Registration No. 2-93177
File No. 811-4108
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ x ]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 33 [ x ]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ x ]
Amendment No. 29 [ x ]
Oppenheimer Variable Account Funds
(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Englewood, Colorado 80112
(Address of Principal Executive Offices) (Zip Code)
303-768-3200
(Registrant's Telephone Number, including Area Code)
Andrew J. Donohue, Esq.
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) [ ] On _______________
pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1)
[ x ] On May 1, 1999 pursuant to paragraph (a)(1) [ ] 75 days after filing
pursuant to paragraph (a)(2) [ ] On _______________ pursuant to paragraph (a)(2)
of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Oppenheimer Money Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Money Fund is a money market mutual fund that seeks maximum
current income from investments in money market securities that is consistent
with low capital risk and the maintenance of liquidity. The Fund invests in
short-term, high quality "money market" securities.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek maximum
current income from investment in money market securities consistent with low
capital risk and the maintenance of liquidity.
What Does the Fund Invest In? The Fund is a money market fund. It invests in a
variety of high-quality money market securities to seek income. Money market
securities are short-term debt instruments issued by the U.S. government,
domestic and foreign corporations and financial institutions and other entities.
They include, for example, bank obligations, repurchase agreements, commercial
paper, other corporate debt obligations and government debt obligations maturing
in 397 days or less.
Who Is the Fund Designed For? The Fund may be appropriate for variable account
investors who want to earn income at current money market rates while preserving
the value of their investment, because the Fund is managed to keep its share
price stable at $1.00. Income on short-term securities tends to be lower than
income on longer term debt securities, so the Fund's yield will likely be lower
than the yield on longer-term fixed income funds. The Fund does not invest for
the purpose of seeking capital appreciation or gains.
Main Risks of Investing in the Fund
All investments carry risks to some degree. Funds that invest in debt
obligations for income may be subject to credit risks and interest rate risks.
However, the Fund is a money market fund that seeks income by investing in
short-term debt securities that must meet strict standards set by its Board of
Trustees following special rules for money market funds under federal law. These
include requirements for maintaining high credit quality in the Fund's
portfolio, a short average portfolio maturity to reduce the effects of changes
in interest rates on the value of the Fund's securities and diversifying the
Fund's investments among issuers to reduce the effects of a default by any one
issuer on the value of the Fund's shares.
Even so, there are risks that any of the Fund's holdings could have its
credit rating downgraded, or the issuer could default, or that interest rates
could rise sharply, causing the value of the Fund's securities (and its share
price) to fall. As a result, there is a risk that the Fund's shares could fall
below $1.00 per share.
The Fund's investment manager, OppenheimerFunds, Inc., tries to reduce
risks by diversifying investments and by carefully researching securities before
they are purchased. However, an investment in the Fund is not a complete
investment program. The rate of the Fund's income will vary from day to day,
generally reflecting changes in overall short-term interest rates. There is no
assurance that the Fund will achieve its investment objective.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
The Fund's Past Performance
The bar chart and table below show how the Fund's returns may vary over time, by
showing changes in the Fund's performance from year to year for the last ten
calendar years and its average annual total returns for the 1-, 5- and 10- year
periods. Variability of returns is one measure of the risks of investing in a
money market fund. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns (% as of 12/31 each year)
[See appendix to prospectus for annual total return data for bar chart.]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would have been less than those shown.
For the period from 1/1/98 through 12/31/98, the cumulative total return (not
annualized) was ____%. During the period shown in the bar chart, the highest
return (not annualized) for a calendar quarter was ___% (-Q'-) and the lowest
return for a calendar quarter was ___ (-Q'-).
Average Annual Total
Returns for the periods
ending December 31, 1998 Past 1 Year Past 5 Years Past 10 Years
Oppenheimer Money ____% _____% _____%
Fund
The returns in the table measure the performance of a hypothetical account and
assume that all distributions have been reinvested in additional shares. The
total returns are not the Fund's current yield. The Fund's yield more closely
reflects the Fund's current earnings.
To obtain the Fund's current 7-day yield information, please call the Transfer
Agent toll-free at 1-800-525-7048.
About the Fund's Investments
The Fund's Principal Investment Policies. In seeking its objective of high
current income consistent with low capital risk, the Fund invests in short-term
money market securities meeting quality standards established for money market
funds under the Investment Company Act. The Statement of Additional Information
contains more detailed information about the Fund's investment policies and
risks.
|X| What Types of Money Market Securities Does the Fund Invest In? The
following is a brief description of the types of money market securities the
Fund may invest in. Money market securities are high-quality, short-term debt
instruments that may be issued by the U.S. Government, corporations, banks or
other entities. They may have fixed, variable or floating interest rates. All of
the Fund's investments must meet the special quality requirements set under the
Investment Company Act and described briefly below.
|_| U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
Some are direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and are supported by the full faith and credit of the United States.
Other U.S. government securities, such as pass-through certificates issued by
the Government National Mortgage Association (Ginnie Mae), are also supported by
the full faith and credit of the U.S. government. Some government securities are
supported by the right of the issuer to borrow from the U.S. Treasury, such as
securities of Federal National Mortgage Corporation (Fannie Mae). Others may be
supported only by the credit of the instrumentality, such as obligations of the
Federal Home Loan Mortgage Corporation (Freddie Mac).
|_| Bank Obligations. The Fund may buy time deposits, certificates of deposit
and bankers' acceptances. They must be :
o obligations of a domestic bank having total assets of at least $1 billion or
o U.S. dollar-denominated obligations of a foreign bank with total assets of at
least U.S. $1 billion.
|_| Commercial Paper. Commercial paper is a short-term, unsecured promissory
note of a domestic or foreign company. The Fund may buy commercial paper only if
it meets the Fund's quality standards, described below.
|_| Corporate Obligations. The Fund may invest in other short-term
corporate debt obligations, besides commercial paper, that at the time of
purchase by the Fund meet the Fund's quality standards, described below.
|_| Other Money Market Obligations. The Fund may invest in money market
obligations other than those listed above if they are subject to repurchase
agreements or guaranteed as to their principal and interest by a corporation
whose commercial paper may be purchased by the Fund or by a domestic bank. The
bank must meet credit criteria set by the Fund's Board of Trustees.
Additionally, the Fund may buy other money market instruments that its
Board of Trustees approves from time to time. They must be U.S.
dollar-denominated short-term investments that the Board must determine to have
minimal credit risks. They also must be of "high quality" as determined by a
national rating organization. The Fund may buy an unrated security that
otherwise meets those qualifications.
Currently, the Board has approved the purchase of dollar-denominated
obligations of foreign banks having total assets at least equal to U.S. $1
billion, floating or variable rate demand notes, asset-backed securities, and
bank loan participation agreements. Their purchase may be subject to
restrictions adopted by the Board from time to time.
|X| What Credit Quality and Maturity Standards Apply to the Fund's
Investments? Debt instruments, including money market instruments, are subject
to credit risk, the risk that the issuer might not make timely payments of
interest on the security or repay principal when it is due. The Fund may buy
only those securities that meet standards set in the Investment Company Act for
money market funds. The Fund's Board has adopted procedures to evaluate
securities for the Fund's portfolio and the Manager has the responsibility to
implement those procedures when selecting investments for the Fund.
In general, those procedures require that securities be rated in one of
the two highest short-term rating categories of two national rating
organizations. At least 95% of the Fund's assets must be invested in securities
of issuers with the highest credit rating. No more than 5% of the Fund's assets
can be invested in securities with the second highest credit rating. In some
cases, the Fund can buy securities rated by one rating organization or unrated
securities that the Manager judges to be comparable in quality to the two
highest rating categories.
The procedures also limit the amount of the Fund's assets that can be
invested in the securities of any one issuer (other than the U.S. government,
its agencies and instrumentalities), to spread the Fund's investment risks. A
security's maturity must not exceed 397 days. Finally, the Fund must maintain an
average portfolio maturity of not more than 90 days, to reduce interest rate
risks.
|X| Can the Fund's Investment Objective and Policies Change? The Fund'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 Fund's
investment objective is a fundamental policy. The Fund's investment policies and
techniques are not fundamental unless this Prospectus or the Statement of
Additional Information says that a particular policy is fundamental.
