,316) (11,146,651) (14,351,638) (493,040) (94,247)
-------------------------------------------------------------------------------------------------------------
Net unrealized
appreciation $5,710,857 $8,837,614 $62,975,347 $23,617,923 $42,158,633 $23,645,703 $1,847,824
$504,856
==========================================================
===================================================
Purchases and sales of investment securities (excluding short-term securities) for the year ended December 31, 1995
were as follows:
Purchases $145,095,379 $196,515,342 $318,974,082 $78,667,711 $123,862,840 $491,709,775 $67,228,738
$3,421,021
==========================================================
===================================================
Sales $112,222,617 $120,210,417 $255,116,481 $41,669,055 $117,669,946 $416,155,747 $26,588,452
$400,564
==========================================================
===================================================
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
4. Option Activity
The Funds (except OMF, OCAP and OGF) may buy and sell put and call
options, or write covered put and call options on portfolio securities
in order to produce incremental earnings or protect against changes
in the value of portfolio securities.
The Funds generally purchase put options or write covered call options
to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Funds receive a premium and become
obligated to sell or purchase the underlying security at a fixed price,
upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized
appreciation or depreciation is recorded. The Funds will realize
a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call
option, the purchase cost for a written put option, or the cost of the
security for a purchased put or call option is adjusted by the amount
of premium received or paid.
Securities designated to cover outstanding call options are noted
in the Statements of Investments where applicable. Shares subject to
call, expiration date, exercise price, premium received and market
value are detailed in a footnote to the Statement of Investments.
Options written are reported as a liability in the Statement of Assets
and Liabilities. Gains and losses are reported in the Statement of
Operations.
The risk in writing a call option is that the Funds give up the
opportunity for profit if the market price of the security increases
and the option is exercised. The risk in writing a put option is that
the Funds may incur a loss if the market price of the security decreases
and the option is exercised. The risk in buying an option is that the
Funds pay a premium whether or not the option is exercised. The Funds
also have the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist. The Funds may
also write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of the counterparty.
OHIF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 -- $ --
Options written 28,600 5,389
Options canceled in closing transactions (28,500) (3,959)
---------------------------
Options outstanding at December 31, 1995 100 $ 1,430
===========================
</TABLE>
OBF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 -- $ --
Options written 82,000 17,019
Options canceled in closing transactions (82,000 (17,019)
---------------------------
Options outstanding at December 31, 1995 -- $ --
===========================
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
4. Option Activity (Continued)
OMSF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 2,255 $ 607,682
Options written 8,275 2,150,503
Options canceled in closing transactions (1,894) (448,093)
Options expired prior to exercise (2,353) (451,021)
Options exercised (2,680) (758,976)
---------------------------
Options outstanding at December 31, 1995 3,603 $1,100,095
===========================
</TABLE>
OSBF option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------
Number of Amount of
Options Premiums
---------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 307 $ 1,600
Options written 3,314 35,871
Options canceled in closing transactions (2,141) (20,467)
Options expired prior to exercise (190) (763)
Options exercised (290) (1,942)
---------------------------
Options outstanding at December 31, 1995 1,000 $ 14,299
===========================
</TABLE>
5. Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Funds (except OMF) use forward contracts to seek to manage foreign
currency risks. They may also be used to tactically shift portfolio
currency risk. The Funds generally enter into forward contracts as a
hedge upon the purchase or sale of a security denominated in a foreign
currency. In addition, the Funds may enter into such contracts as a
hedge against changes in foreign currency exchange rates on portfolio
positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on
a daily basis as provided by a reliable bank or dealer. The Funds will
realize a gain or loss upon the closing or settlement of the forward
transaction.
Securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statements of Investments
where applicable.
Unrealized appreciation or depreciation on forward contracts is reported
in the Statements of Assets and Liabilities. Realized gains and losses
are reported with all other foreign currency gains and losses in the
Funds' Statements of Operations.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
5. Forward Foreign Currency Exchange Contracts (Continued)
Risks include the potential inability of the counterparty to meet the
terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At December 31, 1995, outstanding forward contracts to purchase and sell
foreign currencies were as follows:
Oppenheimer High Income Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen (JPY) 1/4/96 55,250 JPY $535,752 $ (9,657)
New Zealand Dollar (NZD) 12/18/96 892 NZD 567,334 2,150
--------
$ (7,507)
--------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Deutsche Mark (DEM) 1/4/96-2/21/96 3,670 DEM $2,562,764 $ (3,622)
Japanese Yen (JPY) 12/18/96 54,625 JPY 553,249 11,934
--------
8,312
--------
Net Unrealized Appreciation $ 805
========
</TABLE>
Oppenheimer Bond Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar (AUD) 1/4/96 59 AUD $43,775 $ 190
Deutsche Mark (DEM) 1/4/96-2/21/96 11 DEM 7,661,169 (15,712)
--------
$(15,522)
========
</TABLE>
Oppenheimer Multiple Strategies Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong Dollar (HKD) 1/2/96 707 HKD $91,439 $ 2
========
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
5. Forward Foreign Currency Exchange Contracts (Continued)
Oppenheimer Global Securities Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong Dollar (HKD) 1/2/96-1/3/96 8,904 HKD $1,151,601 $ (218)
Italian Lira (ITL) 1/31/96 3,888,129 ITL 2,438,922 (9,912)
Japanese Yen (JPY) 1/4/96-1/5/96 75,155 JPY 728,792 (2,948)
Singapore Dollar (SGD) 1/2/96-1/5/96 830 SGD 586,556 (853)
Greek Drachma (GRD) 1/2/96-1/4/96 49,496 GRD 209,220 432
--------
$(13,499)
--------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Austrian Schilling (ATS) 1/2/96 17,770 ATS $1,764,559 $(12,653)
Swiss Franc (CHF) 1/4/96 279 CHF 242,200 (1,139)
Deutsche Mark (DEM) 1/4/96 1,598 DEM 1,116,140 (5,709)
Japanese Yen (JPY) 3/29/96 3,043,800 JPY 29,807,684 192,316
Norwegian Krone (NOK) 1/2/96-1/4/96 8,521 NOK 1,348,728 (9,042)
---------
163,773
---------
Net Unrealized Appreciation $150,274
=========
</TABLE>
Oppenheimer Strategic Bond Fund
<TABLE>
<CAPTION>
Contract Unrealized
Amount Valuation as of Appreciation
Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen (JPY) 1/4/96 33,988 JPY $329,572 $(5,982)
New Zealand Dollar (NZD) 12/18/96 541 NZD 344,380 1,096
-------
$(4,886)
-------
Contracts to Sell
- ------------------------------------------------------------------------------------------------------
Australian Dollar (AUD) 1/4/96 22 AUD $16,134 $ (25)
Deutsche Mark (DEM) 2/13/96 1,605 DEM 1,119,976 (5,393)
Japanese Yen (JPY) 12/18/96 33,175 JPY 336,001 7,283
Swiss Franc (CHF) 2/13/96 860 CHF 748,739 (8,636)
--------
(6,771)
--------
Net Unrealized Depreciation $(11,657)
========
</TABLE>
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
6. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the
investment advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF,
OHIF, OGSF, OSBF and OGIF, the annual fees are .75% of the first $200
million of net assets, .72% of the next $200 million, .69% of the next
$200 million, .66% of the next $200 million and .60% of net assets in
excess of $800 million. In addition, management fees for OHIF, OBF
and OSBF are .50% of net assets in excess of $1 billion. Management fees
for OMF are .45% of the first $500 million, .425% of the next $500
million, .40% of the next $500 million and .375% of net assets in excess
of $1.5 billion. For OSBF, the Manager has agreed to limit the management
fee charged so that the ordinary operating expenses of the Fund will not
exceed 1.0% of its average net assets in any fiscal year.
7. Illiquid and Restricted Securities
At December 31, 1995, investments in securities included issues
that are illiquid or restricted. The securities are often purchased in
private placement transactions, are not registered under the
Securities Act of 1933, may have contractual restrictions on resale, and
are valued under methods approved by the Board of Trustees as reflecting
fair value. The Funds intend to invest no more than 10% of net assets
(determined at the time of purchase) in illiquid and restricted
securities. Information concerning these securities is as follows:
Oppenheimer High Income Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ames Department Stores, Inc., Excess Cash Flow Payment 12/30/92 $ 0.00 $ .01
Certificates, Series AG-7A
Ames Department Stores, Inc., Litigation Trust 12/30/92 0.00 .01
Colombia (Republic of) 1989-1990 Integrated Loan Facility 12/5/95 92.00 93.00
Bonds, 6.875%, 7/1/01
ECM Fund, L.P.I 4/14/92 100.00 1,000.00
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 100.00 110.00
Farley, Inc., Zero Coupon Sub. Debs., 14.151%, 12/30/12 1/1/93-3/6/95 7.44 9.88
Gillett Holdings, Inc., C1.2 12/1/92 10.50 20.00
Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75
Trust, 11.30%, 4/1/00
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/14/95 100.00 100.75
Triangle Wire & Cable, Inc. 5/2/94 9.50 1.00
Trinidad & Tobago Loan Participation Agreement, Tranche B, 12/13/95 .84 .82
1.563%, 9/30/00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $3,708,444 or 2.78% of
the Fund's net assets. Pursuant to guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
<PAGE>
Oppenheimer Variable Account Funds
Notes to Financial Statements (Continued)
7. Illiquid and Restricted Securities (Continued)
Oppenheimer Bond Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00
Facility Bonds, 6.875%, 7/1/01
Merrill Lynch & Co., Inc. 5/15/95 110.05 115.10
Units, 9.75% 6/15/99
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $2,745,392 or 1.30% of
the Fund's net assets. Pursuant to guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
Oppenheimer Multiple Strategies Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Anita Realty Enterprises, Inc., Units 5/28/93-2/9/95 $16.99 $11.88
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995 was $475,000 or 0.12% of the
Fund's net assets. Pursuant to guidelines adopted by the Board of
Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
Oppenheimer Global Securities Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plant Genetics Systems 5/27/92-3/7/95 $13.77 $11.91
Plant Genetics, Inc. Wts., Exp. 12/99 3/7/95 0.00 1.99
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995, was $1,180,542, or 0.33% of
the Fund's net assets. Pursuant to the guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
Oppenheimer Strategic Bond Fund
<TABLE>
<CAPTION>
Acquisition Cost Valuation as of
Security Date Per Unit December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00
Facility Bonds, 6.875%, 7/1/01
Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75
Trust, 11.30%, 4/1/00
Jamaica (Government of) 1990 Refinancing Agreement 8/15/95 89.75 90.00
Nts., Tranche A, 6.75%, 10/16/00
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/15/95 100.00 100.75
Trinidad & Tobago Loan Participation Agreement,
Tranche A, 1.563%, 9/30/00 12/13/95-12/18/95 .84 .82
United Mexican States, Combined Facility 3, Loan 10/25/94 89.00 75.75
Participation Agreement, Tranche A, 6.50%, 9/20/97
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate value of illiquid and restricted securities subject to
the 10% limitation at December 31, 1995, was $1,221,735, or 2.03% of
the Fund's net assets. Pursuant to the guidelines adopted by the Board
of Trustees, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above.
<PAGE>
Federal Income Tax Information (Unaudited)
In early 1996, shareholders will receive information regarding all
dividends and distributions paid to them by the Funds during calendar
year 1995. Regulations of the U.S. Treasury Department require the Funds
to report this information to the Internal Revenue Service.
Certain distributions paid on March 24, 1995 were designated as
"capital gain distributions" for federal income tax purposes. These
distributions are shown in the table below. Whether received in stock or
cash, a capital gain distribution should be treated by shareholders as a
gain from the sale of capital assets held for more than one year
(long-term capital gains).
Dividends paid by the Funds during the fiscal year ended December 31, 1995
which are not designated as capital gain distributions should be
multiplied by the percentages listed below to arrive at the net amount
eligible for the corporate dividend-received deduction.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Long-Term Capital Corporate Dividend-
Gain Distribution Received Deduction
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oppenheimer Money Fund -- --
- --------------------------------------------------------------------------------------------------------
Oppenheimer High Income Fund -- 4.90%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Bond Fund -- 0.75%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund $.047 4.14%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Growth Fund $.263 18.31%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Multiple Strategies Fund $.371 12.64%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund $.382 --
- --------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund -- 2.18%
- --------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund -- 38.51%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing information is presented to assist shareholders in
reporting distributions received from the Funds to the Internal Revenue
Service. Because of the complexity of the federal regulations which may
affect your individual tax return and the many variations in the state
and local tax regulations, we recommend that you consult your tax
advisor for specific guidance.
<PAGE>
Oppenheimer Variable Account Funds
Officers and Trustees
James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Bridget A. Macaskill, Trustee and President
Ned M. Steel, Trustee
Robert C. Doll, Sr. Vice President
Paul LaRocco, Vice President
Robert J. Milnamow, Vice President
David P. Negri, Vice President
Jane Putnam, Vice President
Richard H. Rubinstein, Vice President
Arthur Steinmetz, Vice President
William Wilby, Vice President
Arthur J. Zimmer, Vice President
Andrew J. Donohue, Vice President
George C. Bowen, Vice President, Secretary and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
Investment Advisor
OppenheimerFunds, Inc.
Transfer Agent
OppenheimerFunds Services
Custodian of Portfolio Securities
The Bank of New York
Independent Auditors
Deloitte & Touche LLP
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
This is a copy of a report to shareholders of Oppenheimer Variable
Account Funds. This report must be preceded or accompanied by a
Prospectus of Oppenheimer Variable Account Funds. For material
information concerning the Funds, see the Prospectus.
Shares of Oppenheimer funds are not deposits or obligations of any bank,
are not guaranteed by any bank, and are not insured by the FDIC or any
other agency, and involve investment risks, including possible loss
of the principal amount invested.
<PAGE>
OPPENHEIMER
VARIABLE ACCOUNT
FUNDS
SEMIANNUAL REPORT
JUNE 30, 1996
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments
JUNE 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS - 26.4%
- -----------------------------------------------------
GOVERNMENT AGENCY - 21.0%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED - 16.9%
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg. Participation $ 5,188,488 $ 4,997,967
Certificates, 7%, 4/1/26
-----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6.50%, 3/1/11-5/1/11 25,017,373 24,211,064
7%, 4/1/04-11/1/25 10,090,581 9,725,799
7.50%, 1/1/08-1/1/26 5,457,662 5,398,311
8%, 5/1/17 625,038 636,345
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, 8.75%, 11/25/05 3,000,000 3,123,750
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
10.40%, 4/25/19 1,793,536 1,914,026
Interest-Only Stripped Mtg.-Backed Security:
Trust 218, Cl. 2, 12.588%-13.20%, 4/1/23 (2) 7,725,412 2,569,907
Trust 257, Cl. 2, 11.448%-15.373%, 2/1/24 (2) 3,529,536 1,219,897
---------------
53,797,066
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED - 4.1%
-----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
6%, 10/20/25 4,842,429 4,863,639
7%, 1/15/09-10/20/24 8,199,401 8,049,413
---------------
12,913,052
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVATE - 5.4%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL - 3.8%
-----------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25 (3) 1,500,000 1,549,688
Cl. 2-E, 8.70%, 9/25/25 (3) 1,500,000 1,537,031
-----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through (4) 964,447 967,160
Certificates, Series 1995-C2, Cl. C, 7.906%, 6/15/21
-----------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through
Certificates, Series 1996-C1, Cl. D-1, 7.51%,
2/1/28 (3)(4) 1,000,000 951,250
-----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,030,504 1,041,936
Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,505,625
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,725,313
-----------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through
Certificates, Series 1996-CFL, Cl. D, 7.034%, 2/25/28 1,800,000 1,713,375
---------------
11,991,378
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
Green Tree Financial Corp., Series 1994-6, Cl. A3, 7.70%, 1/15/20 738,000 750,679
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY - 1.1%
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Countrywide Funding Corp., Series 1993-12, Cl. B1, 6.625%, 2/25/24 $ 1,000,000 $ 875,547
-----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Trust, Collateralized Mtg. Obligations, Gtd.
Multiclass Mtg. Participation Certificates, Series 43, Cl. E, 6.50%,
8/27/15 500,000 471,715
-----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates, 2,092,478 2,152,637
Series 1991-M5, Cl. A, 9%, 3/25/17 ---------------
3,499,899
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.0%
-----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI:
Interest-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. B, (2) 108,078 27,898
9.549%, 10/23/17
Principal-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. A, (5) 159,996 106,198
9.489%, 10/23/17 ---------------
134,096
- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 0.3%
-----------------------------------------------------------------------------------------------------------------------------
Contimortgage Home Equity Loan Trust, Series 1995-2, Cl. A2, 7.95%,
4/15/10 554,000 559,367
-----------------------------------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp. III, Sub. Bonds, Series 1992-A, Cl. (4) 293,427 291,502
1A, 7.17%, 3/29/30 ---------------
850,869
---------------
Total Mortgage-Backed Obligations (Cost $83,636,632) 83,937,039
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 31.5%
- ------------------------------------------------------------------------------------------------------------------------------------
TREASURY - 31.5%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
10.375%, 11/15/12 365,000 463,550
6.875%, 8/15/25 (6) 3,500,000 3,463,904
7.125%, 2/15/23 3,000,000 3,030,936
7.50%, 11/15/16 6,780,000 7,123,237
8%, 11/15/21 5,000,000 5,565,625
8.125%, 8/15/19 2,060,000 2,311,062
8.875%, 8/15/17 740,000 888,231
9.25%, 2/15/16 740,000 915,518
STRIPS, Zero Coupon, 7.329%, 5/15/15 (7) 1,107,000 292,936
STRIPS, Zero Coupon, 7.341%, 8/15/14 (7) 3,690,000 1,031,118
-----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.875%, 11/15/05 3,000,000 2,826,561
6%, 12/31/97 3,000,000 3,000,936
6.375%, 6/30/97 1,000,000 1,005,625
6.50%, 5/15/05-8/15/05 18,000,000 17,740,305
6.75%, 6/30/99 16,340,000 16,539,134
7.25%, 5/15/04-8/15/04 11,980,000 12,406,787
7.375%, 11/15/97 2,000,000 2,035,626
7.50%, 11/15/01-2/15/05 12,486,000 13,115,585
7.75%, 12/31/99 2,000,000 2,085,000
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Nts. (Continued)
7.875%, 11/15/04 $ 2,000,000 $ 2,150,624
9.25%, 8/15/98 2,000,000 2,120,624
---------------
Total U.S. Government Obligations (Cost $99,580,053) 100,112,924
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS - 14.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria de la Federacion, Zero Coupon, 37.779%, 3/6/97 (7) MXP 5,300,000
567,987
-----------------------------------------------------------------------------------------------------------------------------
Canada (Government of) Real Return Debs., 4.517%, 12/1/21 (8) CAD 3,390,000
2,443,167
-----------------------------------------------------------------------------------------------------------------------------
CEZ AS, Zero Coupon Disc. Promissory Nts., 10.762%, 7/1/96 (7) CZK 14,000,000
508,534
-----------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento Sr. Unsec. Debs.:
6.625%, 10/14/98 (3) 1,000,000 998,125
7.25%, 4/30/98 (3) 1,000,000 1,004,688
-----------------------------------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds:
8%, 3/15/06 DKK 17,000,000 3,014,340
8%, 5/15/03 DKK 22,140,000 3,995,567
-----------------------------------------------------------------------------------------------------------------------------
Financiera Energetica Nacional SA, 9.375% Eurobonds, 6/15/06 (3) 2,350,000 2,355,875
-----------------------------------------------------------------------------------------------------------------------------
Germany (Republic of) Bonds:
7.375%, 12/2/02 DEM 1,250,000 875,495
8.25%, 9/20/01 DEM 1,950,000 1,424,830
-----------------------------------------------------------------------------------------------------------------------------
Italy (Republic of) Certificati di Credito del Tesoro Nts., 11.20%, (4) ITL 2,835,000,000 1,893,759
8/1/00
-----------------------------------------------------------------------------------------------------------------------------
National Treasury Management Agency (Irish Government) Bonds, 8%, IEP 1,495,000
2,493,462
10/18/00
-----------------------------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp. Gtd. Bonds, 12%, 12/1/01 AUD 3,490,000
3,120,520
-----------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 8%, 2/15/01 NZD 2,760,000 1,817,748
-----------------------------------------------------------------------------------------------------------------------------
Ontario, Canada (Province of) Bonds, 8%, 10/17/01 554,000 584,492
-----------------------------------------------------------------------------------------------------------------------------
Poland (Republic of):
Disc. Bonds, 6.437%, 10/27/24 (4) 5,250,000 4,935,000
Treasury Bills, Zero Coupon:
21.658%, 10/2/96 (7) PLZ 720,000 251,334
21.466%, 12/4/96 (7) PLZ 2,250,000 759,038
20.371%, 3/19/97 (7) PLZ 800,000 255,785
22.37%, 7/24/96 (7) PLZ 3,000,000 1,088,816
-----------------------------------------------------------------------------------------------------------------------------
Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio Prazo, PTE 65,000,000 464,182
11.875%, 2/23/00
-----------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000 1,046,250
-----------------------------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, ESP 100,000,000 884,090
12.25%, 3/25/00
-----------------------------------------------------------------------------------------------------------------------------
Sweden (Kingdom of) Bonds, Series 1030, 13%, 6/15/01 SEK 12,600,000 2,321,861
-----------------------------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts.:
13%, 7/14/00 GBP 1,630,000 3,040,818
7.50%, 12/7/06 GBP 2,000,000 3,020,201
-------------
Total Foreign Government Obligations (Cost $44,880,690) 45,165,964
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds,
6.563%, 7/1/01 (Cost $1,457,891) (4)(9) $ 1,571,600 $ 1,465,517
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Dade County, Florida Educational Facilities Authority:
Exchangeable Revenue Bonds, University of Miami, Prerefunded, MBIA
Insured, 7.65%, 4/1/10 175,000 196,550
Revenue Bonds, University of Miami, MBIA Insured, 7.65%, 4/1/10 205,000 225,008
Taxable Exchange Revenue Bonds, University of Miami, MBIA Insured,
9.70%, 4/1/10 120,000 131,712
-----------------------------------------------------------------------------------------------------------------------------
Pinole, California Redevelopment Agency Tax Allocation Taxable
Bonds, Pinole Vista Redevelopment, Series B, 8.35%, 8/1/17 670,000 675,954
-----------------------------------------------------------------------------------------------------------------------------
Port of Portland, Oregon Special Obligation Taxable Revenue Bonds,
PAMCO Project, 9.20%, 5/15/22 500,000 537,055
---------------
Total Municipal Bonds and Notes (Cost $1,663,889) 1,766,279
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 16.7%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY - 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.0%
-----------------------------------------------------------------------------------------------------------------------------
Lyondell Petrochemical Co., 8.25% Nts., 3/15/97 738,000 748,040
-----------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000 2,305,911
---------------
3,053,951
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER - 1.1%
-----------------------------------------------------------------------------------------------------------------------------
Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 817,223
-----------------------------------------------------------------------------------------------------------------------------
Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000 792,138
-----------------------------------------------------------------------------------------------------------------------------
Potlatch Corp., 9.46% Medium-Term Nts., 4/2/02 369,000 409,524
-----------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 1,508,981 1,484,643
---------------
3,503,528
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED - 2.4%
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS - 0.7%
-----------------------------------------------------------------------------------------------------------------------------
Fletcher Challenge Capital Canada, Inc., 7.75% Nts.,
6/20/06 1,800,000 1,827,324
-----------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Co., 9.36% Debs., 1/1/21 369,000 441,729
---------------
2,269,053
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO - 0.4%
-----------------------------------------------------------------------------------------------------------------------------
Bass America, Inc., 6.75% Gtd. Nts., 8/1/99 554,000 555,700
-----------------------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000 500,000
-----------------------------------------------------------------------------------------------------------------------------
Unilever CR spol. s.r.o., guaranteed by Unilever NV, Rotterdam, The
Netherlands, Zero Coupon Promissory Nts., 11.189%, 10/11/96 (7) CZK 7,000,000
246,639
---------------
1,302,339
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 0.6%
-----------------------------------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000 1,195,314
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roche Holdings, Inc., 2.75% Bonds, 4/14/00 $ 920,000 $ 811,325
---------------
2,006,639
- ------------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING - 0.1%
-----------------------------------------------------------------------------------------------------------------------------
Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000 363,378
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL - 0.3%
-----------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000 985,410
- ------------------------------------------------------------------------------------------------------------------------------------
TOYS - 0.3%
-----------------------------------------------------------------------------------------------------------------------------
Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,006,052
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 1.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000 540,231
-----------------------------------------------------------------------------------------------------------------------------
Coastal Corp.:
8.75% Sr. Nts., 5/15/99 369,000 388,071
9.75% Sr. Debs., 8/1/03 200,000 225,716
-----------------------------------------------------------------------------------------------------------------------------
Colorado International Gas Corp., 10% Sr. Debs., 6/15/05 369,000 431,634
-----------------------------------------------------------------------------------------------------------------------------
Enron Corp., 9.875% Debs., 6/15/03 375,000 429,130
-----------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 400,000 426,047
-----------------------------------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 1,000,000 1,027,077
-----------------------------------------------------------------------------------------------------------------------------
Norsk Hydro AS, 8.75% Bonds, 10/23/01 738,000 784,125
-----------------------------------------------------------------------------------------------------------------------------
Sonat, Inc., 9.50% Nts., 8/15/99 250,000 268,589
-----------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000 549,655
-----------------------------------------------------------------------------------------------------------------------------
Texaco Capital, Inc., 8.875% Gtd. Debs., 9/1/21 369,000 421,875
-----------------------------------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 554,000 680,090
---------------
6,172,240
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - 3.7%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS - 1.1%
-----------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, 9.75% Sr. Unsub. Unsec. Nts., 8/26/99 (3) 185,000 190,781
-----------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp.:
7.50% Sr. Nts., 3/15/97 100,000 101,060
7.75% Sub. Nts., 7/15/02 554,000 574,663
-----------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New), 10.125% Sub. Nts., 11/1/00 554,000 620,844
-----------------------------------------------------------------------------------------------------------------------------
First Chicago Corp.:
11.25% Sub. Nts., 2/20/01 750,000 877,050
9% Sub. Nts., 6/15/99 150,000 159,482
-----------------------------------------------------------------------------------------------------------------------------
First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 654,000 675,462
---------------
3,199,342
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL - 2.4%
-----------------------------------------------------------------------------------------------------------------------------
Allied-Lyons Finance BV, 6.50% Debs., 8/26/97 369,000 368,539
-----------------------------------------------------------------------------------------------------------------------------
American Car Line Co., 8.25% Equipment Trust Certificates, Series
1993-A, 4/15/08 578,000 585,004
-----------------------------------------------------------------------------------------------------------------------------
American General Finance Corp., 5.875% Sr. Nts., 7/1/00 554,000 536,764
-----------------------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, 8.625% Sr. Nts.,
6/15/97 369,000 377,618
-----------------------------------------------------------------------------------------------------------------------------
AVCO Financial Services Asia Ltd., 5.875% Sr. Nts., 10/15/97 369,000 367,643
-----------------------------------------------------------------------------------------------------------------------------
Caterpillar Financial Services, Inc., 6.85% Medium-Term Nts., Series 369,000 372,310
D, 9/15/97
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chrysler Financial Corp., 6.65% Medium-Term Nts.,
4/28/97 $ 369,000 $ 370,506
-----------------------------------------------------------------------------------------------------------------------------
Countrywide Funding Corp., 6.57% Gtd. Medium-Term Nts., Series A,
8/4/97 554,000 556,366
-----------------------------------------------------------------------------------------------------------------------------
Fleet Mtg. Group, Inc., 6.50% Nts., 9/15/99 369,000 366,900
-----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.875% Medium-Term Nts., 2/27/97 369,000
373,702
-----------------------------------------------------------------------------------------------------------------------------
Golden West Financial Corp.:
10.25% Sub. Nts., 5/15/97 369,000 381,747
8.625% Sub. Nts., 8/30/98 185,000 192,463
-----------------------------------------------------------------------------------------------------------------------------
Household Finance Corp., 8.95% Debs., 9/15/99 369,000 392,637
-----------------------------------------------------------------------------------------------------------------------------
Household International, BV, 6% Gtd. Sr. Nts., 3/15/99 369,000 362,139
-----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 700,000 726,461
-----------------------------------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 738,000 761,374
-----------------------------------------------------------------------------------------------------------------------------
U.S. Leasing International, 7% Nts., 11/1/97 554,000 559,271
---------------
7,651,444
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
SunAmerica, Inc., 9% Sr. Nts., 1/15/99 554,000 581,652
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ELECTRONICS/COMPUTERS - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
British Aerospace PLC, 8% Debs., 5/27/97 740,000 750,175
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 0.5%
-----------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Debs., 8/1/17 800,000 876,920
-----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.75% Nts., 4/15/97 700,000 708,659
---------------
1,585,579
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 2.8%
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
Tele-Communications, Inc., 5.28% Medium-Term Nts., 8/20/96 701,000 700,546
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION - 1.3%
-----------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs.,
3/15/23 1,850,000 1,801,214
-----------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000 2,449,365
---------------
4,250,579
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA - 0.8%
-----------------------------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (3) 1,142,150 1,286,062
-----------------------------------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
10.125% Sr. Gtd. Debs., 10/15/12 500,000 566,122
12% Sr. Nts., 12/15/01 500,000 541,698
---------------
2,393,882
- ------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/FILM - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub. Nts., 2/1/98 500,000 525,797
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING - 0.3%
-----------------------------------------------------------------------------------------------------------------------------
Reed Elsevier, Inc., 6.625% Nts., 10/15/23 (3) 600,000 519,270
-----------------------------------------------------------------------------------------------------------------------------
Reed Publishing (USA), Inc., 7.24% Gtd. Medium-Term Nts., 2/10/97 500,000 503,640
---------------
1,022,910
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES - 0.6%
-----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc.:
<S> <C> <C>
10% Debs., 3/15/08 $ 400,000 $ 472,077
10% Debs., 8/1/98 554,000 590,198
7.875% Nts., 10/1/02 650,000 669,822
---------------
1,732,097
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICES - 0.1%
-----------------------------------------------------------------------------------------------------------------------------
PHH Corp., 6.50% Nts., 2/1/00 369,000 365,606
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
DRUG STORES - 0.2%
-----------------------------------------------------------------------------------------------------------------------------
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000 641,269
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
RAILROADS - 0.1%
-----------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 435,511
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.7%
-----------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000 773,183
-----------------------------------------------------------------------------------------------------------------------------
HNG Internorth/Enron Corp., 9.625% Debs., 3/15/06 369,000 419,709
-----------------------------------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 150,000 134,636
-----------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 792,497
---------------
2,120,025
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.4%
-----------------------------------------------------------------------------------------------------------------------------
360 Communications Co.:
7.125% Sr. Nts., 3/1/03 1,450,000 1,392,654
7.50% Sr. Nts., 3/1/06 2,000,000 1,900,920
-----------------------------------------------------------------------------------------------------------------------------
GTE Corp.:
8.85% Debs., 3/1/98 554,000 574,946
9.375% Debs., 12/1/00 500,000 546,176
---------------
4,414,696
---------------
Total Corporate Bonds and Notes (Cost $53,354,901) 53,033,700
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BankAmerica Corp., 8.375%, Series K (Cost $1,177,404) 45,400 1,157,700
PRINCIPAL
AMOUNT(1)
- ------------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS - 2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, New York Branch, 14% CD Linked
Nts., 12/17/96 (indexed to the cross currency rates of Greek Drachma
and European Currency Unit) $ 1,000,000 1,001,600
-----------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, New York Branch, 5.60% CD Linked
Nts., 1/30/97 (indexed to the closing Nikkei 225 Index on 1/23/97,
10 yr. Japanese Yen swap rate & New Zealand Dollar on 1/28/97) NZD 1,508,523
1,119,691
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT(1) (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canadian Imperial Bank of Commerce, New York Branch, 14% CD Linked $ 250,000 $
245,325
Nts., 11/25/96 (indexed to the cross currency rates of Greek Drachma
and European Currency Unit)
----------------------------------------------------------------------------------------------------------------------------
Internationale Nederlanden Bank NV, Prague Branch, Zero Coupon
Promissory Nts., 10.488%, 4/28/97 (7) CZK 13,800,000 461,167
----------------------------------------------------------------------------------------------------------------------------
Internationale Nederlanden (U.S.) Capital Holdings Corp., Zero Coupon
Chilean Peso Linked Nts.:
11.813%, 6/23/97 (7) 900,000 797,850
11.738%, 6/24/97 (7) 900,000 797,670
----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 (representing debt
of Chemical Banking Corp., sub. capital nts., and equity of
Citicorp, 7.75% preferred, series 22) (9) 1,000,000 1,138,200
----------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corp., New York Branch, 6.05% CD Linked Nts., 6/20/97
(indexed to the closing Nikkei 225 Index on 1/23/97 5 yr. & 3 mos.
Japanese Yen Swap rate & New Zealand Dollar) 800,000 808,120
--------------
Total Structured Instruments (Cost $6,218,844) 6,369,623
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 5.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Canadian Imperial Bank of
Commerce, 5.45%, dated 6/28/96, to be repurchased
at $18,908,584 on 7/1/96, collateralized by U.S. Treasury
Bonds, 9.125%-11.25%, 2/15/15-5/11/18, with a value
of $6,680,920, and U.S. Treasury Nts., 5.25%-8.50%,
1/11/97-11/15/04, with a value of $12,626,048
(Cost $18,900,000) 18,900,000 18,900,000
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $310,870,304) 98.2%
311,908,746
----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.8 5,708,154
------------------- --------------
NET ASSETS 100.0% $ 317,616,900
===================
==============
</TABLE>
1. Principal amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollar IEP - Irish Punt
CAD - Canadian Dollar ITL - Italian Lira
CZK - Czech Koruna MXP - Mexican Peso
DEM - German Deutsche Mark NZD - New Zealand Dollar
DKK - Danish Krone PLZ - Polish Zloty
ESP - Spanish Peseta PTE - Portuguese Escudo
BBP - British Pound Sterling SEK - Swedish Krona
2. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed- income securities increase in price when interest rates
decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of
these securities is typically more sensitive to changes in prepayment
rates than traditional mortgage-backed securities (for example, GNMA
pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
3. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $10,392,770 or 3.27% of the Fund's
net assets, at June 30, 1996.
4. Represents the current interest rate for a variable rate security.
5. Principal-Only Strips represent the right to receive the monthly
principal payments on an underlying pool of mortgage loans. The value of
these securities generally increases as interest rates decline and
prepayment rates rise. The price of these securities is typically more
volatile than that of coupon-bearing bonds of the same maturity. Interest
rates disclosed represent current yields based upon the current cost basis
and estimated timing of future cash flows.
6. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:
CONTRACTS
<TABLE>
<CAPTION>
SUBJECT EXPIRATION EXERCISE PREMIUM MARKET
VALUE
TO CALL DATE PRICE RECEIVED (NOTE 1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call option on Australian Dollar 352,000 7/3/96 1.25 AUD $ 2,675 $ 282
Call option on Czech Koruna 1,190,000 9/6/96 28.357CZK 15,946 29,310
Call option on Mexican Peso 460,000 8/5/96 8.03MXP 12,374 16,374
-------- ---------
$ 30,995 $ 45,966
======== =========
</TABLE>
7. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
8. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign index.
9. Identifies issues considered to be illiquid - See applicable note of
Notes to Financial Statements.
See accompanying Notes to Financial Statements.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Statement of Investments
JUNE 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM NOTES - 7.8%
- ------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.27%, 7/1/96
(Cost $11,250,000) $11,250,000 $11,250,000
SHARES
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 80.2%
- ------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS - 4.8%
- ------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 3.9%
----------------------------------------------------------------------------------------------------------------
FMC Corp. (1) 8,200 535,050
----------------------------------------------------------------------------------------------------------------
IMC Global, Inc. 19,000 714,875
----------------------------------------------------------------------------------------------------------------
Morton International, Inc. 29,000 1,080,250
----------------------------------------------------------------------------------------------------------------
PPG Industries, Inc. 3,200 156,000
----------------------------------------------------------------------------------------------------------------
Praxair, Inc. 31,600 1,335,100
----------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (1) 31,600 367,350
----------------------------------------------------------------------------------------------------------------
Terra Industries, Inc. 51,000 631,125
----------------------------------------------------------------------------------------------------------------
Union Carbide Corp. 19,000 755,250
-----------
5,575,000
- ------------------------------------------------------------------------------------------------------------------------
PAPER - 0.9%
----------------------------------------------------------------------------------------------------------------
Boise Cascade Corp. 12,000 439,500
----------------------------------------------------------------------------------------------------------------
Bowater, Inc. 14,000 526,750
----------------------------------------------------------------------------------------------------------------
Willamette Industries, Inc. 6,000 357,000
-----------
1,323,250
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS - 12.2%
- ------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING - 1.2%
----------------------------------------------------------------------------------------------------------------
AutoZone, Inc. (1) 12,000 417,000
----------------------------------------------------------------------------------------------------------------
Pulte Corp. 22,000 588,500
----------------------------------------------------------------------------------------------------------------
Toll Brothers, Inc. (1) 46,000 753,250
-----------
1,758,750
- ------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 4.4%
----------------------------------------------------------------------------------------------------------------
Alaska Air Group, Inc. (1) 25,000 684,375
----------------------------------------------------------------------------------------------------------------
AMR Corp. 5,000 455,000
----------------------------------------------------------------------------------------------------------------
Callaway Golf Co. 25,000 831,250
----------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc. 8,000 664,000
----------------------------------------------------------------------------------------------------------------
Disney (Walt) Co. 25,000 1,571,875
----------------------------------------------------------------------------------------------------------------
ITT Corp. (New) (1) 5,000 331,250
----------------------------------------------------------------------------------------------------------------
McDonald's Corp. 11,000 514,250
----------------------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. (1) 20,000 689,687
----------------------------------------------------------------------------------------------------------------
Wendy's International, Inc. 35,800 666,775
-----------
6,408,462
- ------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
----------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B (1) 3,667 142,555
- ------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL - 4.2%
----------------------------------------------------------------------------------------------------------------
Donna Karan International, Inc. 40,100 1,122,800
----------------------------------------------------------------------------------------------------------------
Eckerd Corp. (1) 44,000 995,500
----------------------------------------------------------------------------------------------------------------
Jones Apparel Group, Inc. (1) 19,100 938,287
----------------------------------------------------------------------------------------------------------------
Liz Claiborne, Inc. 11,000 380,875
----------------------------------------------------------------------------------------------------------------
Nautica Enterprises, Inc. (1) 20,000 575,000
----------------------------------------------------------------------------------------------------------------
Tommy Hilfiger Corp. (1) 20,800 1,115,400
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL: GENERAL (CONTINUED)
----------------------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 37,000 $ 938,875
-----------
6,066,737
- ------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY - 2.3%
----------------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. (1) 18,000 481,500
----------------------------------------------------------------------------------------------------------------
Gap, Inc. (The) 20,000 642,500
----------------------------------------------------------------------------------------------------------------
General Nutrition Cos., Inc. (1) 18,400 322,000
----------------------------------------------------------------------------------------------------------------
Home Depot, Inc. 22,000 1,188,000
----------------------------------------------------------------------------------------------------------------
Lands' End, Inc. (1) 28,000 693,000
-----------
3,327,000
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS - 17.0%
- ------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 1.5%
----------------------------------------------------------------------------------------------------------------
Boston Beer Co., Inc., Cl. A (1) 13,000 312,000
----------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The) 22,000 1,075,250
----------------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 20,000 707,500
----------------------------------------------------------------------------------------------------------------
Whitman Corp. 5,000 120,625
-----------
2,215,375
- ------------------------------------------------------------------------------------------------------------------------
FOOD - 2.7%
----------------------------------------------------------------------------------------------------------------
Casey's General Stores, Inc. 13,000 258,375
----------------------------------------------------------------------------------------------------------------
H.J. Heinz Co. 15,000 455,625
----------------------------------------------------------------------------------------------------------------
JP Foodservice, Inc. (1) 25,600 640,000
----------------------------------------------------------------------------------------------------------------
Kroger Co. (1) 25,000 987,500
----------------------------------------------------------------------------------------------------------------
Richfood Holdings, Inc. 16,000 520,000
----------------------------------------------------------------------------------------------------------------
Safeway, Inc. (1) 32,000 1,056,000
-----------
3,917,500
- ------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS - 4.6%
----------------------------------------------------------------------------------------------------------------
Abbott Laboratories 17,000 739,500
----------------------------------------------------------------------------------------------------------------
Amgen, Inc. (1) 8,000 432,000
----------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 6,500 585,000
----------------------------------------------------------------------------------------------------------------
Johnson & Johnson 28,516 1,411,542
----------------------------------------------------------------------------------------------------------------
Pfizer, Inc. 26,500 1,891,437
----------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 16,000 1,004,000
----------------------------------------------------------------------------------------------------------------
Warner-Lambert Co. 10,000 550,000
-----------
6,613,479
- ------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES - 5.4%
----------------------------------------------------------------------------------------------------------------
Boston Scientific Corp. (1) 21,000 945,000
----------------------------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 8,000 427,000
----------------------------------------------------------------------------------------------------------------
HealthCare COMPARE Corp. (1) 20,000 975,000
----------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp. (1) 17,000 612,000
----------------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc. (1) 21,000 824,250
----------------------------------------------------------------------------------------------------------------
Medtronic, Inc. 26,000 1,456,000
----------------------------------------------------------------------------------------------------------------
Nellcor Puritan Bennett, Inc. (1) 15,800 766,300
----------------------------------------------------------------------------------------------------------------
Oxford Health Plans, Inc. (1) 16,000 658,000
----------------------------------------------------------------------------------------------------------------
Sofamor Danek Group, Inc. (1) 17,000 471,750
----------------------------------------------------------------------------------------------------------------
Ventritex, Inc. (1) 18,000 308,250
----------------------------------------------------------------------------------------------------------------
VISX, Inc. (1) 11,000 375,375
-----------
7,818,925
- ------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS - 0.7%
----------------------------------------------------------------------------------------------------------------
Procter & Gamble Co. 11,000 996,875
</TABLE>
33
<PAGE> 51
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOBACCO - 2.1%
----------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc. 15,000 $ 1,560,000
----------------------------------------------------------------------------------------------------------------
UST, Inc. 41,000 1,404,250
-----------
2,964,250
- ------------------------------------------------------------------------------------------------------------------------
ENERGY - 1.7%
- ------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS - 0.9%
----------------------------------------------------------------------------------------------------------------
Global Marine, Inc. (1) 27,000 374,625
----------------------------------------------------------------------------------------------------------------
Sonat Offshore Drilling, Inc. 18,000 909,000
-----------
1,283,625
- ------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED - 0.8%
----------------------------------------------------------------------------------------------------------------
Mobil Corp. 6,000 672,750
----------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 3,500 538,125
-----------
1,210,875
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 15.9%
- ------------------------------------------------------------------------------------------------------------------------
BANKS - 4.2%
----------------------------------------------------------------------------------------------------------------
Bank of Boston Corp. 23,000 1,138,500
----------------------------------------------------------------------------------------------------------------
BankAmerica Corp. 7,500 568,125
----------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 15,240 1,076,325
----------------------------------------------------------------------------------------------------------------
NationsBank Corp. 10,000 826,250
----------------------------------------------------------------------------------------------------------------
PNC Bank Corp. 24,600 731,850
----------------------------------------------------------------------------------------------------------------
State Street Boston Corp. 18,600 948,600
----------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 3,166 756,278
-----------
6,045,928
- ------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL - 8.5%
----------------------------------------------------------------------------------------------------------------
Advanta Corp., Cl. A 15,000 765,000
----------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A (1) 15,000 564,375
----------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 8,000 684,000
----------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. 32,000 1,072,000
----------------------------------------------------------------------------------------------------------------
First USA, Inc. 25,000 1,375,000
----------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 23,000 1,403,000
----------------------------------------------------------------------------------------------------------------
Green Tree Financial Corp. 56,000 1,750,000
----------------------------------------------------------------------------------------------------------------
Price (T. Rowe) Associates 43,200 1,328,400
----------------------------------------------------------------------------------------------------------------
Salomon, Inc. 18,000 792,000
----------------------------------------------------------------------------------------------------------------
Schwab (Charles) Corp. (New) 29,000 710,500
----------------------------------------------------------------------------------------------------------------
Travelers Group, Inc. 40,500 1,847,812
-----------
12,292,087
- ------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.2%
----------------------------------------------------------------------------------------------------------------
Allstate Corp. 20,000 912,500
----------------------------------------------------------------------------------------------------------------
Amerin Corp. (1) 18,500 494,875
----------------------------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 5,000 266,250
----------------------------------------------------------------------------------------------------------------
Loews Corp. 11,000 867,625
----------------------------------------------------------------------------------------------------------------
MGIC Investment Corp. 14,100 791,363
----------------------------------------------------------------------------------------------------------------
SunAmerica, Inc. 24,000 1,356,000
-----------
4,688,613
- ------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 6.7%
- ------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.8%
----------------------------------------------------------------------------------------------------------------
Emerson Electric Co. 16,500 1,491,188
----------------------------------------------------------------------------------------------------------------
General Electric Co. 9,000 778,500
</TABLE>
34
<PAGE> 52
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRICAL EQUIPMENT (CONTINUED)
----------------------------------------------------------------------------------------------------------------
Kemet Corp. (1) 20,000 400,000
-----------
2,669,688
- ------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS - 1.5%
----------------------------------------------------------------------------------------------------------------
Centex Corp. 21,000 653,625
----------------------------------------------------------------------------------------------------------------
Fluor Corp. 6,000 392,250
----------------------------------------------------------------------------------------------------------------
Rayonier, Inc. 23,400 889,200
----------------------------------------------------------------------------------------------------------------
Wolverine Tube, Inc. (1) 5,000 175,000
-----------
2,110,075
- ------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES - 1.0%
----------------------------------------------------------------------------------------------------------------
Danka Business Systems PLC, Sponsored ADR 13,000 380,250
----------------------------------------------------------------------------------------------------------------
DecisionOne Holdings Corp. (1) 23,600 560,500
----------------------------------------------------------------------------------------------------------------
Manpower, Inc. 12,500 490,625
-----------
1,431,375
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.8%
----------------------------------------------------------------------------------------------------------------
AGCO Corp. 19,200 532,800
----------------------------------------------------------------------------------------------------------------
ITT Industries, Inc. 3,000 75,375
----------------------------------------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. (1) 33,000 482,625
-----------
1,090,800
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 1.6%
----------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 7,000 566,125
----------------------------------------------------------------------------------------------------------------
Canadian Pacific Ltd. 62,000 1,364,000
----------------------------------------------------------------------------------------------------------------
Illinois Central Corp. 15,000 425,625
-----------
2,355,750
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - 21.3%
- ------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 0.6%
----------------------------------------------------------------------------------------------------------------
Goodrich (B.F.) Co. 24,000 897,000
- ------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE - 3.4%
----------------------------------------------------------------------------------------------------------------
Adaptec, Inc. (1) 12,000 568,500
----------------------------------------------------------------------------------------------------------------
Cabletron Systems, Inc. (1) 15,000 1,029,375
----------------------------------------------------------------------------------------------------------------
Compaq Computer Corp. (1) 16,000 788,000
----------------------------------------------------------------------------------------------------------------
EMC Corp. (1) 36,000 670,500
----------------------------------------------------------------------------------------------------------------
Gateway 2000, Inc. (1) 30,800 1,047,200
----------------------------------------------------------------------------------------------------------------
Seagate Technology, Inc. (1) 19,000 855,000
-----------
4,958,575
- ------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE - 9.1%
----------------------------------------------------------------------------------------------------------------
Automatic Data Processing, Inc. 20,000 772,500
----------------------------------------------------------------------------------------------------------------
BMC Software, Inc. (1) 22,000 1,314,500
----------------------------------------------------------------------------------------------------------------
Computer Associates International, Inc. 6,000 427,500
----------------------------------------------------------------------------------------------------------------
First Data Corp. 29,000 2,309,125
----------------------------------------------------------------------------------------------------------------
Informix Corp. (1) 35,000 787,500
----------------------------------------------------------------------------------------------------------------
Microsoft Corp. (1) 33,000 3,964,125
----------------------------------------------------------------------------------------------------------------
Oracle Corp. (1) 45,400 1,790,463
----------------------------------------------------------------------------------------------------------------
PLATINUM Technology, Inc. (1) 33,000 499,125
----------------------------------------------------------------------------------------------------------------
Sterling Software, Inc. (1) 11,000 847,000
----------------------------------------------------------------------------------------------------------------
System Software Associates, Inc. 27,500 467,500
-----------
13,179,338
- ------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 3.9%
----------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. (1) 32,000 976,000
</TABLE>
35
<PAGE> 53
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Statement of Investments (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONICS (CONTINUED)
----------------------------------------------------------------------------------------------------------------
Arrow Electronics, Inc. (1) 8,000 $ 345,000
----------------------------------------------------------------------------------------------------------------
Cypress Semiconductor Corp. (1) 55,000 660,000
----------------------------------------------------------------------------------------------------------------
Intel Corp. 26,000 1,909,375
----------------------------------------------------------------------------------------------------------------
LSI Logic Corp. (1) 16,000 416,000
----------------------------------------------------------------------------------------------------------------
Motorola, Inc. 10,000 628,750
----------------------------------------------------------------------------------------------------------------
Novellus Systems, Inc. (1) 8,200 295,200
----------------------------------------------------------------------------------------------------------------
Philips Electronics NV, ADR 11,000 358,875
----------------------------------------------------------------------------------------------------------------
Tegal Corp. (1) 15,000 108,750
-----------
5,697,950
- ------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-TECHNOLOGY - 4.3%
----------------------------------------------------------------------------------------------------------------
3Com Corp. (1) 3,000 137,250
----------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (1) 23,000 1,302,375
----------------------------------------------------------------------------------------------------------------
Hong Kong Telecommunications Ltd., Sponsored ADR 21,000 378,000
----------------------------------------------------------------------------------------------------------------
L.M. Ericsson Telephone Co., Cl. B, ADR 42,000 903,000
----------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. 6,200 234,825
----------------------------------------------------------------------------------------------------------------
Newbridge Networks Corp. (1) 23,000 1,506,500
----------------------------------------------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 467,250
----------------------------------------------------------------------------------------------------------------
Tellabs, Inc. (1) 19,800 1,324,125
-----------
6,253,325
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES - 0.6%
----------------------------------------------------------------------------------------------------------------
BellSouth Corp. 3,000 127,125
----------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc. 13,800 719,325
-----------
846,450
-----------
Total Common Stocks (Cost $85,487,962) 116,139,612
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 12.0%
- ------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Canadian Imperial Bank of Commerce,
5.45%, dated 6/28/96, to be repurchased at $17,407,903 on 7/1/96,
collateralized by U.S. Treasury Bonds, 9.125%-11.25%, 2/15/15-5/11/18,
with a value of $6,150,689, and U.S. Treasury Nts., 5.25%-8.50%,
1/11/97-11/15/04, with a value of $11,623,981 (Cost $17,400,000) $17,400,000 17,400,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $114,137,962) 100.0% 144,789,612
-----------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.0) (67,404)
----------- ------------
NET ASSETS 100.0% $144,722,208
=========== ============
1. Non-income producing security.
See accompanying Notes to Financial Statements.
<PAGE>
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Statements of Assets and Liabilities (Continued)
JUNE 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
BOND GROWTH
FUND FUND
------------ -------------
<S> <C> <C>
ASSETS:
Investments, at value (cost * ) (including repurchase
agreements **) - see accompanying statements $ 311,908,746 $ 144,789,612
Unrealized appreciation on forward foreign currency 44,513 --
exchange contracts - See applicable note
Cash 33,484 231,093
Receivables:
Closed forward foreign currency exchange contracts 4,502--
Dividends and interest 5,038,216 92,377
Shares of beneficial interest sold 173,023 188,713
Investments sold 1,426,309 1,096,302
Other 4,736 3,708
----------------------------------------------------------------------
Total assets 318,634,333 146,401,805
----------------------------------------------------------------------
LIABILITIES:
Options written, at value (premiums received ***)
- see accompanying statements and notes 45,966 --
Unrealized depreciation on forward foreign currency
exchange contracts - See applicable note 15,592 --
Payables and other liabilities:
Closed forward foreign currency exchange contracts 18,999 --
Investments purchased (including those purchased
on a when-issued basis ****) - Note 1 759,038 1,655,939
Shares of beneficial interest redeemed 142,079 644
Custodian fees 14,005 3,287
Other 21,754 19,727
----------------------------------------------------------------------
Total liabilities 1,017,433 1,679,597
----------------------------------------------------------------------
NET ASSETS $317,616,900 $144,722,208
==========================================================
============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 315,750,262 $107,561,054
Undistributed net investment income 901,640 684,501
Accumulated net realized gain (loss) from investments
and foreign currency transactions (92,383) 5,825,003
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies 1,057,381 30,651,650
-------------------------------------------------------
NET ASSETS $317,616,900 $144,722,208
=================================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 27,823,143 5,972,737
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.42 $24.23
*Cost $310,870,304 $114,137,962
**Repurchase agreements $ 18,900,000 $ 17,400,000
***Premiums received $30,995 --
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Statements of Operations
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
BOND GROWTH
FUND FUND
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of withholding taxes of *) $ 8,882,639 $ 691,167
Dividends 47,527 593,891
------------------------------------------------------------------------------
Total income 8,930,166 1,213,058
------------------------------------------------------------------------------
EXPENSES:
Management fees - See applicable note 874,928 488,805
Custodian fees and expenses 18,960 5,212
Legal and auditing fees 6,597 5,513
Insurance expenses 2,443 2,251
Trustees' fees and expenses 1,790 1,103
Registration and filing fees 14,607 5,888
Other 590 229
------------------------------------------------------------------------------
Total expenses 920,357 509,001
------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,009,809 704,057
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments:
Unaffiliated companies 104,747 5,982,807
Closing of futures contracts (67,865) --
Closing and expiration of options written 33,013 --
Foreign currency transactions (85,215) --
Net change in unrealized appreciation or
depreciation on:
Investments (7,873,177) 7,033,727
Translation of assets and liabilities denominated
in foreign currencies 104,084 --
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (7,733,827) 13,016,534
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 275,982 $13,720,591
==========================================================
====================
*Interest $ 36,464 --
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
<CAPTION>
OPPENHEIMER
BOND
FUND
------------------------------
1996 1995
------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,009,809 $ 11,813,502
Net realized gain 35,266 1,310,131
Net change in unrealized appreciation or depreciation (7,769,093) 13,318,419
------------------------------
Net increase in net assets resulting from operations 275,982 26,442,052
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment income (8,450,650) (11,209,883)
Distributions from net realized gain (133,010) --
BENEFICIAL INTEREST TRANSACTIONS:
Net increase in net assets resulting from
beneficial interest transactions - Note 2 114,692,808 60,932,217
------------------------------
NET ASSETS:
Total increase 106,385,130 76,164,386
Beginning of period 211,231,770 135,067,384
------------------------------
End of period $ 317,616,900 $ 211,231,770
==============================
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND
Financial Highlights (Continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.84 $10.78 $11.65 $10.99
- ---------------------------------------------------------------------------------------------------------------
---
Income (loss) from investment operations:
Net investment income .33 .72 .76 .65
Net realized and unrealized gain (loss) (.37) 1.07 (.98) .76
- ---------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (.04) 1.79 (.22) 1.41
- ---------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.37) (.73) (.62) (.75)
Distributions from net realized gain (.01) (.03) --
- ---------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.38) (.73) (.65) (.75)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.42 $11.84 $10.78 $11.65
===========================================================
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) (0.33)% 17.00% (1.94)% 13.04%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $317,617 $211,232 $135,067 $111,846
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $236,650 $170,929 $121,884 $87,215
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.79% (2) 6.91% 7.30% 7.20%
Expenses 0.78% (2) 0.80% 0.57% 0.46%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(3) 40.2% 79.4% 35.1% 36.3%
</TABLE>
<TABLE>
<CAPTION>
1992 1991
----------------------
<S> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.15 $10.33
- -----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .87 .95
Net realized and unrealized gain (loss) (.17) .80
- -----------------------------------------------------------------------------
Total income (loss) from investment operation .70 1.75
- -----------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.86) (.93)
Distributions from net realized gain -- --
- -----------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.86) (.93)
- -----------------------------------------------------------------------------
Net asset value, end of period $10.99 $11.15
======================
- -----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 6.50% 17.63%
- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $63,354 $32,762
- -----------------------------------------------------------------------------
Average net assets (in thousands) $45,687 $22,169
- -----------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.81% 8.73%
Expenses 0.56% 0.64%
- -----------------------------------------------------------------------------
Portfolio turnover rate(3) 41.3% 7.6%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. Annualized.
3. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1996 were
$194,115,687 and $84,471,602, respectively.
See accompanying Notes to Financial Statements.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND
Financial Highlights (Continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 23.55 $ 17.68 $ 17.70 $ 16.96 $ 15.17 $12.54
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 .25 .22 .46 .16 .30
Net realized and unrealized gain (loss) 2.49 6.10 (.05) .74 1.99 2.82
- ------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 2.60 6.35 .17 1.20 2.15 3.12
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.25) (.22) (.15) (.14) (.36) (.49)
Distributions from net realized gain (1.67) (.26) (.04) (.32) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (1.92) (.48) (.19) (.46) (.36) (.49)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.23 $ 23.55 $ 17.68 $ 17.70 $ 16.96 $ 15.17
==========================================================
=================
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) 11.37% 36.65% 0.97% 7.25% 14.53%
25.54%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $144,722 $117,710 $63,283 $56,701 $36,494 $22,032
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $131,211 $ 88,803 $59,953 $46,389 $25,750 $18,810
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.08%(2) 1.46% 1.38% 1.13% 1.36% 2.82%
Expenses 0.78%(2) 0.79% 0.58% 0.50% 0.61% 0.70%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(3) 27.7% 58.2% 53.8% 12.6% 48.7% 133.9%
Average brokerage commission rate(4) $ 0.0572 $ 0.0590 -- -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of
these charges would reduce the total return figures for all periods shown.
2. Annualized.
3. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1996 were $38,780,897
and $30,005,422, respectively.
4. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
See accompanying Notes to Financial Statements.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF),
Oppenheimer Bond Fund (OBF), Oppenheimer Capital Appreciation Fund (OCAP),
Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund
(OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic
Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF)
(collectively, the Funds) are separate series of Oppenheimer Variable
Account Funds (the Trust), a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended.
The Trust's investment advisor is OppenheimerFunds, Inc. (the Manager).
The following is a summary of significant accounting policies consistently
followed by the Funds. The Funds' objectives are as follows:
OPPENHEIMER MONEY FUND seeks the maximum current income from investments
in "money market" securities consistent with low capital risk and the
maintenance of liquidity.
OPPENHEIMER HIGH INCOME FUND seeks a high level of current income from
investments in high yield fixed income securities.
OPPENHEIMER BOND FUND primarily seeks a high level of current income from
investments 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 seeks to achieve capital
appreciation by investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND seeks to achieve capital appreciation by investing
in securities of well-known established companies.
OPPENHEIMER 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 seeks long-term capital appreciation
by investing a substantial portion of assets in securities of foreign
issuers, "growth-type" companies, cyclical industries and special
institutions which are considered to have appreciation possibilities.
OPPENHEIMER 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: (I) debt securities, (ii)
U.S. Government securities, and (iii) lower-rated high yield domestic debt
securities.
OPPENHEIMER GROWTH & INCOME FUND seeks a high total return (which includes
growth in the value of its shares as well as current income) from equity
and debt securities. From time to time this Fund may focus on small to
medium capitalization common stocks, bonds and convertible securities.
INVESTMENT VALUATION.
Portfolio securities of OMF are valued on the basis of amortized cost,
which approximates market value. Portfolio securities of OHIF, OBF, OCAP,
OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the New York
Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale
price of the day or, in the absence of sales, at values based on the
closing bid or asked price or the last sale price on the prior trading
day. Long-term and short-term "non-money market" debt securities are
valued by a portfolio pricing service approved by the Board of Trustees.
Such securities which cannot be valued by the approved portfolio pricing
service are valued using dealer-supplied valuations provided the Manager
is satisfied that the firm rendering the quotes is reliable and that the
quotes reflect current market value, or are valued under consistently
applied procedures established by the Board of Trustees to determine fair
value in good faith. Short-term "money market type" debt securities having
a remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount. Forward foreign currency exchange contracts are
valued based on the closing prices of the forward currency contract rates
in the London foreign exchange markets on a daily basis as provided by a
reliable bank or dealer. Options are valued based upon the last sale price
on the principal exchange on which the option is traded or, in the absence
of any transactions that day, the value is based upon the last sale on the
prior trading date if it is within the spread between the closing bid and
asked prices. If the last sale price is outside the spread, the closing
bid or asked price closest to the last reported sale price is used.
Delivery and payment for securities that have been purchased by OHIF, OBF
and OSBF on a forward commitment or when-issued basis can take place a
month or more after the transaction date. During the period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Funds maintain,
in segregated accounts with the custodian, assets with a market value
equal to the amount of their purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Funds' net asset values to the extent the Funds make
such purchases while remaining substantially fully invested.
In connection with their ability to purchase securities on a
when-issued or forward commitment basis, OHIF, OBF and OSBF may enter into
mortgage "dollar-rolls" in which the Funds sell securities for delivery
in the current month and simultaneously contract with the same
counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Funds record each
dollar-roll as a sale and a new purchase transaction. As of June 30, 1996,
OHIF and OSBF had entered into outstanding when-issued or forward
commitments of $3,235,962 and $1,244,208, respectively.
SECURITY CREDIT RISK.
OHIF, OMSF and OSBF invest in high yield securities, which may be
subject to a greater degree of credit risk, greater market fluctuations
and risk of loss of income and principal, and may be more sensitive to
economic conditions than lower yielding, higher rated fixed income
securities. The Funds may acquire securities in default, and are not
obligated to dispose of securities whose issuers subsequently default.
FOREIGN CURRENCY TRANSLATION.
The accounting records of the Funds are maintained in U.S. dollars.
Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and OGIF
that are denominated in foreign currencies are translated into U.S.
dollars at the closing rates of exchange. Amounts related to the purchase
and sale of securities and investment income are translated at the rates
of exchange prevailing on the respective dates of such transactions.
For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in
foreign currency exchange rates on investments is separately identified
from the fluctuations arising from changes in market values of securities
held and reported with all other foreign currency gains and losses in the
Funds' Statements of Operations.
REPURCHASE AGREEMENTS.
The Funds require the custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System or to have segregated
within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase.
If the seller of the agreement defaults and the value of the collateral
declines, or if the seller enters an insolvency proceeding, realization
of the value of the collateral by the Funds may be delayed or limited.
FEDERAL TAXES.
The Trust intends for each Fund to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized
gain on investments not offset by loss carryovers, to shareholders.
Therefore, no federal income or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS.
Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF,
OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF
intends to declare dividends from net investment income each day the New
York Stock Exchange is open for business and pay such dividends monthly.
To effect its policy of maintaining a net asset value of $1.00 per share,
OMF may withhold dividends or make distributions of net realized gains.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS.
Net investment income (loss) and net realized gain (loss) may differ
for financial statement and tax purposes primarily because of premium
amortization, paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax
purposes. The character of the distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gain (loss) was
recorded by the Funds.
OTHER.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased by OHIF, OBF, OMSF,
OGSF, OSBF and OGIF is amortized over the life of the respective
securities, in accordance with federal income tax requirements. Realized
gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same
basis used for federal income tax purposes. Dividends-in-kind are
recognized as income on the ex-dividend date, at the current market value
of the underlying security. Interest on payment-in-kind debt instruments
is accrued as income at the coupon rate, and a market adjustment is made
on the ex-date.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities of the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
2. SHARES OF BENEFICIAL INTEREST
The Funds have authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
OPPENHEIMER MONEY FUND
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 191,400,358 $ 191,400,358 202,748,102 $ 202,748,102
Dividends and
distributions
reinvested 1,901,540 1,901,540 4,222,747 4,222,747
Redeemed (144,104,487) (144,104,487) (231,260,663) (231,260,663)
-------------------------------------------------------------
Net increase
(decrease) 49,197,411 $ 49,197,411 (24,289,814) $(24,289,814)
==========================================================
===
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER HIGH INCOME FUND
---------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 4,915,849 $ 53,378,895 5,873,231 $ 60,932,670
Dividends and
distributions
reinvested 688,571 7,360,821 1,162,957 12,040,152
Redeemed (3,645,899) (39,808,756) (4,263,757) (44,560,679)
---------------------------------------------------------
Net increase
(decrease) 1,958,521 $ 20,930,960 2,772,431 $ 28,412,143
=========================================================
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER BOND FUND
-------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 10,641,027 $ 122,534,894 7,311,733 $ 83,544,442
Dividends and
distributions
reinvested 754,523 8,583,660 976,291 11,209,883
Redeemed (1,414,825) (16,425,746) (2,972,687) (33,822,108)
-------------------------------------------------------------
Net increase 9,980,725 $ 114,692,808 5,315,337 $ 60,932,217
==========================================================
===
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER CAPITAL APPRECIATION FUND
--------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 5,914,854 $ 217,106,599 8,882,212 $ 260,650,476
Dividends and
distributions
reinvested 643,582 22,422,394 40,594 1,082,642
Redeemed (3,357,155) (121,975,371) (6,567,729) (191,565,283)
-------------------------------------------------------------
Net increase 3,201,281 $ 117,553,622 2,355,077 $ 70,167,835
==========================================================
===
</TABLE>
94
<PAGE> 112
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
2. SHARES OF BENEFICIAL INTEREST (continued)
<TABLE>
<CAPTION>
OPPENHEIMER GROWTH FUND OPPENHEIMER MULTIPLE
STRATEGIES FUND
--------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR
ENDED
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 DECEMBER 31,
1995
--------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
AMOUNT
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Sold 2,328,692 $ 56,424,038 4,302,304 $ 89,007,340 2,802,404 $ 41,511,453 6,445,242 $
88,771,497
Dividends and
distributions
reinvested 430,280 10,016,909 95,991 1,795,026 1,394,718 20,348,946 1,818,313 24,783,721
Redeemed (1,783,960) (43,132,311) (2,980,080) (60,949,490) (1,695,281) (25,089,068) (4,671,097)
(64,421,131)
--------------------------------------------------------------------------------------------------------------
Net increase 975,012 $ 23,308,636 1,418,215 $ 29,852,876 2,501,841 $ 36,771,331 3,592,458 $
49,134,087
==========================================================
====================================================
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER GLOBAL SECURITIES FUND OPPENHEIMER STRATEGIC
BOND FUND
------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR
ENDED
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
AMOUNT
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Sold 6,846,766 $ 107,662,261 11,235,722 $ 166,766,446 5,018,279 $ 24,850,711 9,417,090 $
44,897,472
Dividends and
distributions
reinvested -- -- 585,961 8,174,158 565,134 2,760,329 661,301 3,151,540
Redeemed (1,283,788) (20,065,048) (7,497,205) (112,360,172) (1,844,209) (9,111,130) (2,245,623)
(10,642,846)
------------------------------------------------------------------------------------------------------------------
Net increase 5,562,978 $ 87,597,213 4,324,478 $ 62,580,432 3,739,204 $ 18,499,910 7,832,768 $
37,406,166
==========================================================
========================================================
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER GROWTH & INCOME FUND
---------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995(1)
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,194,344 $ 16,678,916 358,253 $3,933,459
Dividends and
distributions
reinvested 6,082 86,020 404 4,928
Redeemed (98,746) (1,428,056) (15,863) (181,994)
---------------------------------------------------------
Net increase 1,101,680 $ 15,336,880 342,794 $3,756,393
=========================================================
</TABLE>
(1) For the period from July 5, 1995 (commencement of operations) to
December 31, 1995.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At June 30, 1996, net unrealized appreciation or depreciation on
investments and options written consisted of the following:
<TABLE>
<CAPTION>
OPPENHEIMER
OPPENHEIMER OPPENHEIMER CAPITAL OPPENHEIMER
HIGH INCOME BOND APPRECIATION GROWTH
FUND FUND FUND FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross appreciation $ 8,794,461 $ 4,733,340 $ 117,871,439 $ 32,672,573
Gross depreciation (2,106,142) (3,709,869) (12,857,992) (2,020,923)
----------------------------------------------------------------------------------
Net unrealized
appreciation $ 6,688,319 $ 1,023,471 $ 105,013,447 $ 30,651,650
==========================================================
========================
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER OPPENHEIMER
MULTIPLE OPPENHEIMER STRATEGIC OPPENHEIMER
STRATEGIES GLOBAL SECURITIES BOND GROWTH & INCOME
FUND FUND FUND FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross appreciation $ 56,500,149 $ 61,150,793 $ 1,988,083 $ 1,171,212
Gross depreciation (7,989,109) (10,549,493) (1,076,472) (529,196)
----------------------------------------------------------------------------------
Net unrealized
appreciation $ 48,511,040 $ 50,601,300 $ 911,611 $ 642,016
==========================================================
========================
</TABLE>
4. OPTION ACTIVITY
The Funds (except OMF) may buy and sell put and call options, or write put
and covered call options on portfolio securities in order to produce
incremental earnings or protect against changes in the value of portfolio
securities.
The Funds generally purchase put options or write covered call options to
hedge against adverse movements in the value of portfolio holdings. When
an option is written, the Funds receive a premium and become obligated to
sell or purchase the underlying security at a fixed price, upon exercise
of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Funds will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the purchase
cost for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statements of Investments where applicable. Shares subject to call,
expiration date, exercise price, premium received and market value are
detailed in a footnote to the Statements of Investments. Options written
are reported as a liability in the Statements of Assets and Liabilities.
Gains and losses are reported in the Statements of Operations.
The risk in writing a call option is that the Funds give up the
opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing a put option is that the
Funds may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Funds
pay a premium whether or not the option is exercised. The Funds also have
the additional risk of not being able to enter into a closing transaction
if a liquid secondary market does not exist. The Funds may also write
over-the-counter options where the completion of the obligation is
dependent upon the credit standing of the counterparty.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
4. OPTION ACTIVITY (continued)
OHIF option activity for the six months ended June 30, 1996 was as
follows:
<TABLE>
<CAPTION>
CALL OPTIONS
----------------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
----------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 100 $ 1,430
Options written 2,995,422 60,892
Options canceled in closing transactions (990,415) (27,918)
Options expired prior to exercise (711,177) (13,160)
Options exercised (495,479) (4,069)
----------------------------------------
Options outstanding at June 30, 1996 798,451 $ 17,175
========================================
</TABLE>
OBF option activity for the six months ended June 30, 1996 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
-----------------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
-----------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 -- $ --
Options written 6,637,802 115,114
Options canceled in closing transactions (1,980,331) (47,726)
Options expired prior to exercise (1,460,029) (26,575)
Options exercised (1,195,442) (9,818)
-----------------------------------------
Options outstanding at June 30, 1996 2,002,000 $ 30,995
=========================================
</TABLE>
OMSF option activity for the six months ended June 30, 1996 was as
follows:
<TABLE>
<CAPTION>
CALL OPTIONS
----------------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
----------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 3,603 $1,100,095
Options written 3,584 937,173
Options canceled in closing transactions (1,003) (338,500)
Options expired prior to exercise (2,521) (692,359)
Options exercised (678) (196,972)
----------------------------------------
Options outstanding at June 30, 1996 2,985 $ 809,437
========================================
</TABLE>
OSBF option activity for the six months ended June 30, 1996 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
---------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 1,000 $ 14,299
Options written 4,625,262 66,992
Options canceled in closing transactions (1,150) (16,925)
Options expired prior to exercise (1,616,402) (21,688)
Options exercised (1,178,560) (8,226)
---------------------------------------
Options outstanding at June 30, 1996 1,830,150 $ 34,452
=======================================
</TABLE>
97
<PAGE> 115
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
4. OPTION ACTIVITY (continued)
OGIF option activity for the six months ended June 30, 1996 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
---------------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
---------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 -- $ --
Options written 19 6,301
Options expired prior to exercise (12) (1,764)
---------------------------------------
Options outstanding at June 30, 1996 7 $ 4,537
=======================================
</TABLE>
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Funds (except OMF) use forward contracts to seek to manage foreign
currency risks. They may also be used to tactically shift portfolio
currency risk. The Funds generally enter into forward contracts as a hedge
upon the purchase or sale of a security denominated in a foreign currency.
In addition, the Funds may enter into such contracts as a hedge against
changes in foreign currency exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on a daily
basis as provided by a reliable bank or dealer. The Funds will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statements of Investments
where applicable.
Unrealized appreciation or depreciation on forward contracts is reported
in the Statements of Assets and Liabilities. Realized gains and losses are
reported with all other foreign currency gains and losses in the Funds'
Statements of Operations.
Risks include the potential inability of the counterparty to meet the
terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At June 30, 1996, outstanding forward contracts to purchase and sell
foreign currencies were as follows:
<TABLE>
<CAPTION>
OPPENHEIMER HIGH INCOME FUND
- ----------------------------
CONTRACT AMOUNT VALUATION AS OF UNREALIZED
UNREALIZED
CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION
DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Italian Lira (ITL) 5/9/97 628,510 ITL $ 402,139 $ 7,865 $ --
German Deutsche Mark (DEM) 7/1/96 181 DEM 118,685 321 --
----------- --------- ---------
$ 520,824 8,186 --
=========== --------- ---------
CONTRACTS TO SELL
- -----------------
Swiss Franc (CHF) 7/18/96-6/26/97 3,145 CHF $ 2,550,344 $ 18,427 $ 8,511
Japanese Yen (JPY) 8/26/96-4/14/97 94,375 JPY 886,549 59,783 --
----------- --------- ---------
$ 3,436,893 78,210 8,511
=========== --------- ---------
Total Unrealized
Appreciation and
Depreciation $ 86,396 $ 8,511
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER BOND FUND
- ---------------------
CONTRACT AMOUNT VALUATION AS OF UNREALIZED
UNREALIZED
CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION
DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Italian Lira (ITL) 5/9/97 671,747 ITL $ 429,803 $ 7,629 $ --
CONTRACTS TO SELL
Japanese Yen (JPY) 8/26/96 43,000 JPY $ 396,015 $ 4,749 $ --
Swiss Franc (CHF) 7/18/96-5/6/97 12,703 CHF 10,233,684 32,135 15,592
------------- -------- -----------
$ 10,629,699 36,884 15,592
============= -------- -----------
Total Unrealized
Appreciation and
Depreciation $ 44,513 $ 15,592
======== ===========
</TABLE>
98
<PAGE> 116
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (continued)
<TABLE>
<CAPTION>
OPPENHEIMER GLOBAL SECURITIES FUND
- ----------------------------------
CONTRACT AMOUNT VALUATION AS OF UNREALIZED
UNREALIZED
CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION
DEPRECIATION
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Austrian Schilling (ATS) 7/8/96 10,939 ATS $ 1,021,486 $ 587 $ --
Indonesian Rupiah (IDR) 7/19/96 577,500 IDR 247,097 -- 14
Italian Lira (ITL) 7/4/96 641,785 ITL 418,477 -- 410
Japanese Yen (JPY) 7/1/96-7/3/96 120,146 JPY 1,095,678 -- 3,702
Norwegian Krone (NOK) 7/1/96-7/2/96 2,268 NOK 349,071 -- 399
South African Rand (ZAR) 7/1/96 15,406 ZAR 3,557,698 3,159 --
Swedish Krona (SEK) 7/1/96 3,726 SEK 561,597 -- 1,058
------------ ---------- ----------
$ 7,251,104 3,746 5,583
============ ---------- ----------
CONTRACTS TO SELL
Argentine Peso (ARP) 7/1/96-7/2/96 267 ARP $ 267,003 $ -- $ 511
French Franc (FRF) 7/31/96 10,133 FRF 1,972,699 -- 15,563
German Deutsche Mark (DEM) 1/8/97 28,680 DEM 19,070,993 929,007 --
Japanese Yen (JPY) 9/30/96 1,475,100 JPY 13,646,090 12,244 --
Swiss Franc (CHF) 10/8/96 17,204 CHF 13,852,778 1,147,222 --
----------- ---------- ----------
$48,809,563 2,088,473 16,074
=========== ---------- ----------
Total Unrealized
Appreciation and
Depreciation $2,092,219 $ 21,657
========== ==========
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER STRATEGIC BOND FUND
- -------------------------------
CONTRACT AMOUNT VALUATION AS OF UNREALIZED
UNREALIZED
CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION
DEPRECIATION
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Japanese Yen (JPY) 7/5/96 12,467 JPY $ 113,774 $ -- $ 1,713
============ ----------- ------------
CONTRACTS TO SELL
Australian Dollar (AUD) 7/3/96 22 AUD $ 17,022 $ -- $ 36
Finnish Markka (FIM) 8/4/96 4,679 FIM 1,012,159 -- 12,146
Japanese Yen (JPY) 9/5/96-12/18/96 45,175 JPY 421,276 34,104 --
Swiss Franc (CHF) 7/8/96-8/28/96 3,316 CHF 2,656,791 -- 22,191
------------ ----------- -----------
$ 4,107,248 34,104 34,373
============ ----------- -----------
Total Unrealized
Appreciation and
Depreciation $ 34,104 $ 36,086
=========== ==========
</TABLE>
6. FUTURES CONTRACTS
The Funds (except OMF) may buy and sell interest rate futures contracts
in order to gain exposure to or protect against changes in interest rates.
The Funds may also buy or write put or call options on these futures
contracts.
The Funds generally sell futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed
rate portfolio securities. The Funds may also purchase futures contracts
to gain exposure to changes in interest rates as it may be more efficient
or cost effective than actually buying fixed income securities.
Upon entering into a futures contract, the Funds are required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Funds each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Funds recognize a realized gain or loss
when the contract is closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statements of
Investments. The Statements of Assets and Liabilities reflect a receivable
or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the
value of the underlying securities.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
6. FUTURES CONTRACTS (continued)
At June 30, 1996, OSBF had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Expiration Date Futures Contracts June 30, 1996 Depreciation
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts. 9/96 6 $634,500 $6,750
</TABLE>
7. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF, OHIF, OGSF,
OSBF and OGIF, the annual fees are 0.75% of the first $200 million of net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million and 0.60% of net assets in excess of $800
million. In addition, management fees for OHIF, OBF and OSBF are 0.50% of
net assets in excess of $1 billion. Management fees for OMF are 0.45% of
the first $500 million, 0.425% of the next $500 million, 0.40% of the next
$500 million and 0.375% of net assets in excess of $1.5 billion. For OSBF,
the Manager has agreed to limit the management fee charged so that the
ordinary operating expenses of the Fund will not exceed 1.0% of its
average net assets in any fiscal year.
8. ILLIQUID AND RESTRICTED SECURITIES
At June 30, 1996, investments in securities included issues that are
illiquid or restricted. The securities are often purchased in private
placement transactions, are not registered under the Securities Act of
1933, may have contractual restrictions on resale, and are valued under
methods approved by the Board of Trustees as reflecting fair value. A
security may also be considered illiquid if its valuation has not changed
for a certain period of time. The Funds intend to invest no more than 10%
of net assets (determined at the time of purchase and reviewed from time
to time) in illiquid or restricted securities. Information concerning
these securities is as follows:
OPPENHEIMER HIGH INCOME FUND
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Algeria (Republic of) Reprofiled Debt Loan
Participation, Tranche A, 6.812%, 9/4/06 3/13/96 $ 54.75 $ 59.69
Ames Department Stores, Inc.:
Excess Cash Flow Payment Certificates, Series 12/30/92 $ 0.00 $ 0.01
AG-7A
Litigation Trust 12/30/92 $ 0.00 $ 0.01
Australis Media Ltd. Common Stock 1/16/96-1/25/96 $ 1.19 $ 0.34
Berg Electronics Corp. Common Stock 4/28/93-8/11/93 $ 4.89 $ 22.56
CBA Mortgage Corp., Mtg. Pass-Through
Certificates, Series 1993-C1, Cl. F, 7.153%, 8/23/95 $ 72.52 $ 74.81
12/25/03
Colombia (Republic of) 1989-1990 Integrated Loan
Facility Bonds, 6.563%, 7/1/01 12/05/95 $ 92.00 $ 93.25
ECM Fund, L.P.I.:
Common Stock 4/14/92 $1,000.00 $1,000.00
14% Sub. Nts., 6/10/02 4/14/92 $ 100.00 $ 110.00
Equitable Bag, Inc. Common Stock 12/16/94 $ 1.50 $ 2.50
Farley, Inc., Zero Coupon Sub. Debs., 14.143%, 1/1/93-3/6/95 $ 7.44 $ 10.60
12/30/12
Foamex LP/JPS Automotive Corp. Wts., Exp. 7/99 6/21/94 $ 0.00 $ 5.00
Gillett Holdings, Inc.:
Common Stock 12/1/92-1/18/96 $ 16.27 $ 30.00
12.25% Sr. Sub. Nts., Series A, 6/30/02 12/23/92 $ 101.87 $ 105.37
Goldman, Sachs & Co., Argentina Local Market
Securities Trust, 11.30%, 4/1/00 8/24/94 $ 100.00 $ 92.75
Omnipoint Corp. Common Stock 1/26/96 $ 16.00 $ 24.70
Pulsar Internacional SA de CV, 11.80% Nts., 9/14/95 $ 100.00 $ 100.50
9/19/96
</TABLE>
100
<PAGE> 118
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
8. ILLIQUID AND RESTRICTED SECURITIES (continued)
OPPENHEIMER HIGH INCOME FUND (continued)
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Triangle Wire & Cable, Inc. Common Stock 5/2/94 $9.50 $ 1.00
Trinidad & Tobago Loan Participation Agreement,
Tranche B, 1.772%, 9/30/00 12/13/95- 4/1/96 $0.82 $0 .78
</TABLE>
The aggregate value of illiquid or restricted securities subject to this
10% limitation at June 30, 1996 was $6,685,781, or 4.29% of the Fund's net
assets. Pursuant to guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
OPPENHEIMER BOND FUND
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colombia (Republic of) 1989-1990 Integrated Loan
Facility Bonds, 6.563%, 7/1/01 12/5/95 $ 92.00 $ 93.25
Merrill Lynch & Co., Inc.