Other Investment Strategies. To seek its objective, the Fund may also use the
investment techniques and strategies described below. These techniques involve
certain risks. The Statement of Additional Information contains more information
about some of these practices, including limitations on their use that are
designed to reduce some of the risks.
|X| Floating Rate/Variable Rate Notes. The Fund can purchase notes with
floating or variable interest rates. Variable rates are adjustable at stated
periodic intervals. Floating rates are adjusted automatically according to a
specified market index for such investments, such as the prime rate of a bank.
If the maturity of a note is greater than 397 days, it may be purchased if it
has a demand feature. That feature must permit the Fund to recover the principal
amount of the note on not more than thirty days' notice at any time, or at
specified times not exceeding 397 days from purchase.
|X| Obligations of Foreign Banks and Foreign Branches of U.S. Banks. The
Fund can invest in U.S. dollar-denominated securities of foreign banks having
total assets at least equal to U.S. $1 billion. It can also buy
dollar-denominated securities of foreign branches of U.S. banks. These
securities have investment risks different from obligations of domestic branches
of U.S. banks. Risks that may affect the bank's ability to pay its debt include:
|_| political and economic developments in the country in which the bank or
branch is located,
|_| imposition of withholding taxes on interest income payable on the
securities,
|_| seizure or nationalization of foreign deposits,
|_| the establishment of exchange control regulations and
|_| the adoption of other governmental restrictions that might affect the
payment of principal and interest on those securities.
Additionally, not all of the U.S. and state banking laws and
regulations that apply to domestic banks and that are designed to protect
depositors and investors apply to foreign branches of domestic banks. None of
those U.S. and state regulations apply to foreign banks.
|X| Bank Loan Participation Agreements. The Fund may invest in bank
loan participation agreements. They provide the Fund an undivided interest in a
loan made by the issuing bank in the proportion the Fund's interest bears to the
total principal amount of the loan. In evaluating the risk of these investments,
the Fund looks to the creditworthiness of the borrower that is obligated to make
principal and interest payments on the loan.
|X| Asset-Backed Securities. The Fund may invest in asset-backed
securities. These are fractional interests in pools of consumer loans and other
trade receivables. 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 the Fund.
These securities are frequently supported by a credit enhancement, such
as a letter of credit, a guarantee or a preference right. However, the credit
enhancement generally applies only to a fraction of the security's value. If the
issuer of the security has no security interest in the related collateral, there
is the risk that the Fund could lose money if the issuer defaults.
|X| Repurchase Agreements. The Fund may enter into repurchase
agreements. 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. There is no limit on the amount of the Fund's net assets that may be subject
to repurchase agreements of 7 days or less.
|X| Illiquid and Restricted Securities. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. Restricted securities
may have a contractual limit on resale or may require registration under federal
securities laws before they can be sold publicly. The Fund will not invest more
than 15% of its net assets in illiquid or restricted securities. That limit does
not apply to certain restricted securities that are eligible for resale to
qualified institutional purchasers. The Manager monitors holdings of illiquid
securities on an ongoing basis to determine whether to sell any holdings to
maintain adequate liquidity. Difficulty in selling a security may result in a
loss to the Fund or additional costs.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio managers of the Fund are Arthur J.
Zimmer and Carol E. Wolf. They have been the persons principally responsible for
the day-to-day management of the Fund's portfolio since June and July of 1998,
respectively. Each is also a Vice President of the Fund, and are Senior Vice
President and Vice President, respectively, of the Manager. During the past five
years, each has also served as officers and portfolio managers for other
Oppenheimer funds.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.450% of the first $500 million of average annual net
assets, 0.425% of the next $500 million, 0.400% of the next $500 million, and
0.375% of net assets in excess of $1.5 billion. The Fund's management fee for
its last fiscal year ended December 31, 1998, was ____% of the Fund's average
annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends and Taxes
Dividends. The Fund intends to declare dividends from net investment income each
regular business day and to pay those dividends to shareholders monthly on a
date selected by the Board of Trustees. To maintain a net asset value of $1.00
per share, the Fund might withhold dividends or make distributions from capital
or capital gains. Daily dividends will not be declared or paid on newly
purchased shares until Federal Funds are available to the Fund from the purchase
payment for such shares.
Capital Gains. The Fund normally holds its securities to maturity and therefore
will not usually pay capital gains. Although the Fund does not seek capital
gains, it could realize capital gains on the sale of portfolio securities. If it
does, it may make distributions out of any net short-term or long-term capital
gains in December of each year. The Fund may make supplemental distributions of
dividends and capital gains following the end of its fiscal year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions (if any) of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Money Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0660.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Money Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Money Fund
(the "Fund") under the heading "Annual Total Return (as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/88 ____%
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer High Income Fund
A Series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer High Income Fund is a mutual fund that seeks a high level of current
income. The Fund invests in 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.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek a high
level of current income from investment in high-yield fixed income securities.
What Does the Fund Invest In? The Fund invests mainly in debt securities of
issuers in lower-rated high-yield securities of U.S. companies, foreign
governments and U.S. government securities. Those debt securities typically
include:
o lower-grade, high-yield domestic and foreign corporate debt obligations, and
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes,
o short-, medium- and long-term foreign and U.S. government bonds and notes,
o "zero-coupon" or "stripped" securities.
The Fund's foreign investments can include debt securities of issuers
in developed markets as well as emerging markets, which have special risks. The
Fund can also use hedging instruments and certain derivative investments,
primarily CMOs and "structured" notes, to try to enhance income or to try to
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Fund's portfolio managers analyze the overall
investment opportunities and risks in individual national economies. The
portfolio managers' overall strategy is to build a broadly diversified portfolio
of debt securities to help moderate the special risks of investing in high yield
debt instruments and foreign securities. The portfolio managers currently focus
on the factors below (some of which may vary in particular cases and may change
over time), looking for:
|_| Securities offering high current income,
|_| Overall diversification for the portfolio by seeking securities whose
markets and prices tend to move in different directions,
|_| Relative values among the fixed income market sectors.
The Fund's diversification strategies, both with respect to securities
issued by different companies and governments, are intended to reduce the
volatility of the Fund's share prices while seeking current income.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking high current income from a fund that ordinarily will
have substantial investments in lower-grade domestic and foreign debt
securities. Those investors should be willing to assume the risks of short-term
share price fluctuations that are typical for a fund that invests in lower-grade
debt securities, particularly high-yield and foreign securities, which have
special risks. Since the Fund's income level will fluctuate, it is not designed
for investors needing an assured level of current income. Also, the Fund does
not seek capital appreciation. The Fund is designed as a long-term investment
for variable account investors seeking an investment with an overall sector
diversification strategy. However, the Fund is not a complete investment
program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
debt securities are subject to changes in their value from a number of factors.
They include changes in general bond market movements in the U.S. and abroad
(this is referred to as "market risk"), or the change in value of particular
bonds because of an event affecting the issuer (this is known as "credit risk").
Under normal market conditions, the Fund emphasizes investments in
below-investment grade fixed-income securities. Because such securities have a
higher default rate, they heighten the Fund's credit risk level. The Fund can
also focus significant amounts of its investments in foreign debt securities.
Therefore, it will be subject to the risks that economic, political or other
events can have on the values of securities of issuers in particular foreign
countries. These risks are heightened in the case of emerging market debt
securities. Changes in interest rates can also affect securities prices (this is
known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased, and in some
cases by using hedging techniques. The Fund attempts to reduce its exposure to
market risks by diversifying its investments, that is, by not holding a
substantial amount of securities of any one issuer and by not investing too
great a percentage of the Fund's assets in any one company. Also, the Fund does
not concentrate 25% or more of its investments in the securities of any one
foreign government or in the debt and equity securities of companies in any one
industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price and yield of the Fund
will change daily based on changes in market prices of securities and market
conditions, and in response to other economic events. There is no assurance that
the Fund will achieve its investment objective.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. The Fund's investments in debt securities, particularly high-yield,
lower-grade debt securities, are subject to risks of default.
|_| Special Risks of Lower-Grade Securities. Because the Fund
can invest without limit and is expected to invest substantially in securities
below investment grade to seek high income, the Fund's credit risks are greater
than those of funds that buy only investment-grade bonds. Lower-grade debt
securities may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities. Securities
that are (or that have fallen) below investment grade are exposed to a greater
risk that the issuers of those securities might not meet their debt obligations.