Units, 9.75%, 6/15/99 5/15/95 $110.05 $113.82
</TABLE>
The aggregate value of illiquid or restricted securities subject to this
10% limitation at June 30, 1996 was $2,603,717, or 0.82% of the Fund's net
assets. Pursuant to guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
OPPENHEIMER MULTIPLE STRATEGIES FUND
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Anita Realty Enterprises, Inc., Units 5/28/93- 2/9/95 $16.99 $12.63
</TABLE>
The aggregate value of illiquid or restricted securities subject to this
10% limitation at June 30, 1996 was $505,000, or 0.12% of the Fund's net
assets. Pursuant to guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
OPPENHEIMER GLOBAL SECURITIES FUND
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plant Genetics Systems Common Stock 5/27/92-3/7/95 $13.77 $11.18
Plant Genetics Systems Wts., Exp. 12/99 3/7/95 $ 0.00 $ 1.87
</TABLE>
The aggregate value of illiquid or restricted securities subject to this
10% limitation at June 30, 1996, was $1,108,624, or 0.23% of the Fund's
net assets.
Pursuant to the guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
8. ILLIQUID AND RESTRICTED SECURITIES (continued)
OPPENHEIMER STRATEGIC BOND FUND
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT JUNE 30, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Algeria (Republic of) Reprofiled Debt Loan
Participation, Tranche A, 6.812%, 9/4/06 3/13/96-3/21/96 $ 55.04 $ 59.69
Colombia (Republic of) 1989-1990 Integrated Loan
Facility Bonds, 6.563%, 7/1/01 12/5/95 $ 92.00 $ 93.25
Gillett Holdings, Inc. Common Stock 1/18/96 $ 21.25 $ 30.00
Goldman, Sachs & Co., Argentina Local Market
Securities Trust, 11.30%, 4/1/00 8/24/94 $100.00 $ 92.75
Jamaica (Government of) 1990 Refinancing Agreement
Nts.: 8/15/95 $ 89.75 $ 95.75
Tranche A, 6.344%, 10/16/00
Tranche B, 6.312%, 11/15/04 5/8/96 $ 75.88 $ 78.25
Pulsar Internacional SA de CV, 11.80% Nts., 9/15/95 $100.00 $100.50
9/19/96
Transpower Finance Ltd., 8% Gtd. Unsec. Unsub.
Bonds, 2/15/01 5/17/96 $ 66.17 $ 64.76
Trinidad & Tobago Loan Participation Agreement, 12/13/95-12/18/95 $ 0.84 $ 0.78
Tranche A, 1.772%, 9/30/00
United Mexican States, Combined Facility 3, Loan
Participation Agreement, Tranche A, 6.563%, 10/25/94 $ 89.00 $ 83.50
9/20/97
</TABLE>
The aggregate value of illiquid or restricted securities subject to this
10% limitation at June 30, 1996, was $2,512,959, or 3.20% of the Fund's
net assets.
Pursuant to the guidelines adopted by the Board of Trustees, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
OFFICERS AND TRUSTEES
James C. Swain, Chairman and Chief Executive Officer
Bridget A. Macaskill, President and Trustee
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee
Sam Freedman, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
George C. Bowen, Vice President, Treasurer and Assistant Secretary
Andrew J. Donohue, Vice President and Secretary
Paul LaRocco, Vice President
Robert J. Milnamow, Vice President
David P. Negri, Vice President
Jane Putnam, Vice President
Richard H. Rubinstein, Vice President
Arthur P. Steinmetz, Vice President
Dorothy G. Warmack, Vice President
William Wilby, Vice President
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
INVESTMENT ADVISOR
OppenheimerFunds, Inc.
TRANSFER AGENT
OppenheimerFunds Services
CUSTODIAN OF PORTFOLIO SECURITIES
The Bank of New York
INDEPENDENT AUDITORS
Deloitte & Touche LLP
LEGAL COUNSEL
Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records
of the Funds without examination by the independent auditors.
This is a copy of a report to shareholders of Oppenheimer Variable Account
Funds. This report must be preceded or accompanied by a Prospectus of
Oppenheimer Variable Account Funds. For material information concerning
the Funds, see the Prospectus.
Shares of Oppenheimer funds are not deposits or obligations of any bank,
are not guaranteed by any bank, and are not insured by the FDIC or any
other agency, and involve investment risks, including possible loss of the
principal amount invested.
<PAGE>
JP FAMILY OF FUNDS
_____________________________________
PROSPECTUS
_____________________________________
May 1, 1996
JP Capital Appreciation Fund
JP Investment Grade Bond Fund
JP Capital Appreciation Fund, Inc. has as its primary objective long term
capital appreciation. A secondary objective is current income through the
receipt of interest or dividends.
JP Investment Grade Bond Fund, Inc. has as its primary objective the maximum
level of current income as is consistent with prudent risk. A secondary
objective is growth of income and capital.
This Prospectus sets forth concisely information about each of the above
mentioned companies that a prospective investor ought to know before investing.
Investors are advised to read and retain this Prospectus for future reference.
A Statement of Additional Information dated May 1, 1996 for each of the
above mentioned companies on file with the Securities and Exchange Commission
is, in its entirety, incorporated by reference in and made a part of this
Prospectus and is available without charge upon request of any of said
companies.
The shares offered by this prospectus are neither insured nor guaranteed by the
U.S. Government.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
Selected Per Share Data and Ratios . . . . . . . . . . . . . . . . . . . . . .3
General Description. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . .4
How To Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
How to Determine Net Asset Value . . . . . . . . . . . . . . . . . . . . . . .6
Who Manages The Funds. . . . . . . . . . . . . . . . . . . . . . .. . . . . . 6
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . .7
How To Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
<PAGE>
Condensed Financial Information
The following selected per share data and ratios of JP Capital Appreciation
Fund, Inc. and JP Investment Grade Bond Fund, Inc. (the "Funds") have been
audited by McGladrey & Pullen, LLP, Independent Certified Public Accountants,
as set forth in their opinion appearing in the Statement of Additional
Information for each of the Funds.
JP Investment Grade Bond Fund, Inc.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Per share operating performance
(for a share outstanding throughout
the year)
Net asset value, beginning of year $ 10.08 $ 11.49 $ 11.19 $ 11.24 $ 10.61 $ 10.79 $ 10.56 $ 10.71 $ 11.56 $ 10.94
Income from investment operations
Net investment income 0.73 0.73 0.74 0.74 0.85 0.89 0.93 0.95 0.94 0.97
Net realized and unrealized gain (loss)
on investments 1.19 (1.40) 0.36 (0.03) 0.62 (0.20) 0.31 (0.11) (0.66) 0.62
Total from investment operations 1.92 ( .67) 1.10 0.71 1.47 0.69 1.24 0.84 0.28 1.59
Less distributions
Dividends from net investment income (0.74) (0.71) (0.73) (0.76) (0.84) (0.87) (0.91) (0.94) (1.04) (0.99)
Distributions from net realized gains - (0.03) (0.07) - - - (0.10) (0.05) (0.07) -
Total distributions (0.74) (0.74) (0.80) (0.76) (0.84) (0.87) (1.01) (0.99) (1.11) (0.99)
Net asset value, end of year $ 11.26 $ 10.08 $ 11.49 $ 11.19 $ 11.24 $ 10.61 $ 10.79 $ 10.56 $ 10.71 $ 11.54
Total return (without deduction
of sales load) 19.44% (5.92)% 10.10% 6.67% 14.61% 6.86% 12.12% 8.12% 2.77% 15.27%
Ratios/supplemental data:
Net assets, end of year (000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134 $15,300 $14,179 $12,926 $12,536 $13,095
Ratios to average net assets:
Expenses 0.70% 0.65% 0.59% 0.67% 0.72% 0.76% 0.76% 0.76% 0.73% 0.72%
Net investment income 6.66% 6.80% 6.33% 6.65% 7.88% 8.49% 8.65% 8.88% 8.53% 9.26%
Portfolio turnover rate 26.16% 28.93% 19.88% 18.05% 7.23% - 20.03% 4.92% 17.81% 13.50%
</TABLE>
<PAGE>
JP Capital Appreciation Fund, Inc.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per share operating performance
(for a share outstanding throughout
the year)
Net asset value, beginning of year $16.77 $18.19 $18.17 $17.69 $13.76 $15.08 $11.81 $11.26 $14.45 $13.92
Income from investment operations
Net investment income 0.36 0.34 0.28 0.29 0.37 0.40 0.39 0.33 0.35 0.43
Net realized and unrealized gain
(loss) on investments 4.45 (1.10) 1.26 0.75 3.91 (0.65) 3.29 0.47 (0.20) 1.47
Total from investment operations 4.81 (0.76) 1.54 1.04 4.28 (0.25) 3.68 0.80 0.15 1.90
Less distributions
Dividends from net investment income (0.36) (0.17) (0.27) (0.33) (0.35) (0.41) (0.41) (0.25) (0.46) (0.47)
Distributions from net realized gains (2.26) (0.49) (1.25) (0.23) - (0.66) - - (2.88) (0.90)
Total distributions (2.62) (0.66) (1.52) (0.56) (0.35) (1.07) (0.41) (0.25) (3.34) (1.37)
Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69 $13.76 $15.08 $11.81 $11.26 $14.45
Total return (without deduction
of sales load) 33.39% (4.34)% 9.25% 6.16% 31.61% (1.39%) 31.67% 7.19% 0.21% 15.01%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319 $27,048 $23,203 $24,357 $25,177 24,222
Ratios to average net assets:
Expenses 0.62% 0.58% 0.60% 0.63% 0.62% 0.63% 0.68% 0.68% 0.64% 0.65%
Net investment income 2.07% 2.03% 1.55% 1.68% 2.37% 2.90% 2.90% 2.84% 2.45% 2.98%
Portfolio turnover rate 64.13% 126.70% 23.93% 48.72% 36.71% 31.75% 55.47% 76.62% 78.12% 69.41%
</TABLE>
<PAGE>
General Description
JP Investment Grade Bond Fund, Inc., formerly Jefferson-Pilot Income Fund, Inc.
("Bond Fund"), and JP Capital Appreciation Fund, Inc., formerly Jefferson-Pilot
Growth Fund, Inc. ("Capital Appreciation Fund"), are corporations both
organized under the laws of North Carolina on July 19, 1982. Each of the
companies is registered under the Investment Company Act of 1940 as an open-end
diversified investment company.
Investment Objectives and Policies.
Bond Fund. The Bond Fund's primary investment objective is the maximum level of
current income as is consistent with prudent risk. A secondary objective is
growth of income and capital. The Bond Fund proposes to achieve these
objectives by investing primarily in fixed income securities rated A or better
by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"). Fixed income securities will include debt securities and
preferred stocks, some of which may have a call on common stock by means of
conversion privilege or attached warrants. When the incremental investment
yield available on corporate securities is small compared to that available on
U. S. Treasury securities, the Bond Fund may invest substantially in U. S.
Treasury securities. The Bond Fund may also hold cash or invest in short-term
securities and may purchase U. S. Government obligations with a simultaneous
agreement by the seller to repurchase the securities at the original price
plus accrued interest; provided that not more than 10% of the Fund's net assets
may be invested in such repurchase agreements that mature in more than seven
days. Repurchase agreements involve certain risks in the event of a default
by the other party.
The percentage of assets invested in different types of securities will vary
from time to time depending upon the judgment of the management as to general
market and economic conditions, fiscal and monetary policy and trends in
interest rates and yields.
The Bond Fund's investments (other than cash and U. S. Government securities)
are diversified among the securities issued by different companies and
governments to the extent that no more than 5% of its total assets may be
invested in securities issued by any one issuer. In addition, management
generally selects investments for the Bond Fund from among many different
industries and may invest up to 25% of the Bond Fund's assets in a single
industry. The investment restrictions (page 1, Statement of Additional
Information) include: limitations on borrowing money; no more than 10% of
assets may be invested in securities with a limited trading market; and no
more than 5% of assets may be invested in companies having a record of less
than three years of continuous operation. These restrictions, and the
investment objectives and policies described above, as well as most of the
additional restrictions described in the Statement of Additional Information,
cannot be changed without shareholder approval. While the Bond Fund does not
intend to place emphasis upon short-term trading profits, it will sell
securities held short term to take advantage of special opportunities which
might arise. Accordingly, the Bond Fund has historically had a portfolio
turnover rate of less than 50%. The Bond Fund's portfolio turnover rates are
shown in its respective table under the caption "Condensed Financial
Information".
<PAGE>
The Bond Fund's investments are subject to market fluctuations and risks
inherent in all securities. There is no assurance that the Bond Fund's stated
objectives will be realized.
Capital Appreciation Fund. The Capital Appreciation Fund's primary investment
objective is long-term capital appreciation. Current income through the
receipt of interest or dividends from investments is only a secondary
objective. The Capital Appreciation Fund proposes to achieve these objectives
by investing substantially all its assets in common stocks of companies
recognized as leaders in their respective industries with proven and capable
management and that are providing significant products and services to their
customers. The Capital Appreciation Fund's investments will be made
predominantly in securities listed on registered securities exchanges, but it
may purchase securities traded in the over-the-counter market.
Investments may be made in other equity securities, including rights, warrants,
preferred stock and those debt securities convertible into or carrying rights,
warrants, or options to purchase common stock or to participate in earnings.
The Capital Appreciation Fund may also hold cash or invest in short-term
securities and may purchase U. S. government obligations with a simultaneous
agreement by the seller to repurchase the securities at the original price plus
accrued interest; provided that not more than 10% of the Capital Appreciation
Fund's net assets may be invested in such repurchase agreements that mature in
more than seven days. Repurchase agreements involve certain risks in the event
of a default by the other party.
The percentage of assets invested in different types of securities will vary
from time to time depending upon the judgment of the management as to general
market and economic conditions, fiscal and monetary policy and trends in
interest rates and yields.
The Capital Appreciation Fund's investments (other than cash and U. S.
Government securities) are diversified among the securities issued by
different companies and governments to the extent that no more than 5% of its
total assets may be invested in securities issued by any one issuer. In
addition, management generally selects investments for the Fund from among
many different industries and may invest up to 25% of the Capital Appreciation
Fund's assets in a single industry. The investment restrictions (page 1,
Statement of Additional Information) include: limitations on borrowing money;
no more than 10% of assets may be invested in securities with a limited trading
market; and no more than 5% of assets may be invested in companies having a
record of less than three years of continuous operation. These restrictions,
and the investment objectives and policies described above, as well as most of
the additional restrictions described in the Statement of Additional
Information, cannot be changed without shareholder approval. While the Capital
Appreciation Fund invests for long-term growth of capital and does not intend
to place emphasis upon short-term trading profits, it will sell securities held
short term to take advantage of special opportunities which might arise.
Accordingly, the Capital Appreciation Fund has historically had a portfolio
turnover rate of less than 100%. Generally, the Capital Appreciation Fund's
expenses will increase in relative proportion to an increase in its portfolio
turnover rate and may result in taxes on realized capital gains to be borne by
the Fund or its shareholders. See "Dividends, Distributions, and Taxes" in
this prospectus. The Capital Appreciation Fund's portfolio turnover rates are
shown in its respective table under the caption "Condensed Financial
Information".
<PAGE>
The Capital Appreciation Fund's investments are subject to market fluctuations
and risks inherent in all securities. There is no assurance that the Capital
Appreciation Fund's stated objectives will be realized.
How To Purchase Shares
Purchases of the Fund's shares are currently restricted to the separate accounts
that are sponsored by the insurance subsidiaries of Jefferson-Pilot Corporation
and any of their affiliates and to pension plans for employees of said
companies and their affiliates. Shares are offered at the net asset value per
share, which is calculated as described below. The offering price so
determined becomes effective at the New York Stock Exchange closing time.
Orders received prior to that time are confirmed at the offering price
effective at that time, provided the order is received by the Fund prior to its
close of business.
How To Determine Net Asset Value. Net asset value per share is computed by each
Fund as of the close of each day on which the New York Stock Exchange is open
(4:00 p.m. New York time) and on any other day in which there is a sufficient
degree of trading in the Fund's portfolio securities to materially affect net
asset value. Net asset value is determined by dividing the value of the Fund's
securities, plus any cash and other assets (including dividends accrued but not
collected) less all liabilities (including accrued expenses), by the number of
shares outstanding.
<PAGE>
The Capital Appreciation and Bond Funds each adhere to the following
practices. A security listed or traded on an exchange is valued at its last
sale price on that exchange where it is principally traded or, if there were
no sales on that exchange, the last quoted sale on other exchanges or on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Lacking any sales the security is valued at the mean of the last
bid and ask prices reported on the exchange where the security is principally
traded. All other securities for which over-the-counter market quotations are
readily available are valued at their last sale price on NASDAQ or at the mean
of the last bid and ask prices as of the close of trading. Fixed income
securities are valued by using market quotations, or independent pricing
services which use prices provided by market makers or estimates of market
values obtained from yield data relating to similar classes of instruments or
securities. Certain short-term debt securities are valued at amortized cost.
Other securities, including restricted securities, and other assets are valued
at fair value as determined in good faith and under authority by the Board of
Directors.
Who Manages The Funds
The Board of Directors of each Fund is responsible for the overall supervision
of the conduct of the Fund's business. Each Fund's investment adviser is JP
Investment Management Company ("JP Management"), P.O. Box 21008, Greensboro,
North Carolina 27420, a North Carolina corporation organized on January 13,
1970. JP Management is a wholly-owned subsidiary of Jefferson-Pilot
Corporation, an insurance holding company. JP Management has served as an
investment adviser to the Funds since their inception in 1982; to Jefferson-
Pilot Capital Appreciation Fund, Inc., formerly JP Growth Fund, Inc., since
that company's inception in 1970; and to Jefferson-Pilot Investment Grade Bond
Fund, Inc., formerly JP Income Fund, Inc., since that company's inception in
1978.
In addition to providing investment advice, JP Management or persons
employed by or associated with JP Management are, subject to the authority of
the Board of Directors, responsible for the overall management of the Funds'
business affairs.
As compensation for its services, JP Management receives from each Fund a fee
at an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee
is payable monthly, on the basis of the Fund's average net asset value during
the monthly period computed in the manner used in determining the public
offering price of Fund shares. The ratio of the management fee to average net
assets for the year ended December 31, 1995 was 0.5%. For the same period, the
Capital Appreciation Fund's total operating expenses were .62% of average net
assets, and the Bond Fund's total operating expenses were .70% of average net
assets.
<PAGE>
JP Management has also agreed to serve as each Fund's stock transfer agent,
dividend paying agent and to provide shareholder accounting, bookkeeping,
pricing and related services to each Fund. Each Fund has agreed to reimburse
JP Management for expenses incurred by JP Management in providing these
services, including an amount intended to reimburse JP Management for that
portion of its general and administrative expenses allocable to such services.
Under service agreements between each Fund, JP Management, Jefferson-Pilot Life
Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"), the
Companies have agreed to furnish such personnel, services and facilities as may
be reasonably needed by JP Management in connection with its performance as
investment adviser and under the Agency Agreement, and JP Management has agreed
to reimburse the Companies for their expenses in this regard.
Dividends, Distributions and Taxes
The Capital Appreciation Fund's policy is to pay dividends from net
investment income semi-annually in February and August. The Bond Fund's
policy is to pay dividends from net investment income quarterly in February,
May, August and November. In addition, if the Capital Appreciation or Bond
Fund has not paid out 98% of its net investment income by the end of the
calendar year, its policy is to pay a dividend near the end of the calendar
year which will, when added to the dividends previously paid in the year,
equal or exceed 98% of its net investment income for the year. Each December
the Capital Appreciation and Bond Funds make a distribution of the capital
gains, if any, each realized during the 12-month period ended the preceding
October 31. Unless the investor requests that payments be made in cash,
dividends and distributions will be reinvested in additional Fund shares at
net asset value as of the record date.
Each Fund qualified in 1995 and plans to qualify in 1996 for the special
tax treatment afforded a "regulated investment company" under Subchapter M of
the Internal Revenue Code (the "Code"). In any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(but not shareholders) will be relieved of federal income tax on the income
distributed. Dividends (i.e., distributions of any net investment income and
any net realized short-term capital gains) are taxable to shareholders as
ordinary income, whether received in cash or additional shares. Distributions
of long-term capital gains (i.e., the excess of any net long-term capital gains
over net short-term capital losses), if any, are taxable as long- term capital
gains whether received in cash or shares without regard to how long a
shareholder has held his shares. Gain or loss realized on a redemption by a
shareholder will be treated as a capital gain or loss unless the shares are
not capital assets in the shareholder's hands.
The foregoing is a general summary of the applicable provisions of the Code
and Treasury Regulations presently in effect. Dividends and distributions
also may be subject to state or local taxes. Investors should consult their
tax advisors for specific information.
How To Redeem Shares
Shareholders may redeem shares at the per share net asset value next determined
after receipt of certificates endorsed by all parties (or trustees) in whose
name the certificates are issued, and in proper form for transfer, with
signatures guaranteed, at the office of JP Management. If no certificates
have been issued to the shareholder, redemption may be accomplished by signed
written request, the signature(s) of which JP Management may require be
guaranteed. A redemption request should identify the account by number and
should be signed by all parties (or trustees) in whose name the account is
registered in the exact manner in which the account is registered.
<PAGE>
A check for payment for shares redeemed will be issued as early as possible,
but not later than seven days after JP Management's receipt of the certificates
or the written redemption request. Redemption of shares may be suspended or
payment postponed at times (a) when the New York Stock Exchange is closed
other than weekends and holidays, (b) when trading on said Exchange is
restricted, (c) when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable or it is
not reasonable for the Fund fairly to determine the value of its net assets,
or during any other period when the Securities and Exchange Commission, by
order, so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist.
Neither Fund nor Investor Services makes a charge for redemption. Other
broker-dealers may charge for handling redemption transactions but such
charge can be avoided by requesting redemption by the Funds directly or through
the Investor Services.
The shareholder may, within thirty days of a redemption of shares of either
Fund, reinvest the proceeds in shares of that Fund or the other Fund at net
asset value without a sales charge. This privilege is permitted only once to
each shareholder per year.
Due to the high cost of maintaining accounts, each Fund reserves the right to
redeem any account which has been in existence for at least one year and which
has a balance of less than $250. A shareholder will be notified in writing of
either Fund's intention to redeem and given 60 days to make additional share
purchases before the redemption is processed.
Additional Information
The Capital Appreciation and Bond Funds each has authorized capital stock of
10,000,000 shares of $1.00 par value. Each share entitles the holder to
participate equally in dividends and distributions declared by the Fund and
in its remaining net assets on liquidation after satisfaction of outstanding
liabilities. Fund shares are fully paid and nonassessable when issued; have
no preemptive or conversion rights; are transferable without restriction; and
are redeemable at net asset value.
On matters submitted for a shareholder vote, each shareholder is entitled to
one vote for each share owned. Shares have cumulative voting rights which
means that in all elections of directors each shareholder has the right to
cast a number of votes equal to the number of shares owned multiplied by the
number of directors to be elected and each shareholder may cast the whole
number among two or more candidates. Fractional shares have proportionally
the same rights as do full shares.
In the opinion of the staff of the Securities and Exchange Commission, the
use of this combined prospectus may make each Fund liable for any misstatement
or omission in this prospectus regardless of the Fund to which it pertains.
<PAGE>
JP FAMILY OF FUNDS
Investment Adviser and Transfer Agent
JP Investment Management Company
100 North Greene Street
Greensboro, North Carolina 27401
Custodian
Investors Fiduciary Trust Company
127 West Tenth Street
Kansas City, Missouri 64105
Certified Public Accountants
McGladrey & Pullen, L.L.P.
555 Fifth Avenue - 8th Floor
New York, New York 10017-2416
Direct Inquiries To:
JP Investment Management Company
Post Office Box 22086
Greensboro, North Carolina 27420
<PAGE>
JP Capital Appreciation Fund, Inc.
100 North Greene Street
Greensboro, North Carolina 27401
Telephone 1-800-458-4498
Statement of Additional Information
May 1, 1996
Page
Table of Investment Objectives and Policies . . . . . . B-1
Contents Investment Restrictions. . . . . . . . . . . . B-1
The Investment Adviser . . . . . . . . . . . . B-3
Brokerage. . . . . . . . . . . . . . . . . . . B-4
Purchase and Redemption of Shares. . . . . . . B-5
The Fund's Directors and Officers. . . B-5
General Information. . . . . . . . . . . . . . B-7
Financial Statements . . . . . . . . . . . . . B-8
________________________________________________________________________
This Statement of Additional Information is not a prospectus but supplements
and should be read in conjunction with the current Prospectus dated May 1, 1996
of JP Capital Appreciation Fund, Inc. ("Fund"). A copy of the Prospectus may
be obtained by contacting the Fund at the address or telephone number shown
above.
Investment Objectives and Policies
The Fund's investment objectives and how it hopes to achieve those objectives
are described on page one of the Prospectus. There can be no assurance that
these objectives will be achieved. The objectives may not be changed without
the approval of a majority of the Fund's shareholders. A majority means: the
lesser of (i) a majority of the Fund's outstanding voting securities, or (ii)
67 percent of the shares present at a shareholder's meeting at which more than
50 percent of the outstanding shares are present or represented by proxy.
Investment Restrictions
In addition to, or amplification of, the investment restrictions set forth
in the Prospectus, the Fund may not:
1. Issue senior securities.
2. Purchase securities on margin or sell short, except it may obtain
such short-term credits as are necessary for the clearance of
transactions.
3. Write, purchase or sell puts, calls or combinations thereof.
4. Borrow money except that, as a temporary measure for extraordinary
or emergency purposes and not for investment purposes, the Fund
may borrow up to 5% of the value of its total assets.
5. Act as an underwriter of securities of other issuers, except that
the Fund may invest up to 10% of the value of its net assets (at
time of investment) in portfolio securities which the Fund might
not be free to sell to the public without registration of such
securities under the Securities Act of 1933.
<PAGE>
It may be difficult for the Fund to sell restricted securities at prices
representing their fair market value except pursuant to an effective
registration statement under the Securities Act of 1933. If registration of
restricted securities is necessary, a considerable period of time may elapse
between the decision to sell and the effective date of the registration
statement. During that time the price of securities to be sold may be affected
by adverse market conditions.
In purchasing restricted securities, the Fund will endeavor to have the issuer
agree to register the securities on request and pay the registration expenses.
The Fund may be obliged, however, to bear all or part of these expenses.
The Fund's Board of Directors will value restricted securities in good faith
in determining the net asset value of Fund shares. The valuations will be
made on an individual basis in light of the particular circumstances affecting
each restricted security, including market value (if any), the period of time
the restrictions are in force, and other relevant factors. The Fund has not
for the past 12 months owned any restricted securities and has no present
intention of acquiring such securities.
6. Purchase or sell real estate or interests in real estate, nor interest in
real estate investment trusts or real estate limited partnerships (however,
the Fund may purchase interests in real estate in investment trusts whose
securities are registered under the Securities Act of 1933 and readily
marketable).
7. Engage in the purchase and sale of commodities or commodity contracts.
8. Make loans, except to the extent that either of the following is deemed to
constitute a loan: (a) purchases of a portion of an issue of a debt security
distributed to the public; or (b) investments in "repurchase agreements".
9. Purchase the securities (except U.S. Government securities) of any one
issuer if immediately after and as a result of such purchase (a) the value of
the holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets, or (b) the Fund owns more than 10% of the
outstanding voting securities of any one class of securities of such issuer.
10. Purchase the securities of open-end investment companies. The Fund may
purchase the securities of other investment companies provided that (a)
immediately after such purchase the Fund and companies controlled by the Fund,
or other investment companies having the same investment adviser as the Fund,
do not own more than 10% of the investment company whose securities are being
purchased; (b) the Fund cannot invest more than 10% of its total assets in the
securities of other investment companies; and (c) such purchases are made in
the open market where no commission or profit to a sponsor or dealer results
other than the customary broker's commission. The restrictions of the
preceding sentence do not apply in connection with a merger, consolidation, or
plan of reorganization.
11. Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund.
12. Participate on a joint or joint and several basis in any trading account
in securities or effect a short sale of any security, except in connection with
an underwriting in which it is a participant in the circumstances specified in
Paragraph 5.
<PAGE>
13. Purchase or retain the securities of any issuer if those officers and
directors of the Fund, its adviser or underwriter owning individually more
than 0.5% of the securities of such issuer together own more than 5% of the
securities of such issuer.
14. Invest in companies for the purpose of exercising control or management.
15. Invest in foreign securities other than securities issued by Canadian
companies.
16. Invest in interests of oil, gas, or other mineral exploration or
development programs.
The investment restrictions in Paragraphs 1 through 13 above and on page one of
the Prospectus are fundamental policies and may not be changed without the
approval of a majority of the Fund's shareholders. The policies mentioned in
Paragraphs 14-16 above are not fundamental and may be changed without
shareholder approval.
While the Fund will not purchase illiquid, including restricted, securities
if such purchase would cause its then total investment in such securities to
exceed 10% of the value of its net assets, the Fund could through the decrease
in values of its other securities, for example, at sometime own illiquid,
including restricted, securities having a value in excess of 10% of the value
of its net assets. In that event, the Fund will promptly take such action as
its Board of Directors deems appropriate to assure the continued liquidity of
the Fund.
The Investment Adviser
The Fund's investment adviser, JP Investment Management Company ("JP
Management"), like Investor Services, is a wholly-owned subsidiary of
Jefferson-Pilot Corporation, an insurance holding company. E.J. Yelton,
John C. Ingram, W. Hardee Mills, and J. Gregory Poole are officers and/or
directors of the Fund and of JP Management. Their positions with the Fund
and/or JP Management are (with the Fund position shown first) President,
Treasurer and Director/President and Director; Director/Senior Vice President,
Treasurer and Director; Vice President/Vice President; and Secretary/Secretary,
respectively.
JP Management's services are provided under an Investment Advisory Agreement
with the Fund dated November 12, 1982. Under the terms of the agreement, JP
Management provides personnel, including executive officers for the Fund, and
compensates the Fund's directors who are affiliated with JP Management or its
affiliated companies. JP Management also furnishes, or causes to be furnished,
at its own expense office space, facilities and necessary executive and other
personnel for conducting the Fund's affairs and pays all expenses incurred by
it or the Fund in connection with the administration of the investment affairs
of the Fund.
The Fund pay all other corporate expenses incurred in its operations, including
its taxes (if any), brokerage commissions on portfolio transactions, expenses
relating to the issue, transfer, redemption and pricing of shares, disbursement
of dividends and other distributions, custodian fees, auditing and legal
expenses, compensation of unaffiliated directors, and expenses in connection
with meetings of directors and shareholders.
<PAGE>
As compensation for its services, JP Management receives from the Fund a fee
at an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee
is payable monthly, on the basis of the Fund's average daily net asset value
during the monthly period computed in the manner used in determining the public
offering price of Fund shares (see "How To Determine Net Asset Value" in the
prospectus).
If, in any fiscal year, the total of the fund's ordinary business expenses
(including the investment advisory fee but excluding taxes, portfolio brokerage
commissions and interest) exceed 1% of the Fund's average daily net asset value
JP Management pays the excess. The payment of the investment advisory fee at
the end of any month is reduced or postponed so that at the end of any month
there is not any accrued but unpaid liability under this expense limitation.
The Fund's ordinary business expenses did not, during fiscal years 1993, 1994
or 1995 exceed 1% of its average daily net asset value.
The amount of JP Management's advisory fee for fiscal year 1993 was
$252,703, for fiscal 1994 was $291,744, and for fiscal year 1995 was
$325,646.
JP Management has also agreed in an Agency Agreement dated November 12,
1982 to serve as the Fund's stock transfer agent, dividend paying agent and to
provide shareholder accounting, bookkeeping pricing and related services to the
Fund. The Fund has agreed to reimburse JP Management for expenses incurred
by JP Management in providing these services, including an amount intended to
reimburse JP Management for that portion of its general administrative expenses
allocable to such services.
The amount paid to JP Management by the Fund under the Agency
Agreement for fiscal year 1993 was $9,365, for fiscal year 1994 was $18,294,
and for fiscal year 1995 was $18,200.
Under a Service Agreement between the Fund, JP Management, Jefferson-
Pilot Life Insurance Company and Jefferson-Pilot Investments, Inc.
("Companies"), which agreement is dated January 25, 1984, the Companies have
agreed to furnish such personnel, services and facilities as may be reasonably
needed by JP Management in connection with its performance under the
Investment Advisory Agreement and Agency Agreement, and JP Management
has agreed to compensate the Companies for their services in this regard.
Because of the arrangements under the Service Agreement, the Companies might
be deemed to be investment advisers of the Fund, and the Service Agreement an
investment advisory contract, for purposes of the Investment Company Act of
1940. However, the Companies have been advised by counsel that they are not
by reason of such arrangements investment advisers under that Act.
For the years ended December 31, 1993, 1994 and 1995 the aggregate
amount paid by JP Management to the Companies under this Service Agreement
and similar service agreements between JP Management, the Companies and
other mutual funds managed by JP Management was $352,095, $444,313, and
$347,048, respectively.
The Investment Advisory Agreement and the Service Agreement may,
independently of each other, continue in force from year to year if the
continuance of each such agreement is approved at least annually by the Fund's
Board of Directors, including the specific approval with respect to the
continuance of each such agreement of a majority of the Directors who are not
parties to the particular agreement or interested persons (as the term is
defined in the Investment Company Act of 1940) of any such party, cast in
person at a meeting called for the purpose of voting on approval of the
particular agreement.
<PAGE>
The Investment Advisory Agreement and the Service Agreement may each be
terminated at any time without the payment of any penalty on 60 days' notice to
the other parties either by a vote of the Fund's Board of Directors or by a
vote of the majority of the Fund's shareholders. The Investment Advisory
Agreement and the Service Agreement will automatically terminate in the event
of their assignment.
The Investment Advisory Agreement may be terminated by JP Management on
90 days' written notice to the Fund. The Service Agreement may be terminated
on 90 days' written notice to the Fund and the other parties by JP Management
or any of the Companies.
The Fund's name has been adopted with the permission of Jefferson-Pilot
Corporation and its continued use is subject to the right of Jefferson-Pilot
Corporation to withdraw this permission at any time. If the permission is
withdrawn, but JP Management proposes to continue as the Fund's investment
adviser, the Investment Advisory Agreement will be submitted to Fund
shareholders for approval.
Brokerage
Transactions on stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, or for fixed income securities (which
currently includes most of the Fund's portfolio transactions), but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Fund includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
JP Management, which places all orders for the purchase and sale of securities
for the Fund, has no formula for the allocation of brokerage business in the
purchase and sale of securities for the Fund. Purchase and sale orders are
placed with the primary objective of obtaining the best execution. Subject
to the foregoing, orders are placed with broker-dealer firms giving
consideration to the quality, quantity and nature of the firms' professional
services which include execution, clearance procedures, and statistical data
and research information to the Fund and JP Management. In pursuing this
objective, JP Management may purchase securities in the over-the-counter
market, utilizing the services of principal market makers unless better
execution can be obtained elsewhere, and may purchase securities listed on an
exchange from non-exchange members in transactions off the exchange. Although
any statistical, research or other information and services provided by broker-
dealers may be useful to JP Management, its dollar value is indeterminable and
its availability does not serve to materially reduce JP Management's normal
research activities or expenses. Any such information, which includes such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase and
sale of securities, must still be analyzed and reviewed by JP Management's
personnel. JP Management may, in recognition of the value of brokerage or
research services provided by the broker, pay such broker a brokerage
commission in excess of that which another broker might have charged for
effecting the same transaction. JP Management will not, however, effect a
transaction at such higher commission unless it determines in good faith that
the amount of the higher commission is reasonable in relation to the value
to the Fund of the brokerage and research services being provided.
<PAGE>
Statistical research or other information or services received by
JP Management from broker-dealers may be used by JP Management in servicing
various of its clients (including the Fund), although not all these services
are necessarily useful and of value in servicing the Fund. The total amount
of brokerage commission on purchase and sale transactions in fiscal year 1993
was $63,883, in fiscal year 1994 was $215,951, and in fiscal year 1995 was
$170,452, one hundred percent of which was paid to brokers furnishing
statistical data research information to JP Management.
Purchase and Redemption of Shares
Reference is made to the information in the Prospectus under "How to Purchase
Shares" and "How to Redeem Shares" which describes the manner in which the
net asset value of the shares of the fund is computed at the close of trading
on each day the New York Stock Exchange is open for trading, and on any other
day in which there is a sufficient degree of trading in the Fund's portfolio
securities to materially affect net asset value, and how the offering price is
determined based on such net asset value. It also sets forth specific
directions for the redemption of shares at net asset value. The Fund's shares
are not valued on New Year's Day, President's Day, Good Friday, Memorial Day,
July 4, Labor Day, Thanksgiving Day or Christmas Day, as the New York Stock
Exchange closes on those days.
The Fund's Directors and Officers
The following list of the Fund's directors and executive officers, all of
whom are also directors and/or officers of Jefferson-Pilot Capital
Appreciation Fund, Inc., JP Investment Grade Bond Fund, Inc., and Jefferson-
Pilot Investment Grade Bond Fund, Inc., includes information as to their
principal occupations during the past five years and their principal
affiliations.
Name, Address & Position with Fund Principal Occupation
During Past 5 years
E. J. Yelton* Senior Vice President -
Director, President and Treasurer Investments, Jefferson-Pilot
100 North Greene Street Corporation and Executive
Greensboro, North Carolina Vice President - Investments,
Jefferson-Pilot Life
Insurance Company since
October 1993; prior
thereto, President and
CEO, ING North America
Investment Centre/Member of
ING Group; Director,
Jefferson-Pilot Investor Services;
President and Director,
JP Management
<PAGE>
John C. Ingram* Senior Vice President,
Director Jefferson-Pilot Life Insurance
100 North Greene Street Company since November 1988 and
Greensboro, North Carolina prior thereto, Vice President;
Senior Vice President, Treasurer
and Director, JP Management
Richard Wolcott McEnally Professor of Investment
401 Brookside Drive Banking, University of North
Chapel Hill, North Carolina Carolina at Chapel Hill
William Edward Moran Senior Vice President,
Director Connors Investor Services, Inc
5206 Barnfield Road since January 1995; prior thereto,
Greensboro, North Carolian Chancellor, University of North
Carolina at Greensboro
J. Lee Lloyd Managing Director, Lloyd
Director & Company since April, 1991;
16 Irving Park Lane prior thereto, Vice
Greensboro, North Carolina President, Goldman, Sachs & Co.
J. Gregory Poole Assistant Secretary,
Secretary Jefferson-Pilot Corporation,
100 North Greene Street since January 1994; Associate
Greensboro, North Carolina Counsel and Assistant Secretary,
Jefferson-Pilot Life Insurance
Company since February 1994;
Attorney and Assistant Secretary,
January 1994; and prior thereto,
Attorney
Messrs. Yelton and Ingram are interested persons (as that term is defined in
the Investment Company Act of 1940, as amended) of the Fund.
The following officers of the Fund also serve as officers and/or directors
of JP Management and Investor Services: E. J. Yelton, President and Treasurer
of the Fund, is President and a Director of JP Management and a Director of
Investor Services; W. Hardee Mills, Jr., Vice President of the Fund, is Vice
President of JP Management; and J. Gregory Poole, Secretary of the Fund, is
Secretary of Investor Services and JP Management. Each director of the Fund
also services as director for 3 other funds in the Jefferson-Pilot Investment
Management Fund Complex. Messrs. Yelton, Poole and Mills hold positions with
the other companies in the Jefferson-Pilot Investment Management Fund Complex
similar to the positions held with the Fund. The other companies within the
Fund Complex have the same investment adviser as does the Fund.
The table on the following page provides information regarding the
compensation each nominee for director was paid by the Fund and the Fund
Complex for the year ended December 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension Estimate Total
Retirement Annual Compensation
Aggregate Benefits Accrued Benefits from Fund and
Name of Person, Compensation as Part of upon 3 other funds
Position from Fund Fund Expenses Retirement in Complex
<S> <C> <C> <C> <C>
John C. Ingram
Director $ 0 $ 0 $ 0 $ 0
J. Lee Lloyd
Director 1,220 0 0 4,880
Richard W. McEnally
Director 1,220 0 0 4,880
William E. Moran
Director 1,220 0 0 4,880
E. J. Yelton
Director, President,
Treasurer 0 0 0 4,880
</TABLE>
The Board of Directors met five times during the year.
During the year ended December 31, 1995, director not employed by the
Fund or its affiliates received a $100 director's fee for each meeting
attended, amounting to an aggregate of $500. In addition, each of the
non-affiliated directors receives a fee of $720 per year, payable in equal
monthly installments.
General Information
As of April 12, 1996 Jefferson-Pilot Life Insurance Company owned
beneficially 15,000 share or less than 1% of the Fund's outstanding shares.
That company owns of record all of the Fund's outstanding shares; the shares
not owned beneficially are owned for that company's separate account. The
beneficial owner of those shares are the owners of variable annuity contracts
issued by the company's separate account. Jefferson-Pilot Life Insurance
Company, like JP Investment Management Company, is a wholly-owned
subsidiary of Jefferson-Pilot Corporation, Greensboro, North Carolina.
Investors Fiduciary Trust Co., 127 W. 10th Street, 12th Floor, Kansas City, MO
64105, acting as custodian, has custody of all the Fund's securities and cash.
That company attends to the collection of principal and income, and
payment for and collection of proceeds of securities bought and sold
by the Fund.
The Fund's independent accountants are McGladrey & Pullen, LLP, 555 Fifth
Avenue, 8th Floor, New York, New York 10017-2416, who audit and report on
the Fund's annual financial statements, review certain regulatory reports,
prepare the Fund's income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do so by
the Fund. The selection of independent accountants will be submitted
annually to the Fund's shareholders for approval. Shareholders will receive
annual audited financial statements and semi-annual unaudited financial
statements.