These risks can reduce the Fund's share prices and the income it earns.
|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign debt securities and can buy securities of governments and
companies in both developed markets and emerging markets. The Fund will normally
invest significant amounts of its assets in foreign securities. While foreign
securities offer special investment opportunities, there are also special risks
that can reduce the Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. Foreign issuers are not
subject to the same accounting and disclosure requirements that U.S. companies
are subject to.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain European
currencies to the Euro that commenced in January 1999. For example, the Fund's
custodian bank and brokers must convert their computer systems and records to
reflect the Euro values of securities. If they are not prepared, there can be
delays in settlements of securities trades and additional costs to the Fund.
|_| Special Risks of Emerging and Developing Markets.
Securities in emerging and developing market countries may offer special
investment opportunities but investments in these countries present risks not
found in more mature markets. Those securities may be more difficult to sell at
an acceptable price and their prices may be more volatile than securities of
issuers in more developed markets. Settlements of trades may be subject to
greater delays so that the Fund may not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges. Emerging countries may have less developed legal and accounting
systems and investments may be subject to greater risks of government
restrictions on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be substantially more volatile than debt securities of issuers
in the U.S. and other developed countries and may be very speculative.
|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt securities
generally rise. When interest rates rise, the values of already-issued debt
securities generally fall, and they may sell at a discount from their face
amount. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term debt securities. The Fund's share
prices can go up or down when interest rates change because of the effect of the
changes on the value of the Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a
security can prepay the principal prior to the security's maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund buys, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund may buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased income or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate or index. Options, futures, interest rate swaps, structured notes and CMOs
are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, the values of debt securities
can fluctuate substantially because of interest rate changes. Foreign debt
securities, particularly those of issuers in emerging markets, and high yield
securities can be volatile, and the price of the Fund's shares can go up and
down substantially because of events affecting foreign markets or issuers or
events affecting the high yield market. The Fund's security diversification
strategy may help cushion the Fund's shares prices from that volatility, but
debt securities are subject to other credit and interest rate risks that can
affect their values and the share prices of the Fund. In the OppenheimerFunds
spectrum, the Fund is generally more aggressive and has more risks than bond
funds that focus on U. S. government securities and investment-grade bonds but
may be less aggressive than funds that focus solely on investments in a single
foreign sector, such as emerging markets.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years 10 Years
December 31, 1998
Fund Shares ___% ____% _____%
Merrill Lynch High Yield ____% ______% _____%
Master Index
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in high yield corporate bonds, the Fund's
performance is compared to the Merrill Lynch High Yield Master Index, an
unmanaged index of U.S. corporate and government bonds that is a measure of the
performance of the high-yield corporate bond market. However, it must be
remembered that the index performance reflects the reinvestment of income but
does not consider the effects of capital gains or transaction costs. Also, the
Fund may have investments that vary from the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. At times
the Fund might emphasize investments in one or two sectors because of the
Manager's evaluation of the opportunities for high current income from debt
securities in those sectors relative to other sectors.
A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the loan
and normally pays interest, at a fixed or variable rate, on the debt while it is
outstanding. The Fund can invest in different types of debt securities, as
described above. The debt securities the Fund buys may be rated by nationally
recognized rating organizations or they may be unrated securities assigned an
equivalent rating by the Manager. The Fund's investments may be above or below
investment grade in credit quality. It can invest without limit and is expected
to invest substantially in below investment-grade debt securities, commonly
called "junk bonds."
The Fund can invest some of its assets in other types of securities,
including common stocks and other equity securities of foreign and U.S.
companies. However, the Fund does not anticipate having significant investments
in those types of securities as part of its normal portfolio strategy. The
Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
High-Yield, Lower-Grade Debt Securities of U.S. Issuers. The Fund can purchase a
variety of lower-grade, high-yield debt securities of U.S. issuers, including
bonds, debentures, notes, preferred stocks, loan participation interests,
structured notes, asset-backed securities, among others, to seek high current
income. These securities are sometimes called "junk bonds." The Fund has no
requirements as to the maturity of the debt securities it can buy, or as to the
market capitalization range of the issuers of those securities. There are no
restrictions on the amount of the Fund's assets that can be invested in debt
securities below investment grade.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service
or similar ratings by other nationally-recognized rating organizations. The Fund
can invest in securities rated as low as "C" or "D" or which are in default at
the time the Fund buys them. While securities rated "Baa" by Moody's or "BBB" by
S&P are considered "investment grade," they have some speculative
characteristics.
The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy unrated
securities that offer high current income. The Manager may assign a rating to an
unrated security that is equivalent to the rating of a rated security that the
Manager believes offers comparable yields and risks.
While investment-grade securities are subject to risks of non-payment
of interest and principal, generally, higher yielding lower-grade bonds, whether
rated or unrated, have greater risks than investment-grade securities. They may
be subject to greater market fluctuations and risk of loss of income and
principal than investment-grade securities. There may be less of a market for
them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest and principal due on the bonds. These risks mean
that the Fund may not achieve the expected income from lower-grade securities,
and that the Fund's net asset value per share may be affected by declines in
value of these securities.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings and
loans, mortgage bankers and other non-governmental issuers. Private issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
Foreign Debt Securities. The Fund can buy a variety of debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such as
the World Bank. They can include bonds, debentures, and notes, including
derivative investments called "structured" notes, described below. The Fund will
not invest 25% or more of its total assets in debt securities of any one foreign
government or in debt securities of companies in any one industry. The Fund has
no requirements as to the maturity range of the foreign debt securities it can
buy, or as to the market capitalization range of the issuers of those
securities.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. The Fund will buy foreign currency only in connection
with the purchase and sale of foreign securities and not for speculation.
The Fund can buy "Brady Bonds," which are U.S.-dollar denominated debt
securities collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by emerging markets countries and are considered speculative
securities with higher risks of default.
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities." These
are referred to as "U.S. government securities" in this Prospectus.
|X| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years), and Treasury bonds (which have maturities
of more than ten years). Treasury securities are backed by the full faith and
credit of the United States as to timely payments of interest and repayments of
principal. The Fund can also buy U. S. Treasury securities that have been
"stripped" of their coupons by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities described below, and Treasury Inflation-Protection Securities
("TIPS").
|X| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series each having
different interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have substantial amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These prepayment risks can make the
prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities. That volatility will affect the Fund's share prices.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage and
transaction costs the Fund pays. If the Fund realizes capital gains when it
sells its portfolio investments, it must generally pay those gains out to
shareholders, increasing their taxable distributions. The Financial Highlights
table below shows the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund buys are zero-coupon bonds that pay no
interest. They are issued at a substantial discount from their face value.
"Stripped" securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped, with
each component having a different proportion of principal or interest payments.
One class might receive all the interest and the other all the principal
payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The Fund
may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price. The Fund can invest up to 50% of its total assets in
zero-coupon securities issued by either the U.S. government or U.S. companies.
|X| Participation Interests in Loans. These securities represent an
undivided fractional interest in a loan obligation by a borrower. They are
typically purchased from banks or dealers that have made the loan or are members
of the loan syndicate. The loans may be to foreign or U.S. companies. The Fund
does not invest more than 5% of its net assets in participation interests of any
one borrower. They are subject to the risk of default by the borrower. If the
borrower fails to pay interest or repay principal, the Fund can lose money on
its investment.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, structured notes, CMOs and other
hedging instruments the Fund can use may be considered "derivative investments."
In addition to using hedging instruments, the Fund can use other derivative
investments because they offer the potential for increased income.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|_| "Structured" Notes. The Fund can buy "structured" notes,
which are specially-designed derivative debt investments with principal payments
or interest payments that are linked to the value of an index (such as a
currency or securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and interest rate
risks and therefore the Fund could receive more or less than it originally
invested when the notes mature, or it might receive less interest than the
stated coupon payment if the underlying investment or index does not perform as
anticipated. Their values may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment at an
acceptable price.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on its use of them. The Fund is not required to use
hedging instruments in seeking its goal, other than writing covered call
options, when deemed appropriate by the Manager. Currently, the Fund does not
write call options to a significant extent.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates.
Some of these strategies can be used to hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying futures and
call options, would tend to increase the Fund's exposure to the securities
market. Forward contracts can be used to try to manage foreign currency risks on
the Fund's foreign investments. Foreign currency options may be used to try to
protect against declines in the dollar value of foreign securities the Fund
owns, or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options could be used to provide income to the
Fund for liquidity purposes or to raise cash to distribute to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the primary aspect investment objective, high current income.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio managers of the Fund are Thomas P.