Statement of Assets and Liabilities
December 31, 1995
Assets
Investment in securities at value (cost $57,777,456) $ 72,620,683
Cash 234,191
Receivables:
Capital shares sold 73,582
Dividends 101,730
Total Assets 73,030,186
Liabilities
Payables:
Securities purchased 1,354,110
Accrued expenses 74,577
Total Liabilities 1,428,687
Net Assets
Net Assets, equivalent to $18.96 per share on
3,776,774 shares of capital stock outstanding (Note 2) $ 71,601,499
See Notes to Financial Statements.
<PAGE>
Statement of Operations
Year Ended December 31, 1995
Investment Income:
Interest $ 263,977
Dividends 1,469,132
Total income 1,733,109
Expenses:
Investment Adviser's fee (Note 3) 325,646
Custodian and Transfer Agent fees 26,499
Directors' fees 3,660
Professional fees 25,800
Shareholder accounting services (Note 3) 18,200
Other 2,197
Total expenses 402,002
Less expenses offset (Note 5) (18,225)
Net expenses 383,777
Investment income _ net 1,349,332
Realized and Unrealized Gain on Investments:
Net realized gain on investments 4,429,313
Unrealized appreciation of investments for the year 12,830,999
Net gain on investments 17,260,312
Net increase in net assets from operations $18,609,644
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
Increase in Net Assets from:
<S> <C> <C>
Operations:
Investment income _ net $ 1,349,332 $ 1,187,225
Net realized gain on investments 4,429,313 7,856,540
Unrealized appreciation (depreciation)
for the year 12,830,999 ( 11,642,733)
Net increase (decrease) in net assets
from operations 18,609,644 ( 2,598,968)
Dividends paid to shareholders from:
Investment income _ net ( 1,318,791) ( 574,936)
Net realized gain on investments ( 7,845,335) ( 1,564,793)
Capital share transactions (Note 2) 3,796,147 6,473,023
Total increase 13,241,665 1,734,326
Net Assets
Beginning of year 58,359,834 56,625,508
End of year (including undistributed net
investment income of $693,205 and
$662,664, respectively) $71,601,499 $58,359,834
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Number of Shares
Common Stocks _ 87.34% or Principal Amount Value
<S> <C> <C>
Aerospace/Defense _ 1.79%
Lockheed-Martin Corporation 9,300 $ 734,700
Loral Corporation 16,000 566,000
Auto & Truck _ .17%
Honda Motor Company, Ltd. 3,000 126,000
Banks _ 4.04%
Bank of New York Company, Inc. 19,400 945,750
Chase Manhattan Corporation 10,000 606,250
Citicorp 20,600 1,385,350
Biotechnology _ 1.61%
Amgen, Inc. 19,800 1,173,150*
Broadcasting _ 2.32%
Capital Cities/ABC, Inc. 11,600 1,431,150
US West Media Group, Inc. 13,400 254,600*
Chemicals _ Major _3.76%
Dow Chemical Company 10,400 731,900
Monsanto Company 16,300 1,996,750
Computer Software _ 1.39%
Informix Corporation 10,000 300,000*
Silicon Graphics Computer System 13,800 379,500*
Sybase, Inc. 9,200 328,900*
Conglomerates _ .92%
AlliedSignal, Inc. 14,000 665,000
Drugs _ 5.90%
Lilly (Eli) & Company 10,090 567,562
Merck & Company, Inc. 9,000 591,750
Mylan Laboratories, Inc. 29,400 690,900
Pharmacia-Upjohn, Inc. 27,000 1,046,250
Schering-Plough Corporation 25,400 1,390,650
Electric Equipment _ Major _ 3.51%
General Electric Company 25,000 1,800,000
Kuhlman Corporation 60,000 750,000
Electronics _ Instrument _ 2.42%
General Instrument Corporation 14,000 327,250*
3Com Corporation 15,000 699,375*
Varian Associates, Inc. 15,300 730,575
Electronics _ Semi _ 1.64%
LSI Logic Corporation 11,800 386,450*
Texas Instruments, Inc. 15,600 807,300
<PAGE>
Entertainment _ .91%
Disney, (Walt) & Company 11,200 660,800
Financial Services _ .48%
Money Store, Inc. 22,500 348,750
Foods _ 1.98%
Sara Lee Corporation 45,000 1,434,375
Footwear _ 1.34%
Nike, Inc. 14,000 974,750
Hospital _ Management _ 3.04%
Columbia/HCA Healthcare Corporation 16,600 842,450
Medaphis Corporation 21,000 777,000*
Vencor, Inc. 18,000 585,000*
Hospital _ Supplies _ 2.69%
Baxter International, Inc. 10,000 418,750
Guidant Corporation 8,916 376,701
Johnson & Johnson 13,500 1,155,938
Information Processing _ 2.02%
Equifax, Inc. 68,600 1,466,325
Insurance _ Multi-Line _ 4.31%
Aflac, Inc. 17,600 763,400
Allstate Corporation 20,500 843,063
American General Corporation 12,200 425,475
CIGNA Corporation 10,600 1,094,450
Insurance _ Property & Casualty _ .82%
Prudential Reinsurance Holdings, Inc. 25,500 596,063
Machinery _ Agricultural _ .48%
Varity Corporation 9,300 345,262*
Merchandising _ Department _ 1.57%
Dayton Hudson Corporation 6,400 480,000
Federated Department Stores, Inc. 24,000 660,000*
Merchandising _ Drugs _ 1.01%
Eckerd Corporation 16,500 736,312*
Merchandising _ Special _ 2.17%
Borders Group, Inc. 43,500 804,750*
Circuit City Stores, Inc. 28,000 773,500
Miscellaneous Consumer Cyclical _ .46%
Kelly Services, Inc. 12,000 333,000
Miscellaneous Financial _ 4.77%
Countrywide Credit Industries, Inc. 68,000 1,479,000
Dean Witter, Discover & Company 11,000 517,000
Federal Home Loan Mortgage Corporation 8,000 668,000
First USA, Inc. 18,000 798,750
Natural Gas _ Diversified _ .65%
Questar Corporation 14,000 469,000
Oils _ Integrated Domestic _ 5.40%
Amoco Corporation 15,600 1,121,250
Atlantic Richfield Company 13,600 1,506,200
Enron Oil & Gas Company 29,500 708,000
Phillips Petroleum Company 17,200 586,950
<PAGE>
Oils _ Integrated International _ 3.91%
Mobil Corporation 12,100 1,355,200
Royal Dutch Petroleum Company 10,500 1,481,812
Oil Services _ .66%
Oceaneering International, Inc. 37,000 476,375*
Paper & Forest Products _ .30%
Sonoco Products Company 8,400 220,500
Railroads _ .88%
CSX Corporation 14,000 638,750
Telecommunications _ 1.27%
DSC Communications Corporation 25,000 921,875*
Textile _ Apparel _ 1.08%
Intimate Brands, Inc. 20,200 303,000
Ross Stores, Inc. 25,000 478,125
Tobacco _ 1.74%
Philip Morris Companies, Inc. 14,000 1,267,000
Transportation _ Miscellaneous _ .45%
Federal Express Corporation 4,400 325,050*
Utilities _ Communications _ 6.34%
Bell Atlantic Corporation 6,300 421,312
BellSouth Corporation 12,600 548,100
Century Telephone Enterprises, Inc. 14,000 444,500
Frontier Corporation 43,000 1,290,000
SBC Communications, Inc. 6,400 368,000
Sprint Corporation 26,500 1,056,688
US West Communications Group, Inc. 13,400 479,050
Utilities _ Electric _ 7.14%
American Electric Power Company, Inc. 11,550 467,775
CMS Energy Corporation 16,200 483,975
Carolina Power & Light Company 6,700 231,150
CINergy Corporation 22,800 698,250
Consolidated Edison Company of New York, Inc. 9,900 316,800
Dominion Resources, Inc. 7,650 315,563
Entergy Corporation 19,800 579,150
FPL Group, Inc. 13,600 630,700
Illinova Corporation 15,900 477,000
Northeast Utilities 14,500 353,438
PECO Energy Company 8,300 250,037
Public Service Enterprise Group, Inc. 12,550 384,344
Total Common Stocks (Cost _ $48,612,918+) 63,426,845
Preferred Stocks _ 1.93%
Tobacco _ 1.93%
RJR Nabisco Holdings, Inc. Pfd. C. 220,000 1,402,500
Total Preferred Stocks (Cost _ $1,373,200+) 1,402,500
Short-Term Securities _ 10.73%
Chevron Oil Finance Company, 1/08/96 $ 250,000 249,686
du Pont (E.I.) de Nemours & Company,
1/10/96 2,500,000 2,495,972
Ford Motor Credit Company, 1/10/96 1,700,000 1,697,280
General Electric Capital Corporation,
1/02/96 1,750,000 1,749,436
IBM Credit Corporation, 1/04/96 1,600,000 1,598,964
Total Short-Term Securities (Cost _ $7,791,338+) 7,791,338
Total Investments (Cost _ $57,777,456+) $72,620,683
</TABLE>
*Non-income producing.
+Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
Notes to Financial Statements
Note 1. Significant Accounting Policies:
JP Capital Appreciation Fund, Inc. is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund's primary
investment objective is long-term capital appreciation. The Fund seeks to
achieve this objective by investing substantially all of its assets in common
stocks of companies recognized as leaders in their respective industries,
however, other types of securities may be purchased depending upon the
judgement of management. The following is a summary of significant accounting
policies followed in the preparation of its financial statements:
Valuation of Securities _ Investments are stated at value based on the closing
prices reported on national securities exchanges on the last business day of
the year, or for over-the-counter securities, at the last bid price, except
that short-term securities are stated at amortized cost which approximates
value.
Federal Income Taxes _ It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
Use of Estimates _ The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
General _ Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
<PAGE>
Note 2. Capital Stock:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $51,638,775. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 425,888 $ 7,340,776 547,769 $ 9,476,781
Issued on reinvestment
of dividends 620,704 9,124,856 120,270 2,129,830
Redeemed (749,300) ( 12,669,485) (301,292) ( 5,133,588)
Net increase 297,292 $ 3,796,147 366,747 $ 6,473,023
</TABLE>
Note 3. Investment Advisory Fee and other Transactions with Affiliates:
JP Investment Management Company received investment advisory fees of $325,646
during the year ended December 31, 1995. This fee is computed at the annual
rate of 0.5% of the Fund's average daily net asset value. If the Fund's
expenses, excluding interest and taxes, exceed 1% of the average daily net
asset value, the Investment Adviser will pay the excess. No such reimbursement
was required during the year.
Expenses include $18,200 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
Note 4. Investment Transactions:
Purchases and sales of investment securities, excluding short-term securities,
were $38,620,653 and $44,365,481, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized gain at December 31, 1995 was $4,426,292.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $15,175,922
Unrealized depreciation ( 332,695)
Net unrealized appreciation $14,843,227
Note 5. Expense Offset Arrangement:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $18,225 for the
year ended December 31, 1995.
<PAGE>
Note 6. Selected Financial Information:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value,
beginning of year $16.77 $18.19 $18.17 $17.69 $13.76
Income from investment
operations:
Net investment income .36 .34 .28 .29 .37
Net realized and unrealized
gain (loss) on investments 4.45 ( 1.10) 1.26 .75 3.91
Total from investment
operations 4.81 ( .76) 1.54 1.04 4.28
Less distributions:
Dividends from net
investment income ( .36) ( .17) ( .27) ( .33) ( .35)
Distributions from net
realized gains ( 2.26) ( .49) ( 1.25) ( .23) _
Total distributions ( 2.62) ( .66) ( 1.52) ( .56) ( .35)
Net asset value,
end of year $18.96 $16.77 $18.19 $18.17 $17.69
Total return 33.39% ( 4.34)% 9.25% 6.16% 31.61%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319
Ratios to average net assets:
Expenses .62% .58% .60% .63% .62%
Net investment income 2.07 2.03 1.55 1.68 2.37
Portfolio turnover rate 64.13 126.70 23.93 48.72 36.71
</TABLE>
<PAGE>
Independent Auditor's Report
To the Board of Directors and Shareholders
JP Capital Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Capital Appreciation Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the selected financial information for each of the five years
in the period then ended. These financial statements and selected financial
information are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Capital Appreciation Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
/S/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
<PAGE>
JP Investment Grade Bond Fund, Inc.
100 North Greene Street
Greensboro, North Carolina 27401
Telephone 1-800-458-4498
_______________________________________________________________
Statement of Additional Information
May 1, 1996
_______________________________________________________________
Page
Table of Investment Objectives and PoliciesB-1
Contents Investment Restrictions B-1
The Investment Adviser B-3
Brokerage B-4
Purchase and Redemption of SharesB-5
The Fund's Directors and OfficersB-5
General Information B-7
Financial Statements B-8
___________________________________________________
This Statement of Additional Information is not a prospectus but supplements
and should be read in conjunction with the current Prospectus dated May 1, 1996
of JP Investment Grade Bond Fund, Inc. ("Fund"). A copy of the Prospectus may
be obtained by contacting the Fund at the address or telephone number shown
above.
Investment Objectives and Policies
The Fund's investment objectives and how it hopes to achieve those objectives
are described on page one of the Prospectus. There can be no assurance that
these objectives will be achieved. The objectives may not be changed without
the approval of a majority of the Fund's shareholders. A majority means: the
lesser of (i) a majority of the Fund's outstanding voting securities, or (ii)
67 percent of the shares present at a shareholder's meeting at which more than
50 percent of the outstanding shares are present or represented by proxy.
Investment Restrictions
In addition to, or amplification of, the investment restrictions set forth in
the Prospectus, the Fund may not:
1. Issue senior securities.
2. Purchase securities on margin or sell short, except it may obtain such
short-term credits as are necessary for the clearance of transactions.
3. Write, purchase or sell puts, calls or combinations thereof.
4. Borrow money except that, as a temporary measure for extraordinary or
emergency purposes and not for investment purposes, the Fund may borrow up to
5% of the value of its total assets.
5. Act as an underwriter of securities of other issuers, except that the Fund
may invest up to 10% of the value of its net assets (at time of investment) in
portfolio securities which the Fund might not be free to sell to the public
without registration of such securities under the Securities Act of 1933.
<PAGE>
It may be difficult for the Fund to sell restricted securities at prices
representing their fair market value except pursuant to an effective
registration statement under the Securities Act of 1933. If registration of
restricted securities is necessary, a considerable period of time may elapse
between the decision to sell and the effective date of the registration
statement. During that time the price of securities to be sold may be affected
by adverse market conditions.
In purchasing restricted securities, the Fund will endeavor to have the issuer
agree to register the securities on request and pay the registration expenses.
The Fund may be obliged, however, to bear all or part of these expenses. The
Fund's Board of Directors will value restricted securities in good faith in
determining the net asset value of Fund shares. The valuations will be made on
an individual basis in light of the particular circumstances affecting each
restricted security, including market value (if any), the period of time the
restrictions are in force, and other relevant factors. The Fund has not for
the past 12 months owned any restricted securities and has no present
intention of acquiring such securities.
6. Purchase or sell real estate or interests in real estate, nor interest
in real estate investment trusts or real estate limited partnerships (however,
the Fund may purchase interests in real estate in investment trusts whose
securities are registered under the Securities Act of 1933 and readily
marketable).
7. Engage in the purchase and sale of commodities or commodity contracts.
8. Make loans, except to the extent that either of the following is
deemed to constitute a loan: (a) purchases of a portion of an issue of a
debt security distributed to the public; or (b) investments in "repurchase
agreements".
9. Purchase the securities (except U.S. Government securities) of any one
issuer if immediately after and as a result of such purchase (a) the value of
the holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets, or (b) the Fund owns more than 10% of the
outstanding voting securities of any one class of securities of such issuer.
10. Purchase the securities of open-end investment companies. The Fund
may purchase the securities of other investment companies provided that (a)
immediately after such purchase the Fund and companies controlled by the Fund,
or other investment companies having the same investment adviser as the Fund,
do not own more than 10% of the investment company whose securities are being
purchased; (b) the Fund cannot invest more than 10% of its total assets in the
securities of other investment companies; and (c) such purchases are made in
the open market where no commission or profit to a sponsor or dealer results
other than the customary broker's commission. The restrictions of the
preceding sentence do not apply in connection with a merger, consolidation, or
plan of reorganization.
11. Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund.
12. Participate on a joint or joint and several basis in any trading
account in securities or effect a short sale of any security, except in
connection with an underwriting in which it is a participant in the
circumstances specified in Paragraph 5.
<PAGE>
13. Purchase or retain the securities of any issuer if those officers and
directors of the Fund, its adviser or underwriter owning individually more than
0.5% of the securities of such issuer together own more than 5% of the
securities of such issuer.
14. Invest in companies for the purpose of exercising control or
management.
15. Invest in foreign securities other than securities issued by Canadian
companies.
16. Invest in interests of oil, gas, or other mineral exploration or
development programs.
The investment restrictions in Paragraphs 1 through 13 above and on page one of
the Prospectus are fundamental policies and may not be changed without the
approval of a majority of the Fund's shareholders. The policies mentioned in
Paragraphs 14-16 above are not fundamental and may be changed without
shareholder approval.
While the Fund will not purchase illiquid, including restricted, securities if
such purchase would cause its then total investment in such securities to
exceed 10% of the value of its net assets, the Fund could through the decrease
in values of its other securities, for example, at sometime own illiquid,
including restricted, securities having a value in excess of 10% of the
value of its net assets. In that event, the Fund will promptly take such
action as it s Board of Directors deems appropriate to assure the continued
liquidity of the Fund.
The Investment Adviser
The Fund's investment adviser, JP Investment Management Company ("JP
Management"), like Investor Services, is a wholly-owned subsidiary of
Jefferson-Pilot Corporation, an insurance holding company. E.J. Yelton,
John C. Ingram, W. Hardee Mills, and J. Gregory Poole are officers and/or
directors of the Fund and of JP Management. Their positions with the Fund
and/or JP Management are (with the Fund position shown first) President,
Treasurer and Director/President and Director; Director/Senior Vice President,
Treasurer and Director; Vice President/Vice President; and Secretary/Secretary,
respectively.
JP Management's services are provided under an Investment Advisory Agreement
with the Fund dated November 12, 1982. Under the terms of the agreement, JP
Management provides personnel, including executive officers for the Fund, and
compensates the Fund's directors who are affiliated with JP Management or its
affiliated companies. JP Management also furnishes, or causes to be furnished,
at its own expense office space, facilities and necessary executive and other
personnel for conducting the Fund's affairs and pays all expenses incurred by
it or the Fund in connection with the administration of the investment affairs
of the Fund.
The Fund pays all other corporate expenses incurred in its operations,
including its taxes (if any), brokerage commissions on portfolio transactions,
expenses relating to the issue, transfer redemption and pricing of shares,
disbursement of dividends and other distributions, custodian fees, auditing and
legal expenses, compensation of unaffiliated directors, and expenses in
connection with meetings of directors and shareholders.
<PAGE>
As compensation for its services, JP Management receives from the Fund a fee at
an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee is
payable monthly, on the basis of the Fund's average daily net asset value
during the monthly period computed in the manner used in determining the public
offering price of Fund shares (see "How To Determine Net Asset Value" in the
prospectus).
If, in any fiscal year, the total of the fund's ordinary business expenses
(including the investment advisory fee but excluding taxes, portfolio brokerage
commissions and interest) exceeds 1% of the Fund's average daily net asset
value, JP Management pays the excess. The payment of the investment advisory
fee at the end of any month is reduced or postponed so that at the end of any
month there is not any accrued but unpaid liability under this expense
limitation. The Fund's ordinary business expenses did not, during fiscal years
1993, 1994, or 1995 exceed 1% of its average daily net asset value.
The amount of JP Management's advisory fee for fiscal year 1993 was
$136,114, for fiscal 1994 was $137,358, and for fiscal year 1995 was
$132,446.
JP Management has also agreed in an Agency Agreement dated November 12, 1982 to
serve as the Fund's stock transfer agent, dividend paying agent and to provide
shareholder accounting, bookkeeping, pricing and related services to the Fund.
The Fund has agreed to reimburse JP Management for expenses incurred by JP
Management in providing these services, including an amount intended to
reimburse JP Management for that portion of its general administrative expense
allocable to such services.
The amount paid to JP Management by the Fund under the Agency Agreement
for fiscal year 1993 was $7,492, for fiscal year 1994 was $11,750, and for
fiscal year 1995 was $12,000.
Under a Service Agreement between the Fund, JP Management, Jefferson-Pilot
Life Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"),
which agreement is dated January 25, 1984, the Companies have agreed to furnish
such personnel, services and facilities as may be reasonably needed by JP
Management in connection with its performance under the Investment Advisory
Agreement, and JP Management has agreed to compensate the Companies for their
services in this regard. Because of the arrangements under the Service
Agreement, the Companies might be deemed to be investment advisers of the Fund,
and the Service Agreement an investment advisory contract, for purposes of the
Investment Company Act of 1940. However, the Companies have been advised by
counsel that they are not by reason of such arrangements investment advisers
under that Act.
For the years ended December 31, 1993, 1994 and 1995 the aggregate amount
paid by JP Management to the Companies under this Service Agreement and similar
service agreements between JP Management, the Companies and other mutual funds
managed by JP Management was $352,095, $444,313, and $347,048, respectively.
The Investment Advisory Agreement and the Service Agreement may, independently
of each other, continue in force from year to year if the continuance of each
such agreement is approved at least annually by the Fund's Board of Directors,
including the specific approval with respect to the continuance of each such
agreement of a majority of the Directors who are not parties to the particular
agreement or interested persons (as the term is defined in the Investment
Company Act of 1940) of any such party, cast in person at a meeting called for
the purpose of voting on approval of the particular agreement.
<PAGE>
The Investment Advisory Agreement and the Service Agreement may each be
terminated at any time without the payment of any penalty on 60 days' notice to
the other parties either by a vote of the Fund's Board of Directors or by a
vote of the majority of the Fund's shareholders. The Investment Advisory
Agreement and the Service Agreement will automatically terminate in the event
of their assignment.
The Investment Advisory Agreement may be terminated by JP Management on 90
days' written notice to the Fund. The Service Agreement may be terminated on
90 days' written notice to the Fund and the other parties by JP Management or
any of the Companies.
The Fund's name has been adopted with the permission of Jefferson-Pilot
Corporation and its continued use is subject to the right of Jefferson-Pilot
Corporation to withdraw this permission at any time. If the permission is
withdrawn, but JP Management proposes to continue as the Fund's investment
adviser, the Investment Advisory Agreement will be submitted to Fund
shareholders for approval.
Brokerage
Transactions on stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, or for fixed income securities (which
currently includes most of the Fund's portfolio transactions), but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Fund includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
JP Management, which places all orders for the purchase and sale of
securities for the Fund, has no formula for the allocation of brokerage
business in the purchase and sale of securities for the Fund. Purchase and
sale orders are placed with the primary objective of obtaining the best
execution. Subject to the foregoing, orders are placed with broker-dealer
firms giving consideration to the quality, quantity and nature of the firms'
professional services which include execution, clearance procedures, and
statistical data and research information to the Fund and JP Management.
In pursuing this objective, JP Management may purchase securities in the
over-the-counter market, utilizing the services of principal market makers
unless better execution can be obtained elsewhere, and may purchase securities
listed on an exchange from non-exchange members in transactions off the
exchange. Although any statistical, research or other information and services
provided by broker-dealers may be useful to JP Management, its dollar value is
indeterminable and its availability does not serve to materially reduce JP
Management's normal research activities or expenses. Any such information,
which includes such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities, must still be analyzed and reviewed by
JP Management's personnel. JP Management may, in recognition of the value of
brokerage or research services provided by the broker, pay such broker a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction. JP Management will not, however, effect a
transaction at such higher commission unless it determines in good faith that
the amount of the higher commission is reasonable in relation to the value to
the Fund of the brokerage and research services being provided. Statistical
research or other information or services received by JP Management from
<PAGE>
broker-dealers may be used by JP Management in servicing various of its clients
(including the Fund), although not all these services are necessarily useful
and of value in servicing the Fund. The total amount of brokerage commission
on purchase and sale transactions in fiscal year 1993 was zero, in fiscal year
1994 was zero, and in 1995 was zero.
Purchase and Redemption of Shares
Reference is made to the information in the Prospectus under "How to Purchase
Shares" and "How to Redeem Shares" which describes the manner in which the net
asset value of the shares of the fund is computed as of the close of trading on
each day the New York Stock Exchange is open for trading, and on any other day
in which there is a sufficient degree of trading in the Fund's portfolio
securities to materially affect net asset value, and how the offering price is
determined based on such net asset value. It also sets forth specific
directions for the redemption of shares at net asset value. The Fund's shares
are not valued on New Year's Day, President's Day, Good Friday, Memorial Day,
July 4, Labor Day, Thanksgiving Day or Christmas Day, as the New York Stock
Exchange closes on those days.
The Fund's Directors and Officers
The following list of the Fund's directors and executive officers, all of whom
are also directors and/or officers of Jefferson-Pilot Capital Appreciation Fund,
Inc., JP Capital Appreciation Fund, Inc., and Jefferson-Pilot Investment Grade
Bond Fund, Inc., includes information as to their principal occupations during
the past five years and their principal affiliations.
Name, Address & Position Principal Occupation During Past 5 years
E. J. Yelton* Senior Vice President - Investments,
Director, President Jefferson-Pilot Corporation and
100 North Greene Street Executive Vice President - Investments,
Greensboro, North Carolina Jefferson-Pilot Life Insurance Company
since October 1993; prior thereto,
President and CEO, ING North America
Investment Centre/Member of ING Group;
Director Jefferson-Pilot Investor Services;
President and Director, JP Management
John C. Ingram* Senior Vice President, Jefferson-Pilot Life
Director Insurance Company since November 1988 and
100 North Greene Street prior thereto, Vice President; Senior Vice
Greensboro, North Carolin President, Treasurer and Director,
JP Management
Richard Wolcott McEnally Professor of Investment Banking, University
Director of North Carolina at Chapel Hill
401 Brookside Drive
Chapel Hill, North Carolina
William Edward Moran Senior Vice President, Connors Investor
Director Services, Inc since January 1995; prior
Greensboro, North Carolina thereto Chancellor, University of North
Carolina at Greensboro
<PAGE>
J. Lee Lloyd Managing Director, Lloyd & Company since
Director April 1991; prior thereto, Vice President,
16 Irving Park Lane Goldman, Sachs & Co.
Greensboro, North Carolina
J. Gregory Poole Assistant Secretary, Jefferson-Pilot Corp,
Secretary since January 1994; Associate Counsel and
Jefferson-Pilo Assistant Secretary, Life Insurance Company
100 North Gree Street since February 1994; Attorney and Assistant
Greensboro, North Carolina Secretary, January 1994, and prior thereto,
Attorney
*Messrs. Yelton and Ingram are interested persons (as that term is defined in
the Investment Company Act of 1940, as amended) of the Fund.
The following officers of the Fund also serve as officers and/or directors
of JP Management and Investor Services: E. J. Yelton, President and Treasurer
of the Fund, is President and a Director of JP Management and a Director of
Investor Services; W. Hardee Mills, Jr., Vice President of the Fund, is Vice
President of JP Management; and J. Gregory Poole, Secretary of the Fund, is
Secretary of Investor Services and JP Management. Each director of the Fund
also services as director for 3 other funds in the Jefferson-Pilot Investment
Management Fund Complex. Messrs. Yelton, Poole and Mills hold positions with
the other companies in the Jefferson-Pilot Investment Management Fund Complex
similar to the positions held with the Fund. The other companies within the
Fund Complex have the same investment adviser as does the Fund.
The following table provides information regarding the compensation each
nominee for director was paid by the Fund and the Fund Complex for the year
ended December 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Pension Estimate Total
Name of Aggregate Retirement Annual Compensation
Person, Compensation Benefits Accrued Benefits upon From Fund
Position from Fund as Part of Fund Retirement and 3 other
Expenses funds in
Complex
<S> <C> <C> <C> <C>
John C. Ingram $ 0 $ 0 $ 0 $ 0
Director
J. Lee Lloyd 1,220 0 0 4,880
Director
Richard W. 1,220 0 0 4,880
McEnally
Director
William E. Moran 1,220 0 0 4,880
Director
E. J. Yelton 0 0 0 0
Director,
President,
Treasurer
</TABLE>
The Board of Directors met five times during the year.
<PAGE>
During the year ended December 31, 1995, directors not employed by the Fund or
its affiliates received a $100 director's fee for each meeting attended,
amounting to an aggregate of $500. In addition, each of the non-affiliated
directors receives a fee of $720 per year, payable in equal monthly
installments.
General Information
As of April 12, 1996 Jefferson-Pilot Life Insurance Company owned beneficially
236,976 share or 8.80% of the Fund's outstanding shares. That company owns of
record all of the Fund's outstanding shares, with the shares not owned
beneficially being owned for the said company's separate account. The shares
owed for the company's separate account are deemed to be beneficially owned by
owners of variable annuity contracts issued by the separate account.
Jefferson-Pilot Life Insurance Company, like JP Investment Management Company,
is a wholly-owned subsidiary of Jefferson-Pilot Corporation, Greensboro, North
Carolina.
Investors Fiduciary Trust Co., 127 W. 10th Street, 12th Floor, Kansas City, MO
64105, acting as custodian, has custody of all the Fund's securities and cash.
That company attends to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Fund.
The Fund's independent accountants are McGladrey & Pullen, LLP, 555 Fifth
Avenue, 8th Floor, New York, New York 10017-2416, who audit and report on the
Fund's annual financial statements, review certain regulatory reports, prepare
the Fund's income tax returns, and perform other professional accounting,
auditing, tax and advisory services when engaged to do so by the Fund. The
selection of independent accountants will be submitted annually to the Fund's
shareholders for approval. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.
<PAGE>
Statement of Assets and Liabilities
December 31, 1995
Assets
Investment in securities at value (cost $25,529,797) $ 27,427,014
Cash 297,338
Receivables:
Interest 438,565
Capital shares sold 17,903
Total Assets 28,180,820
Liabilities
Accrued expenses 44,378
Total Liabilities 44,378
Net Assets
Net Assets, equivalent to $11.26 per share on
2,499,086 shares of capital stock outstanding (Note 2) $ 28,136,442
See Notes to Financial Statements.
<PAGE>
Statement of Operations
Year Ended December 31, 1995
Investment Income:
Interest $1,937,728
Expenses:
Investment Adviser's fee (Note 3) 132,446
Custodian and Transfer Agent fees 10,700
Directors' fees 3,660
Professional fees 20,400
Shareholder accounting services (Note 3) 12,000
Other 5,483
Total expenses 184,689
Less expenses offset (Note 5) ( 10,700)
Net expenses 173,989
Investment income - net 1,763,739
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments ( 133,355)
Unrealized appreciation of investments for the year 3,044,389
Net gain on investments 2,911,034
Net increase in net assets from operations $4,674,773
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
19951994
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Investment income - net $ 1,763,739 $ 1,869,403
Net realized loss on investments ( 133,355) ( 602,753)
Unrealized appreciation (depreciation)
for the year 3,044,389 ( 3,000,854)
Net increase (decrease) in net
assets from operations 4,674,773 ( 1,734,204)
Dividends paid to shareholders from:
Investment income - net ( 1,787,395) ( 1,809,110)
Net realized gain on investments _ ( 86,113)
Capital share transactions (Note 2) ( 28,492) ( 1,090,522)
Total increase (decrease) 2,858,886 ( 4,719,949)
Net Assets
Beginning of year 25,277,556 29,997,505
End of year (including undistributed net
investment income of $36,637 and
$60,293, respectively) $28,136,442 $25,277,556
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statement of Investments
December 31, 1995
<TABLE>
<CAPTION>
Face
Ratings* Amount Issue Value
<S> <C> <C> <C>
Bonds _ 91.45%
U.S. Government - 28.54%
$ 500,000 U.S. Treasury Notes
51/8% due 11/30/98 $ 498,360
500,000 U.S. Treasury Notes
63/8% due 8/15/02 524,295
500,000 U.S. Treasury Notes
61/2% due 4/30/99 518,280
500,000 U.S. Treasury Notes
67/8% due 3/31/00 528,205
1,100,000 U.S. Treasury Notes
71/2% due 1/31/96 1,101,892
500,000 U.S. Treasury Bonds
81/2% due 5/15/97 521,405
500,000 U.S. Treasury Notes
81/2% due 7/15/97 524,140
500,000 U.S. Treasury Bonds
87/8% due 8/15/17 669,685
750,000 U.S. Treasury Notes
93/8% due 4/15/96 758,558
500,000 U.S. Treasury Bonds
103/8% due 11/15/09 659,685
1,000,000 U.S. Treasury Bonds
123/4% due 11/15/10 1,523,120
Mortgage-Backed Securities - 10.67%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 945,000
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,981,240
Industrials - 32.94%
Finance - 15.14%
A1 1,000,000 Ford Motor Credit Company
63/4% Notes due 8/15/08 1,026,890
750,000 Merrill Lynch & Company, Inc.
67/8% Notes due 3/01/03 780,908
<PAGE>
A1 1,000,000 Morgan Stanley Group, Inc.
7% Senior Notes due 10/01/13 1,010,220
A3 750,000 Smith Barney Holdings, Inc.
71/2% Notes due 5/01/02 801,270
A1 500,000 SunTrust Banks, Inc.
87/8% Notes due 2/01/98 532,075
Foods - 2.87%
Aa2 750,000 Archer-Daniels-Midland Company
71/8% Debs. due 3/01/13 788,580
Machinery - Industrial/Specialty - 2.04%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 558,625
Natural Gas - 1.48%
Baa2 400,000 Tennessee Gas Pipeline Company
91/4% S.F. Debs. due 5/15/96 404,716
Pollution Control - 1.93%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 528,225
Railroads - 5.54%
Baa2 750,000 Kansas City Southern Industries, Inc.
65/8% Senior Notes due 3/01/05 757,627
A1 750,000 United States Leasing International, Inc.
65/8% Senior Notes due 5/15/03 763,035
Telecommunications - 1.91%
A2 500,000 Northern Telecom, Limited
67/8% Senior Notes due 10/01/02 524,475
Tobacco - 2.03%
A2 500,000 Philip Morris Companies, Inc.
81/4% Senior Notes due 10/15/03 557,400
Utilities - 19.30%
Utilities - Electric - 4.11%
A2 500,000 Midwest Power Systems, Inc.
7% 1st Mtge. due 2/15/05 526,620
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. Mtge. due 7/15/06 601,705
Utilities - Gas - 9.61%
A1 1,000,000 Consolidated Natural Gas Company
65/8% Debs. due 12/01/13 988,070
A2 500,000 National Fuel Gas Company
73/4% Debs. due 2/01/04 542,855
Baa1 500,000 Texas Gas Transmission
85/8% Notes due 4/01/04 565,270
Aa2 500,000 Washington Gas Light Company
83/4% 1st Mtge. due 7/01/19 539,600
Utilities - Telephone - 5.58%
A2 1,000,000 Alltel Corporation
61/2% Debs. due 11/01/13 995,950
A3 500,000 United Telephone Company of
Pennsylvania
73/8% 1st Mtge. Ser. Y
due 12/01/02 533,305
Total Bonds (Cost - $23,184,069+) 25,081,286
Short-Term Securities - 8.55%
A1 1,000,000 American Express Credit Corporation, 1/10/96 998,442
A1 1,000,000 Bell Atlantic Financial Services, Inc., 1/16/96 997,453
A1 350,000 Chevron Oil Finance Company, 1/03/96 349,833
Total Short-Term Securities (Cost - $2,345,728+) 2,345,728
Total Investments (Cost - $25,529,797+) $27,427,014
</TABLE>
* Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper is
rated by Standard & Poor's Corporation.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
Note 1. Significant Accounting Policies:
JP Investment Grade Bond Fund, Inc. is an open-end management investment
company registered under the Investment Company Act of 1940. The Fund's primary
investment objective is to seek the maximum level of current income as is
consistent with prudent risk. The Fund attempts to achieve this objective by
investing primarily in high-rated fixed income securities and dividend paying
common stocks, however, other types of securities may be purchased depending
upon the judgement of management. The following is a summary of significant
accounting policies followed in the preparation of its financial statements:
Valuation of Securities - Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
Federal Income Taxes - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies"
and to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
General - Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
Note 2. Capital Stock:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $26,980,405. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 468,268$5,156,966 234,140 $2,530,665
Issued on reinvestment
of dividends 148,693 1,613,218 163,631 1,718,913
Redeemed (624,497) ( 6,798,676) (501,208) ( 5,340,100)
Net decrease ( 7,536) ($ 28,492) (103,437) ($1,090,522)
</TABLE>
Note 3. Investment Advisory Fee and other Transactions with Affiliates:
JP Investment Management Company received investment advisory fees of $132,446
during the year ended December 31, 1995. This fee is computed at the annual
rate of 0.5% of the Fund's average daily net asset value. If the Fund's
expenses, excluding interest and taxes, exceed 1% of the average daily net
asset value, the Investment Adviser will pay the excess. No such reimbursement
was required during the year.
<PAGE>
Expenses include $12,000 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
Note 4. Investment Transactions:
Purchases and sales of investment securities, excluding short-term securities,
were $6,320,164 and $8,185,971, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
net realized loss at December 31, 1995 was $777,816. This loss is available to
offset future realized capital gains and expires in 2003.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $1,898,074
Unrealized depreciation ( 858)
Net unrealized appreciation $1,897,216
Note 5. Expense Offset Arrangement:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $10,700 for the
year ended December 31, 1995.
Note 6. Selected Financial Information:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per share operating
performance (for a share
outstanding throughout
the year)
Net asset value,
beginning of year$10.08$11.49$11.19$11.24$10.61
Income from investment
operations:
Net investment income .73 .73 .74 .74 .85
Net realized and unrealized
gain(loss) on investments 1.19 ( 1.40) .36 ( .03) .62
Total from investment
operations 1.92 ( .67) 1.10 .71 1.47
Less distributions:
Dividends from net
investment income ( .74) ( .71) ( .73) ( .76) ( .84)
Distributions from net
realized gains _ ( .03) ( .07) _ _
Total distributions ( .74) ( .74) ( .80) ( .76) ( .84)
Net asset value, end of year $11.26 $10.08 $11.49 $11.19 $11.24
Total return 19.44% ( 5.92)% 10.10% 6.67% 14.61%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134
Ratios to average net assets:
Expenses .70% .65% .59% .67% .72%
Net investment income 6.66 6.80 6.33 6.65 7.88
Portfolio turnover rate 26.16 28.93 19.88 18.05 7.23
</TABLE>
<PAGE>
Independent Auditor's Report
To the Board of Directors and Shareholders
JP Investment Grade Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Investment Grade Bond Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the selected financial information for each of the five years
in the period then ended. These financial statements and selected financial
information are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
<PAGE>
A MUTUAL FUND SEEKING GROWTH OF CAPITAL
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
CUSTODIAN
J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company
127 West Tenth Street
RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue
New York, New York 10017
J. GREGORY POOLE, SECRETARY
GREGORY D. WALKER, CFA,
PORTFOLIO MANAGER
JP CAPITAL APPRECIATION FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
<PAGE>
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $18.96. Dividends
totaling $.361 from net investment income and $2.257 from net capital gains have
been paid year to date. On a total return basis, for 1995, the JP Capital
Appreciation Fund increased 33.39% while the S&P 500 increased 37.53%. The
Fund's annual returns for one, three, five and ten-year periods ending December
31, 1995 are as follows:
1 Year - 33.39%
3 Years - 11.70
5 Years - 14.26
10 Years - 12.07
In 1995, your fund outperformed 75% of the Growth and Income mutual funds
tracked by Lipper Analytical Services.
Signs of economic weakness were evident as 1996 ushered in a new year. As
recently as August of last year, upward earnings estimate revisions by stock
analysts outpaced downward revisions by an astounding six to one margin. By
mid-January 1996, earnings estimate revisions have reversed and downward
revisions now outnumber upward revisions by a two to one margin.
With the slowing of profit growth, we have witnessed a concurrent fall in the
breadth of the market. That is, while the stock market is posting new highs,
this performance is driven by fewer and fewer stocks. In fact, calculations by
the Wall Street firm, Smith Barney, reveal that the entire advance of the S&P
500 from September 30, 1995 to December 18 (the date of the study) was
attributable to only 18 of the 500 stocks. In other words, fewer than 5% of the
stocks in the S&P 500 provided 100% of the appreciation.
As referred to in our previous update, we believe that profits will continue to
surprise on the downside as economic growth slows. This is not to say that we
believe that the stock market will provide negative returns for the year. As
inflation continues to remain restrained, the Federal Reserve will have more
leeway to lower interest rates. Lower rates can support higher stock valuations.
We believe that the low volatility of the markets we have experienced in the
recent past will reverse. The Dow Jones Industrial Average's (DJIA) biggest
correction in 1995 was 3.3%, occurring in mid-July. In an average year the DJIA
corrects -9.3%. With the declining market breadth, we expect a more volatile
year as investors attempt to separate the winners from the losers.
<PAGE>
1996 stock market performance is unlikely to match that of 1995. In fact, 1995,
as measured by the S&P 500, was the fifth best year in market history. We do see
a positive return for the stock market this year; however, we believe it will be
driven by a relatively few number of stocks. These stocks will likely be of high
quality, stable growth companies. These are the stocks which typically
outperform when the profit cycle has peaked and economic growth begins to slow.
If the Fed lowers interest rates, we can expect the economically sensitive
companies to benefit but with a lag. The positive benefit that cyclical
companies will receive from lower interest rates is not likely to be experienced
this year even if the Fed aggressively lowers rates early.
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
Credit Cyclicals .00
Financial 14.62
Consumer Services 6.36
Consumer Staples 17.11
Consumer Cyclicals 6.89
Capital Goods - Technology 10.68
Capital Goods 4.04
Energy 10.76
Basic Industries 4.12
Transportation 1.35
Utilities 13.68
Conglomerates .93
Cash 9.46
Your continued support and interest in the JP Capital Appreciation Fund are
appreciated, and we welcome any questions.
JP Capital Appreciation Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
<PAGE>
TEN LARGEST HOLDINGS
December 31, 1995
<TABLE>
<CAPTION>
COMPANY MARKET VALUE PERCENT OF FUND
<S> <C> <C>
Monsanto Company $ 1,996,750 2.8
General Electric Company 1,800,000 2.5
Atlantic Richfield Company 1,506,200 2.1
Royal Dutch Petroleum Company 1,481,812 2.1
Countrywide Credit Industries, Inc. 1,479,000 2.1
Equifax, Inc. 1,466,325 2.0
Sara Lee Corporation 1,434,375 2.0
Capital Cities/ABC, Inc. 1,431,150 2.0
RJR Nabisco Holdings, Inc. Pfd C 1,402,500 2.0
Schering-Plough Corporation 1,390,650 1.9
----------- ----
$15,388,762 21.5
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES
COMMON STOCKS - 87.34% OR PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Aerospace/Defense - 1.79%
Lockheed-Martin Corporation 9,300 $ 734,700
Loral Corporation 16,000 566,000
Auto & Truck - .17%
Honda Motor Company, Ltd. 3,000 126,000
Banks - 4.04%
Bank of New York Company, Inc. 19,400 945,750
Chase Manhattan Corporation 10,000 606,250
Citicorp 20,600 1,385,350
Biotechnology - 1.61%
Amgen, Inc. 19,800 1,173,150*
Broadcasting - 2.32%
Capital Cities/ABC, Inc. 11,600 1,431,150
US West Media Group, Inc. 13,400 254,600*
Chemicals - Major -3.76%
Dow Chemical Company 10,400 731,900
Monsanto Company 16,300 1,996,750
Computer Software - 1.39%
Informix Corporation 10,000 300,000*
Silicon Graphics Computer System 13,800 379,500*
Sybase, Inc. 9,200 328,900*
Conglomerates - .92%
AlliedSignal, Inc. 14,000 665,000
Drugs - 5.90%
Lilly (Eli) & Company 10,090 567,562
Merck & Company, Inc. 9,000 591,750
Mylan Laboratories, Inc. 29,400 690,900
Pharmacia-Upjohn, Inc. 27,000 1,046,250
Schering-Plough Corporation 25,400 1,390,650
Electric Equipment - Major - 3.51%
General Electric Company 25,000 1,800,000
Kuhlman Corporation 60,000 750,000
Electronics - Instrument - 2.42%
General Instrument Corporation 14,000 327,250*
3Com Corporation 15,000 699,375*
Varian Associates, Inc. 15,300 730,575
Electronics - Semi - 1.64%
LSI Logic Corporation 11,800 386,450*
Texas Instruments, Inc. 15,600 807,300
Entertainment - .91%
Disney, (Walt) & Company 11,200 660,800
Financial Services - .48%
Money Store, Inc. 22,500 348,750
Foods - 1.98%
Sara Lee Corporation 45,000 1,434,375
Footwear - 1.34%
Nike, Inc. 14,000 974,750
Hospital - Management - 3.04%
Columbia/HCA Healthcare Corporation 16,600 842,450
Medaphis Corporation 21,000 777,000*
Vencor, Inc. 18,000 585,000*
Hospital - Supplies - 2.69%
Baxter International, Inc. 10,000 418,750
Guidant Corporation 8,916 376,701
Johnson & Johnson 13,500 1,155,938
Information Processing - 2.02%
Equifax, Inc. 68,600 1,466,325
Insurance - Multi-Line - 4.31%
Aflac, Inc. 17,600 763,400
Allstate Corporation 20,500 843,063
American General Corporation 12,200 425,475
CIGNA Corporation 10,600 1,094,450
Insurance - Property & Casualty - .82%
Prudential Reinsurance Holdings, Inc. 25,500 596,063
Machinery - Agricultural - .48%
Varity Corporation 9,300 345,262*
Merchandising - Department - 1.57%
Dayton Hudson Corporation 6,400 480,000
Federated Department Stores, Inc. 24,000 660,000*
Merchandising - Drugs - 1.01%
Eckerd Corporation 16,500 736,312*
Merchandising - Special - 2.17%
Borders Group, Inc. 43,500 804,750*
Circuit City Stores, Inc. 28,000 773,500
Miscellaneous Consumer Cyclical - .46%
Kelly Services, Inc.12,000 333,000
Miscellaneous Financial - 4.77%
Countrywide Credit Industries, Inc. 68,000 1,479,000
Dean Witter, Discover & Company 11,000 517,000
Federal Home Loan Mortgage Corporation 8,000 668,000
First USA, Inc. 18,000 798,750
Natural Gas - Diversified - .65%
Questar Corporation 14,000 469,000
Oils - Integrated Domestic - 5.40%
Amoco Corporation 15,600 1,121,250
Atlantic Richfield Company 13,600 1,506,200
Enron Oil & Gas Company 29,500 708,000
Phillips Petroleum Company 17,200 586,950
Oils - Integrated International - 3.91%
Mobil Corporation 12,100 1,355,200
Royal Dutch Petroleum Company 10,500 1,481,812
Oil Services - .66%
Oceaneering International, Inc. 37,000 476,375*
Paper & Forest Products - .30%
Sonoco Products Company 8,400 220,500
Railroads - .88%
CSX Corporation 14,000 638,750
Telecommunications - 1.27%
DSC Communications Corporation 25,000 921,875*
Textile - Apparel - 1.08%
Intimate Brands, Inc. 20,200 303,000
Ross Stores, Inc. 25,000 478,125
Tobacco - 1.74%
Philip Morris Companies, Inc. 14,000 1,267,000
Transportation - Miscellaneous - .45%
Federal Express Corporation 4,400 325,050*
Utilities - Communications - 6.34%
Bell Atlantic Corporation 6,300 421,312
BellSouth Corporation 12,600 548,100
Century Telephone Enterprises, Inc. 14,000 444,500
Frontier Corporation 43,000 1,290,000
SBC Communications, Inc. 6,400 368,000
Sprint Corporation 26,500 1,056,688
US West Communications Group, Inc. 13,400 479,050
Utilities - Electric - 7.14%
American Electric Power Company, Inc. 11,550 467,775
CMS Energy Corporation 16,200 483,975
Carolina Power & Light Company 6,700 231,150
CINergy Corporation 22,800 698,250
Consolidated Edison Company of New York, Inc. 9,900 316,800
Dominion Resources, Inc. 7,650 315,563
Entergy Corporation 19,800 579,150
FPL Group, Inc. 13,600 630,700
Illinova Corporation 15,900 477,000
Northeast Utilities 14,500 353,438
PECO Energy Company 8,300 250,037
Public Service Enterprise Group, Inc. 12,550 384,344
-----------
Total Common Stocks (Cost - $48,612,918+) 63,426,845
-----------
Preferred Stocks - 1.93%
Tobacco - 1.93%
RJR Nabisco Holdings, Inc. Pfd. C. 220,000 1,402,500
-----------
Total Preferred Stocks (Cost - $1,373,200+) 1,402,500
-----------
Short-Term Securities - 10.73%
Chevron Oil Finance Company, 1/08/96 $ 250,000 249,686
du Pont (E.I.) de Nemours & Company, 1/10/96 2,500,000 2,495,972
Ford Motor Credit Company, 1/10/96 1,700,000 1,697,280
General Electric Capital Corporation, 1/02/96 1,750,000 1,749,436
IBM Credit Corporation, 1/04/96 1,600,000 1,598,964
-----------
Total Short-Term Securities (Cost - $7,791,338+) 7,791,338
-----------
Total Investments (Cost - $57,777,456+) $72,620,683
-----------
-----------
</TABLE>
* Non-income producing.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value (cost $57,777,456) $ 72,620,683
Cash 234,191
Receivables:
Capital shares sold 73,582
Dividends 101,730
------------
Total Assets 73,030,186
------------
LIABILITIES
Payables:
Securities purchased 1,354,110
Accrued expenses 74,577
------------
Total Liabilities 1,428,687
------------
NET ASSETS
Net Assets, equivalent to $18.96 per share on
3,776,774 shares of capital stock outstanding (Note 2) $ 71,601,499
------------
------------
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $ 263,977
Dividends 1,469,132
-----------
Total inc 1,733,109
-----------
Expenses:
Investment Adviser's fee (Note 3) 325,646
Custodian and Transfer Agent fees 26,499
Directors' fees 3,660
Professional fees 25,800
Shareholder accounting services (Note 3) 18,200
Other 2,197
-----------
Total expenses 402,002
Less expenses offset (Note 5) ( 18,225)
-----------
Net expenses 383,777
-----------
Investment income - net 1,349,332
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments 4,429,313
Unrealized appreciation of investments for the year 12,830,999
----------
Net gain on investments 17,260,312
----------
Net increase in net assets from operations $18,609,644
-----------
-----------
[/TABLE]
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
1995 1994
Increase in Net Assets from:
Operations:
Investment income - net $ 1,349,332 $ 1,187,225
Net realized gain on investments 4,429,313 7,856,540
Unrealized appreciation (depreciation)
for the year 12,830,999 (11,642,733)
------------ -----------
Net increase (decrease) in net assets
from operations 18,609,644 ( 2,598,968)
Dividends paid to shareholders from:
Investment income -- net ( 1,318,791) ( 574,936)
Net realized gain on investments ( 7,845,335) ( 1,564,793)
Capital share transactions (Note 2) 3,796,147 6,473,023
------------ -----------
Total increase 13,241,665 1,734,326
Net Assets
Beginning of year 58,359,834 56,625,508
------------ -----------
End of year (including undistributed net
investment income of $693,205 and
$662,664, respectively) $71,601,499 $58,359,834
------------ -----------
------------ -----------
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Capital Appreciation Fund, Inc. is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund's primary
investment objective is long-term capital appreciation. The Fund seeks to
achieve this objective by investing substantially all of its assets in common
stocks of companies recognized as leaders in their respective industries,
however, other types of securities may be purchased depending upon the judgement
of management. The following is a summary of significant accounting policies
followed in the preparation of its financial statements:
VALUATION OF SECURITIES - Investments are stated at value based on the closing
prices reported on national securities exchanges on the last business day of the
year, or for over-the-counter securities, at the last bid price, except that
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL - Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $51,638,775. Transactions in capital
stock were as follows:
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sold 425,888 $ 7,340,776 547,769 $9,476,781
Issued on reinvestment
of dividends 620,704 9,124,856 120,270 2,129,830
Redeemed (749,300) (12,669,485) (301,292) (5,133,588)
-------- ----------- -------- ----------
Net increase 297,292 $ 3,796,147 366,747 $6,473,023
-------- ----------- -------- ----------
-------- ----------- -------- ----------
</TABLE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $325,646
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $18,200 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $38,620,653 and $44,365,481, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized gain at December 31, 1995 was $4,426,292.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $15,175,922
Unrealized depreciation ( 332,695)
----------
Net unrealized appreciation $14,843,227
-----------
-----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $18,225 for the
year ended December 31, 1995.
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $16.77 $18.19 $18.17 $17.69 $13.76
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .36 .34 .28 .29 .37
Net realized and unrealized
gain (loss) on investments 4.45 ( 1.10) 1.26 .75 3.91
------ ------ ------ ------ ------
Total from investment
operations 4.81 ( .76) 1.54 1.04 4.28
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ( .36) ( .17) ( .27) ( .33) ( .35)
Distributions from net
realized gains ( 2.26) ( .49) ( 1.25) ( .23) --
------ ------ ------ ------ ------
Total distributions ( 2.62) ( .66) ( 1.52) ( .56) ( .35)
------ ------ ------ ------ ------
Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 33.39% ( 4.34)% 9.25% 6.16% 31.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319
Ratios to average net assets:
Expenses .62% .58% .60% .63% .62%
Net investment income 2.07 2.03 1.55 1.68 2.37
Portfolio turnover rate 64.13 126.70 23.93 48.72 36.71
</TABLE>
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders
JP Capital Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Capital Appreciation Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the selected financial information for each of the five years in the
period then ended. These financial statements and selected financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Capital Appreciation Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
<PAGE>
A MUTUAL FUND SEEKING MAXIMUM INCOME
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
CUSTODIAN
J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company
127 West Tenth Street
RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue
New York, New York 10017
J. GREGORY POOLE, SECRETARY
H. LUSBY BROWN, CFA
PORTFOLIO MANAGER
JP INVESTMENT GRADE BOND
FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
17
<PAGE>
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $11.26. The Fund paid
dividends of $.735 per share from interest income during 1995. The Fund's
year-to-date returns and annual returns for one, three, five, and ten-year
periods ending December 31, 1995 are as follows:
Year-to-Date
1 Year - 19.44%
3 Years - 7.34
5 Years - 8.63
10 Years - 8.78
In 1995, the bond market recovered from one of its worst years in history to
record one of its best years in history. The rally actually began in late 1994
and picked up steam in 1995, as the Federal Reserve dropped the target for
Federal Funds to 5.75%. A developing picture of mediocre economic growth and low
inflation kept the rally going throughout the summer as the market began to
forecast slower growth in 1996. The bond market rally was led by expectations
that the Fed would continue to ease and, as a result, the yield curve steepened
with the two-year Note rallying over 250 BP while the 30-year Bond only rallied
about 190 BP.
Long-term corporate bonds had the best overall returns in 1995, due to
tightening credit spreads caused by heavy demand for higher yielding assets and
light supply. Mortgage-backed securities generally underperformed the market
during the year as falling interest rates sparked prepayment fears, limiting any
increase in prices for these bonds.
The outlook for the bond market in 1996 is currently clouded by the actions of
the Congress and the White House regarding the Federal budget. The market is
discounting a favorable outcome in budget deliberations which could translate
into lower federal borrowing and fiscal drag from reduced government spending.
The market is also discounting a continuation of Federal Reserve easing in 1996
warranted by slow growth and low inflation. While the prospects for these
scenarios seem very good, the market is at risk to be disappointed. The
risk/reward profile for the bond market clearly favors shorter maturities and a
slightly more defensive stance at this time.
On December 31, 1995, the Fund's assets were invested approximately 89.14% in
medium and long-term bonds.
18
<PAGE>
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
U.S Government 27.82
Industrials 20.13
Financials 11.98
Electric Utilities 4.01
Telephone Utilities 5.43
Gas Utilities 9.37
Cash Equivalents 10.86
Mortgage-Backed Securities 10.40
Your continued support and interest in the JP Investment Grade Bond Fund are
appreciated, and we welcome any questions.
JP Investment Grade Bond Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
19
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
FACE
RATINGS* AMOUNT ISSUE VALUE
<S> <C> <C> <C>
BONDS - 91.45%
U.S. GOVERNMENT - 28.54%
$ 500,000 U.S. Treasury Notes
5 1/8% due 11/30/98 $ 498,360
500,000 U.S. Treasury Notes
6 3/8% due 8/15/02 524,295
500,000 U.S. Treasury Notes
6 1/2% due 4/30/99 518,280
500,000 U.S. Treasury Notes
6 7/8% due 3/31/00 528,205
1,100,000 U.S. Treasury Notes
7 1/2% due 1/31/96 1,101,892
500,000 U.S. Treasury Bonds
8 1/2% due 5/15/97 521,405
500,000 U.S. Treasury Notes
8 1/2% due 7/15/97 524,140
500,000 U.S. Treasury Bonds
8 7/8% due 8/15/17 669,685
750,000 U.S. Treasury Notes
9 3/8% due 4/15/96 758,558
500,000 U.S. Treasury Bonds
10 3/8% due 11/15/09 659,685
1,000,000 U.S. Treasury Bonds
12 3/4% due 11/15/10 1,523,120
MORTGAGE-BACKED SECURITIES - 10.67%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 945,000
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,981,240
INDUSTRIALS - 32.94%
FINANCE - 15.14%
A1 1,000,000 Ford Motor Credit Company
6 3/4% Notes due 8/15/08 1,026,890
A1 750,000 Merrill Lynch & Company, Inc.
6 7/8% Notes due 3/01/03 780,908
A1 1,000,000 Morgan Stanley Group, Inc.
7% Senior Notes due 10/01/13 1,010,220
A3 750,000 Smith Barney Holdings, Inc.
7 1/2% Notes due 5/01/02 801,270
A1 500,000 SunTrust Banks, Inc.
8 7/8% Notes due 2/01/98 532,075
FOODS - 2.87%
Aa2 750,000 Archer-Daniels-Midland Company
7 1/8% Debs. due 3/01/13 788,580
MACHINERY - INDUSTRIAL/SPECIALTY - 2.04%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 558,625
NATURAL GAS - 1.48%
Baa2 400,000 Tennessee Gas Pipeline Company
9 1/4% S.F. Debs. due 5/15/96 404,716
POLLUTION CONTROL - 1.93%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 528,225
RAILROADS - 5.54%
Baa2 750,000 Kansas City Southern Industries, Inc.
6 5/8% Senior Notes due 3/01/05 757,627
A1 750,000 United States Leasing International, Inc.
6 5/8% Senior Notes due 5/15/03 763,035
TELECOMMUNICATIONS - 1.91%
A2 500,000 Northern Telecom, Limited
6 7/8% Senior Notes due 10/01/02 524,475
TOBACCO - 2.03%
A2 500,000 Philip Morris Companies, Inc.
8 1/4% Senior Notes due 10/15/03 557,400
UTILITIES - 19.30%
UTILITIES - ELECTRIC - 4.11%
A2 500,000 Midwest Power Systems, Inc.
7% 1st Mtge. due 2/15/05 526,620
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. Mtge. due 7/15/06 601,705
UTILITIES - GAS - 9.61%
A1 1,000,000 Consolidated Natural Gas Company
6 5/8% Debs. due 12/01/13 988,070
A2 500,000 National Fuel Gas Company
7 3/4% Debs. due 2/01/04 542,855
Baa1 500,000 Texas Gas Transmission
8 5/8% Notes due 4/01/04 565,270
Aa2 500,000 Washington Gas Light Company
8 3/4% 1st Mtge. due 7/01/19 539,600
UTILITIES - TELEPHONE - 5.58%
A2 1,000,000 Alltel Corporation
6 1/2% Debs. due 11/01/13 995,950
A3 500,000 United Telephone Company of Pennsylvania
7 3/8% 1st Mtge. Ser. Y due 12/01/02 533,305
----------
Total Bonds (Cost - $23,184,069+) 25,081,286
----------
SHORT-TERM SECURITIES - 8.55%
A1 1,000,000 American Express Credit Corporation, 1/10/96 998,442
A1 1,000,000 Bell Atlantic Financial Services, Inc., 1/16/96 997,453
A1 350,000 Chevron Oil Finance Company, 1/03/96 349,833
----------
Total Short-Term Securities
(Cost - $2,345,728+) 2,345,728
-----------
Total Investments
(Cost - $25,529,797+) $27,427,014
-----------
-----------
</TABLE>
* Bonds are rated by Moody's Investors Service, Inc. and
Commercial Paper is rated by Standard & Poor's Corporation.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value (cost $25,529,797) $ 27,427,014
Cash 297,338
Receivables:
Interest 438,565
Capital shares sold 17,903
------------
Total Assets 28,180,820
------------
LIABILITIES
Accrued expenses 44,378
------------
Total Liabilities 44,378
------------
NET ASSETS
Net Assets, equivalent to $11.26 per share on
2,499,086 shares of capital stock outstanding (Note 2) $ 28,136,442
------------
------------
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $1,937,728
----------
Expenses:
Investment Adviser's fee (Note 3) 132,446
Custodian and Transfer Agent fees 10,700
Directors' fees 3,660
Professional fees 20,400
Shareholder accounting services (Note 3) 12,000
Other 5,483
----------
Total expenses 184,689
Less expenses offset (Note 5) ( 10,700)
----------
Net expenses 173,989
----------
Investment income - net 1,763,739
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments ( 133,355)
Unrealized appreciation of investments for the year 3,044,389
----------
Net gain on investments 2,911,034
----------
Net increase in net assets from operations $4,674,773
----------
----------
See Notes to Financial Statements.
25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Investment income - net $ 1,763,739 $ 1,869,403
Net realized loss on investments ( 133,355) ( 602,753)
Unrealized appreciation (depreciation)
for the year 3,044,389 ( 3,000,854)
------------ ------------
Net increase (decrease) in net
assets from operations 4,674,773 ( 1,734,204)
Dividends paid to shareholders from:
Investment income - net ( 1,787,395) ( 1,809,110)
Net realized gain on investments --- ( 86,113)
Capital share transactions (Note 2) ( 28,492) ( 1,090,522)
------------ ------------
Total increase (decrease) 2,858,886 ( 4,719,949)
Net Assets
Beginning of year 25,277,556 29,997,505
------------ ------------
End of year (including undistributed net
investment income of $36,637 and
$60,293, respectively $28,136,442 $25,277,556
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Investment Grade Bond Fund, Inc. is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund's primary
investment objective is to seek the maximum level of current income as is
consistent with prudent risk. The Fund attempts to achieve this objective by
investing primarily in high-rated fixed income securities and dividend paying
common stocks, however, other types of securities may be purchased depending
upon the judgement of management. The following is a summary of significant
accounting policies followed in the preparation of its financial statements:
VALUATION OF SECURITIES -- Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL -- Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $26,980,405. Transactions in capital
stock were as follows:
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
---------------------- -----------------------
Shares Amount Shares Amount
------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Sold 468,268$5,156,966 234,140 $2,530,665
Issued on reinvestment
of dividends 148,693 1,613,218 163,631 1,718,913
Redeemed (624,497) ( 6,798,676) (501,208) ( 5,340,100)
-------- ----------- -------- -----------
Net decrease ( 7,536) ($ 28,492) (103,437) ($1,090,522)
-------- ----------- -------- -----------
-------- ----------- -------- -----------
</TABLE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $132,446
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $12,000 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $6,320,164 and $8,185,971, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
net realized loss at December 31, 1995 was $777,816. This loss is available to
offset future realized capital gains and expires in 2003.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $1,898,074
Unrealized depreciation ( 858)
----------
Net unrealized appreciation $1,897,216
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $10,700 for the
year ended December 31, 1995.
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------------------------ ------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value,
beginning of year $10.08 $11.49 $11.19 $11.24 $10.61
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .73 .73 .74 .74 .85
Net realized and unrealized
gain (loss) on investments 1.19 ( 1.40) .36 ( .03) .62
------ ------ ------ ------ ------
Total from investment
operations 1.92 ( .67) 1.10 .71 1.47
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ( .74) ( .71) ( .73) ( .76) ( .84)
Distributions from net
realized gains -- ( .03) ( .07) -- --
------ ------ ------ ------ ------
Total distributions ( .74) ( .74) ( .80) ( .76) ( .84)
------ ------ ------ ------ ------
Net asset value, end of year $11.26 $10.08 $11.49 $11.19 $11.24
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return 19.44% ( 5.92)% 10.10% 6.67% 14.61%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134
Ratios to average net assets:
Expenses .70% .65% .59% .67% .72%
Net investment income 6.66 6.80 6.33 6.65 7.88
Portfolio turnover rate 26.16 28.93 19.88 18.05 7.23
</TABLE>
<PAGE>
CHANGES IN INVESTMENT POSITIONS
For the Period July 1, 1995 to December 31, 1995
ADDITIONS ELIMINATIONS
Smith Barney Holdings, Inc. Baltimore Gas & Electric Company
7 1/2% Notes due 5/01/02 9 1/8% 1st Mtge. due 10/15/95
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
JP Investment Grade Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Investment Grade Bond Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the selected financial information for each of the five years in the
period then ended. These financial statements and selected financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
<PAGE>
-----------------------------------
ANNUAL REPORT
DECEMBER 31, 1995
JP CAPITAL
APPRECIATION FUND
JP INVESTMENT
GRADE BOND FUND
-----------------------------------
<PAGE>
JP Capital Appreciation Fund, Inc.
This report and accompanying financial statements are submitted for
information of the Fund shareholders and are not to be considered as an
offer or solicitation of offers to buy or sell any shares of the Fund.
Such offering is made only if preceded or accompanied by an effective
prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
J. LEE LLOYD, DIRECTOR CUSTODIAN
Investors Fiduciary Trust Company
RICHARD W. McENALLY, CFA, DIRECTOR 127 West Tenth Street
Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR
W. HARDEE MILLS, CFA, VICE PRESIDENT
J. GREGORY POOLE, SECRETARY
GREGORY D. WALKER, CFA,
PORTFOLIO MANAGER
JP CAPITAL APPRECIATION FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
<PAGE>
INVESTMENT ACTIVITY
On June 30, 1996, the net asset value of your Fund was $19.44. Dividends
totaling $.184 per share from net investment income and $1.172 per share
from capital gains have been paid year to date.
On a total return basis for the first half of the year, the JP Capital
Appreciation Fund increased 10.23%, while the S&P 500 increased 10.10%.
Through June 30, 1996, JP Capital Appreciation Fund's historical compound
annual rate of total return is shown below for the following holding
periods:
1 Year -- 25.58%
3 Years -- 14.36%
5 Years -- 13.75%
10 Years -- 11.07%
The second quarter saw the S&P 500 reach a new all-time high on May 24
after inflation and interest rate fears began to moderate. The S&P 500
returned 4.5% for the quarter marking the sixth consecutive quarter of
positive performance. Stocks of smaller companies and stocks of cyclical
companies, having benefited from the perception of a stronger than
expected economy, began to lag toward the end of the second quarter as
concerns over corporate profits began to arise again. This concern began
anew after anecdotal signs of an economy which was stronger than expected
began to stimulate fears of a Federal Reserve interest rate hike. Since
the S&P 500's peak in May, investors have begun a flight to quality.
Defensive growth names have since outperformed the market due to their
tendency to provide superior relative earnings if the Federal Reserve
indeed places the brakes on economic growth with higher interest rates.
Your Fund has outperformed both the median Lipper Growth and Income
manager as well as the S&P 500 year to date. The Fund is in the top 20%
of all Growth and Income funds for the trailing twelve months according
to Lipper Analytical Services. This outperformance continues as of this
writing with the market exhibiting continued weakness.
The current market correction should be viewed as a positive event.
Veteran investors consider corrections as a healthy means of removing
speculative excesses from the marketplace. Witness the NASDAQ composite,
comprised mainly of smaller companies, often technology stocks, which has
fallen 15% from its April high. Fortunately, lower stock prices based on
investor skittishness and fear, present the seasoned long-term investor
with buying opportunities.
We do not question that it is becoming late in this bull market. The
liquidity provided by the Federal Reserve, as well as that provided by
other central banks, has been the critical catalyst for this aging
worldwide bull market. This accommodative posture by the Federal Reserve
may be coming to an end. In his recent testimony before Congress, Federal
Reserve Chairman Greenspan appeared to hint that the war against inflation
may be just beginning.
We do not base our management strategy on a forecast of the economy or
interest rates. We continue to believe that the stocks of companies with
superior earnings growth relative to their peers and which are trading at
attractive valuations are the companies we wish to own in the portfolio.
Irrespective of the overall market direction we believe that this
strategy, over time, will result in superior relative performance.
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
Credit Cyclicals 0.00
Financial 15.90
Consumer Growth Staples 3.83
Consumer Staples 16.24
Consumer Cyclicals 4.04
Capital Goods -- Technology 11.11
Capital Goods 3.85
Energy 8.58
Basic Industries 3.66
Transportation 1.27
Utilities 11.94
Conglomerates .98
Cash 18.60
Your continued support and interest in the JP Capital Appreciation Fund
are appreciated, and we welcome any questions.
JP Capital Appreciation Fund, Inc.
/s/ E.J. Yelton
President
July 29, 1996
<PAGE>
TEN LARGEST HOLDINGS
June 30, 1996
<TABLE>
<CAPTION>
COMPANY MARKET VALUE PERCENT OF FUND
<S> <C> <C>
General Electric Company $ 2,162,500 2.6
Tellabs, Inc. 1,969,125 2.4
Citicorp 1,702,075 2.1
Countrywide Credit Industries, Inc. 1,683,000 2.1
Monsanto Company 1,673,750 2.0
Royal Dutch Petroleum Company 1,614,375 2.0
Atlantic Richfield Company 1,611,600 2.0
Xerox Corporation 1,605,000 2.0
Schering-Plough Corporation 1,593,850 1.9
Vencor, Inc. 1,464,000 1.8
----------- ----
$ 17,079,275 20.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS
June 30, 1996 (Unaudited)
NUMBER OF SHARES
COMMON STOCKS -- 79.76% OR PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Aerospace/Defense -- .96%
Lockheed-Martin Corporation 9,300$ 781,200
Banks -- 5.47%
Bank of New York Company, Inc. 19,400 994,250
Chase Manhattan Corporation 10,400 734,500
Citicorp 20,600 1,702,075
Mellon Bank Corporation 18,000 1,026,000
Biotechnology -- .25%
Alliance Pharmaceutical Corporation 12,100 198,138*
Broadcasting -- .30%
US West Media Group, Inc. 13,400 244,550*
Chemicals -- Major -- 3.38%
Imperial Chemical Industries, Inc. 22,000 1,080,750
Monsanto Company 51,500 1,673,750
Computer Software -- 3.10%
SunGard Data Systems, Inc. 23,000 920,000*
Xerox Corporation 30,000 1,605,000
Conglomerates -- .98%
AlliedSignal, Inc. 14,000 799,750
Drugs -- 5.74%
Lilly (Eli) & Company 20,090 1,305,850
Merck & Company, Inc. 9,000 581,625
Pharmacia & Upjohn, Inc. 27,000 1,198,125
Schering-Plough Corporation 25,400 1,593,850
Electric Equipment -- Major -- 2.65%
General Electric Company 25,000 2,162,500
5
Electronics -- Instrument -- .97%
Varian Associates, Inc. 15,300 791,775
Electronics -- Semi -- .55%
Atmel Corporation 15,000 451,875*
Foods -- 1.79%
Sara Lee Corporation 45,000 1,456,875
Hospital -- Management -- 3.54%
Columbia/HCA Healthcare Corporation 26,600 1,419,775
Vencor, Inc. 48,000 1,464,000*
Hospital -- Supplies -- 3.64%
Baxter International, Inc. 10,000 472,500
Guidant Corporation 9,916 488,363
Johnson & Johnson 27,000 1,336,500
St. Jude Medical, Inc. 20,000 665,000*
Insurance -- Multi-Line -- 5.40%
AFLAC, Inc. 26,400 788,700
Aetna Life & Casualty Company 20,000 1,430,000
Allstate Corporation 20,500 935,312
CIGNA Corporation 10,600 1,249,475
Insurance -- Property & Casualty -- .96%
Everest Reinsurance Holdings, Inc. 25,500 659,813
IPC Holdings, Ltd. 6,000 120,750
Merchandising -- Department -- 1.91%
Consolidated Stores Corporation 20,000 735,000*
Federated Department Stores, Inc. 24,000 819,000
Merchandising -- Drugs -- 1.34%
Eckerd Corporation 33,000 746,625*
Thrifty Payless Holdings, Inc. 20,000 345,000*
Merchandising -- Special -- 1.72%
Borders Group, Inc. 43,500 1,402,875*
Miscellaneous Consumer Cyclical -- .43%
Kelly Services, Inc. 12,000 351,000
Miscellaneous Financial -- 4.12%
Countrywide Credit Industries, Inc. 68,000 1,683,000
Federal Home Loan Mortgage Corporation 8,000 684,000
First USA, Inc. 18,000 990,000
Natural Gas -- Diverified -- .58%
Questar Corporation 14,000 476,000
Oils -- Integrated Domestic -- 4.38%
Amoco Corporation 15,600 1,129,050
Atlantic Richfield Company 13,600 1,611,600
Oils -- Integrated International -- 3.65%
Mobil Corporation 12,100 1,356,713
Royal Dutch Petroleum Company 10,500 1,614,375
Paper & Forest Products -- .29%
Sonoco Products Company 8,400 238,350
Pollution Control -- 1.21%
WMX Technologies, Inc. 30,000 982,500
Railroads -- .83%
CSX Corporation 14,000 675,500
Telecommunications -- 5.40%
DSC Communications Corporation 25,000 750,000*
Loral Space & Communications, Ltd. 16,000 218,000*
Lucent Technologies, Inc. 33,000 1,249,875*
Tellabs, Inc. 29,500 1,969,125*
360 Communications Company 8,833 211,992*
Tobacco -- 1.79%
Philip Morris Companies, Inc. 14,000 1,456,000
7
Transportation -- Miscellaneous -- .44%
Federal Express Corporation 4,400 360,800*
Utilities -- Communications -- 5.59%
Bell Atlantic Corporation 6,300 401,625
BellSouth Corporation 12,600 533,925
Century Telephone Enterprises, Inc. 14,000 446,250
Frontier Corporation 43,000 1,316,875
SBC Communications, Inc. 6,400 315,200
Sprint Corporation 26,500 1,113,000
US West Communications Group, Inc. 13,400 427,125
Utilities -- Electric -- 6.10%
American Electric Power Company, Inc. 11,550 492,319
CMS Energy Corporation 16,200 500,175
Carolina Power & Light Company 6,700 254,600
CINergy Corporation 22,800 729,600
Consolidated Edison Company of NY, Inc. 9,900 289,575
Dominion Resources, Inc. 7,650 306,000
Entergy Corporation 19,800 561,825
FPL Group, Inc. 13,600 625,600
Illinova Corporation 15,900 457,125
Northeast Utilities 14,500 193,937
PECO Energy Company 8,300 215,800
Public Service Enterprise Group, Inc. 12,550 343,556
Utilities -- Water -- .30%
American Water Works Company, Inc. 6,000 241,500
-----------
Total Common Stocks (Cost -- $49,158,263+) 64,985,805
-----------
PREFERRED STOCKS -- 1.92%
Telecommunications -- .16%
TCI Communications, Inc., $2.125 Cum. Pfd. Ser. A 3,000 132,375
Tobacco -- 1.76%
RJR Nabisco Holdings, Inc., Pfd. C. 220,000 1,430,000
-----------
Total Preferred Stocks (Cost -- $1,523,200+) 1,562,375
-----------
SHORT-TERM SECURITIES -- 18.32%
American Express Credit Corporation, 7/03/96 $ 500,000 499,780
American Express Credit Corporation, 7/03/96 2,000,000 1,999,123
Chevron Oil Finance Company, 7/08/96 2,750,000 2,746,749
Exxon Asset Management Company, 7/10/96 3,000,000 2,995,625
Ford Motor Credit Company, 7/17/96 2,500,000 2,493,672
General Electric Capital Corporation, 7/05/96 1,500,000 1,498,911
Hershey Foods Corporation, 7/12/96 2,700,000 2,695,185
-----------
Total Short-Term Securities (Cost -- $14,929,045+) 14,929,045
-----------
Total Investments (Cost -- $65,610,508+) $81,477,225
-----------
-----------
*Non-income producing.
+Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
ASSETS
<S> <C>
Investments in securities at value (cost $65,610,508) $ 81,477,225
Cash 446,968
Receivables:
Capital shares sold 45,793
Dividends 67,442
------------
Total Assets 82,037,428
------------
LIABILITIES
Payables:
Securities purchased 227,597
Accrued expenses 58,331
------------
Total Liabilities 285,928
------------
NET ASSETS
Net Assets, equivalent to $19.44 per share on
4,205,010 shares of capital stock outstanding (Note 2) $ 81,751,500
------------
------------
See Notes to Financial Statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income:
<S> <C>
Interest $ 286,477
Dividends 778,721
------------
Total income 1,065,198
------------
Expenses:
Investment Adviser's fee (Note 3) 190,021
Custodian and Transfer Agent fees 14,182
Directors' fees 2,490
Professional fees 12,900
Shareholder accounting services (Note 3) 9,150
Other 663
------------
Total expenses 229,406
Less expenses offset (Note 5) ( 8,982)
------------
Net expenses 220,424
------------
Investment income -- net 844,774
------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments 5,612,860
Unrealized appreciation of investments for the period 1,023,490
------------
Net gain on investments 6,636,350
------------
Net increase in net assets from operations $ 7,481,124
------------
------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31,
1995
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
-------------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Investment income -- net $ 844,774 $ 1,349,332
Net realized gain on investments 5,612,860 4,429,313
Unrealized appreciation
for the period 1,023,490 12,830,999
----------- -----------
Net increase in net assets
from operations 7,481,124 18,609,644
Dividends paid to shareholders from:
Investment income -- net ( 696,526) ( 1,318,791)
Net realized gain on investments ( 4,436,566) ( 7,845,335)
Capital share transactions (Note 2) 7,801,969 3,796,147
----------- -----------
Total increase 10,150,001 13,241,665
Net Assets
Beginning of period 71,601,499 58,359,834
----------- -----------
End of period (including undistributed net
investment income of $841,453
and $693,205, respectively) $81,751,500 $71,601,499
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Capital Appreciation Fund, Inc. is an open-end management investment
company registered under the Investment Company Act of 1940. The Fund's
primary investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective by investing substantially all of its
assets in common stocks of companies recognized as leaders in their
respective industries, however, other types of securities may be purchased
depending upon the judgment of management. The following is a summary of
significant accounting policies followed in the preparation of its
financial statements:
VALUATION OF SECURITIES -- Investments are stated at value based on the
closing prices reported on national securities exchanges on the last
business day of the period, or for over-the-counter securities, at the
last bid price, except that short-term securities are stated at amortized
cost which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable income to its
shareholders. Therefore, no provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
GENERAL -- Securities transactions are accounted for on the trade date.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value)
were authorized and capital paid-in amounted to $59,440,744. Transactions
in capital stock were as follows:
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Sold 286,099 $ 5,352,786 425,888 $ 7,340,776
Issued on reinvestment
of dividends 283,884 5,112,753 620,704 9,124,856
Redeemed (141,747) ( 2,663,570) (749,300) (12,669,485)
------- ----------- ------- -----------
Net increase 428,236 $ 7,801,969 297,292 $ 3,796,147
------- ----------- ------- -----------
------- ----------- ------- -----------
</TABLE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of
$190,021 during the six months ended June 30, 1996. This fee is computed
at the annual rate of 0.5% of the Fund's average daily net asset value.
If the Fund's expenses, excluding interest and taxes, exceed 1% of the
average daily net asset value, the Investment Adviser will pay the excess.
No such reimbursement was required during the period.
Expenses include $9,150 of fees paid to JP Investment Management Company
under an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term
securities, were $19,729,765 and $24,436,992, respectively.
Realized gains and losses are reported on an identified cost basis.
Accumulated undistributed net realized gain at June 30, 1996 was
$5,602,586.
At June 30, 1996, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $16,664,050
Unrealized depreciation ( 797,333)
-----------
Net unrealized appreciation $15,866,717
-----------
-----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to
offset custody and transfer agent charges. These credits amounted to
$8,982 for the period ended June 30, 1996.
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFROMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $18.96 $16.77 $18.19 $18.17 $17.69 $13.76
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .20 .36 .34 .28 .29 .37
Net realized and unrealized
gain (loss) on investments 1.63 4.45 ( 1.10) 1.26 .75 3.91
------- ------- ------- ------- ------- -------
Total from investment operations 1.83 4.81 ( .76) 1.54 1.04 4.28
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ( .18) ( .36) ( .17) ( .27) ( .33) ( .35)
Distributions from net realized gains ( 1.17) ( 2.26) ( .49) ( 1.25) ( .23) --
------- ------- ------- ------- ------- -------
Total distributions ( 1.35) ( 2.62) ( .66) ( 1.52) ( .56) ( .35)
------- ------- ------- ------- ------- -------
Net asset value, end of period $19.44 $18.96 $16.77 $18.19 $18.17 $17.69
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN 10.23% 33.39% ( 4.34)% 9.25% 6.16% 31.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $81,752 $71,601 $58,360 $56,625 $45,480 $37,319
Ratios to average net assets:
Expenses .60%+^ .62%^ .58% .60% .63% .62%
Net investment income 2.22+ 2.07 2.03 1.55 1.68 2.37
Portfolio turnover rate 30.32 64.13 126.70 23.93 48.72 36.71
</TABLE>
+Annualized.
^Pursuant to new regulations, ratio includes expenses paid by expense
offset arrangements.
<PAGE>
A MUTUAL FUND SEEKING MAXIMUM INCOME
This report and accompanying financial statements are submitted for
information of the Fund shareholders and are not to be considered as an
offer or solicitation of offers to buy or sell any shares of the Fund.
Such offering is made only if preceded or accompanied by an effective
prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
CUSTODIAN
J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company
127 West Tenth Street
RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR
W. HARDEE MILLS, CFA, VICE PRESIDENT
J. GREGORY POOLE, SECRETARY
H. LUSBY BROWN, CFA, PORTFOLIO MANAGER
JP INVESTMENT GRADE BOND
FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
<PAGE>
INVESTMENT ACTIVITY
On June 30, 1996, the net asset value of your Fund was $10.88. The Fund
paid dividends of $.175 per share from interest income during the first
half of 1996. The Fund's year-to-date returns and annual returns for one,
three, five, and ten-year periods ending June 30, 1996 are as follows:
Year-to-Date (1.78%)
1 Year -- 4.50%
3 Years -- 4.23%
5 Years -- 7.29%
10 Years -- 7.53%
The bond market experienced these negative returns due to fears that the
economy was growing too rapidly causing Federal Reserve to resort to a
tightening of monetary policy to prevent inflation. Since the beginning
of the year, yields have increased approximately 100 basis points in
intermediate and long maturity bonds, thus reducing bond prices.