Reedy and David P. Negri. They have been the persons principally responsible for
the day-to-day management of the Fund's portfolio since January 1998 and May
1999, respectively. Both are Vice Presidents of the Fund, and Mr. Reedy is Vice
President and Mr. Negri is Senior Vice President of the Manager. During the past
five years, they also served as officers and portfolio managers for other
Oppenheimer funds.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% on the next $200 million and 0.50% of average
annual net assets over $1 billion. The Fund's management fee for its last fiscal
year ended December 31, 1998, was ____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer High Income Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0640.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer High Income Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer High Income
Fund (the "Fund") under the heading "Annual Total Return (as of 12/31 each
year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Bond Fund
A Series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Bond Fund is a mutual fund that seeks a high level of current
income. The Fund seeks capital growth when consistent with its primary
objective. Bond Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek a high
level of current income. As a secondary objective, the Fund seeks capital
appreciation when consistent with its primary objective.
What Does the Fund Invest In? The Fund invests mainly in debt securities. Those
debt securities typically include:
o short-, medium- and long-term foreign and U.S. government bonds and notes,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes,
o domestic and foreign corporate debt obligations, and
o "zero-coupon" or "stripped" securities.
As a matter of non-fundamental policy, the Fund will, under normal market
conditions, invest at least 65% of its total assets in investment grade debt
securities, U.S. Government securities and money market instruments. Investment
grade debt securities are those rated in one of the four highest categories by
Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch IBCA, Inc.
or other rating organizations or if unrated or split-rated (rated as investment
grade by one rating organization but below investment grade by another),
determined by the Manager to be of comparable quality. The Fund is not obligated
to dispose of securities when issuers are in default or if the rating of the
security is reduced.
The Fund's foreign investments can include debt securities of issuers
in developed markets as well as emerging markets, which have special risks. The
Fund can also use hedging instruments and certain derivative investments,
primarily CMOs and "structured" notes, to try to enhance income or to try to
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Fund's portfolio managers analyze the overall
investment opportunities and risks in individual national economies. The
portfolio managers' overall strategy is to build a broadly diversified portfolio
of debt securities. The portfolio managers currently focus on the factors below
(some of which may vary in particular cases and may change over time), looking
for:
|_| Securities offering high current income,
|_| Overall diversification for the portfolio by seeking securities whose
markets and prices tend to move in different directions,
|_| Relative values among the fixed income market sectors.
The Fund's diversification strategies, both with respect to securities
issued by different companies and governments, are intended to reduce the
volatility of the Fund's share prices while seeking current income.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking high current income from a fund that ordinarily will
have substantial investments in both domestic and foreign debt securities. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a fund that invests in debt securities. Since
the Fund's income level will fluctuate, it is not designed for investors needing
an assured level of current income. Also, the Fund seeks capital appreciation
when consistent with its primary objective. The Fund is designed as a long-term
investment for variable account investors seeking an investment with an overall
sector diversification strategy. However, the Fund is not a complete investment
program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
debt securities are subject to changes in their value from a number of factors.
They include changes in general bond market movements in the U.S. and abroad
(this is referred to as "market risk"), or the change in value of particular
bonds because of an event affecting the issuer (this is known as "credit risk").
The Fund can focus significant amounts of its investments in foreign debt
securities. Therefore, it will be subject to the risks that economic, political
or other events can have on the values of securities of issuers in particular
foreign countries. These risks are heightened in the case of emerging market
debt securities. Changes in interest rates can also affect securities prices
(this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased, and in some
cases by using hedging techniques. The Fund attempts to reduce its exposure to
market risks by limiting its investments in below-investment grade securities,
as explained above, and by diversifying its investments, that is, by not holding
a substantial amount of securities of any one issuer and by not investing too
great a percentage of the Fund's assets in any one company. Also, the Fund does
not concentrate 25% or more of its investments in the securities of any one
foreign government or in the debt and equity securities of companies in any one
industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price and yield of the Fund
will change daily based on changes in market prices of securities and market
conditions, and in response to other economic events. There is no assurance that
the Fund will achieve its investment objective.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. While the Fund's investments in U.S. government securities are subject
to little credit risk, the Fund's other investments in debt securities are
subject to risks of default.
Securities that are (or that have fallen) below investment grade are
exposed to a greater risk that the issuers of those securities might not meet
their debt obligations. These risks can reduce the Fund's share prices and the
income it earns.
|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign debt securities and can buy securities of governments and
companies in both developed markets and emerging markets. While foreign
securities offer special investment opportunities, there are also special risks
that can reduce the Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. Foreign issuers are not
subject to the same accounting and disclosure requirements that U.S. companies
are subject to.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain European
currencies to the Euro that commenced in January 1999. For example, the Fund's
custodian bank and brokers must convert their computer systems and records to
reflect the Euro values of securities. If they are not prepared, there can be
delays in settlements of securities trades and additional costs to the Fund.
|_| Special Risks of Emerging and Developing Markets.
Securities in emerging and developing market countries may offer special
investment opportunities but investments in these countries present risks not
found in more mature markets. Those securities may be more difficult to sell at
an acceptable price and their prices may be more volatile than securities of
issuers in more developed markets. Settlements of trades may be subject to
greater delays so that the Fund may not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges. Emerging countries may have less developed legal and accounting
systems and investments may be subject to greater risks of government
restrictions on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be substantially more volatile than debt securities of issuers
in the U.S. and other developed countries and may be very speculative.
|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt securities
generally rise. When interest rates rise, the values of already-issued debt
securities generally fall, and they may sell at a discount from their face
amount. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term debt securities. The Fund's share
prices can go up or down when interest rates change because of the effect of the
changes on the value of the Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a
security can prepay the principal prior to the security's maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund buys, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund may buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased income or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate or index. Options, futures, interest rate swaps, structured notes and CMOs
are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, the values of debt securities
can fluctuate substantially because of interest rate changes. Foreign debt
securities, particularly those of issuers in emerging markets, and high yield
securities can be volatile, and the price of the Fund's shares can go up and
down substantially because of events affecting foreign markets or issuers or
events affecting the high yield market. The Fund's security diversification
strategy may help cushion the Fund's shares prices from that volatility, but
debt securities are subject to other credit and interest rate risks that can
affect their values and the share prices of the Fund. In the OppenheimerFunds
spectrum, the Fund is generally more aggressive and has more risks than bond
funds that focus on U. S. government securities but may be less aggressive than
funds that can invest without limit in below-investment grade bonds or that
focus solely on investments in a single foreign sector, such as emerging
markets.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years 10 Years
December 31, 1998
Fund Shares ___% ____% _____%
Lehman Brothers Corporate ____% ______% _____%
Bond Index
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in investment grade corporate and
government debt securities, the Fund's performance is compared to the Lehman
Brothers Corporate Bond Index, an unmanaged index of non-convertible investment
grade corporate debt of U.S. issuers that is a measure of the general domestic
bond market. However, it must be remembered that the index performance reflects
the reinvestment of income but does not consider the effects of capital gains or
transaction costs. Also, the Fund may have investments that vary from the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager.
A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the loan
and normally pays interest, at a fixed or variable rate, on the debt while it is
outstanding. The Fund can invest in different types of debt securities, as
described above. The debt securities the Fund buys may be rated by nationally
recognized rating organizations or they may be unrated securities assigned an
equivalent rating by the Manager. The Fund's investments may be above or below
investment grade in credit quality. Under normal market conditions, the Fund can
invest up to 35% of its net assets in below investment-grade debt securities,
commonly called "junk bonds."
The Fund can invest some of its assets in other types of securities,
including common stocks and other equity securities of foreign and U.S.
companies. However, the Fund does not anticipate having significant investments
in those types of securities as part of its normal portfolio strategy. The
Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities." These
are referred to as "U.S. government securities" in this Prospectus.
|X| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years), and Treasury bonds (which have maturities
of more than ten years). Treasury securities are backed by the full faith and
credit of the United States as to timely payments of interest and repayments of
principal. The Fund can also buy U. S. Treasury securities that have been
"stripped" of their coupons by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities described below, and Treasury Inflation-Protection Securities
("TIPS").
|X| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series each having
different interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have substantial amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These prepayment risks can make the
prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities. That volatility will affect the Fund's share prices.
High-Yield, Lower-Grade Debt Securities of U.S. Issuers. The Fund can purchase a
variety of lower-grade, high-yield debt securities of U.S. issuers, including
bonds, debentures, notes, preferred stocks, loan participation interests,
structured notes, asset-backed securities, among others, to seek high current
income. These securities are sometimes called "junk bonds." The Fund has no
requirements as to the maturity of the debt securities it can buy, or as to the
market capitalization range of the issuers of those securities. Up to 35% of the
Fund's assets can be invested in debt securities below investment grade under
normal market conditions.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service
or similar ratings by other nationally-recognized rating organizations. The Fund
can invest in securities rated as low as "C" or "D" or which are in default at
the time the Fund buys them, subject to the 35% limitation on below investment
grade bonds. While securities rated "Baa" by Moody's or "BBB" by S&P are
considered "investment grade," they have some speculative characteristics.
The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy unrated
securities that offer high current income. The Manager may assign a rating to an
unrated security that is equivalent to the rating of a rated security that the
Manager believes offers comparable yields and risks.
While investment-grade securities are subject to risks of non-payment
of interest and principal, generally, higher yielding lower-grade bonds, whether
rated or unrated, have greater risks than investment-grade securities. They may
be subject to greater market fluctuations and risk of loss of income and
principal than investment-grade securities. There may be less of a market for
them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest and principal due on the bonds. These risks mean
that the Fund may not achieve the expected income from lower-grade securities,
and that the Fund's net asset value per share may be affected by declines in
value of these securities.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings and
loans, mortgage bankers and other non-governmental issuers. Private issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
Foreign Debt Securities. The Fund can buy a variety of debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such as
the World Bank. They can include bonds, debentures, and notes, including
derivative investments called "structured" notes, described below. The Fund will
not invest 25% or more of its total assets in debt securities of any one foreign
government or in debt securities of companies in any one industry. The Fund has
no requirements as to the maturity range of the foreign debt securities it can
buy, or as to the market capitalization range of the issuers of those
securities.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. The Fund will buy foreign currency only in connection
with the purchase and sale of foreign securities and not for speculation.
The Fund can buy "Brady Bonds," which are U.S.-dollar denominated debt
securities collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by emerging markets countries and are considered speculative
securities with higher risks of default.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage and
transaction costs the Fund pays. If the Fund realizes capital gains when it
sells its portfolio investments, it must generally pay those gains out to
shareholders, increasing their taxable distributions. The Financial Highlights
table below shows the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund buys are zero-coupon bonds that pay no
interest. They are issued at a substantial discount from their face value.
"Stripped" securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped, with
each component having a different proportion of principal or interest payments.
One class might receive all the interest and the other all the principal
payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The Fund
may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price. The Fund can invest up to 50% of its total assets in
zero-coupon securities issued by either the U.S. government or U.S. companies.
|X| Participation Interests in Loans. These securities represent an
undivided fractional interest in a loan obligation by a borrower. They are
typically purchased from banks or dealers that have made the loan or are members
of the loan syndicate. The loans may be to foreign or U.S. companies. The Fund
does not invest more than 5% of its net assets in participation interests of any
one borrower. They are subject to the risk of default by the borrower. If the
borrower fails to pay interest or repay principal, the Fund can lose money on
its investment.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, structured notes, CMOs and other
hedging instruments the Fund can use may be considered "derivative investments."
In addition to using hedging instruments, the Fund can use other derivative
investments because they offer the potential for increased income.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|_| "Structured" Notes. The Fund can buy "structured" notes,
which are specially-designed derivative debt investments with principal payments
or interest payments that are linked to the value of an index (such as a
currency or securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and interest rate
risks and therefore the Fund could receive more or less than it originally
invested when the notes mature, or it might receive less interest than the
stated coupon payment if the underlying investment or index does not perform as
anticipated. Their values may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment at an
acceptable price.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on its use of them. The Fund is not required to use
hedging instruments in seeking its goal, other than writing covered call
options, when deemed appropriate by the Manager. Currently, the Fund does not
write call options to a significant extent.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates.
Some of these strategies can be used to hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying futures and
call options, would tend to increase the Fund's exposure to the securities
market. Forward contracts can be used to try to manage foreign currency risks on
the Fund's foreign investments. Foreign currency options may be used to try to
protect against declines in the dollar value of foreign securities the Fund
owns, or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options could be used to provide income to the
Fund for liquidity purposes or to raise cash to distribute to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the primary aspect investment objective, high current income.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio managers of the Fund are David P.
Negri and John S. Kowalik. They have been the persons principally responsible
for the day-to-day management of the Fund's portfolio since January 1990 and
July 1998, respectively. Both are Vice Presidents of the Fund and Senior Vice
Presidents of the Manager. During the past five years, they also served as
officers and portfolio managers for other Oppenheimer funds, and Mr. Kowalik was
previously Managing Director and Senior Portfolio Manager at Prudential Global
Advisers.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% on the next $200 million and 0.50% of average
annual net assets over $1 billion. The Fund's management fee for its last fiscal
year ended December 31, 1998, was ____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Bond Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0630.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Bond Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Bond Fund
(the "Fund") under the heading "Annual Total Return (as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Strategic Bond Fund
A Series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Strategic Bond Fund is a mutual fund that seeks a high level of
current income principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities. The Fund
invests in three market sectors: debt securities of foreign government and
companies, U.S. government securities, and lower-rated high yield securities of
U.S. companies.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek a high
level of current income principally derived from interest on debt securities and
seeks to enhance such income by writing covered call option on debt securities.
What Does the Fund Invest In? The Fund invests mainly in debt securities of
issuers in three market sectors: foreign governments and companies, U.S.
government securities and lower-rated high-yield securities of U.S. companies.
Those debt securities typically include:
o short-, medium- and long-term foreign and U.S. government bonds and notes,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes,
o lower-grade, high-yield domestic and foreign corporate debt obligations, and
o "zero-coupon" or "stripped" securities.
Under normal market conditions, the Fund invests in each of those three
market sectors. However, the Fund is not obligated to do so, and the amount of
its assets in each of the three sectors will vary over time. The Fund can invest
up to 100% of its assets in any one sector at any time, if the Manager believes
that in doing so the Fund can achieve its objective without undue risk.
The Fund's foreign investments can include debt securities of issuers
in developed markets as well as emerging markets, which have special risks. The
Fund can also use hedging instruments and certain derivative investments,
primarily CMOs and "structured" notes, to try to enhance income or to try to
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Fund's portfolio managers analyze the overall
investment opportunities and risks in individual national economies. The
portfolio managers' overall strategy is to build a broadly diversified portfolio
of debt securities to help moderate the special risks of investing in high yield
debt instruments and foreign securities. The managers may try to take advantage
of the lack of correlation of price movements that may occur among the three
sectors from time to time. The portfolio managers currently focus on the factors
below (some of which may vary in particular cases and may change over time),
looking for:
|_| Securities offering high current income,
|_| Overall diversification for the portfolio by seeking securities whose
markets and prices tend to move in different directions,
|_| Relative values among the three major market sectors in which the
Fund invests.
The Fund's diversification strategies, both with respect to securities
in different sectors, and securities issued by different companies and
governments, are intended to reduce the volatility of the Fund's share prices
while seeking current income.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking high current income from a fund that ordinarily will
have substantial investments in both domestic and foreign debt securities. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a fund that invests in debt securities,
particularly high-yield and foreign securities, which have special risks. Since
the Fund's income level will fluctuate, it is not designed for investors needing
an assured level of current income. Also, the Fund does not seek capital
appreciation. The Fund is designed as a long-term investment for variable
account investors seeking an investment with an overall sector diversification
strategy. However, the Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
debt securities are subject to changes in their value from a number of factors.
They include changes in general bond market movements in the U.S. and abroad
(this is referred to as "market risk"), or the change in value of particular
bonds because of an event affecting the issuer (this is known as "credit risk").