The actions of the bond market in 1996 stem from expectations derived from
strong growth in payroll employment. This eliminated any expectations that
the Fed would cut short-term rates, causing the yield curve to steepen for
longer maturities. Corporate bonds outperformed Treasuries during the past
six months due to narrowing credit spreads caused by improved credit
quality in most sectors. Mortgage-backed securities also outperformed
Treasuries as prepayment assumptions declined with the rise in interest
rates. So far, the damage to the bond market has been inflicted solely on
expectations. Our view that inflation is unlikely to be a serious threat
to bond yields has proven to be accurate so far, as the CPI is still less
that 3% on a year-over- year basis. We believe that real yields on bonds
are attractive at current levels. If the Fed acts to raise short-term
rates to choke off the prospects for any future inflation, then bonds
could become even more attractive. Despite the attractiveness of real
long-term rates, the bond market remains at risk until the economy
exhibits signs of a slowdown. We will continue to maintain a somewhat
neutral interest rate risk profile based on our short-term expectations
of bond market volatility; however, we maintain that in the long run bonds
should provide good relative returns.
<PAGE>
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
U. S. Government 39.95
Mortgage-Backed Securities 9.01
Industrials 16.34
Financials 10.43
Electric Utilities 3.43
Telephone Utilities 4.62
Gas Utilities 8.09
Cash Equivalents 8.13
Your continued support and interest in the JP Investment Grade Bond Fund
are appreciated, and we welcome any questions.
JP Investment Grade Bond Fund, Inc.
/s/E.J. Yelton
President
July 29, 1996
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS
June 30, 1996 (Unaudited)
FACE
RATINGS* AMOUNT ISSUE VALUE
BONDS -- 94.26%
U.S. GOVERNMENT -- 40.99%
<S> <C> <C> <C> <C>
$ 500,000 U.S. Treasury Notes
5 1/8% due 11/30/98 $ 487,890
2,500,000 U.S. Treasury Notes
5 7/8% due 4/30/98 2,490,225
1,500,000 U.S. Treasury Notes
6 3/8% due 3/31/01 1,493,430
500,000 U.S. Treasury Notes
6 3/8% due 8/15/02 496,015
500,000 U.S. Treasury Notes
6 1/2% due 4/30/99 502,655
1,000,000 U.S. Treasury Notes
6 1/2% due 5/15/05 986,870
500,000 U.S. Treasury Notes
6 7/8% due 3/31/00 507,265
1,500,000 U.S. Treasury Bonds
7 1/8% due 2/15/23 116,170
500,000 U.S. Treasury Bonds
8 1/2% due 5/15/97 511,485
500,000 U.S. Treasury Notes
8 1/2% due 7/15/97 513,045
500,000 U.S. Treasury Bonds
8 7/8% due 8/15/17 600,310
500,000 U.S. Treasury Bonds
10 3/8% due 11/15/09 611,485
1,000,000 U.S. Treasury Bonds
12 3/4% due 11/15/10 1,404,220
MORTGAGE-BACKED SECURITIES -- 9.24%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 97,500
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,835,000
INDUSTRIALS -- 27.47%
FINANCE -- 13.20%
A1 1,000,000 Ford Motor Credit Company
6 3/4% Notes due 8/15/08 938,000
A1 750,000 Merrill Lynch & Company, Inc.
6 7/8% Notes due 3/01/03 739,185
A1 1,000,000 Morgan Stanley Group, Inc.
7% Senior Notes due 10/01/13 942,040
A2 750,000 Smith Barney Holdings, Inc.
7 1/2% Notes due 5/01/02 767,070
A1 500,000 SunTrust Banks, Inc.
8 7/8% Notes due 2/01/98 518,155
FOODS -- 2.46%
Aa2 750,000 Archer-Daniels-Midland Company
7 1/8% Debs. due 3/01/13 727,822
MACHINERY -- INDUSTRIAL/SPECIALTY -- 1.77%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 523,435
POLLUTION CONTROL -- 1.72%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 508,850
RAILROADS -- 4.84%
Baa2 750,000 Kansas City Southern Industries, Inc.
6 5/8% Senior Notes due 3/01/05 705,660
A1 750,000 United States Leasing International, Inc.
6 5/8% Senior Notes due 5/15/03 725,108
TELECOMMUNICATIONS -- 1.69%
A2 500,000 Northern Telecom, Limited
6 7/8% Senior Notes due 10/01/02 498,895
TOBACCO -- 1.79%
A2 500,000 Philip Morris Companies, Inc.
8 1/4% Senior Notes due 10/15/03 527,680
UTILITIES -- 16.56%
UTILITIES -- ELECTRIC -- 3.52%
A2 500,000 Midwest Power Systems, Inc.
7% 1st Mtge. due 2/15/05 488,425
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. Mtge. due 7/15/06 553,475
UTILITIES -- GAS -- 8.30%
A1 1,000,000 Consolidated Natural Gas Company
6 5/8% Debs. due 12/01/13 894,370
A2 500,000 National Fuel Gas Company
7 3/4% Debs. due 2/01/04 506,500
Baa1 500,000 Texas Gas Transmission
8 5/8% Notes due 4/01/04 535,160
22
Aa2 500,000 Washington Gas Light Company
8 3/4% 1st Mtge. due 7/01/19 519,435
UTILITIES -- TELEPHONE -- 4.74%
A2 1,000,000 Alltel Corporation
6 1/2% Debs. due 11/01/13 899,020
A3 500,000 United Telephone Company of
Pennsylvania 7 3/8% 1st Mtge.
Ser. Y due 12/01/02 501,445
-----------
Total Bonds (Cost -- $27,422,632+) 27,873,295
-----------
SHORT-TERM SECURITIES -- 5.74%
A1 700,000 Ford Motor Credit Company, 7/01/96 699,899
A1 1,000,000 General Electric Capital
Corporation, 7/10/96 998,508
-----------
Total Short-Term Securities
(Cost -- $1,698,407+) 1,698,407
-----------
Total Investments
(Cost -- $29,121,039+) $29,571,702
-----------
-----------
</TABLE>
*Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper
is rated by Standard & Poor's Corporation.
+Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
ASSETS
Investment in securities at value (cost $29,121,039) $ 29,571,702
Cash
312,275
Receivables:
Interest
477,646
Capital shares sold ------------
Total Assets 30,372,445
-----------
LIABILITIES
Accrued expenses 33,950
------------
Total Liabilities 33,950
------------
NET ASSETS
Net Assets, equivalent to $10.88 per share on
2,788,539 shares of capital stock outstanding (Note 2) $ 30,338,495
------------
------------
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income:
Interest $ 1,007,907
------------
Expenses:
Investment Adviser's fee (Note 3) 72,939
Custodian and Transfer Agent fees 8,267
Directors' fees 2,490
Professional fees 10,500
Shareholder accounting services (Note 3) 5,460
Other 3,405
------------
Total expenses 103,061
Less expenses offet (Note 5) ( 8,240)
------------
Net expenses 94,821
------------
Investment income --
913,086
Realized and Unrealized Loss on Investments:
Net realized loss on investments ( 1,750)
Unrealized depreciation of investments for the period ( 1,446,554)
------------
Net loss on investments ( 1,448,304)
------------
Net decrease in net assets from operations ($ 535,218)
------------
------------
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31,
1995
<TABLE>
<CAPTION>
SIX MONTHS Year Ended
ENDED JUNE 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Investment income -- net $ 913,086 $ 1,763,739
Net realized loss on investments (1,750) ( 133,355)
Unrealized appreciation (depreciation)
for the period ( 1,446,554) 3,044,389
----------- -----------
Net increase (decrease) in net
assets from operations ( 535,218) 4,674,773
Dividends paid to shareholders from:
Investment income -- net ( 469,416) ( 1,787,395)
Capital share transactions (Note 2) 3,206,687 ( 28,492)
----------- -----------
Total increase 2,202,053 2,858,886
Net Assets
Beginning of period 28,136,442 25,277,556
----------- -----------
End of period (including undistributed net
investment income of $480,307
and $36,637, respectively) $30,338,495 $28,136,442
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Investment Grade Bond Fund, Inc. is an open-end management investment
company registered under the Investment Company Act of 1940. The Fund's
primary investment objective is to seek the maximum level of current
income as is consistent with prudent risk. The Fund attempts to achieve
this objective by investing primarily in high-rated fixed income
securities and dividend paying common stocks, however, other types of
securities may be purchased depending upon the judgment of management. The
following is a summary of significant accounting policies followed in the
preparation of its financial statements:
VALUATION OF SECURITIES -- Fixed income securities are valued by using
market quotations or independent pricing services which utilize prices
provided by market makers or estimates based on yield data related to
similar securities; short-term securities are stated at amortized cost
which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable income to its
shareholders. Therefore, no provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
GENERAL -- Securities transactions are accounted for on the trade date.
Distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value)
were authorized and capital paid-in amounted to $30,187,092. Transactions
in capital stock were as follows:
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Sold 401,902 $4,444,769 468,268 $5,156,966
Issued on reinvestment
of dividends 39,391 427,945 148,693 1,613,218
Redeemed (151,840) (1,666,027) (624,497) (6,798,676)
------- ---------- ------- ----------
Net increase (decrease) 289,453 $3,206,687 (7,536) ($28,492)
------- ---------- ------- ----------
------- ---------- ------- ----------
</TABLE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of
$72,939 during the six months ended June 30, 1996. This fee is computed
at the annual rate of 0.5% of the Fund's average daily net asset value.
If the Fund's expenses, excluding interest and taxes, exceed 1% of the
average daily net asset value, the Investment Adviser will pay the excess.
No such reimbursement was required during the period.
Expenses include $5,460 of fees paid to JP Investment Management Company
under an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term
securities, were $6,485,781 and $2,250,000, respectively.
Realized gains and losses are reported on an identified cost basis.
Accumulated net realized loss at June 30, 1996 was $779,567. This loss is
available to offset future realized gains. At June 30, 1996, the aggregate
gross unrealized appreciation and depreciation of portfolio securities was
as follows:
Unrealized appreciation $823,321
Unrealized depreciation ( 372,658)
----------
Net unrealized appreciation $450,663
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to
offset custody and transfer agent charges. These credits amounted to
$8,240 for the period ended June 30, 1996.
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period $11.26 $10.08 $11.49 $11.19 $11.24 $10.61
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .33 .73 .73 .74 .74 .85
Net realized and unrealized
gain (loss) on investments ( .54) 1.19 ( 1.40) .36 ( .03) .62
------ ------ ------ ------ ------ ------
Total from investment operations ( .21) 1.92 ( .67) 1.10 .71 1.47
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ( .17) ( .74) ( .71) ( .73) ( .76) ( .84)
Distributions from net realized gains -- -- ( .03) ( .07) -- --
------ ------ ------ ------ ------ ------
Total distributions ( .17) ( .74) ( .74) ( .80) ( .76) ( .84)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.88 $11.26 $10.08 $11.49 $11.19 $11.24
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN ( 1.78)% 19.44% ( 5.92)% 10.10% 6.67% 14.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $30,388 $28,136 $25,278 $29,997 $23,622 $19,134
Ratios to average net assets:
Expenses .71%+^ .70%^ .65% .59% .67% .72%
Net investment income 6.26+ 6.66 6.80 6.33 6.65 7.88
Portfolio turnover rate 9.12 26.16 28.93 19.88 18.05 7.23
</TABLE>
+Annualized.
^Pursuant to new regulations, ratio includes expenses paid by expense
offset arrangements.
<PAGE>
CHANGES IN INVESTMENT POSITIONS
For the Period January 1, 1996 to June 30, 1996
ADDITIONS ELIMINATIONS
U.S. Treasury Tennessee Gas Pipeline Company
5 7/8% Notes due 4/30/98 9 1/4% S. F. Debs. due 5/15/96
U.S. Treasury U.S. Treasury
6 3/8% Notes due 3/31/01 7 1/2% Notes due 1/31/96
U.S. Treasury U.S. Treasury
6 1/2% Notes due 5/15/05 9 3/8% Notes due 4/15/96
U.S. Treasury
7 1/8% Bonds due 2/15/23
<PAGE>
SEMI-ANNUAL REPORT
JUNE 30, 1996
JP CAPITAL
APPRECIATION FUND
JP INVESTMENT
GRADE BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS December 31, 1995 (Unaudited)
Oppenheimer Growth Fund and JP Capital Appreciation Fund, Inc.
SHARES MARKET VALUE
------------------------------------ -----------------------------------------
Oppenheimer JP Capital Pro Forma Oppenheimer JP Capital Pro Forma
Growth Appreciation Combined Growth Appreciation Combined
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 83.3%
BASIC MATERIALS - 5.4%
CHEMICALS - 4.2%
Dow Chemical Company - 10,400 10,400 $ - $ 731,900 $ 731,900
FMC Corp.(1) 4,000 - 4,000 270,500 - 270,500
Georgia Gulf Corp. 19,000 - 19,000 584,250 - 584,250
IMC Global, Inc. 16,000 - 16,000 654,000 - 654,000
Monsanto Company - 16,300 16,300 - 1,996,750 1,996,750
Morton International, Inc. 29,000 - 29,000 1,040,375 - 1,040,375
PPG Industries, Inc. 18,000 - 18,000 823,500 - 823,500
Sterling Chemicals, Inc.(1) 80,600 - 80,600 654,875 - 654,875
Terra Industries, Inc. 46,000 - 46,000 649,750 - 649,750
Union Carbide Corp. 17,000 - 17,000 637,500 - 637,500
-------------------------------------------------------------------------------
5,314,750 2,728,650 8,043,400
METALS - 0.2%
Reynolds Metals Co. 7,000 - 7,000 396,375 - 396,375
-------------------------------------------------------------------------------
PAPER - 1.0%
Boise Cascade Corp. 17,000 - 17,000 588,625 - 588,625
Bowater, Inc. 5,000 - 5,000 177,500 - 177,500
Federal Paper Board Co. 7,000 - 7,000 363,125 - 363,125
Sonoco Products Company - 8,400 8,400 - 220,500 220,500
Willamette Industries, Inc. 11,000 - 11,000 618,750 - 618,750
-------------------------------------------------------------------------------
1,748,000 220,500 1,968,500
CONSUMER CYCLICALS - 10.3%
AUTOS & HOUSING - 0.9%
Honda Motor Company, Ltd. - 3,000 3,000 - 126,000 126,000
Pulte Corp. 17,000 - 17,000 571,625 - 571,625
Toll Brothers, Inc.(1) 46,000 - 46,000 1,058,000 - 1,058,000
-------------------------------------------------------------------------------
1,629,625 126,000 1,755,625
LEISURE & ENTERTAINMENT - 2.4%
Applebee's International, Inc. 18,000 - 18,000 409,500 - 409,500
Callaway Golf Co. 25,000 - 25,000 565,625 - 565,625
ITT Corp. (New) 5,000 - 5,000 265,000 - 265,000
McDonald's Corp. 11,000 - 11,000 496,375 - 496,375
Walt Disney Co. 25,000 11,200 36,200 1,475,000 660,800 2,135,800
Wendy's International, Inc. 33,800 - 33,800 718,250 - 718,250
-------------------------------------------------------------------------------
3,929,750 660,800 4,590,550
MEDIA - 1.0%
Capital Cities/ABC, Inc. - 11,600 11,600 - 1,431,150 1,431,150
US West Media Group, Inc.(1) - 13,400 13,400 - 254,600 254,600
Viacom, Inc., Cl. B(1) 3,667 - 3,667 173,724 - 173,724
------------------------------------------------------------------------------
173,724 1,685,750 1,859,474
RETAIL: GENERAL - 2.6%
Dayton Hudson Corporation - 6,400 6,400 - 480,000 480,000
Federated Department Stores, Inc.(1) - 24,000 24,000 - 660,000 660,000
Jones Apparel Group, Inc.(1) 17,100 - 17,100 673,312 - 673,312
May Department Stores Co. 6,000 - 6,000 253,500 - 253,500
Nautica Enterprises, Inc. 10,200 - 10,200 446,250 - 446,250
Tommy Hilfiger Corp. 22,500 - 22,500 953,437 - 953,437
Wal-Mart Stores, Inc. 26,000 - 26,000 581,750 - 581,750
Warnaco Group, Inc. (The), Cl. A 33,000 - 33,000 825,000 - 825,000
-------------------------------------------------------------------------------
3,733,249 1,140,000 4,873,249
RETAIL: SPECIALTY - 3.4%
Bed Bath & Beyond, Inc.(1) 9,000 - 9,000 349,312 - 349,312
Borders Group, Inc.(1) - 43,500 43,500 - 804,750 804,750
Circuit City Stores, Inc. - 28,000 28,000 - 773,500 773,500
Gap, Inc. (The) 10,000 - 10,000 420,000 - 420,000
General Nutrition Cos., Inc.(1) 40,000 - 40,000 920,000 - 920,000
Home Depot, Inc. 24,000 - 24,000 1,149,000 - 1,149,000
Intimate Brands, Inc. - 20,200 20,200 - 303,000 303,000
Nike, Inc. - 14,000 14,000 - 974,750 974,750
OfficeMax, Inc.(1) 8,000 - 8,000 179,000 - 179,000
Ross Stores, Inc. - 25,000 25,000 - 478,125 478,125
-------------------------------------------------------------------------------
3,017,312 3,334,125 6,351,437
CONSUMER NON-CYCLICALS - 18.0%
BEVERAGES - 0.9%
Boston Beer Co., Inc., Cl. A(1) 6,600 - 6,600 156,750 - 156,750
Coca-Cola Co. (The) 10,000 - 10,000 742,500 - 742,500
PepsiCo, Inc. 10,000 - 10,000 558,750 - 558,750
Whitman Corp. 8,000 - 8,000 186,000 - 186,000
-------------------------------------------------------------------------------
1,644,000 - 1,644,000
FOOD - 2.7%
ConAgra, Inc. 4,000 - 4,000 165,000 - 165,000
H.J. Heinz Co. 15,000 - 15,000 496,875 - 496,875
IBP, Inc. 20,000 - 20,000 1,010,000 - 1,010,000
Kroger Co.(1) 14,000 - 14,000 525,000 - 525,000
Safeway, Inc.(1) 16,000 - 16,000 824,000 - 824,000
Sara Lee Corporation - 45,000 45,000 - 1,434,375 1,434,375
Smithfield Foods, Inc.(1) 21,000 - 21,000 666,750 - 666,750
-------------------------------------------------------------------------------
3,687,625 1,434,375 5,122,000
HEALTHCARE/DRUGS - 7.8%
Abbott Laboratories 27,000 - 27,000 1,127,250 - 1,127,250
Amgen, Inc.(1) 8,000 19,800 27,800 475,000 1,173,150 1,648,150
Baxter International, Inc. - 10,000 10,000 - 418,750 418,750
Bristol-Myers Squibb Co. 6,500 - 6,500 558,187 - 558,187
Eckerd Corporation(1) - 16,500 16,500 - 736,312 736,312
Guidant Corporation - 8,916 8,916 - 376,701 376,701
Johnson & Johnson 12,000 13,500 25,500 1,027,500 1,155,938 2,183,438
Lilly (Eli) & Company - 10,090 10,090 - 567,562 567,562
Merck & Company, Inc. - 9,000 9,000 - 591,750 591,750
Mylan Laboratories, Inc. - 29,400 29,400 - 690,900 690,900
Pfizer, Inc. 26,500 - 26,500 1,669,500 - 1,669,500
Pharmacia-Upjohn, Inc. - 27,000 27,000 - 1,046,250 1,046,250
Schering-Plough Corp. 16,000 25,400 41,400 876,000 1,390,650 2,266,650
Warner-Lambert Co. 6,000 - 6,000 582,750 - 582,750
Watson Pharmaceuticals, Inc.(1) 6,000 - 6,000 294,000 - 294,000
---------------------------------------------------------------------------
6,610,187 8,147,963 14,758,150
HEALTHCARE/SUPPLIES & SERVICES - 3.8%
Columbia/HCA Healthcare Corp. 12,000 16,600 28,600 609,000 842,450 1,451,450
Cordis Corp.(1) 2,000 - 2,000 201,000 - 201,000
HealthCare COMPARE Corp.(1) 20,000 - 20,000 870,000 - 870,000
Lincare Holdings, Inc.(1) 35,000 - 35,000 875,000 - 875,000
Medaphis Corporation(1) - 21,000 21,000 - 777,000 777,000
Medtronic, Inc. 34,000 - 34,000 1,899,750 - 1,899,750
Nellcor Puritan Bennett, Inc.(1) 8,800 - 8,800 510,400 - 510,400
Vencor, Inc.(1) - 18,000 18,000 - 585,000 585,000
-------------------------------------------------------------------------------
4,965,150 2,204,450 7,169,600
HOUSEHOLD GOODS - 0.6%
Procter & Gamble Co. 13,000 - 13,000 1,079,000 - 1,079,000
-------------------------------------------------------------------------------
TOBACCO - 2.2%
Philip Morris Cos., Inc. 16,000 14,000 30,000 1,448,000 1,267,000 2,715,000
UST, Inc. 41,000 - 41,000 1,368,375 - 1,368,375
-------------------------------------------------------------------------------
2,816,375 1,267,000 4,083,375
ENERGY - 5.0%
OIL-INTEGRATED - 5.0%
Amoco Corporation - 15,600 15,600 - 1,121,250 1,121,250
Atlantic Richfield Company - 13,600 13,600 - 1,506,200 1,506,200
Enron Oil & Gas Company - 29,500 29,500 - 708,000 708,000
Mobil Corp. 6,000 12,100 18,100 672,000 1,355,200 2,027,200
Oceaneering International, Inc.(1) - 37,000 37,000 - 476,375 476,375
Phillips Petroleum Company - 17,200 17,200 - 586,950 586,950
Questar Corporation - 14,000 14,000 - 469,000 469,000
Royal Dutch Petroleum Co. 3,500 10,500 14,000 493,938 1,481,812 1,975,750
USX-Marathon Group 25,000 - 25,000 487,500 - 487,500
YPF Sociedad Anonima, Sponsored ADR 5,000 - 5,000 108,125 - 108,125
-------------------------------------------------------------------------------
1,761,563 7,704,787 9,466,350
FINANCIAL - 14.0%
BANKS - 4.2%
Bank of Boston Corp. 23,000 - 23,000 1,063,750 - 1,063,750
Bank of New York Company, Inc. - 19,400 19,400 - 945,750 945,750
Chase Manhattan Corp. 6,000 10,000 16,000 363,750 606,250 970,000
Chemical Banking Corp. 9,000 - 9,000 528,750 - 528,750
Citicorp - 20,600 20,600 - 1,385,350 1,385,350
First Interstate Bancorp 6,500 - 6,500 887,250 - 887,250
Midlantic Corp. 12,000 - 12,000 787,500 - 787,500
NationsBank Corp. 10,000 - 10,000 696,250 - 696,250
State Street Boston Corp. 16,600 - 16,600 747,000 - 747,000
-------------------------------------------------------------------------------
5,074,250 2,937,350 8,011,600
DIVERSIFIED FINANCIAL - 6.6%
Advanta Corp., Cl. A 15,000 - 15,000 573,750 - 573,750
Countrywide Credit Industries, Inc. - 68,000 68,000 - 1,479,000 1,479,000
Dean Witter, Discover & Company - 11,000 11,000 - 517,000 517,000
Donaldson, Lufkin & Jenrette, Inc.(1) 6,200 - 6,200 193,750 - 193,750
Federal Home Loan Mortgage Corp. 8,000 8,000 16,000 668,000 668,000 1,336,000
Federal National Mortgage Assn. 8,000 - 8,000 993,000 - 993,000
First USA, Inc. 25,000 18,000 43,000 1,109,375 798,750 1,908,125
Green Tree Financial Corp. 56,000 - 56,000 1,477,000 - 1,477,000
Money Store, Inc. (The) 23,000 22,500 45,500 359,375 348,750 708,125
Morgan Stanley Group, Inc. 3,000 - 3,000 241,875 - 241,875
Price (T. Rowe) Associates 20,400 - 20,400 1,004,700 - 1,004,700
Schwab (Charles) Corp. (The) 29,000 - 29,000 583,625 - 583,625
Travelers Group, Inc. 24,000 - 24,000 1,509,000 - 1,509,000
------------------------------------------------------------------------------
8,713,450 3,811,500 12,524,950
INSURANCE - 3.2%
AFLAC, Inc. 5,250 17,600 22,850 227,719 763,400 991,119
Allstate Corporation - 20,500 20,500 - 843,063 843,063
American General Corporation - 12,200 12,200 - 425,475 425,475
CIGNA Corporation - 10,600 10,600 - 1,094,450 1,094,450
ITT Hartford Group, Inc. 5,000 - 5,000 241,875 - 241,875
MGIC Investment Corp. 14,100 - 14,100 764,925 - 764,925
Prudential Reinsurance Holdings, Inc. - 25,500 25,500 - 596,063 596,063
SunAmerica, Inc. 24,000 - 24,000 1,140,000 - 1,140,000
-------------------------------------------------------------------------------
2,374,519 3,722,451 6,096,970
INDUSTRIAL - 7.0%
ELECTRICAL EQUIPMENT - 2.7%
Emerson Electric Co. 17,500 - 17,500 1,430,625 - 1,430,625
General Electric Co. 13,000 25,000 38,000 936,000 1,800,000 2,736,000
Honeywell, Inc. 2,000 - 2,000 97,250 - 97,250
Kemet Corp. 6,000 - 6,000 143,250 - 143,250
Kuhlman Corporation - 60,000 60,000 - 750,000 750,000
-------------------------------------------------------------------------------
2,607,125 2,550,000 5,157,125
INDUSTRIAL MATERIALS - 1.0%
Ball Corp. 10,000 - 10,000 275,000 - 275,000
Centex Corp. 14,000 - 14,000 486,500 - 486,500
Fluor Corp. 8,000 - 8,000 528,000 - 528,000
Rayonier, Inc. 19,400 - 19,400 647,475 - 647,475
-------------------------------------------------------------------------------
1,936,975 - 1,936,975
INDUSTRIAL SERVICES - 0.8%
Danka Business System PLC, Sponsored ADR 21,000 - 21,000 777,000 - 777,000
Kelly Services, Inc. - 12,000 12,000 - 333,000 333,000
Manpower, Inc. 12,500 - 12,500 351,563 - 351,563
-------------------------------------------------------------------------------
1,128,563 333,000 1,461,563
MANUFACTURING - 1.0%
AlliedSignal, Inc. - 14,000 14,000 - 665,000 665,000
ITT Industries, Inc. 5,000 - 5,000 120,000 - 120,000
Kulicke & Soffa Industries, Inc. 20,000 - 20,000 465,000 - 465,000
Varity Corp.(1) 9,000 9,300 18,300 334,125 345,262 679,387
-------------------------------------------------------------------------------
919,125 1,010,262 1,929,387
TRANSPORTATION - 1.5%
Burlington Northern Santa Fe Corp. 7,000 - 7,000 546,000 - 546,000
Canadian Pacific Ltd. 47,000 - 47,000 851,875 - 851,875
CSX Corporation - 14,000 14,000 - 638,750 638,750
Federal Express Corporation(1) - 4,400 4,400 - 325,050 325,050
Illinois Central Corp. 10,000 - 10,000 383,750 - 383,750
-------------------------------------------------------------------------------
1,781,625 963,800 2,745,425
TECHNOLOGY - 17.8%
AEROSPACE/DEFENSE - 1.1%
Goodrich (B.F.) Co. 12,000 - 12,000 817,500 - 817,500
Lockheed-Martin Corporation - 9,300 9,300 - 734,700 734,700
Loral Corporation - 16,000 16,000 - 566,000 566,000
-------------------------------------------------------------------------------
817,500 1,300,700 2,118,200
COMPUTER HARDWARE - 3.3%
3Com Corp.(1) 10,000 - 10,000 466,250 - 466,250
Adaptec, Inc.(1) 20,000 - 20,000 820,000 - 820,000
Cabletron Systems, Inc.(1) 22,000 - 22,000 1,782,000 - 1,782,000
Cisco Systems, Inc.(1) 7,000 - 7,000 522,375 - 522,375
Compaq Computer Corp.(1) 22,000 - 22,000 1,056,000 - 1,056,000
EMC Corp.(1) 36,000 - 36,000 553,500 - 553,500
Gateway 2000, Inc.(1) 22,000 - 22,000 539,000 - 539,000
Sun Microsystems, Inc.(1) 12,000 - 12,000 547,500 - 547,500
-------------------------------------------------------------------------------
6,286,625 - 6,286,625
COMPUTER SOFTWARE - 6.5%
Automatic Data Processing, Inc. 19,000 - 19,000 1,410,750 - 1,410,750
BMC Software, Inc.(1) 30,000 - 30,000 1,282,500 - 1,282,500
Cheyenne Software, Inc.(1) 41,000 - 41,000 1,071,125 - 1,071,125
Computer Associates International, Inc. 6,000 - 6,000 341,250 - 341,250
First Data Corp. 20,000 - 20,000 1,337,500 - 1,337,500
Informix Corp.(1) 35,000 10,000 45,000 1,050,000 300,000 1,350,000
Microsoft Corp.(1) 30,000 - 30,000 2,632,500 - 2,632,500
Oracle Corp.(1) 33,600 - 33,600 1,423,800 - 1,423,800
Silicon Graphics Computer System(1) - 13,800 13,800 - 379,500 379,500
Sterling Software, Inc.(1) 12,000 - 12,000 748,500 - 748,500
Sybase, Inc.(1) - 9,200 9,200 - 328,900 328,900
-------------------------------------------------------------------------------
11,297,925 1,008,400 12,306,325
ELECTRONICS - 3.9%
Arrow Electronics, Inc.(1) 11,000 - 11,000 474,375 - 474,375
Cypress Semiconductor Corp.(1) 50,000 - 50,000 637,500 - 637,500
General Instrument Corp.(1) 15,000 14,000 29,000 350,625 327,250 677,875
Intel Corp. 26,000 - 26,000 1,475,500 - 1,475,500
LSI Logic Corporation(1) - 11,800 11,800 - 386,450 386,450
Motorola, Inc. 15,000 - 15,000 855,000 - 855,000
Phillips Electronics NV, ADR 19,000 - 19,000 681,625 - 681,625
Texas Instruments, Inc. - 15,600 15,600 - 807,300 807,300
3Com Corporation(1) - 15,000 15,000 - 699,375 699,375
Varian Associates, Inc. - 15,300 15,300 - 730,575 730,575
-------------------------------------------------------------------------------
4,474,625 2,950,950 7,425,575
TELECOMMUNICATIONS-TECHNOLOGY - 3.0%
AT&T Corp. 18,000 - 18,000 1,165,500 - 1,165,500
DSC Communications Corporation(1) - 25,000 25,000 - 921,875 921,875
Equifax, Inc. - 68,600 68,600 - 1,466,325 1,466,325
Hong Kong Telecommunications Ltd.,
Sponsored ADR 5,000 - 5,000 88,750 - 88,750
L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 - 33,000 643,500 - 643,500
Telecom Corp. of New Zealand Ltd.,
Sponsored ADR 7,000 - 7,000 485,625 - 485,625
Tellabs, Inc. 21,800 - 21,800 806,600 - 806,600
-------------------------------------------------------------------------------
3,189,975 2,388,200 5,578,175
UTILITIES - 5.8%
ELECTRIC UTILITIES - 2.7%
American Electric Power Company, Inc. - 11,550 11,550 - 467,775 467,775
Carolina Power & Light Company - 6,700 6,700 - 231,150 231,150
CINergy Corporation - 22,800 22,800 - 698,250 698,250
CMS Energy Corporation - 16,200 16,200 - 483,975 483,975
Consolidated Edison Company of New York, Inc. - 9,900 9,900 - 316,800 316,800
Dominion Resources, Inc. - 7,650 7,650 - 315,563 315,563
Entergy Corporation - 19,800 19,800 - 579,150 579,150
FPL Group, Inc. - 13,600 13,600 - 630,700 630,700
Illinova Corporation - 15,900 15,900 - 477,000 477,000
Northeast Utilities - 14,500 14,500 - 353,438 353,438
PECO Energy Company - 8,300 8,300 - 250,037 250,037
Public Service Enterprise Group, Inc. - 12,550 12,550 - 384,344 384,344
-------------------------------------------------------------------------------
- 5,188,182 5,188,182
TELEPHONE UTILITIES - 3.1%
Bell Atlantic Corporation - 6,300 6,300 - 421,312 421,312
BellSouth Corp. 5,000 12,600 17,600 217,500 548,100 765,600
Century Telephone Enterprises, Inc. - 14,000 14,000 - 444,500 444,500
Cincinnati Bell, Inc. 17,000 - 17,000 590,750 - 590,750
Frontier Corporation - 43,000 43,000 - 1,290,000 1,290,000
SBC Communications, Inc. - 6,400 6,400 - 368,000 368,000
Sprint Corporation - 26,500 26,500 - 1,056,688 1,056,688
Telefonos de Mexico SA, Sponsored ADR 13,500 - 13,500 430,313 - 430,313
US West Communications Group, Inc. - 13,400 13,400 - 479,050 479,050
-------------------------------------------------------------------------------
1,238,563 4,607,650 5,846,213
-----------------------------------------
TOTAL COMMON STOCKS (COST $70,729,607, $48,612,918+, Combined $119,342,525) 94,347,530
63,426,845 157,774,375
-----------------------------------------
PREFERRED STOCKS - 0.8%
TOBACCO - 0.8%
RJR Nabisco Holdings, Inc. Pfd. C. - 220,000 220,000 - 1,402,500 1,402,500
-------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $1,373,200+) - 1,402,500
1,402,500
-----------------------------------------
Principal Amount
-----------------------------------
SHORT-TERM SECURITIES - 4.1%
Chevron Oil Finance Company, 1/8/96 - $ 250,000 $ 250,000 - 249,686 249,686
du Pont (E.I.) de Nemours & Company,
1/10/96 - 2,500,000 2,500,000 - 2,495,972 2,495,972
Ford Motor Credit Company, 1/10/96 - 1,700,000 1,700,000 - 1,697,280 1,697,280
General Electric Capital Corporation,
1/2/96 - 1,750,000 1,750,000 - 1,749,436 1,749,436
IBM Credit Corporation, 1/4/96 - 1,600,000 1,600,000 - 1,598,964 1,598,964
-------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES (COST $7,791,338+) - 7,791,338
7,791,338
-----------------------------------------
REPURCHASE AGREEMENTS - 12.4%
Repurchase agreement with First Chicago
Capital Markets, 5.90%, dated 12/29/95,
to be repurchased at $18,011,800 on
1/2/96, collateralized by U.S. Treasury
Nts., 5.125%-8.75%, 12/31/96-11/5/04,
with a value of $9,770,530, U.S. Treasury
Bonds, 6.25%-11.25%, 8/15/03-8/15/23,
with a value of $5,921,176, and U.S.
Treasury Bills maturing 11/14/96, with a
value of $2,685,168 $18,000,000 - $18,000,000 18,000,000 - 18,000,000
Repurchase agreement with PaineWebber,
Inc., 5.90%, dated 12/29/95, to be
repurchased at $5,473,586 on 1/2/96
collateralized by U.S. Treasury Nts.,
6.875%, 8/31/99, with a value of
$1,954,613, and U.S. Treasury Bonds,
7.125%-7.625%, 11/15/22-2/15/23, with
a value of $3,682,864 5,470,000 - 5,470,000 5,470,000 - 5,470,000
-------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $23,470,000) 23,470,000 - 23,470,000
-----------------------------------------
Total Investments, at Value
(Cost $94,199,607, $57,777,456+,
Combined $151,977,063) 100.0% 101.4% 100.6% 117,817,530 72,620,683
190,438,213
Liabilities in Excess of Other Assets 0.0 (1.4) (0.6) (107,640) (1,019,184) (1,126,824)
-------------------------------------------------------------------------------
NET ASSETS 100.0% 100.0% 100.0% $117,709,890 $71,601,499
$189,311,389
==========================================================
=====================
</TABLE>
1. Non-income producing security.
+ Aggregate cost for federal income tax purposes is the same.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES December 31, 1995 (Unaudited)
Oppenheimer Bond Fund and JP Investment Grade Bond Fund, Inc.
Oppenheimer JP Investment Combined
Bond Grade Bond Oppenheimer
Fund Fund, Inc. Bond Fund
--------------------------------------------------
ASSETS:
<S> <C> <C> <C>
Investments, at value (cost * ) (including repurchase
agreements **) $205,386,016 $27,427,014 $232,813,030
Cash 475,368 297,338 772,706
Receivables:
Dividends and interest 3,482,730 438,565 3,921,295
Shares of beneficial interest sold 1,549,125 17,903 1,567,028
Investments sold 1,271,263 -- 1,271,263
Other 7,575 -- 7,575
--------------------------------------------------
Total assets 212,172,077 28,180,820 240,352,897
--------------------------------------------------
LIABILITIES:
Unrealized depreciation on forward foreign currency
exchange contracts 15,522 -- 15,522
Payables and other liabilities:
Investments purchased 779,747 -- 779,747
Shares of beneficial interest redeemed 98,746 -- 98,746
Other 46,292 44,378 90,670
--------------------------------------------------
Total liabilities 940,307 44,378 984,685
--------------------------------------------------
NET ASSETS $211,231,770 $28,136,442 $239,368,212
==================================================
COMPOSITION OF NET ASSETS:
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 17,842,418 2,499,086 20,218,807
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $11.84 $11.26 $11.84
*Cost $196,548,402 $25,529,797 $222,078,199
**Repurchase Agreements $8,500,000 -- $8,500,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF OPERATIONS For the Year Ended December 31, 1995 (Unaudited)
Oppenheimer Bond Fund and JP Investment Grade Bond Fund, Inc.