The Fund can focus significant amounts of its investments in foreign debt
securities. Therefore, it will be subject to the risks that economic, political
or other events can have on the values of securities of issuers in particular
foreign countries. These risks are heightened in the case of emerging market
debt securities. Changes in interest rates can also affect securities prices
(this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased, and in some
cases by using hedging techniques. The Fund attempts to reduce its exposure to
market risks by diversifying its investments, that is, by not holding a
substantial amount of securities of any one issuer and by not investing too
great a percentage of the Fund's assets in any one company. Also, the Fund does
not concentrate 25% or more of its investments in the securities of any one
foreign government or in the debt and equity securities of companies in any one
industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price and yield of the Fund
will change daily based on changes in market prices of securities and market
conditions, and in response to other economic events. There is no assurance that
the Fund will achieve its investment objective.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. While the Fund's investments in U.S. government securities are subject
to little credit risk, the Fund's other investments in debt securities,
particularly high-yield, lower-grade debt securities, are subject to risks of
default.
|_| Special Risks of Lower-Grade Securities. Because the Fund
can invest without limit in securities below investment grade to seek high
income, the Fund's credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities may be subject to greater
market fluctuations and greater risks of loss of income and principal than
investment-grade debt securities. Securities that are (or that have fallen)
below investment grade are exposed to a greater risk that the issuers of those
securities might not meet their debt obligations. These risks can reduce the
Fund's share prices and the income it earns.
|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign debt securities and can buy securities of governments and
companies in both developed markets and emerging markets. The Fund will normally
invest significant amounts of its assets in foreign securities. While foreign
securities offer special investment opportunities, there are also special risks
that can reduce the Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. Foreign issuers are not
subject to the same accounting and disclosure requirements that U.S. companies
are subject to.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain European
currencies to the Euro that commenced in January 1999. For example, the Fund's
custodian bank and brokers must convert their computer systems and records to
reflect the Euro values of securities. If they are not prepared, there can be
delays in settlements of securities trades and additional costs to the Fund.
|_| Special Risks of Emerging and Developing Markets.
Securities in emerging and developing market countries may offer special
investment opportunities but investments in these countries present risks not
found in more mature markets. Those securities may be more difficult to sell at
an acceptable price and their prices may be more volatile than securities of
issuers in more developed markets. Settlements of trades may be subject to
greater delays so that the Fund may not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges. Emerging countries may have less developed legal and accounting
systems and investments may be subject to greater risks of government
restrictions on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be substantially more volatile than debt securities of issuers
in the U.S. and other developed countries and may be very speculative.
|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt securities
generally rise. When interest rates rise, the values of already-issued debt
securities generally fall, and they may sell at a discount from their face
amount. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term debt securities. The Fund's share
prices can go up or down when interest rates change because of the effect of the
changes on the value of the Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a
security can prepay the principal prior to the security's maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund buys, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund may buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased income or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate or index. Options, futures, interest rate swaps, structured notes and CMOs
are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, the values of debt securities
can fluctuate substantially because of interest rate changes. Foreign debt
securities, particularly those of issuers in emerging markets, and high yield
securities can be volatile, and the price of the Fund's shares can go up and
down substantially because of events affecting foreign markets or issuers or
events affecting the high yield market. The Fund's sector and security
diversification strategy may help cushion the Fund's shares prices from that
volatility, but debt securities are subject to other credit and interest rate
risks that can affect their values and the share prices of the Fund. In the
OppenheimerFunds spectrum, the Fund is generally more aggressive and has more
risks than bond funds that focus on U. S. government securities and
investment-grade bonds but may be less aggressive than funds that focus solely
on investments in a single foreign sector, such as emerging markets.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years Life of Fund
December 31, 1998
Fund Shares ___% ____% _____%
(inception 5/3/93)
Lehman Brothers Aggregate ____% ______% _____%
Bond Index
(inception 4/30/93)
Salomon Brothers World _____% ________% _______%
Government Bond Index
(inception 4/30/93)
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in a variety of domestic and foreign corporate
and government debt securities, the Fund's performance is compared to the Lehman
Brothers Aggregate Bond Index, an unmanaged index of U.S. corporate and
government bonds, and to the Salomon Brothers World Government Bond Index, an
unmanaged index of debt securities of major foreign government bond markets.
However, it must be remembered that the index performance reflects the
reinvestment of income but does not consider the effects of capital gains or
transaction costs. Also, the Fund may have investments that vary from the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. At times
the Fund might emphasize investments in one or two sectors because of the
Manager's evaluation of the opportunities for high current income from debt
securities in those sectors relative to other sectors.
A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the loan
and normally pays interest, at a fixed or variable rate, on the debt while it is
outstanding. The Fund can invest in different types of debt securities, as
described above. The debt securities the Fund buys may be rated by nationally
recognized rating organizations or they may be unrated securities assigned an
equivalent rating by the Manager. The Fund's investments may be above or below
investment grade in credit quality and the Fund can invest without limit in
below investment-grade debt securities, commonly called "junk bonds."
The Fund can invest some of its assets in other types of securities,
including common stocks and other equity securities of foreign and U.S.
companies. However, the Fund does not anticipate having significant investments
in those types of securities as part of its normal portfolio strategy. The
Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities." These
are referred to as "U.S. government securities" in this Prospectus.
|X| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years), and Treasury bonds (which have maturities
of more than ten years). Treasury securities are backed by the full faith and
credit of the United States as to timely payments of interest and repayments of
principal. The Fund can also buy U. S. Treasury securities that have been
"stripped" of their coupons by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities described below, and Treasury Inflation-Protection Securities
("TIPS").
|X| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series each having
different interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have substantial amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These prepayment risks can make the
prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities. That volatility will affect the Fund's share prices.
High-Yield, Lower-Grade Debt Securities of U.S. Issuers. The Fund can purchase a
variety of lower-grade, high-yield debt securities of U.S. issuers, including
bonds, debentures, notes, preferred stocks, loan participation interests,
structured notes, asset-backed securities, among others, to seek high current
income. These securities are sometimes called "junk bonds." The Fund has no
requirements as to the maturity of the debt securities it can buy, or as to the
market capitalization range of the issuers of those securities. There are no
restrictions on the amount of the Fund's assets that can be invested in debt
securities below investment grade.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service
or similar ratings by other nationally-recognized rating organizations. The Fund
can invest in securities rated as low as "C" or "D" or which are in default at
the time the Fund buys them. While securities rated "Baa" by Moody's or "BBB" by
S&P are considered "investment grade," they have some speculative
characteristics.
The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy unrated
securities that offer high current income. The Manager may assign a rating to an
unrated security that is equivalent to the rating of a rated security that the
Manager believes offers comparable yields and risks.
While investment-grade securities are subject to risks of non-payment
of interest and principal, generally, higher yielding lower-grade bonds, whether
rated or unrated, have greater risks than investment-grade securities. They may
be subject to greater market fluctuations and risk of loss of income and
principal than investment-grade securities. There may be less of a market for
them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest and principal due on the bonds. These risks mean
that the Fund may not achieve the expected income from lower-grade securities,
and that the Fund's net asset value per share may be affected by declines in
value of these securities.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings and
loans, mortgage bankers and other non-governmental issuers. Private issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
Foreign Debt Securities. The Fund can buy a variety of debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such as
the World Bank. They can include bonds, debentures, and notes, including
derivative investments called "structured" notes, described below. The Fund will
not invest 25% or more of its total assets in debt securities of any one foreign
government or in debt securities of companies in any one industry. The Fund has
no requirements as to the maturity range of the foreign debt securities it can
buy, or as to the market capitalization range of the issuers of those
securities.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. The Fund will buy foreign currency only in connection
with the purchase and sale of foreign securities and not for speculation.
The Fund can buy "Brady Bonds," which are U.S.-dollar denominated debt
securities collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by emerging markets countries and are considered speculative
securities with higher risks of default.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage and
transaction costs the Fund pays. If the Fund realizes capital gains when it
sells its portfolio investments, it must generally pay those gains out to
shareholders, increasing their taxable distributions. The Financial Highlights
table below shows the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund buys are zero-coupon bonds that pay no
interest. They are issued at a substantial discount from their face value.
"Stripped" securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped, with
each component having a different proportion of principal or interest payments.