Oppenheimer JP Investment Combined
Bond Grade Bond ProForma Oppenheimer
Fund Fund, Inc. Adjustments Bond Fund
--------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest (net of withholding taxes of *) $13,096,739 $1,937,728 $15,034,467
Dividends 81,190 -- 81,190
--------------------------------------------------------------------
Total income 13,177,929 1,937,728 15,115,657
--------------------------------------------------------------------
EXPENSES:
Management fees 1,280,422 132,446 90,000 1,502,868
Custodian fees and expenses 37,714 10,700 (10,700) 37,714
Shareholder reports 8,042 -- 8,042
Shareholder accounting expenses -- 12,000 (12,000) --
Legal and auditing fees 12,506 20,400 (20,400) 12,506
Insurance expenses 5,140 -- 5,140
Trustees' fees and expenses 2,637 3,660 6,297
Registration and filing fees 16,773 -- 16,773
Other 1,193 5,483 6,676
--------------------------------------------------------------------
Total expenses 1,364,427 184,689 46,900 1,596,016
Less Reimbursement -- (10,700) 10,700 --
--------------------------------------------------------------------
Net Expenses 1,364,427 173,989 57,600 1,596,016
--------------------------------------------------------------------
NET INVESTMENT INCOME 11,813,502 1,763,739 (57,600) 13,519,641
--------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments 861,074 (133,355) 727,719
Closing and expiration of options written (14,352) -- (14,352)
Foreign currency transactions 463,409 -- 463,409
Net change in unrealized appreciation or
depreciation on:
Investments 13,439,159 3,044,389 16,483,548
Translation of assets and liabilities denominated
in foreign currencies (120,740) -- (120,740)
--------------------------------------------------------------------
Net realized and unrealized gain 14,628,550 2,911,034 17,539,584
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,442,052 $4,674,773 (57,600) $31,059,225
==========================================================
==========
*Withholding taxes $7,577 -- $7,577
</TABLE>
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS December 31, 1995
(Unaudited)
Oppenheimer Bond Fund and Jefferson Pilot Investment Grade Bond Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(1) MARKET VALUE
------------------------------------------ -----------------------------------------
OPPENHEIMER JEFFERSON PRO FORMA OPPENHEIMER JEFFERSON
PRO FORMA
BOND PILOT COMBINED BOND PILOT COMBINED
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of Deposit - 1.7%
Citibank CD:
19%, 1/19/96(2) IDR 2,853,750,000 -- 2,853,750,000 $ 1,248,126 $ -- $ 1,248,126
27.40%, 3/22/96(2) HUF 139,510,000 -- 139,510,000 1,021,112 -- 1,021,112
Indonesia (Republic of) Bank
Negara CD, Zero Coupon, 15.914%,
6/17/96(2)(3) IDR 2,000,000,000 -- 2,000,000,000 805,011 -- 805,011
Krungthai Thanakit CD, Zero
Coupon, 11.533%, 2/29/96(2)(3) THB 25,000,000 -- 25,000,000 968,966 -- 968,966
------------------------------------------ -----------------------------------------
Total Certificates of Deposit 4,043,215 -- 4,043,215
Short-Term Notes - 1.0%
American Express Credit
Corporation, 1/10/96 -- 1,000,000 1,000,000 -- 998,442 998,442
Bell Atlantic Financial
Services, Inc., 1/16/96 -- 1,000,000 1,000,000 -- 997,453 997,453
Chevron Oil Finance Company,
1/03/96 -- 350,000 350,000 -- 349,833 349,833
------------------------------------------ -----------------------------------------
Total Short-Term Securities -- 2,345,728 2,345,728
Mortgage-Backed Obligations - 17.3%
Government Agency - 11.3%
FHLMC/FNMA/Sponsored - 8.0%
Federal Home Loan Mortgage Corp:
6%, 3/15/09 -- 1,000,000 1,000,000 -- 945,000 945,000
7%, 9/15/23 -- 2,000,000 2,000,000 -- 1,981,240 1,981,240
Federal National Mortgage Assn:
7%, 11/1/25 1,888,319 -- 1,888,319 1,903,653 -- 1,903,653
7%, 11/1/25 7,990,664 -- 7,990,664 8,055,548 -- 8,055,548
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
8.75%, 11/25/05 3,000,000 -- 3,000,000 3,262,500 -- 3,262,500
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
10.40%, 4/25/19 2,000,000 -- 2,000,000 2,193,120 -- 2,193,120
Interest-Only Stripped Mtg.-Backed
Security, Trust 257, Cl. 2, 11.79%,
2/1/24(4) 2,638,404 -- 2,638,404 739,990 -- 739,990
------------------------------------------ -----------------------------------------
16,154,811 2,926,240 19,081,051
GNMA/Guaranteed - 3.3%
Government National Mortgage Assn.:
6%, 10/20/25 4,986,569 -- 4,986,569 5,036,435 -- 5,036,435
6%, 10/20/24 2,939,612 -- 2,939,612 3,009,429 -- 3,009,429
------------------------------------------ -----------------------------------------
8,045,864 -- 8,045,864
Private - 6.0%
Commercial - 2.7%
FDIC Trust, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through
Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25(5) 1,500,000 -- 1,500,000 1,617,187 -- 1,617,187
Cl. 2-E, 8.70%, 9/25/25(5) 1,500,000 -- 1,500,000 1,604,531 -- 1,604,531
Merrill Lynch Mortgage Investors,
Inc., Mtg. Pass-Through
Certificates, Series 1995-C2,
C, 7.70%, 6/15/21(6) 993,670 -- 993,670 1,025,033 -- 1,025,033
Resolution Trust Corp., Commercial
Mtg. Pass-Through Certificates:
Series 1992-CHF, Cl. C, 8.25%,
12/25/20 1,053,588 -- 1,053,588 1,079,599 -- 1,079,599
Series 1992-CHF, Cl. E, 8.25%,
12/25/20 931,256 -- 931,256 913,795 -- 913,795
Series 1994-C1, Cl. A, 7.25%,
6/25/26 302,117 -- 302,117 301,740 -- 301,740
------------------------------------------ -----------------------------------------
6,541,885 -- 6,541,885
Multi-Family - 3.3%
Countrywide Funding Corp., Series
1993-12, Cl. B1, 6.625%, 2/25/24 1,000,000 -- 1,000,000 942,500 -- 942,500
Resolution Trust Corp., Commercial
Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 2,295,071 -- 2,295,071 2,429,907 -- 2,429,907
Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 -- 1,500,000 1,603,594 -- 1,603,594
Series 1995-C1, Cl. D, 6.90%,
2/25/27 3,000,000 -- 3,000,000 2,865,000 -- 2,865,000
------------------------------------------ -----------------------------------------
7,841,001 -- 7,841,001
-----------------------------------------
Total Mortgage-Backed Obligations 38,583,561 2,926,240 41,509,801
U.S. Government Obligations - 38.9%
Treasury - 38.9%
U.S. Treasury Bonds:
6.875%, 8/15/25 8,000,000 -- 8,000,000 9,027,495 -- 9,027,495
7.125%, 2/15/23 3,000,000 -- 3,000,000 3,427,500 -- 3,427,500
8%, 11/15/21 5,000,000 -- 5,000,000 6,259,375 -- 6,259,375
8.5% 5/15/97 -- 500,000 500,000 -- 521,405 521,405
8.875% 8/15/17 -- 500,000 500,000 -- 669,685 669,685
10.375% 11/15/09 -- 500,000 500,000 -- 659,685 659,685
12.75% 11/15/10 -- 1,000,000 1,000,000 -- 1,523,120 1,523,120
U.S. Treasury Nts.:
5.125% 11/30/98 -- 500,000 500,000 -- 498,360 498,360
6%, 12/31/97 3,000,000 -- 3,000,000 3,047,811 -- 3,047,811
6.25%, 5/31/00 10,000,000 -- 10,000,000 10,343,750 -- 10,343,750
6.375%, 6/30/97 1,000,000 -- 1,000,000 1,017,187 -- 1,017,187
6.375% 8/15/02 -- 500,000 500,000 -- 524,295 524,295
6.50%, 5/15/05-8/15/05 18,000,000 -- 18,000,000 19,182,809 -- 19,182,809
6.5% 4/30/99 -- 500,000 500,000 -- 518,280 518,280
6.875%, 3/31/00 5,000,000 500,000 5,500,000 5,289,065 528,205 5,817,270
7.25%, 5/15/04-8/15/04 7,000,000 -- 7,000,000 7,787,812 -- 7,787,812
7.375%, 11/15/97 2,000,000 -- 2,000,000 2,076,250 -- 2,076,250
7.50%, 2/15/05 5,000,000 -- 5,000,000 5,676,559 -- 5,676,559
7.5% 1/31/96 -- 1,100,000 1,100,000 -- 1,101,892 1,101,892
7.75%, 12/31/99-1/31/00 6,000,000 -- 6,000,000 6,519,374 -- 6,519,374
7.875%, 6/30/96-11/15/04 3,000,000 -- 3,000,000 3,329,999 -- 3,329,999
8.5% 7/15/97 -- 500,000 500,000 -- 524,140 524,140
9.25%, 8/15/98 2,000,000 -- 2,000,000 2,193,124 -- 2,193,124
9.375% 4/15/96 -- 750,000 750,000 -- 758,558 758,558
------------------------------------------ -----------------------------------------
Total U.S. Government Obligations 85,178,110 7,827,625 93,005,735
Foreign Government Obligations - 12.2%
Australia (Commonwealth of) Bonds,
12.50%, 1/15/98 AUD 960,000 -- 960,000 782,889 -- 782,889
Canada (Government of) Bonds:
7.75%, 9/1/99 CAD 347,000 -- 347,000 266,514 -- 266,514
Series A-76, 9%, 6/1/25 CAD 321,000 -- 321,000 274,798 -- 274,798
Colombia (Republic of) 1989-1990
Integrated Loan Facility Bonds,
6.875%, 7/1/01(6)(7) 1,714,400 -- 1,714,400 1,594,392 -- 1,594,392
Corporacion Andina de Fomento Sr.
Unsec. Debs.:
6.625%, 10/14/98(5) 1,000,000 -- 1,000,000 999,375 -- 999,375
7.25%, 4/30/98(5) 1,000,000 -- 1,000,000 998,125 -- 998,125
Denmark (Kingdom of) Bonds:
7%, 11/10/24 DKK 6,300,000 -- 6,300,000 1,014,039 -- 1,014,039
8%, 3/15/06 DKK 1,880,000 -- 1,880,000 357,728 -- 357,728
Financiera Energetica Nacional:
Nts., 6.625%, 12/13/96 2,350,000 -- 2,350,000 2,347,062 -- 2,347,062
SA Medium-Term Nts., 9%, 11/8/99 400,000 -- 400,000 419,500 -- 419,500
France (Government of) Obligation
Assimilable du Tresor Debs.,
9.50%, 6/25/98 FRF 1,196,000 -- 1,196,000 267,600 -- 267,600
Germany (Republic of) Bonds:
7.75%, 10/1/04 DEM 5,350,000 -- 5,350,000 4,106,853 -- 4,106,853
Series 94, 6.25%, 1/4/24 DEM 2,900,000 -- 2,900,000 1,887,370 -- 1,887,370
International Bank for
Reconstruction and Development
Bonds, 12.50%, 7/25/97 NZD 1,000,000 -- 1,000,000 696,248 -- 696,248
Italy (Republic of) Treasury
Bonds, Buoni del Tesoro
Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 -- 4,515,000,000 2,872,821 -- 2,872,821
National Treasury Management
Agency (Irish Government) Bonds,
8%, 10/18/00 IEP 405,000 -- 405,000 682,226 -- 682,226
New Zealand (Republic of) Bonds,
10%, 7/15/97 NZD 1,720,000 -- 1,720,000 1,155,621 -- 1,155,621
Norwegian Government Bonds,
9.50%, 10/31/02 NOK 11,340,000 -- 11,340,000 2,124,639 -- 2,124,639
Poland (Republic of) Debs.,
7.75%, 7/13/00 1,500,000 -- 1,500,000 1,530,000 -- 1,530,000
Portugal (Republic of) Gtd.
Bonds, Obrigicion do
tes Medio Prazo, 11.875%,
2/23/00 PTE 65,000,000 -- 65,000,000 468,838 -- 468,838
South Africa (Republic of)
Debs., 9.625%, 12/15/99 1,000,000 -- 1,000,000 1,082,500 -- 1,082,500
Spain (Kingdom of) Gtd. Bonds,
Bonos y Obligacion del Estado,
12.25%, 3/25/00 ESP 156,000,000 -- 156,000,000 1,405,755 -- 1,405,755
Sweden (Kingdom of) Bonds,
Series 1028, 11%, 1/21/99 SEK 4,400,000 -- 4,400,000 714,422 -- 714,422
United Kingdom Treasury:
Debs., 8.50%, 12/7/05 GBP 337,000 -- 337,000 562,305 -- 562,305
Nts., 10%, 2/26/01 GBP 310,000 -- 310,000 544,176 -- 544,176
Western Australia Treasury Corp.
Gtd. Bonds, Series 98, 12.50%,
4/1/98 AUD 200,000 -- 200,000 164,222 -- 164,222
------------------------------------------ -----------------------------------------
Total Foreign Government
Obligations 29,320,018 -- 29,320,018
Municipal Bonds and Notes - 0.8%
Pinole, California Redevelopment
Agency Tax Allocation Taxable
Bonds, Pinole Vista Redevelopment,
Series B, 8.35%, 8/1/17 670,000 -- 670,000 733,429 -- 733,429
Dade County, Florida Educational
Facilities Authority:
Exchangeable Revenue Bonds,
University of Miami, Prerefunded,
MBIA Insured, 7.65%, 4/1/10 175,000 -- 175,000 201,294 -- 201,294
Revenue Bonds, University of
Miami, MBIA Insured, 7.65%, 4/1/10 205,000 -- 205,000 230,154 -- 230,154
Taxable Exchange Revenue Bonds,
University of Miami, MBIA Insured,
9.70%, 4/1/10 120,000 -- 120,000 134,724 -- 134,724
Port of Portland, Oregon Special
Obligation Taxable Revenue Bonds,
PAMCO Project, 9.20%, 5/15/22 500,000 -- 500,000 546,886 -- 546,886
------------------------------------------ -----------------------------------------
Total Municipal Bonds and Notes
(Cost $1,663,728)
1,846,487 -- 1,846,487
Corporate Bonds and Notes - 20.9%
Basic Industry - 2.3%
Chemicals - 1.0%
Quantum Chemical Corp., 10.375%
First Mtg. Nts., 6/1/03 2,100,000 -- 2,100,000 2,389,670 -- 2,389,670
Paper - 1.3%
Boise Cascade Corp., 9.90% Nts.,
3/15/00 750,000 -- 750,000 850,994 -- 850,994
Noranda Forest, Inc., 11% Debs.,
7/15/98 CAD 1,000,000 -- 1,000,000 805,629 -- 805,629
Scotia Pacific Holding Co.,
7.95% Timber Collateralized Nts.,
7/20/15 1,546,483 -- 1,546,483 1,571,753 -- 1,571,753
------------------------------------------ -----------------------------------------
3,228,376 -- 3,228,376
Consumer Related - 2.9%
Food/Beverages/Tobacco - 1.3%
Archer-Daniels-Midland Company,
7.125% Debs., 3/01/13 -- 750,000 750,000 -- 788,580 788,580
Dr. Pepper/Seven-Up Cos., Inc.,
0%/11.50% Sr. Sub. Disc. Nts.,
11/1/02(8) 1,315,000 -- 1,315,000 1,239,388 -- 1,239,388
Philip Morris Cos., Inc., 8.875%
Nts., 7/1/96 500,000 -- 500,000 507,702 -- 507,702
Philip Morris Companies, Inc.,
8.25% Senior Notes, 10/15/03 -- 500,000 500,000 -- 557,400 557,400
------------------------------------------ -----------------------------------------
1,747,090 1,345,980 3,093,070
Healthcare - 0.5%
R.P. Scherer Corp., 6.75% Sr.
Nts., 2/1/04 1,250,000 -- 1,250,000 1,189,530 -- 1,189,530
Hotel/Gaming - 0.2%
Circus Circus Enterprises, Inc.,
6.75% Nts., 7/15/03 375,000 -- 375,000 379,439 -- 379,439
Textile/Apparel - 0.5%
Fruit of the Loom, Inc.,
7% Debs., 3/15/11 1,097,000 -- 1,097,000 1,108,417 -- 1,108,417
Toys - 0.4%
Mattel, Inc., 6.875% Sr.
Nts., 8/1/97 1,000,000 -- 1,000,000 1,017,927 -- 1,017,927
Energy - 3.0%
BP America, Inc., 10.875% Nts.,
8/1/01 CAD 650,000 -- 650,000 551,957 -- 551,957
Coastal Corp.:
11.75% Sr. Debs., 6/15/06 2,000,000 -- 2,000,000 2,126,614 -- 2,126,614
9.75% Sr. Debs., 8/1/03 200,000 -- 200,000 238,950 -- 238,950
Enron Corp., 9.875% Debs.,
6/15/03 375,000 -- 375,000 457,052 -- 457,052
McDermott, Inc., 9.375% Nts.,
3/15/02 400,000 -- 400,000 454,472 -- 454,472
Mitchell Energy & Development
Corp., 9.25% Sr. Nts., 1/15/02 1,000,000 -- 1,000,000 1,146,689 -- 1,146,689
Sonat, Inc., 9.50% Nts., 8/15/99 250,000 -- 250,000 278,659 -- 278,659
Southwest Gas Corp., 9.75% Debs.,
Series F, 6/15/02 500,000 -- 500,000 585,022 -- 585,022
Tenneco, Inc.:
10% Debs., 3/15/08 400,000 -- 400,000 497,656 -- 497,656
7.875% Nts., 10/1/02 650,000 -- 650,000 709,766 -- 709,766
------------------------------------------ -----------------------------------------
7,046,837 -- 7,046,837
Financial Services - 3.2%
Banks & Thrifts - 2.6%
Banco Ganadero SA, Zero Coupon
Sr. Unsub. Unsec. Nts., 9.931%,
6/15/96 (3)(5) 500,000 -- 500,000 479,040 -- 479,040
BankAmerica Corp., 7.50% Sr.
Nts., 3/15/97 100,000 -- 100,000 102,362 -- 102,362
Chemical New York Corp., 9.75%
Sub. Capital Nts., 6/15/99 200,000 -- 200,000 224,742 -- 224,742
First Chicago Corp.:
11.25% Sub. Nts., 2/20/01 750,000 -- 750,000 923,495 -- 923,495
9% Sub. Nts., 6/15/99 150,000 -- 150,000 165,177 -- 165,177
First Chicago NBD Bancorp, 7.25%
Sub. Debs., 8/15/04 165,000 -- 165,000 176,247 -- 176,247
First Fidelity Bancorporation,
8.50% Sub. Capital Nts., 4/1/98 100,000 -- 100,000 105,456 -- 105,456
Ford Motor Credit Company, 6.75%
Nts., 8/15/08 -- 1,000,000 1,000,000 -- 1,026,890 1,026,890
Merrill Lynch & Company, Inc.
6.875% Nts., 3/01/03 -- 750,000 750,000 -- 780,908 780,908
Morgan Stanley Group, Inc. 7%
Sr. Nts, 10/01/13 -- 1,000,000 1,000,000 -- 1,010,220 1,010,220
Smith Barney Holdings, Inc
7.5% Nts., 5/01/02 -- 750,000 750,000 -- 801,270 801,270
SunTrust Banks, Inc. 8.875%
Nts., 2/01/98 -- 500,000 500,000 -- 532,075 532,075
------------------------------------------ -----------------------------------------
2,176,519 4,151,363 6,327,882
Diversified Financial - 0.6%
American Car Line Co., 8.25%
Equipment Trust Certificates,
Series 1993-A, 4/15/08 627,000 -- 627,000 659,134 -- 659,134
Lehman Brothers Holdings, Inc.,
8.375% Nts., 2/15/99 700,000 -- 700,000 744,198 -- 744,198
------------------------------------------ -----------------------------------------
1,403,332 -- 1,403,332
Manufacturing - 1.0%
Automotive - 0.8%
Chrysler Corp., 10.95% Debs.,
8/1/17 800,000 -- 800,000 898,110 -- 898,110
General Motors Acceptance Corp.:
5.50% Nts., 12/15/01 300,000 -- 300,000 289,647 -- 289,647
7.75% Nts., 4/15/97 700,000 -- 700,000 713,318 -- 713,318
------------------------------------------ -----------------------------------------
1,901,075 -- 1,901,075
Other- 0.2%
Johnson Controls, Inc., 7.70%
Debs., 3/01/15 -- 500,000 500,000 -- 558,625 558,625
Media - 3.6%
Cable Television - 1.9%
Time Warner Entertainment
LP/Time Warner, Inc., 8.375%
Sr. Debs., 3/15/23 1,850,000 -- 1,850,000 2,009,405 -- 2,009,405
TKR Cable I, Inc., 10.50% Sr.
Debs., 10/30/07 2,200,000 -- 2,200,000 2,588,914 -- 2,588,914
------------------------------------------ -----------------------------------------
4,598,319 -- 4,598,319
Diversified Media - 1.2%
GSPI Corp., 10.15% First Mtg.
Bonds, 6/24/10 (5) 1,151,691 -- 1,151,691 1,389,228 -- 1,389,228
News America Holdings, Inc.:
10.125% Gtd. Sr. Debs., 10/15/12 500,000 -- 500,000 608,130 -- 608,130
12% Sr. Nts., 12/15/01 500,000 -- 500,000 558,673 -- 558,673
Time Warner, Inc., 9.15%
Debs., 2/1/23 300,000 -- 300,000 342,093 -- 342,093
------------------------------------------ -----------------------------------------
2,898,124 -- 2,898,124
Entertainment/Film - 0.3%
Columbia Pictures Entertainment,
Inc., 9.875% Sr. Sub. Nts.,
2/1/98 500,000 -- 500,000 541,242 -- 541,242
Eastman Kodak Co., 10% Nts.,
6/15/01 250,000 -- 250,000 254,730 -- 254,730
------------------------------------------ -----------------------------------------
795,972 -- 795,972
Other - 0.2%
Laidlaw, Inc. 7.70% Debs.,
8/15/02 -- 500,000 500,000 -- 528,225 528,225
Retail - 0.3%
Drug Stores - 0.3%
Hook-SupeRx, Inc., 10.125% Sr.
Nts., 6/1/02 600,000 -- 600,000 657,191 -- 657,191
Transportation - 0.8%
Railroads - 0.8%
Kansas City Southern Industries,
Inc., 6.625% Senior Notes, 3/1/05 -- 750,000 750,000 -- 757,627 757,627
Union Pacific Corp., 9.65%
Medium-Term Nts., 4/17/00 400,000 -- 400,000 455,554 -- 455,554
United States Leasing
International, Inc. 6.625%
Senior Notes 5/15/03 -- 750,000 750,000 -- 763,035 763,035
------------------------------------------ -----------------------------------------
455,554 1,520,662 1,976,216
Utilities - 3.3%
Electric Utilities - 1.4%
Commonwealth Edison Co., 6.50%
Nts., 7/15/97 775,000 -- 775,000 779,528 -- 779,528
Long Island Lighting Co., 7%
Nts., 3/1/04 150,000 -- 150,000 144,552 -- 144,552
Midwest Power Systems, Inc. 7%
1st Mtge., 2/15/05 -- 500,000 500,000 -- 526,620 526,620
New Zealand Electric Corp., 10%
Debs., 6/15/96 NZD 650,000 -- 650,000 426,765 -- 426,765
Public Service Co. of Colorado,
8.75% First Mtg. Bonds, 3/1/22 750,000 -- 750,000 852,330 -- 852,330
South Carolina Electric & Gas
Company 9% 1st & Ref. Mtg.,
7/15/06 -- 500,000 500,000 -- 601,705 601,705
------------------------------------------ -----------------------------------------
2,203,175 1,128,325 3,331,500
Telephone Utilities - 0.6%
Alltel Corporation 6.5% Debs.,
11/01/13 -- 1,000,000 1,000,000 -- 995,950 995,950
United Telephone Company of
Pennsylvania 7.375% 1st Mtge.,
Ser. Y, 12/01/02 -- 500,000 500,000 -- 533,305 533,305
------------------------------------------ -----------------------------------------
-- 1,529,255 1,529,255
Gas Utilities - 1.3%
Consolidated Natural Gas Company,
6.625% Debs., 12/01/13 -- 1,000,000 1,000,000 -- 988,070 988,070
National Fuel Gas Company, 7.75%
Debs., 2/01/04 -- 500,000 500,000 -- 542,855 542,855
Texas Gas Transmission, 8.625%
Notes, 4/01/04 -- 500,000 500,000 -- 565,270 565,270
Washington Gas Light Company,
8.75%, 1st Mtge., 7/01/19 -- 500,000 500,000 -- 539,600 539,600
Tennessee Gas Pipeline Company,
9.25% S.F. Debs., 5/15/96 -- 400,000 400,000 -- 404,716 404,716
------------------------------------------ -----------------------------------------
-- 3,040,511 3,040,511
Telecommunications - 0.5%
GTE Corp., 9.375% Debs., 12/1/00 500,000 -- 500,000 567,703 -- 567,703
Northern Telecom, Limited 6.875%
Senior Notes, 10/01/02 -- 500,000 500,000 -- 524,475 524,475
------------------------------------------ -----------------------------------------
567,703 524,475 1,092,178
-----------------------------------------
Total Corporate Bonds and Notes 35,764,250 14,327,421 50,091,671
Shares
------------------------------------------
Preferred Stocks - 0.4%
Atlantic Richfield Co., 9%
Exchangeable Notes for Common
Stock of Lyondell Petrochemical
Co., 9/15/97 15,000 -- 15,000 352,500 -- 352,500
BankAmerica Corp., 8.375%,
Series K 25,000 -- 25,000 646,875 -- 646,875
------------------------------------------ -----------------------------------------
Total Preferred Stocks 999,375 -- 999,375
Principal Amount(1)
------------------------------------------
Structured Instruments - 0.5%
Merrill Lynch & Co., Inc. Units,
9.75%, 6/15/99 (representing debt
of Chemical Banking Corp., sub.
capital nts., and equity of
Citicorp, 7.75% preferred,
series 22)(7)(9) $ 1,000,000 -- $ 1,000,000 1,151,000 -- 1,151,000
Repurchase Agreement - 3.6%
Repurchase agreement with First
Chicago Capital Markets, 5.90%,
dated 12/29/95, to be repurchased
at $8,505,572 on 1/2/96,
collateralized by U.S. Treasury
Nts., 5.125%-8.75%, 12/31/96-
11/5/04, with a value of
$4,613,862, U.S. Treasury Bonds,
6.25%-11.25%, 8/15/03-8/15/23,
with a value of $2,796,111, and
U.S. Treasury Bills maturing
11/14/96, with a value of
$1,267,996 8,500,000 -- 8,500,000 8,500,000 -- 8,500,000
-----------------------------------------
Total Investments, at Value
(Cost $196,548,402, $25,529,797,
Combined $222,078,199) 97.2% 97.5% 97.3% 205,386,016 27,427,014
232,813,030
Other Assets Net of Liabilities 2.8 2.5 2.7 5,845,754 709,428 6,555,182
--------------------------------- -----------------------------------------
Net Assets 100.0% 100.0% 100.0% $211,231,770 $28,136,442 $239,368,212
=================================
=========================================
</TABLE>
1. Principal amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollar IDR - Indonesian Rupiah
CAD - Canadian Dollar IEP - Irish Punt
DEM - German Deutsche Mark ITL - Italian Lira
DKK - Danish Krone NOK - Norwegian Krone
ESP - Spanish Peseta NZD - New Zealand Dollar
FRF - French Franc PTE - Portuguese Escudo
GBP - British Pound Sterling SEK - Swedish Krone
HUF - Hungarian Forint THB - Thai Baht
2. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign currency.
3. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
4. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of
these securities is typically more sensitive to changes in prepayment
rates than traditional mortgage-backed securities (for example, GNMA
pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
5. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $7,087,486 or 3.36% (Combined
2.96%) of the Fund's net assets, at December 31, 1995.
6. Represents the current interest rate for a variable rate security.
7. Identifies issues considered to be illiquid.
8. Denotes a step bond: a zero coupon bond that converts to a fixed rate
of interest at a designated future date. 9. Units may be comprised of
several components, such as debt and equity and/or warrants to purchase
equity at some point in the future. For units which represent debt
securities, principal amount disclosed represents total underlying
principal.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES December 31, 1995 (Unaudited)
Oppenheimer Growth Fund and JP Capital Appreciation Fund, Inc.
OPPENHEIMER JP CAPITAL COMBINED
GROWTH APPRECIATION OPPENHEIMER
FUND FUND, INC. GROWTH FUND
-----------------------------------------------
ASSETS:
<S> <C> <C> <C>
Investments, at value (cost * ) (including repurchase
agreements **) $117,817,530 $72,620,683 $190,438,213
Cash 49,380 234,191 283,571
Receivables:
Dividends and interest 106,959 101,730 208,689
Shares of beneficial interest sold 364,845 73,582 438,427
Investments sold 595,258 -- 595,258
Other 5,982 -- 5,982
-----------------------------------------------
Total assets 118,939,954 73,030,186 191,970,140
-----------------------------------------------
LIABILITIES:
Payables and other liabilities:
Investments purchased 970,555 1,354,110 2,324,665
Shares of beneficial interest redeemed 231,518 -- 231,518
Other 27,991 74,577 102,568
-----------------------------------------------
Total liabilities 1,230,064 1,428,687 2,658,751
-----------------------------------------------
NET ASSETS $117,709,890 $71,601,499 $189,311,389
===============================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 4,997,725 3,776,774 8,038,128
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $23.55 $18.96 $23.55
*Cost $94,199,607 $57,777,456 $151,977,063
**Repurchase Agreements $23,470,000 -- $23,470,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1996 (UNAUDITED)
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION
FUND, INC.
OPPENHEIMER JP CAPITAL COMBINED
GROWTH APPRECIATION OPPENHEIMER
FUND FUND GROWTH FUND
---------------------------------------------------
ASSETS:
<S> <C> <C> <C>
Investments, at value (cost * ) (including
repurchase agreements **) $144,789,612 $81,477,225 $226,266,837
Cash 231,093 446,968 678,061
Receivables:
Dividends and interest 92,377 67,442 159,819
Shares of beneficial interest sold 188,713 45,793 234,506
Investments sold 1,096,302 - 1,096,302
Other 3,708 - 3,708
----------------------------------------------------
Total assets 146,401,805 82,037,428 228,439,233
----------------------------------------------------
Payables and other liabilities:
Investments purchased 1,655,939 227,597 1,883,536
Shares of beneficial interest redeemed 644 - 644
Custodian fees 3,287 - 3,287
Other 19,727 58,331 78,058
----------------------------------------------------
Total liabilities 1,679,597 285,928 1,965,525
----------------------------------------------------
NET ASSETS $144,722,208 $81,751,500 $226,473,708
====================================================
COMPOSITION OF NET ASSETS:
Paid-in capital $107,561,054 $59,440,744 $167,001,798
Undistributed net investment income 684,501 841,453 1,525,954
Accumulated net realized gain from investments
and foreign currency transactions 5,825,003 5,602,586 11,427,589
Net unrealized appreciation on investments and
translation of assets and liabilities
denominated in foreign currencies 30,651,650 15,866,717 46,518,367
----------------------------------------------------
NET ASSETS $144,722,208 $81,751,500 $226,473,708
====================================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING 5,972,737 4,205,324 9,346,716
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE $24.23 $19.44 $24.23
*Cost $114,137,962 $65,610,508 $179,748,470
**Repurchase agreements $17,400,000 - $17,400,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1996
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION
FUND, INC.
OPPENHEIMER JP CAPITAL COMBINED
GROWTH APPRECIATION PROFORMA OPPENHEIMER
FUND FUND ADJUSTMENTS GROWTH FUND
----------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest $ 619,167 $ 286,477 $ - $ 905,644
Dividends 593,891 778,721 - 1,372,612
----------------------------------------------------------------------
Total income 1,213,058 1,065,198 - 2,278,256
----------------------------------------------------------------------
EXPENSES:
Management fees 488,805 190,021 175,000 853,826
Custodian fees and expenses 5,212 14,182 (14,182) 5,212
Legal and auditing fees 5,513 12,900 (12,900) 5,513
Insurance expenses 2,251 - - 2,251
Trustees' fees and expenses 1,103 2,490 (2,490) 1,103
Registration and filing fees 5,888 9,150 - 15,038
Other 229 663 - 892
----------------------------------------------------------------------
Total expenses 509,001 229,406 145,428 883,835
----------------------------------------------------------------------
Less reimbursement - (8,982) 8,982 -
----------------------------------------------------------------------
Net expenses 509,001 220,424 154,410 883,835
----------------------------------------------------------------------
NET INVESTMENT INCOME 704,057 844,774 (154,410) 1,394,421
----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN:
Net realized gain from investments 5,982,807 5,612,860 - 11,595,667
Net change in unrealized appreciation or
depreciation on investments 7,033,727 1,023,490 - 8,057,217
----------------------------------------------------------------------
Net realized and unrealized gain 13,016,534 6,636,350 - 19,652,884
----------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $13,720,591 $7,481,124 ($154,410) $21,047,305
==========================================================
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS JUNE 30, 1996 (UNAUDITED)
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION
FUND, INC.