One class might receive all the interest and the other all the principal
payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The Fund
may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price. The Fund can invest up to 50% of its total assets in
zero-coupon securities issued by either the U.S. government or U.S. companies.
|X| Participation Interests in Loans. These securities represent an
undivided fractional interest in a loan obligation by a borrower. They are
typically purchased from banks or dealers that have made the loan or are members
of the loan syndicate. The loans may be to foreign or U.S. companies. The Fund
does not invest more than 5% of its net assets in participation interests of any
one borrower. They are subject to the risk of default by the borrower. If the
borrower fails to pay interest or repay principal, the Fund can lose money on
its investment.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, structured notes, CMOs and other
hedging instruments the Fund can use may be considered "derivative investments."
In addition to using hedging instruments, the Fund can use other derivative
investments because they offer the potential for increased income.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|_| "Structured" Notes. The Fund can buy "structured" notes,
which are specially-designed derivative debt investments with principal payments
or interest payments that are linked to the value of an index (such as a
currency or securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and interest rate
risks and therefore the Fund could receive more or less than it originally
invested when the notes mature, or it might receive less interest than the
stated coupon payment if the underlying investment or index does not perform as
anticipated. Their values may be very volatile and they may have a limited
trading market, making it difficult for the Fund to sell its investment at an
acceptable price.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on its use of them. The Fund is not required to use
hedging instruments in seeking its goal, other than writing covered call
options, when deemed appropriate by the Manager. Currently, the Fund does not
write call options to a significant extent.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates.
Some of these strategies can be used to hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying futures and
call options, would tend to increase the Fund's exposure to the securities
market. Forward contracts can be used to try to manage foreign currency risks on
the Fund's foreign investments. Foreign currency options may be used to try to
protect against declines in the dollar value of foreign securities the Fund
owns, or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options could be used to provide income to the
Fund for liquidity purposes or to raise cash to distribute to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the primary aspect investment objective, high current income.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio managers of the Fund are David P.
Negri and Arthur P. Steinmetz. They have been the persons principally
responsible for the day-to-day management of the Fund's portfolio since April
1991 and May 1993, respectively. Both are Vice Presidents of the Fund and Senior
Vice Presidents of the Manager. During the past five years, they also served as
officers and portfolio managers for other Oppenheimer funds.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% on the next $200 million and 0.50% of average
annual net assets over $1 billion. The Fund's management fee for its last fiscal
year ended December 31, 1998, was ____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Strategic Bond Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0265.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Strategic Bond Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Strategic
Bond Fund (the "Fund") under the heading "Annual Total Return (as of 12/31 each
year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the five most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Aggressive Growth Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Aggressive Growth Fund is a mutual fund that seeks
long-term capital appreciation by investing in "growth-type" companies. Prior to
May 1, 1998, this Fund was named Oppenheimer Capital Appreciation Fund.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek
long-term capital appreciation by investing in "growth-type" companies.
What Does the Fund Invest In? The Fund invests mainly in equity securities, such
as common stocks, preferred stocks and convertible securities, of issuers in the
U.S. and foreign countries. The Fund can invest in any country, including
countries with developed or emerging markets, but currently emphasizes
investments in developed markets. As a fundamental policy, the Fund will
normally invest in at least four countries (including the United States).
The Fund can invest in securities of issues of all market
capitalization ranges. The Fund can also use hedging instruments and certain
derivative investments to try to manage investment risks. These investments are
more fully explained in "About the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio manager looks primarily
for foreign companies with high growth potential using fundamental analysis of a
company's financial statements and management structure, and analysis of the
company's operations and product development, as well as the industry of which
the issuer is part.
The Fund emphasizes 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. The Fund may also invest in
cyclical industries and in "special situations" that the Fund's investment
Manager, OFI, 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. There
is a risk that the price of the security may be expected to decline if the
anticipated development fails to occur.
In seeking broad diversification of the Fund's portfolio, the portfolio
manager considers overall and relative economic conditions in U.S. and foreign
markets, and seeks broad diversification in different countries to help moderate
the special risks of foreign investing. The portfolio manager currently focuses
on the factors below (which may vary in particular cases and may change over
time), looking for:
|_| Companies of different capitalization ranges,
|_| Stocks to provide growth opportunities and bonds to help moderate
portfolio volatility,
|_| Companies with management that has a proven ability to handle rapid growth,
|_| Companies between their start-up and emerging growth phases,
|_| Companies in industries with substantial barriers to new competition, such
as high start-up costs.
The Fund's investment Manager, OppenheimerFunds, Inc., will select
securities for appreciation potential. The Fund's diversification strategies,
both with respect to different issuers, different themes and different
countries, is intended to help reduce volatility of the Fund's share price while
seeking growth.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking capital growth in their investment over the long term,
from a fund that may have substantial investments in foreign securities. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a fund focusing on stock investments and
investments in foreign securities. Since the Fund's income level will fluctuate
and will likely be small, it is not designed for investors needing an assured
level of current income. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors. They
include changes in general stock market movements (this is referred to as
"market risk"), or the change in value of particular stocks because of an event
affecting the issuer. The Fund expects to have substantial amounts of its
investments in foreign securities. Therefore, it will be subject to the risks
that economic, political or other events can have on the values of securities of
issuers in particular foreign countries. Changes in interest rates can also
affect stock prices (this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one issuer. Also, the Fund does not concentrate 25%
or more of its investments in any one industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will change
daily based on changes in market prices of securities and market conditions, and
in response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently focuses
its investments primarily in stocks and other equity securities for capital
appreciation, the value of the Fund's portfolio will be affected by changes in
the stock markets. 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. A
variety of factors can affect the price of a particular stock and the prices of
individual stocks do not all move in the same direction uniformly or at the same
time.
Different stock markets may behave differently from each other.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more than
others, or by changes in government regulations, availability of basic resources
or supplies, or other events. To the extent that the Fund has greater emphasis
on investments in a particular industry using its "global themes" strategy, its
share values may fluctuate in response to events affecting that industry.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer.
The Fund can invest in securities of large companies and also small and
medium-size companies, which may have more volatile stock prices than large
companies.
|X| Special Risks of Newer Companies and Small-Cap Stocks. The Fund
focuses its investments on securities with high growth potential, which are
often newer companies having a market capitalization of $200 million or less.
While they may offer greater opportunities for capital appreciation than larger,
more established companies, they involve substantially greater risks of loss and
price fluctuations than larger cap issuers. Small-cap companies may have limited
product lines or markets for their products, limited access to financial
resources and less depth in management skill than larger, more established
companies. Their stocks may be less liquid than those of larger issuers. That
means the Fund could have greater difficulty selling a security of a small cap
issuer at an acceptable price, especially in periods of market volatility. That
factor increases the potential for losses to the Fund. Also, it may take a
substantial period of time before the Fund realizes a gain on an investment in a
small-cap company, if it realizes any gain at all.
|X| Risks of Foreign Investing. The Fund may invest substantial amounts of
its assets in foreign securities. While foreign securities offer special
investment opportunities, there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities, and if they are not prepared,
there could be delays in settlements of securities trades and additional costs
to the Fund.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is one whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
Options, futures, and forward contracts are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares can go up and down
substantially. In the OppenheimerFunds spectrum, the Fund generally may be less
volatile than funds focusing on investments in emerging markets or small-cap
stock funds, but the Fund has greater risks than funds that focus solely on
large-cap domestic stocks.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years 10 Years
December 31, 1998
Fund Shares ___% ____% _____%
S&P 500 Index ____% ______% _____%
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in stocks, the Fund's performance is
compared to the S&P 500 Index, an unmanaged index of equity securities that is a
measure of the general domestic stock market. However, it must be remembered
that the index performance reflects the reinvestment of income but does not
consider the effects of capital gains or transaction costs. Also, the Fund may
have investments that vary from the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. The
Fund's portfolio might not always include all of the different types of
investments described below. The Fund will invest primarily in common stocks and
may invest in securities convertible into common stocks as well. The Statement
of Additional Information contains more detailed information about the Fund's
investment policies and risks.
The Fund invests in securities issued by domestic or foreign companies
that the Manager believes have growth potential. Growth companies tend to be
companies that may be developing new products or services, that have relatively
favorable prospects, or that are expanding into new and growing markets. Current
examples include companies in the fields of telecommunications, biotechnology,
computer software, and new consumer products. Emerging growth companies may be
providing new products or services that can enable them to capture a dominant or
important market position. They may have a special area of expertise or the
capability to take advantage of changes in demographic factors in a more
profitable way than larger, more established companies.