PRINCIPAL AMOUNT MARKET VALUE (NOTE 1)
-------------------------------------- ------------------------------------------
OPPENHEIMER JP CAPITAL PRO FORMA OPPENHEIMER JP CAPITAL
PRO FORMA
GROWTH APPRECIATION COMBINED GROWTH APPRECIATION
COMBINED
==========================================================
==========================================================
================
COMMON STOCKS - 80.0%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS -4.4%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS -3.7%
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
FMC Corp. (1) $ 8,200 $ - $ 8,200 $ 535,050 $ $ 535,050
----------------------------------------------------------------------------------------------------------------------------
Imperial Chemical Industries, Inc. - 22,000 22,000 - 1,080,750 1,080,750
----------------------------------------------------------------------------------------------------------------------------
IMC Global, Inc. 19,000 - 19,000 714,875 - 714,875
----------------------------------------------------------------------------------------------------------------------------
Monsanto Company - 51,500 51,500 - 1,673,750 1,673,750
----------------------------------------------------------------------------------------------------------------------------
Morton International, Inc. 29,000 - 29,000 1,080,250 - 1,080,250
----------------------------------------------------------------------------------------------------------------------------
PPG Industries, Inc. 3,200 - 3,200 156,000 - 156,000
----------------------------------------------------------------------------------------------------------------------------
Praxair, Inc. 31,600 - 31,600 1,335,100 - 1,335,100
----------------------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (1) 31,600 - 31,600 367,350 - 367,350
----------------------------------------------------------------------------------------------------------------------------
Terra Industries, Inc. 51,000 - 51,000 631,125 - 631,125
----------------------------------------------------------------------------------------------------------------------------
Union Carbide Corp. 19,000 - 19,000 755,250 - 755,250
------------------------------------------
5,575,000 2,754,500 8,329,500
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER -0.7%
----------------------------------------------------------------------------------------------------------------------------
Boise Cascade Corp. 12,000 - 12,000 439,500 - 439,500
----------------------------------------------------------------------------------------------------------------------------
Bowater, Inc. 14,000 - 14,000 526,750 - 526,750
----------------------------------------------------------------------------------------------------------------------------
Sonoco Products Company - 8,400 8,400 - 238,350 238,350
----------------------------------------------------------------------------------------------------------------------------
Willamette Industries, Inc. 6,000 - 6,000 357,000 - 357,000
------------------------------------------
1,323,250 238,350 1,561,600
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS - 9.7%
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING - 0.8%
----------------------------------------------------------------------------------------------------------------------------
AutoZone, Inc. (1) 12,000 - 12,000 417,000 - 417,000
----------------------------------------------------------------------------------------------------------------------------
Pulte Corp. 22,000 - 22,000 588,500 - 588,500
----------------------------------------------------------------------------------------------------------------------------
Toll Brothers, Inc. (1) 46,000 - 46,000 753,250 - 753,250
------------------------------------------
1,758,750 - 1,758,750
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 2.8%
----------------------------------------------------------------------------------------------------------------------------
Alaska Air Group, Inc. (1) 25,000 - 25,000 684,375 - 684,375
----------------------------------------------------------------------------------------------------------------------------
AMR Corp. 5,000 - 5,000 455,000 - 455,000
----------------------------------------------------------------------------------------------------------------------------
Callaway Golf Co. 25,000 - 25,000 831,250 - 831,250
----------------------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc. 8,000 - 8,000 664,000 - 664,000
----------------------------------------------------------------------------------------------------------------------------
Disney (Walt) Co. 25,000 - 25,000 1,571,875 - 1,571,875
----------------------------------------------------------------------------------------------------------------------------
ITT Corp. (New) (1) 5,000 - 5,000 331,250 - 331,250
----------------------------------------------------------------------------------------------------------------------------
McDonald's Corp. 11,000 - 11,000 514,250 - 514,250
----------------------------------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. (1) 20,000 - 20,000 689,687 - 689,687
----------------------------------------------------------------------------------------------------------------------------
Wendy's International, Inc. 35,800 - 35,800 666,775 - 666,775
------------------------------------------
6,408,462 - 6,408,462
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.2%
----------------------------------------------------------------------------------------------------------------------------
US West Media Group (1) - 13,400 13,400 - 244,550 244,550
----------------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B (1) 3,667 - 3,667 142,555 - 142,555
------------------------------------------
142,555 244,550 387,105
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL - 3.8%
----------------------------------------------------------------------------------------------------------------------------
Consolidated Stores Corporation (1) - 20,000 20,000 - 735,000 735,000
----------------------------------------------------------------------------------------------------------------------------
Donna Karan International, Inc. 40,100 - 40,100 1,122,800 - 1,122,800
----------------------------------------------------------------------------------------------------------------------------
Eckerd Corp. (1) 44,000 33,000 77,000 995,500 746,625 1,742,125
----------------------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc. - 24,000 24,000 - 819,000 819,000
----------------------------------------------------------------------------------------------------------------------------
Jones Apparel Group, Inc. (1) 19,100 - 19,100 938,287 - 938,287
----------------------------------------------------------------------------------------------------------------------------
Liz Claiborne, Inc. 11,000 - 11,000 380,875 - 380,875
----------------------------------------------------------------------------------------------------------------------------
Nautica Enterprises, Inc. (1) 20,000 - 20,000 575,000 - 575,000
----------------------------------------------------------------------------------------------------------------------------
Thrifty Payless Holdings, Inc. - 20,000 20,000 - 345,000 345,000
----------------------------------------------------------------------------------------------------------------------------
Tommy Hilfiger Corp. (1) 20,800 - 20,800 1,115,400 - 1,115,400
----------------------------------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 37,000 - 37,000 938,875 - 938,875
------------------------------------------
6,066,737 2,645,625 8,712,362
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY - 2.1%
----------------------------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. (1) 18,000 - 18,000 481,500 - 481,500
----------------------------------------------------------------------------------------------------------------------------
Borders Group Inc. (1) - 43,500 43,500 - 1,402,875 1,402,875
----------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The) 20,000 - 20,000 642,500 - 642,500
----------------------------------------------------------------------------------------------------------------------------
General Nutrition Cos., Inc. (1) 18,400 - 18,400 322,000 - 322,000
----------------------------------------------------------------------------------------------------------------------------
Home Depot, Inc. 22,000 - 22,000 1,188,000 - 1,188,000
----------------------------------------------------------------------------------------------------------------------------
Lands' End, Inc. (1) 28,000 - 28,000 693,000 - 693,000
------------------------------------------
3,327,000 1,402,875 4,729,875
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS -16.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 1.0%
----------------------------------------------------------------------------------------------------------------------------
Boston Beer Co., Inc., Cl. A (1) 13,000 - 13,000 312,000 - 312,000
----------------------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The) 22,000 - 22,000 1,075,250 - 1,075,250
----------------------------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 20,000 - 20,000 707,500 - 707,500
----------------------------------------------------------------------------------------------------------------------------
Whitman Corp. 5,000 - 5,000 120,625 - 120,625
------------------------------------------
2,215,375 - 2,215,375
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD - 2.4%
----------------------------------------------------------------------------------------------------------------------------
Casey's General Stores, Inc. 13,000 - 13,000 258,375 - 258,375
----------------------------------------------------------------------------------------------------------------------------
H.J. Heinz Co. 15,000 - 15,000 455,625 - 455,625
----------------------------------------------------------------------------------------------------------------------------
JP Foodservice, Inc. (1) 25,600 - 25,600 640,000 - 640,000
----------------------------------------------------------------------------------------------------------------------------
Kroger Co. (1) 25,000 - 25,000 987,500 - 987,500
----------------------------------------------------------------------------------------------------------------------------
Richfood Holdings, Inc. 16,000 - 16,000 520,000 - 520,000
----------------------------------------------------------------------------------------------------------------------------
Safeway, Inc. (1) 32,000 - 32,000 1,056,000 - 1,056,000
----------------------------------------------------------------------------------------------------------------------------
Sara Lee Corporation - 45,000 45,000 - 1,456,875 1,456,875
------------------------------------------
3,917,500 1,456,875 5,374,375
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS - 5.6%
----------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 17,000 - 17,000 739,500 - 739,500
----------------------------------------------------------------------------------------------------------------------------
Amgen, Inc. (1) 8,000 - 8,000 432,000 - 432,000
----------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 6,500 - 6,500 585,000 - 585,000
----------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson 28,516 27,000 55,516 1,411,542 1,336,500 2,748,042
----------------------------------------------------------------------------------------------------------------------------
Lilly (Eli) & Company - 20,090 20,090 - 1,305,850 1,305,850
----------------------------------------------------------------------------------------------------------------------------
Merck & Company, Inc. - 9,000 9,000 - 581,625 581,625
----------------------------------------------------------------------------------------------------------------------------
Pfizer, Inc. 26,500 - 26,500 1,891,437 - 1,891,437
----------------------------------------------------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. - 27,000 27,000 - 1,198,125 1,198,125
----------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 16,000 25,400 41,400 1,004,000 1,593,850 2,597,850
----------------------------------------------------------------------------------------------------------------------------
Warner-Lambert Co. 10,000 - 10,000 550,000 - 550,000
------------------------------------------
6,613,479 6,015,950 12,629,429
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES - 5.5%
----------------------------------------------------------------------------------------------------------------------------
Alliance Pharmaceutical Corporation (1) - 12,100 12,100 - 198,138 198,138
----------------------------------------------------------------------------------------------------------------------------
Baxter International - 10,000 10,000 - 472,500 472,500
----------------------------------------------------------------------------------------------------------------------------
Boston Scientific Corp. (1) 21,000 - 21,000 945,000 - 945,000
----------------------------------------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 8,000 26,600 34,600 427,000 1,419,775 1,846,775
----------------------------------------------------------------------------------------------------------------------------
Guidant Corporation - 9,916 9,916 - 488,363 488,363
----------------------------------------------------------------------------------------------------------------------------
HealthCare COMPARE Corp. (1) 20,000 - 20,000 975,000 - 975,000
----------------------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp. (1) 17,000 - 17,000 612,000 - 612,000
----------------------------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc. (1) 21,000 - 21,000 824,250 - 824,250
----------------------------------------------------------------------------------------------------------------------------
Medtronic, Inc. 26,000 - 26,000 1,456,000 - 1,456,000
----------------------------------------------------------------------------------------------------------------------------
Nellcor Puritan Bennett, Inc. (1) 15,800 - 15,800 766,300 - 766,300
----------------------------------------------------------------------------------------------------------------------------
Oxford Health Plans, Inc. (1) 16,000 - 16,000 658,000 - 658,000
----------------------------------------------------------------------------------------------------------------------------
Sofamor Danek Group, Inc. (1) 17,000 - 17,000 471,750 - 471,750
----------------------------------------------------------------------------------------------------------------------------
St. Jude Medical, Inc. (1) - 20,000 20,000 - 665,000 665,000
----------------------------------------------------------------------------------------------------------------------------
Vencor, Inc. (1) - 48,000 48,000 - 1,464,000 1,464,000
----------------------------------------------------------------------------------------------------------------------------
Ventritex, Inc. (1) 18,000 - 18,000 308,250 - 308,250
----------------------------------------------------------------------------------------------------------------------------
VISX, Inc. (1) 11,000 - 11,000 375,375 - 375,375
------------------------------------------
7,818,925 4,707,776 12,526,701
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Co. 11,000 - 11,000 996,875 - 996,875
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 2.0%
----------------------------------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc. 15,000 14,000 29,000 1,560,000 1,456,000 3,016,000
----------------------------------------------------------------------------------------------------------------------------
UST, Inc. 41,000 - 41,000 1,404,250 - 1,404,250
------------------------------------------
2,964,250 1,456,000 4,420,250
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY -4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS - 0.8%
----------------------------------------------------------------------------------------------------------------------------
Global Marine, Inc. (1) 27,000 - 27,000 374,625 - 374,625
----------------------------------------------------------------------------------------------------------------------------
Questar Corporation - 14,000 14,000 - 476,000 476,000
----------------------------------------------------------------------------------------------------------------------------
Sonat Offshore Drilling, Inc. 18,000 - 18,000 909,000 - 909,000
------------------------------------------
1,283,625 476,000 1,759,625
- ------------------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED - 3.4%
----------------------------------------------------------------------------------------------------------------------------
Amerada Hess Corporation - 15,500 15,500 - 831,187 831,187
----------------------------------------------------------------------------------------------------------------------------
Amoco Corporation - 15,600 15,600 - 1,129,050 1,129,050
----------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Company - 13,600 13,600 - 1,611,600 1,611,600
----------------------------------------------------------------------------------------------------------------------------
Mobil Corp. 6,000 12,100 18,100 672,750 1,356,713 2,029,463
----------------------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 3,500 10,500 14,000 538,125 1,614,375 2,152,500
------------------------------------------
1,210,875 6,542,925 7,753,800
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 15.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS -4.6%
----------------------------------------------------------------------------------------------------------------------------
Bank of Boston Corp. 23,000 - 23,000 1,138,500 - 1,138,500
----------------------------------------------------------------------------------------------------------------------------
Bank of New York Company, Inc. - 19,400 19,400 - 994,250 994,250
----------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp. 7,500 - 7,500 568,125 - 568,125
----------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 15,240 10,400 25,640 1,076,325 734,500 1,810,825
----------------------------------------------------------------------------------------------------------------------------
Citicorp - 20,600 20,600 - 1,702,075 1,702,075
----------------------------------------------------------------------------------------------------------------------------
Mellon Bank Corp - 18,000 18,000 - 1,026,000 1,026,000
----------------------------------------------------------------------------------------------------------------------------
NationsBank Corp. 10,000 - 10,000 826,250 - 826,250
----------------------------------------------------------------------------------------------------------------------------
PNC Bank Corp. 24,600 - 24,600 731,850 - 731,850
----------------------------------------------------------------------------------------------------------------------------
State Street Boston Corp. 18,600 - 18,600 948,600 - 948,600
----------------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 3,166 - 3,166 756,278 - 756,278
------------------------------------------
6,045,928 4,456,825 10,502,753
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL - 6.9%
----------------------------------------------------------------------------------------------------------------------------
Advanta Corp., Cl. A 15,000 - 15,000 765,000 - 765,000
----------------------------------------------------------------------------------------------------------------------------
Associates First Capital Corp.,
Cl. A (1) 15,000 - 15,000 564,375 - 564,375
----------------------------------------------------------------------------------------------------------------------------
Countrywide Credit Industries Inc. - 68,000 68,000 - 1,683,000 1,683,000
----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 8,000 8,000 16,000 684,000 684,000 1,368,000
----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. 32,000 - 32,000 1,072,000 - 1,072,000
----------------------------------------------------------------------------------------------------------------------------
First USA, Inc. 25,000 18,000 43,000 1,375,000 990,000 2,365,000
---------------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 23,000 - 23,000 1,403,000 - 1,403,000
----------------------------------------------------------------------------------------------------------------------------
Green Tree Financial Corp. 56,000 - 56,000 1,750,000 - 1,750,000
----------------------------------------------------------------------------------------------------------------------------
Price (T. Rowe) Associates 43,200 - 43,200 1,328,400 - 1,328,400
----------------------------------------------------------------------------------------------------------------------------
Salomon, Inc. 18,000 - 18,000 792,000 - 792,000
----------------------------------------------------------------------------------------------------------------------------
Schwab (Charles) Corp. (New) 29,000 - 29,000 710,500 - 710,500
----------------------------------------------------------------------------------------------------------------------------
Travelers Group, Inc. 40,500 - 40,500 1,847,812 - 1,847,812
------------------------------------------
12,292,087 3,357,000 15,649,087
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE -4.4%
----------------------------------------------------------------------------------------------------------------------------
AFLAC Inc. - 26,400 26,400 - 788,700 788,700
----------------------------------------------------------------------------------------------------------------------------
Aetna Life & Casualty Company - 20,000 20,000 - 1,430,000 1,430,000
----------------------------------------------------------------------------------------------------------------------------
Allstate Corp. 20,000 20,500 40,500 912,500 935,312 1,847,812
----------------------------------------------------------------------------------------------------------------------------
Amerin Corp. (1) 18,500 - 18,500 494,875 - 494,875
----------------------------------------------------------------------------------------------------------------------------
CIGNA Corporation - 10,600 10,600 - 1,249,475 1,249,475
----------------------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. - 25,500 25,500 - 659,813 659,813
----------------------------------------------------------------------------------------------------------------------------
IPC Holdings, Ltd. - 6,000 6,000 - 120,750 120,750
----------------------------------------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 5,000 - 5,000 266,250 - 266,250
----------------------------------------------------------------------------------------------------------------------------
Loews Corp. 11,000 - 11,000 867,625 - 867,625
----------------------------------------------------------------------------------------------------------------------------
MGIC Investment Corp. 14,100 - 14,100 791,363 - 791,363
----------------------------------------------------------------------------------------------------------------------------
SunAmerica, Inc. 24,000 - 24,000 1,356,000 - 1,356,000
------------------------------------------
4,688,613 5,184,050 9,872,663
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL -6.6%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.1%
----------------------------------------------------------------------------------------------------------------------------
Emerson Electric Co. 16,500 - 16,500 1,491,188 - 1,491,188
----------------------------------------------------------------------------------------------------------------------------
General Electric Co. 9,000 25,000 34,000 778,500 2,162,500 2,941,000
----------------------------------------------------------------------------------------------------------------------------
Kemet Corp. (1) 20,000 - 20,000 400,000 - 400,000
------------------------------------------
2,669,688 2,162,500 4,832,188
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS - 1.4%
----------------------------------------------------------------------------------------------------------------------------
Centex Corp. 21,000 - 21,000 653,625 - 653,625
----------------------------------------------------------------------------------------------------------------------------
Fluor Corp. 6,000 - 6,000 392,250 - 392,250
----------------------------------------------------------------------------------------------------------------------------
Rayonier, Inc. 23,400 - 23,400 889,200 - 889,200
----------------------------------------------------------------------------------------------------------------------------
WMX Technologies - 30,000 30,000 - 982,500 982,500
----------------------------------------------------------------------------------------------------------------------------
Wolverine Tube, Inc. (1) 5,000 - 5,000 175,000 - 175,000
------------------------------------------
2,110,075 982,500 3,092,575
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES - 0.8%
----------------------------------------------------------------------------------------------------------------------------
Danka Business Systems PLC,
Sponsored ADR 13,000 - 13,000 380,250 - 380,250
----------------------------------------------------------------------------------------------------------------------------
DecisionOne Holdings Corp. (1) 23,600 - 23,600 560,500 - 560,500
----------------------------------------------------------------------------------------------------------------------------
Kelly Services - 12,000 12,000 - 351,000 351,000
----------------------------------------------------------------------------------------------------------------------------
Manpower, Inc. 12,500 - 12,500 490,625 - 490,625
------------------------------------------
1,431,375 351,000 1,782,375
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING -0.8%
----------------------------------------------------------------------------------------------------------------------------
AGCO Corp. 19,200 - 19,200 532,800 - 532,800
----------------------------------------------------------------------------------------------------------------------------
AlliedSignal - 14,000 14,000 - 799,750 799,750
----------------------------------------------------------------------------------------------------------------------------
ITT Industries, Inc. 3,000 - 3,000 75,375 - 75,375
----------------------------------------------------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. (1) 33,000 - 33,000 482,625 - 482,625
------------------------------------------
1,090,800 799,750 1,890,550
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 1.5%
----------------------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 7,000 - 7,000 566,125 - 566,125
----------------------------------------------------------------------------------------------------------------------------
Canadian Pacific Ltd. 62,000 - 62,000 1,364,000 - 1,364,000
----------------------------------------------------------------------------------------------------------------------------
CSX Corporation - 14,000 14,000 - 675,500 675,500
----------------------------------------------------------------------------------------------------------------------------
Federal Express Corporation (1) - 4,400 4,400 - 360,800 360,800
----------------------------------------------------------------------------------------------------------------------------
Illinois Central Corp. 15,000 - 15,000 425,625 - 425,625
------------------------------------------
2,355,750 1,036,300 3,392,050
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - 17.6%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Goodrich (B.F.) Co. 24,000 - 24,000 897,000 - 897,000
----------------------------------------------------------------------------------------------------------------------------
Lockheed-Martin Corporation - 9,300 9,300 - 781,200 781,200
------------------------------------------
897,000 781,200 1,678,200
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE - 2.2%
----------------------------------------------------------------------------------------------------------------------------
Adaptec, Inc. (1) 12,000 - 12,000 568,500 - 568,500
----------------------------------------------------------------------------------------------------------------------------
Cabletron Systems, Inc. (1) 15,000 - 15,000 1,029,375 - 1,029,375
----------------------------------------------------------------------------------------------------------------------------
Compaq Computer Corp. (1) 16,000 - 16,000 788,000 - 788,000
----------------------------------------------------------------------------------------------------------------------------
EMC Corp. (1) 36,000 - 36,000 670,500 - 670,500
----------------------------------------------------------------------------------------------------------------------------
Gateway 2000, Inc. (1) 30,800 - 30,800 1,047,200 - 1,047,200
----------------------------------------------------------------------------------------------------------------------------
Seagate Technology, Inc. (1) 19,000 - 19,000 855,000 - 855,000
------------------------------------------
4,958,575 - 4,958,575
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE - 6.9%
----------------------------------------------------------------------------------------------------------------------------
Automatic Data Processing, Inc. 20,000 - 20,000 772,500 - 772,500
----------------------------------------------------------------------------------------------------------------------------
BMC Software, Inc. (1) 22,000 - 22,000 1,314,500 - 1,314,500
----------------------------------------------------------------------------------------------------------------------------
Computer Associates International,
Inc. 6,000 - 6,000 427,500 - 427,500
----------------------------------------------------------------------------------------------------------------------------
First Data Corp. 29,000 - 29,000 2,309,125 - 2,309,125
----------------------------------------------------------------------------------------------------------------------------
Informix Corp. (1) 35,000 - 35,000 787,500 - 787,500
----------------------------------------------------------------------------------------------------------------------------
Microsoft Corp. (1) 33,000 - 33,000 3,964,125 - 3,964,125
----------------------------------------------------------------------------------------------------------------------------
Oracle Corp. (1) 45,400 - 45,400 1,790,463 - 1,790,463
----------------------------------------------------------------------------------------------------------------------------
PLATINUM Technology, Inc. (1) 33,000 - 33,000 499,125 - 499,125
----------------------------------------------------------------------------------------------------------------------------
Sterling Software, Inc. (1) 11,000 - 11,000 847,000 - 847,000
----------------------------------------------------------------------------------------------------------------------------
SunGard Data Systems, Inc. (1) - 23,000 23,000 - 920,000 920,000
----------------------------------------------------------------------------------------------------------------------------
System Software Associates, Inc. 27,500 - 27,500 467,500 - 467,500
----------------------------------------------------------------------------------------------------------------------------
Xerox Corporation - 30,000 30,000 - 1,605,000 1,605,000
------------------------------------------
13,179,338 2,525,000 15,704,338
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 3.1%
----------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. (1) 32,000 - 32,000 976,000 - 976,000
----------------------------------------------------------------------------------------------------------------------------
Arrow Electronics, Inc. (1) 8,000 - 8,000 345,000 - 345,000
----------------------------------------------------------------------------------------------------------------------------
Atmel Corporation - 15,000 15,000 - 451,875 451,875
---------------------------------------------------------------------------------------------------------------------------
Cypress Semiconductor Corp. (1) 55,000 - 55,000 660,000 - 660,000
----------------------------------------------------------------------------------------------------------------------------
Intel Corp. 26,000 - 26,000 1,909,375 - 1,909,375
----------------------------------------------------------------------------------------------------------------------------
LSI Logic Corp. (1) 16,000 - 16,000 416,000 - 416,000
----------------------------------------------------------------------------------------------------------------------------
Motorola, Inc. 10,000 - 10,000 628,750 - 628,750
----------------------------------------------------------------------------------------------------------------------------
Novellus Systems, Inc. (1) 8,200 - 8,200 295,200 - 295,200
----------------------------------------------------------------------------------------------------------------------------
Philips Electronics NV, ADR 11,000 - 11,000 358,875 - 358,875
----------------------------------------------------------------------------------------------------------------------------
Tegal Corp. (1) 15,000 - 15,000 108,750 - 108,750
----------------------------------------------------------------------------------------------------------------------------
Varian Associaties, Inc. - 15,300 15,300 - 791,775 791,775
------------------------------------------
5,697,950 1,243,650 6,941,600
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-TECHNOLOGY - 4.7%
----------------------------------------------------------------------------------------------------------------------------
3Com Corp. (1) 3,000 - 3,000 137,250 - 137,250
----------------------------------------------------------------------------------------------------------------------------
360 Communications Company (1) - 8,833 8,833 - 211,992 211,992
----------------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (1) 23,000 - 23,000 1,302,375 - 1,302,375
----------------------------------------------------------------------------------------------------------------------------
DSC Communicatinos Corportaion (1) - 25,000 25,000 - 750,000 750,000
----------------------------------------------------------------------------------------------------------------------------
Hong Kong Telecommunications
Ltd., Sponsored ADR 21,000 - 21,000 378,000 - 378,000
----------------------------------------------------------------------------------------------------------------------------
L.M. Ericsson Telephone Co.,
Cl. B, ADR 42,000 - 42,000 903,000 - 903,000
----------------------------------------------------------------------------------------------------------------------------
Loral Space & Communications, Ltd. (1) - 16,000 16,000 - 218,000 218,000
----------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. (1) 6,200 33,000 39,200 234,825 1,249,875 1,484,700
----------------------------------------------------------------------------------------------------------------------------
Newbridge Networks Corp. (1) 23,000 - 23,000 1,506,500 - 1,506,500
----------------------------------------------------------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd.,
Sponsored ADR 7,000 - 7,000 467,250 - 467,250
----------------------------------------------------------------------------------------------------------------------------
Tellabs, Inc. (1) 19,800 29,500 49,300 1,324,125 1,969,125 3,293,250
------------------------------------------
6,253,325 4,398,992 10,652,317
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES -4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTLITIES - 2.2%
----------------------------------------------------------------------------------------------------------------------------
American Electric Power Company,
Inc. - 11,550 11,550 - 492,319 492,319
----------------------------------------------------------------------------------------------------------------------------
CMS Energy Corporation - 16,200 16,200 - 500,175 500,175
----------------------------------------------------------------------------------------------------------------------------
Carolina Power & Light Company - 6,700 6,700 - 254,600 254,600
----------------------------------------------------------------------------------------------------------------------------
CINergy Corporation - 22,800 22,800 - 729,600 729,600
----------------------------------------------------------------------------------------------------------------------------
Consolidated Edison Company of
NY Inc. - 9,900 9,900 - 289,575 289,575
----------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc. - 7,650 7,650 - 306,000 306,000
----------------------------------------------------------------------------------------------------------------------------
Entergy Corporation - 19,800 19,800 - 61,825 561,825
----------------------------------------------------------------------------------------------------------------------------
FPL Group, Inc. - 13,600 13,600 - 625,600 625,600
----------------------------------------------------------------------------------------------------------------------------
Illinova Corporation - 15,900 15,900 - 457,125 457,125
----------------------------------------------------------------------------------------------------------------------------
Northeast Utilities - 14,500 14,500 - 193,937 193,937
----------------------------------------------------------------------------------------------------------------------------
PECO Energy Company - 8,300 8,300 - 215,800 215,800
----------------------------------------------------------------------------------------------------------------------------
Public Service Enterprise Group,
Inc. - 12,550 12,550 - 343,556 343,556
------------------------------------------
- 4,970,112 4,970,112
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES -2.4%
----------------------------------------------------------------------------------------------------------------------------
Bell Atlantic Corporation - 6,300 6,300 - 401,625 401,625
----------------------------------------------------------------------------------------------------------------------------
BellSouth Corp. 3,000 12,600 15,600 127,125 533,925 661,050
----------------------------------------------------------------------------------------------------------------------------
Century Telephone Enterprises, Inc. - 14,000 14,000 - 446,250 446,250
----------------------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc. 13,800 - 13,800 719,325 - 719,325
----------------------------------------------------------------------------------------------------------------------------
Fromtier Corporation - 43,000 43,000 - 1,316,875 1,316,875
----------------------------------------------------------------------------------------------------------------------------
SBC Communications Inc. - 6,400 6,400 - 315,200 315,200
----------------------------------------------------------------------------------------------------------------------------
Sprint Corporation - 26,500 26,500 - 1,113,000 1,113,000
----------------------------------------------------------------------------------------------------------------------------
US West Communications Group - 13,400 13,400 - 427,125 427,125
------------------------------------------
846,450 4,554,000 5,400,450
- ------------------------------------------------------------------------------------------------------------------------------------
WATER UTILITIES - 0.1%
----------------------------------------------------------------------------------------------------------------------------
American Water Works Company, Inc. - 6,000 6,000 - 241,500 241,500
------------------------------------------
Total Common Stocks
(Cost $85,487,962, $49,158,263+,
Combined $134,646,225) 116,139,612 64,985,805 181,125,417
==========================================================
==========================================================
================
PREFERRED STOCKS - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.1%
----------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc. $2.125
Cum Pfd. Ser A - 3,000 3,000 - 132,375 132,375
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 0.6%
----------------------------------------------------------------------------------------------------------------------------
RJR Nabisco Holdings, Inc. Pfd. C - 220,000 220,000 - 1,430,000 1,430,000
------------------------------------------
Total Preferred Stocks
(Cost $1,523,200+) - 1,562,375 1,562,375
==========================================================
==========================================================
================
SHORT-TERM NOTES - 11.6%
----------------------------------------------------------------------------------------------------------------------------
American Express Credit
Corporation 7/03/96 - 500,000 500,000 - 499,780 499,780
----------------------------------------------------------------------------------------------------------------------------
American Express Credit
Corporation 7/03/96 - 2,000,000 2,000,000 - 1,999,123 1,999,123
----------------------------------------------------------------------------------------------------------------------------
Chevron Oil Finance Company
7/08/96 - 2,750,000 2,750,000 - 2,746,749 2,746,749
----------------------------------------------------------------------------------------------------------------------------
Exxon Asset Management Company
7/10/96 - 3,000,000 3,000,000 - 2,995,625 2,995,625
----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
5.27%, 7/1/96 11,250,000 - 11,250,000 11,250,000 - 11,250,000
----------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Company 7/17/96 - 2,500,000 2,500,000 - 2,493,672 2,493,672
----------------------------------------------------------------------------------------------------------------------------
General Electric Capital
Corporation 7/05/96 - 1,500,000 1,500,000 - 1,498,911 1,498,911
----------------------------------------------------------------------------------------------------------------------------
Hershey Foods Corporation 7/12/96 - 2,700,000 2,700,000 - 2,695,185 2,695,185
------------------------------------------
Total Short-Term Securities
(Cost $11,250,000, $14,929,145,
Combined $26,179,145) 11,250,000 14,929,045 26,179,045
==========================================================
==========================================================
================
REPURCHASE AGREEMENT - 7.7%
----------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Canadian
Imperial Bank of Commerce, 5.45%,
dated 6/28/96, to be repurchased at
$17,407,903 on 7/1/96,
collateralized by U.S. Treasury
Bonds, 9.125%-11.25%, 2/15/15-
5/11/18, with a value of $6,150,689,
and U.S. Treasury Nts., 5.25%-8.50%,
1/11/97-11/15/04, with a value of
$11,623,981 (Cost $17,400,000) 17,400,000 - 17,400,000 17,400,000 - 17,400,000
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $114,137,962, $65,610,508,
COMBINED $179,748,470) 100.0% 99.7% 100.0% 144,789,612 81,477,225
226,266,837
----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES/
LIABILITIES IN EXCESS OF OTHER
ASSETS 0.0 0.3 0.0 (67,404) 274,275 206,871
---------------------------------- ------------------------------------------
NET ASSETS 100.0% 100.0% 100.0% $144,722,208 $81,751,500
$226,473,708
==================================
==========================================
</TABLE>
1. Non-income producing security.
+ Aggregate cost for Federal income tax purposes is the same.
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to Article IV of Registrant's Declaration of Trust filed
as Exhibit 24(b)(1) to Registrant's Registration Statement and
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, 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
trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee,
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 16.Exhibits
(1)Sixth Restated Declaration of Trust dated February 28, 1995:
Filed with Registrant's Post-Effective Amendment No. 27, 4/27/95, and
incorporated herein by reference.
(2)By-Laws, amended as of 6/26/90; Previously filed with Registrant's
Post-Effective Amendment No. 25, 2/13/95, and incorporated herein by
reference.
(3) Not applicable.
(4) Agreement and Plan of Reorganization: See Exhibit A to Part A of
this Registration Statement.
(5)(i) Oppenheimer Growth Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 25, 4/29/94, and incorporated
herein by reference.
(ii) Oppenheimer Bond Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 24, 4/24/94, and incorporated
herein by reference.
(6)(i) Investment Advisory Agreement for Oppenheimer Growth Fund dated
9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and
incorporated herein by reference.
(ii) Investment Advisory Agreement for Oppenheimer Bond Fund dated 9/1/94:
Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated
herein by reference.
(7) Not applicable.
(8) Not applicable.
(9) 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, 3/12/93, refiled with Registrant's
Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
(10) Not Applicable.
11.(i) Opinion and Consent of Counsel, 3/14/85: Previously filed with
Registrant's Pre-Effective Amendment No. 1, 3/20/85, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102
of Regulation S-T, and incorporated hereinby reference.
(ii)Opinion and Consent of Counsel, 4/28/86: Previously filed with
Registrant's Post-Effective Amendment No. 5, 8/12/86, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102
of Regulation S-T, 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, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102
of Regulation S-T, 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, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95, pursuant to Item
102 of Regulation S-T, 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, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102
of Regulation S-T, and incorporated herein by reference.
(vi) Opinion and Consent of Counsel dated April 23, 1993: Previously filed
with Registrant's Post-EffectiveAmendment No. 22, 4/30/93, refiled with
Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102
of Regulation S-T, and incorporated herein by reference.
(vii) Opinion and Consent of Counsel dated April 18, 1995: Filed
herewith. Previously filed with Registrant's Post-Effective Amendment NO.
29, 4/22/96, and incorporated herein by reference.
(12) Tax Opinion Relating to the Reorganization: Draft Opinion filed
herewith.
(13) Not applicable.
(14) (i) Consent of Deloitte & Touche LLP: Filed herewith.
(ii) Consents of McGladrey & Pullen LLP: Filed herewith.
(15) Not applicable.
(16) Powers of Attorney and Certified Board Resolution: Power of Attorney
for Sam Freedman filed herewith; Powers of Attorney Previously filed
(Bridget A. Macaskill) with Registrant's Post-Effective Amendment NO. 29,
4/22/96, and incorporated herein by reference and (all other Trustees) and
Certified Board Resolution with Registrant's Post-Effective Amendment No.
19, 3/1/94, and incorporated herein by reference.
(17)(i) Declaration of Registrant under Rule 24f-2: Filed herewith.
(ii) Financial Data Schedules: Filed herewith
Item 17.Undertakings
(1) Not applicable.
(2) Not applicable.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the registrant, in the City of Denver and State
of Colorado on the 11th day of September, 1996.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By: /s/ Bridget A. Macaskill
----------------------------------
Bridget A. Macaskill, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ James C. Swain* Chairman of the
- ------------------ Board of Trustees September 11, 1996
James C. Swain
/s/ George C. Bowen* Chief Financial
- ------------------- and Accounting September 11, 1996
George C. Bowen Officer and
Treasurer
/s/ Bridget A. Macaskill* President (Principal Executive
- ----------------------- Officer)
Bridget A. Macaskill and Trustee September 11, 1996
/s/ Robert G. Avis* Trustee September 11, 1996
- ------------------
Robert G. Avis
/s/ William A. Baker* Trustee September 11, 1996
- --------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee September 11, 1996
- -----------------------
Charles Conrad, Jr.
/s/ Sam Freedman* Trustee September 11, 1996
- -----------------------
Sam Freedman
/s/ Raymond J. Kalinowski* Trustee September 11, 1996
- -------------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee September 11, 1996
- ------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee September 11, 1996
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee September 11, 1996
- ----------------
Ned M. Steel
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
</TABLE>
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
EXHIBIT INDEX
Exhibit Description
- ------- -----------
16(12) Tax Opinion Relating to the Reorganization
16(14)(i) Independent Auditors' Consent
16(14)(ii) Independent Auditors' Consent
16(16) Power of Attorney for Sam Freedman
16(17)(i) Declaration of Registrant under Rule 24f-2
16(17)(ii) Financial Data Schedules
[Letterhead of Sutherland, Asbill & Brennan]
As a condition to the closing of the Reorganization, Oppenheimer Fund and
JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the
effect that, based on the Reorganization Agreement, information given by
Jefferson-Pilot Corporation, certain representations and other
representations as such firm shall reasonably request, existing provisions
of the Code, Treasury Regulations issued thereunder, current Revenue
Rulings, Revenue Procedures and court decisions, for Federal income tax
purposes:
(a) The reorganization contemplated by the Reorganization Agreement will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code and JP Fund and Oppenheimer Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for shares
of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer of its
assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer
Fund and the assumption by Oppenheimer Fund of certain identified
liabilities of JP Fund (if any) and the subsequent distribution by JP Fund
of such shares to the shareholders of JP Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon the
exchange of the JP Fund shares solely for the shares of Oppenheimer Fund.
(Section 354)
(e) The basis of the shares of Oppenheimer Fund received by each JP Fund
shareholder pursuant to the reorganization will be the same as the
adjusted basis of that shareholder's JP Fund shares surrendered in
exchange therefor. (Section 358)
(f) The holding period of shares of Oppenheimer Fund to be received by
each JP Fund shareholder will include the shareholder's holding period for
the JP Fund shares surrendered in exchange therefor, provided such JP Fund
shares were held as capital assets on the Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund
will be the same as JP Fund's tax basis for the assets immediately prior
to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items of
JP Fund described in Section 381(c) of the Code, including the earnings
and profits, or deficit in earnings and profits, of JP Fund as of the date
of the transaction, subject to the conditions and limitations specified
in Sections 381, 382, 383 and 384 of the Code.
(j) No gain or loss will be recognized by the owners of variable contracts
issued by Jefferson-Pilot Life Insurance Company through the Variable
Account on the transfer of JP Fund's assets to Oppenheimer Fund in
exchange solely for the shares of beneficial interest of Oppenheimer Fund
and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any)
and the subsequent distribution by JP Fund of those shares to the Variable
Account.
MERGE\600JP.OPI
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Registration Statement of Oppenheimer Variable
Account Funds on Form N-14 of our report dated January 22, 1996 appearing
in the December 31, 1995 Annual Report of Oppenheimer Bond Fund and
Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable
Account Funds), included as part of the Statement of Additional
Information, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
- ------------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
September 12, 1996
[Letterhead of McGladrey & Pullen, LLP]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 11, 1996
on financial statements of JP Capital Appreciation Fund, Inc. referred
to therein in this Registration Statement on Form N-14.
We also consent to the reference to our firm in the Proxy
Statement under the caption "Ratification of Selection of Independent
Auditors", in the JP Capital Appreciation Fund, Inc. Prospectus and
Statement of Additional Information under the captions "Condensed
Financial Information", and "General Information", respectively.
/s/ McGladrey & Pullen, LLP
New York, New York
September 6, 1996
MERGE/600CON.MP
<PAGE>
[Letterhead of McGladrey & Pullen, LLP]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 11, 1996
on financial statements of JP Investment Grade Bond Fund, Inc. referred
to therein in this Registration Statement on Form N-14.
We also consent to the reference to our firm in the Proxy
Statement under the caption "Ratification of Selection of Independent
Auditors", in the JP Investment Grade Bond Fund, Inc. Prospectus and
Statement of Additional Information under the captions "Condensed
Financial Information", and "General Information", respectively.
/s/ McGladrey & Pullen, LLP
New York, New York
September 6, 1996
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, with full
power of substitution and resubstitution, 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 other documents in connection thereunder, and to file the
same, with all exhibits thereto, and other documents in connection
therewith, 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 she 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.
Dated this 27th day of June, 1996.
/s/ Sam Freedman
_________________________
Sam Freedman
[ARTICLE] 6
[CIK] 0000752737
[NAME] OPPENHEIMER GROWTH FUND
[SERIES]
[NUMBER] 3
[NAME] OPPENHEIMER VARIABLE ACCOUNT FUNDS
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 94199607
[INVESTMENTS-AT-VALUE] 117817530
[RECEIVABLES] 1067062
[ASSETS-OTHER] 5982
[OTHER-ITEMS-ASSETS] 49380
[TOTAL-ASSETS] 118939954
[PAYABLE-FOR-SECURITIES] 970555
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 259509
[TOTAL-LIABILITIES] 1230064
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 84252418
[SHARES-COMMON-STOCK] 4997725
[SHARES-COMMON-PRIOR] 3579510
[ACCUMULATED-NII-CURRENT] 1290629
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 8548920
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 23617923
[NET-ASSETS] 117709890
[DIVIDEND-INCOME] 992690
[INTEREST-INCOME] 1001964
[OTHER-INCOME] 0
[EXPENSES-NET] 696935
[NET-INVESTMENT-INCOME] 1297719
[REALIZED-GAINS-CURRENT] 8674291
[APPREC-INCREASE-CURRENT] 16396856
[NET-CHANGE-FROM-OPS] 26368866
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 821641
[DISTRIBUTIONS-OF-GAINS] 973385
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4302304
[NUMBER-OF-SHARES-REDEEMED] 2980080
[SHARES-REINVESTED] 95991
[NET-CHANGE-IN-ASSETS] 54426716
[ACCUMULATED-NII-PRIOR] 814551
[ACCUMULATED-GAINS-PRIOR] 848014
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 664977
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 696935
[AVERAGE-NET-ASSETS] 88803000
[PER-SHARE-NAV-BEGIN] 17.68
[PER-SHARE-NII] .25
[PER-SHARE-GAIN-APPREC] 6.10
[PER-SHARE-DIVIDEND] .22
[PER-SHARE-DISTRIBUTIONS] .26
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 23.55
[EXPENSE-RATIO] .79
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 752737
<NAME> Oppenheimer Growth Fund
<SERIES>
<NUMBER> 3
<NAME> Oppenheimer Variable Account Funds
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 114,137,962
<INVESTMENTS-AT-VALUE> 144,789,612
<RECEIVABLES> 1,377,392
<ASSETS-OTHER> 3,708
<OTHER-ITEMS-ASSETS> 231,093
<TOTAL-ASSETS> 146,401,805
<PAYABLE-FOR-SECURITIES> 1,655,939
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,658
<TOTAL-LIABILITIES> 1,679,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 107,561,054
<SHARES-COMMON-STOCK> 5,972,737
<SHARES-COMMON-PRIOR> 4,997,725
<ACCUMULATED-NII-CURRENT> 684,501
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,825,003
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,651,650
<NET-ASSETS> 144,722,208
<DIVIDEND-INCOME> 593,891
<INTEREST-INCOME> 619,167
<OTHER-INCOME> 0
<EXPENSES-NET> 509,001
<NET-INVESTMENT-INCOME> 704,057
<REALIZED-GAINS-CURRENT> 5,982,807
<APPREC-INCREASE-CURRENT> 7,033,727
<NET-CHANGE-FROM-OPS> 13,720,591
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,310,185
<DISTRIBUTIONS-OF-GAINS> 8,706,724
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,328,692
<NUMBER-OF-SHARES-REDEEMED> 1,783,960
<SHARES-REINVESTED> 430,280
<NET-CHANGE-IN-ASSETS> 27,012,318
<ACCUMULATED-NII-PRIOR> 1,290,629
<ACCUMULATED-GAINS-PRIOR> 8,548,920
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 488,805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509,001
<AVERAGE-NET-ASSETS> 131,211,000
<PER-SHARE-NAV-BEGIN> 23.55
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 2.49
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 1.67
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 24.23
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000752737
<NAME> OPPENHEIMER BOND FUND
<SERIES>
<NUMBER> 2
<NAME> OPPENHEIMER VARIABLE ACCOUNT FUNDS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 196548402
<INVESTMENTS-AT-VALUE> 205386016
<RECEIVABLES> 6303118
<ASSETS-OTHER> 7575
<OTHER-ITEMS-ASSETS> 475368
<TOTAL-ASSETS> 212172077
<PAYABLE-FOR-SECURITIES> 779747
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160560
<TOTAL-LIABILITIES> 940307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201057454
<SHARES-COMMON-STOCK> 17842418
<SHARES-COMMON-PRIOR> 12527081
<ACCUMULATED-NII-CURRENT> 1342481
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5361
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8826474
<NET-ASSETS> 211231770
<DIVIDEND-INCOME> 81190
<INTEREST-INCOME> 13096739
<OTHER-INCOME> 0
<EXPENSES-NET> 1364427
<NET-INVESTMENT-INCOME> 11813502
<REALIZED-GAINS-CURRENT> 1310131
<APPREC-INCREASE-CURRENT> 13318419
<NET-CHANGE-FROM-OPS> 26442052
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11209883
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7311733
<NUMBER-OF-SHARES-REDEEMED> 2972687
<SHARES-REINVESTED> 976291
<NET-CHANGE-IN-ASSETS> 76164386
<ACCUMULATED-NII-PRIOR> 1832232
<ACCUMULATED-GAINS-PRIOR> (2398141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1280422
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1364427
<AVERAGE-NET-ASSETS> 170929000
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .72
<PER-SHARE-GAIN-APPREC> 1.07
<PER-SHARE-DIVIDEND> .73
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.84
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 752737
<NAME> Oppenheimer Bond Fund
<SERIES>
<NUMBER> 2
<NAME> OPPENHEIMER VARIABLE ACCOUNT FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 310,870,304
<INVESTMENTS-AT-VALUE> 311,908,746
<RECEIVABLES> 6,642,854
<ASSETS-OTHER> 4,736
<OTHER-ITEMS-ASSETS> 77,997
<TOTAL-ASSETS> 318,634,333
<PAYABLE-FOR-SECURITIES> 759,038
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 258,395
<TOTAL-LIABILITIES> 1,017,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 315,750,262
<SHARES-COMMON-STOCK> 27,823,143
<SHARES-COMMON-PRIOR> 17,842,418
<ACCUMULATED-NII-CURRENT> 901,640
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (92,383)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,057,381
<NET-ASSETS> 317,616,900
<DIVIDEND-INCOME> 47,527
<INTEREST-INCOME> 8,882,639
<OTHER-INCOME> 0
<EXPENSES-NET> 920,357
<NET-INVESTMENT-INCOME> 8,009,809
<REALIZED-GAINS-CURRENT> 35,266
<APPREC-INCREASE-CURRENT> (7,769,093)
<NET-CHANGE-FROM-OPS> 275,982
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,450,650
<DISTRIBUTIONS-OF-GAINS> 133,010
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,641,027
<NUMBER-OF-SHARES-REDEEMED> 1,414,825
<SHARES-REINVESTED> 754,523
<NET-CHANGE-IN-ASSETS> 106,385,130
<ACCUMULATED-NII-PRIOR> 1,342,481
<ACCUMULATED-GAINS-PRIOR> 5,361
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 874,928
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 920,357
<AVERAGE-NET-ASSETS> 236,650,000
<PER-SHARE-NAV-BEGIN> 11.84
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> (0.37)
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
ANNUAL REPROT OF THE JP CAPITAL APPRECIATION FUND, INC., DATED AS OF
DECEMBER 31, 1995 AND FROM FORM N-SAR FOR THE PERIOD ENDING DECEMBER
31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 57,777,456
<INVESTMENTS-AT-VALUE> 72,620,683
<RECEIVABLES> 175,312
<ASSETS-OTHER> 234,191
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73,030,186
<PAYABLE-FOR-SECURITIES> 1,354,110
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,577
<TOTAL-LIABILITIES> 1,428,687
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,638,775
<SHARES-COMMON-STOCK> 3,776,774
<SHARES-COMMON-PRIOR> 3,479,482
<ACCUMULATED-NII-CURRENT> 693,205
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,426,293
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,843,227
<NET-ASSETS> 71,601,499
<DIVIDEND-INCOME> 1,469,132
<INTEREST-INCOME> 263,977
<OTHER-INCOME> 0
<EXPENSES-NET> 383,777
<NET-INVESTMENT-INCOME> 1,349,342
<REALIZED-GAINS-CURRENT> 4,429,313
<APPREC-INCREASE-CURRENT> 12,830,999
<NET-CHANGE-FROM-OPS> 18,609,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,318,791
<DISTRIBUTIONS-OF-GAINS> 7,845,335
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 425,888
<NUMBER-OF-SHARES-REDEEMED> 749,300
<SHARES-REINVESTED> 620,704
<NET-CHANGE-IN-ASSETS> 13,241,665
<ACCUMULATED-NII-PRIOR> 662,664
<ACCUMULATED-GAINS-PRIOR> 7,842,314
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 325,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 65,073,514
<PER-SHARE-NAV-BEGIN> 16.77
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> 4.45
<PER-SHARE-DIVIDEND> 2.62
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.96
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
ANNUAL REPORT OF THE JP INVESTMENT GRADE BOND FUND, INC. DATED AS OF
DECEMBER 31, 1995 AND FROM FORM N-SAR FOR THE PERIOD ENDING
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 25,529,797
<INVESTMENTS-AT-VALUE> 27,427,014
<RECEIVABLES> 456,468
<ASSETS-OTHER> 297,338
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,180,820
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,378
<TOTAL-LIABILITIES> 44,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,980,405
<SHARES-COMMON-STOCK> 2,499,086
<SHARES-COMMON-PRIOR> 2,506,622
<ACCUMULATED-NII-CURRENT> 36,637
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,897,216
<NET-ASSETS> 28,136,442
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,937,728
<OTHER-INCOME> 0
<EXPENSES-NET> 173,989
<NET-INVESTMENT-INCOME> 1,763,739
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 3,044,389
<NET-CHANGE-FROM-OPS> 2,911,034
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,787,395
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 468,268
<NUMBER-OF-SHARES-REDEEMED> 624,497
<SHARES-REINVESTED> 148,693
<NET-CHANGE-IN-ASSETS> 2,858,886
<ACCUMULATED-NII-PRIOR> 60,293
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 26,494,275
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .73
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> .74
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
SEMI-ANNUAL REPORT OF THE JP INVESTMENT GRADE BOND FUND, INC. DATED AS
OF
JUNE 30, 1996 AND FROM FORM N-SAR FOR THE PERIOD ENDING
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 29,121,039
<INVESTMENTS-AT-VALUE> 29,571,702
<RECEIVABLES> 488,468
<ASSETS-OTHER> 312,275
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,372,445
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,950
<TOTAL-LIABILITIES> 33,950
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,187,092
<SHARES-COMMON-STOCK> 2,788,539
<SHARES-COMMON-PRIOR> 2,499,086
<ACCUMULATED-NII-CURRENT> 480,307
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 450,663
<NET-ASSETS> 30,338,495
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,007,907
<OTHER-INCOME> 0
<EXPENSES-NET> 94,821
<NET-INVESTMENT-INCOME> 913,086
<REALIZED-GAINS-CURRENT> (1,750)
<APPREC-INCREASE-CURRENT> (1,446,554)
<NET-CHANGE-FROM-OPS> (535,218)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 469,416
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 401,902
<NUMBER-OF-SHARES-REDEEMED> 151,840
<SHARES-REINVESTED> 39,391
<NET-CHANGE-IN-ASSETS> 2,202,053
<ACCUMULATED-NII-PRIOR> 36,637
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,939
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 29,422,685
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> (.54)
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.88
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
SEMI-ANNUAL REPROT OF THE JP CAPITAL APPRECIATION FUND, INC., DATED AS
OF
JUNE 30, 1996 AND FROM FORM N-SAR FOR THE PERIOD ENDING JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 65,610,508
<INVESTMENTS-AT-VALUE> 81,477,225
<RECEIVABLES> 113,235
<ASSETS-OTHER> 446,968
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82,037,428
<PAYABLE-FOR-SECURITIES> 227,597
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,331
<TOTAL-LIABILITIES> 285,928
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,440,744
<SHARES-COMMON-STOCK> 4,205,010
<SHARES-COMMON-PRIOR> 3,776,774
<ACCUMULATED-NII-CURRENT> 841,453
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,602,586
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,866,717
<NET-ASSETS> 81,751,500
<DIVIDEND-INCOME> 778,721
<INTEREST-INCOME> 286,477
<OTHER-INCOME> 0
<EXPENSES-NET> 220,424
<NET-INVESTMENT-INCOME> 844,774
<REALIZED-GAINS-CURRENT> 5,612,860
<APPREC-INCREASE-CURRENT> 1,023,490
<NET-CHANGE-FROM-OPS> 7,481,124
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 696,526
<DISTRIBUTIONS-OF-GAINS> 4,436,566
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 286,099
<NUMBER-OF-SHARES-REDEEMED> 141,747
<SHARES-REINVESTED> 283,884
<NET-CHANGE-IN-ASSETS> 10,150,001
<ACCUMULATED-NII-PRIOR> 693,205
<ACCUMULATED-GAINS-PRIOR> 4,426,292
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 190,021
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 76,649,904
<PER-SHARE-NAV-BEGIN> 18.96
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.63
<PER-SHARE-DIVIDEND> 1.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.44
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