Growth companies tend to retain a large part of their earnings for
research, development or investment in capital assets. Therefore, they do not
tend to emphasize paying dividends, and may not pay any dividends for some time.
They are selected for the Fund's portfolio because the Manager believes the
price of the stock will increase over the long term.
|_| Cyclical Opportunities. The Fund might also seek to take advantage
of changes in the business cycle by investing in companies that are sensitive to
those changes if the Manager believes they have growth potential. For example,
when the economy is expanding, companies in the consumer durables and technology
sectors might benefit and present long-term growth opportunities. Other cyclical
industries include insurance and forest products, for example. The Fund focuses
on seeking growth over the long term, but could seek to take tactical advantage
of short-term market movements or events affecting particular issuers or
industries.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage costs the
Fund pays. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund may also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| "When-Issued" and Delayed-Delivery Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative investments." In addition to using
hedging instruments, the Fund can use other derivative investments because they
offer the potential for increased income and principal value.
Markets underlying securities and indices might move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively and is not
required to do so to seek its objective. The Fund has limits on its use of
hedging instruments and currently does not use them to a significant degree.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the capital appreciation aspect investment objective.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Bruce L.
Bartlett. He is a Vice President of the Fund and a Senior Vice President of the
Manager. He has been the person principally responsible for the day-to-day
management of the Fund's portfolio since April, 1998. During the past five
years, Mr. Bartlett has served as portfolio manager and Vice President of other
Oppenheimer funds and formerly served as a Vice President and Senior Portfolio
Manager at First of America Investment Corp.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, 0.60% of the next $700 million, and 0.58% of average
annual net assets over $1.5 billion. The Fund's management fee for its last
fiscal year ended December 31, 1998, was ____% of the Fund's average annual net
assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Aggressive Growth Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0620.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Aggressive Growth Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Aggressive
Growth Fund (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
- ----- --------------------
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Growth Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Growth Fund is a mutual fund that seeks long-term capital
appreciation by investing in securities of well-known established companies. It
invests mainly in equity securities.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek
long-term capital appreciation by investing in securities of well-known
established companies.
What Does the Fund Invest In? The Fund invests mainly in equity securities, such
as common stocks, preferred stocks and convertible securities, of issuers in the
U.S. and foreign countries. The Fund can invest in any country, but it
emphasizes investments in the United States and other developed markets.
The 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.
While the Fund can invest in securities of issues of all market
capitalization ranges, most well known, established companies are categorized as
large capitalization issuers ($5 billion or more). The Fund can also use hedging
instruments and certain derivative investments to try to manage investment
risks. These investments are more fully explained in "About the Fund's
Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio manager looks primarily
for companies with high growth potential using fundamental analysis of a
company's financial statements and management structure, and analysis of the
company's operations and product development, as well as the industry of which
the issuer is part.
In seeking broad diversification of the Fund's portfolio, the portfolio
manager considers overall and relative economic conditions in U.S. and foreign
markets, and seeks broad diversification in different countries to help moderate
the special risks of foreign investing. The portfolio manager currently focuses
on the factors below (which may vary in particular cases and may change over
time), looking for:
|_| Companies with management that has a proven record,
|_| Companies with relatively stable or established businesses in
established markets, that are entering into a growth cycle.
|_| Companies with strong earnings growth.
The Fund's investment Manager, OppenheimerFunds, Inc., will select
securities for appreciation potential. The Fund's diversification strategies is
intended to help reduce volatility of the Fund's share price while seeking
growth.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking capital growth in their investment over the long term,
from an equity fund. Those investors should be willing to assume the risks of
short-term share price fluctuations that are typical for a fund focusing on
stock investments. Since the Fund's income level will fluctuate and will likely
be small, it is not designed for investors needing an assured level of current
income. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors. They
include changes in general stock market movements (this is referred to as
"market risk"), or the change in value of particular stocks because of an event
affecting the issuer. Changes in interest rates can also affect stock prices
(this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one issuer. Also, the Fund does not concentrate 25%
or more of its investments in any one industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will change
daily based on changes in market prices of securities and market conditions, and
in response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently focuses
its investments primarily in stocks and other equity securities for capital
appreciation, the value of the Fund's portfolio will be affected by changes in
the stock markets. 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. A
variety of factors can affect the price of a particular stock and the prices of
individual stocks do not all move in the same direction uniformly or at the same
time.
Different stock markets may behave differently from each other.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more than
others, or by changes in government regulations, availability of basic resources
or supplies, or other events. To the extent that the Fund has greater emphasis
on investments in a particular industry using its "global themes" strategy, its
share values may fluctuate in response to events affecting that industry.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer.
The Fund can invest in securities of large companies and also small and
medium-size companies, which may have more volatile stock prices than large
companies.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is one whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
Options, futures, and forward contracts are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares can go up and down
substantially. In the OppenheimerFunds spectrum, the Fund generally may be less
volatile than funds focusing on investments in emerging markets or small-cap
stock funds, but the Fund may have greater risk than funds that invest to some
degree in fixed income securities.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years 10 Years
December 31, 1998
Fund Shares ___% ____% _____%
S&P 500 Index ____% ____% _____%
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in stocks, the Fund's performance is
compared to the S&P 500 Index, an unmanaged index of equity securities that is a
measure of the general domestic stock market. However, it must be remembered
that the index performance reflects the reinvestment of income but does not
consider the effects of capital gains or transaction costs. Also, the Fund may
have investments that vary from the index, including debt securities, which are
not included in the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. The
Fund's portfolio might not always include all of the different types of
investments described below. The Fund will invest primarily in common stocks and
may invest in securities convertible into common stocks as well. The Statement
of Additional Information contains more detailed information about the Fund's
investment policies and risks.
|X| Stock Investments. The types of growth companies the Manager
focuses on are larger, more established growth companies. Growth companies, for
example, may be developing new products or services, such as companies in the
technology sector, or they may be expanding into new markets for their products,
such as the energy sector. Growth companies tend to retain a large part of their
earnings for research, development or investment in capital assets. Therefore,
they do not tend to emphasize paying dividends, and may not pay any dividends
for some time. They are selected for the Fund's portfolio because the Manager
believes the price of the stock will increase over time.
While the Fund emphasizes investments in common stocks, it may also buy
preferred stocks and securities convertible into common stock. They can include
securities issued by domestic or foreign companies. The Manager considers
convertible securities to be "equity equivalents" because of the conversion
feature and because their rating has less impact on the investment decision than
in the case of other debt securities.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage costs the
Fund pays. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund may also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| "When-Issued" and Delayed-Delivery Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative investments." In addition to using
hedging instruments, the Fund can use other derivative investments because they
offer the potential for increased income and principal value.
Markets underlying securities and indices might move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively and is not
required to do so to seek its objective. The Fund has limits on its use of
hedging instruments and currently does not use them to a significant degree.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the capital appreciation aspect investment objective.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Jane
Putnam. She is a Vice President of the Fund and the Manager. She has been the
person principally responsible for the day-to-day management of the Fund's
portfolio since May, 1994. During the past five years, Ms. Putnam has also
served as an officer and portfolio manager for other Oppenheimer funds, prior to
which she was a portfolio manager and equity research analyst for Chemical Bank.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, and 0.60% of average annual net assets over $800 million.
The Fund's management fee for its last fiscal year ended December 31, 1998, was
____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Growth Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0610.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Growth Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Growth Fund
(the "Fund") under the heading "Annual Total Return (as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Small Cap Growth Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Small Cap Growth Fund is a mutual fund that seeks capital
appreciation. Current income is not an objective. In seeking its objective, the
Fund emphasizes investments in securities of "growth-type" companies with market
capitalization less than $1 billion, including common stocks, preferred stocks,
convertible securities, rights, warrants and options, in proportions which may
vary from time to time.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek capital
appreciation.
What Does the Fund Invest In? The Fund invests mainly in equity securities, such
as common stocks, preferred stocks and convertible securities, of issuers in the
U.S. and foreign countries. The Fund invests primarily in securities of
"growth-type" companies with market capitalization less than $1 billion. The
Fund can invest in any country, including countries with developed or emerging
markets, but currently emphasizes investments in developed markets.
The Fund can also use hedging instruments and certain derivative
investments to try to manage investment risks. These investments are more fully
explained in "About the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio manager looks primarily
for companies with high growth potential using fundamental analysis of a
company's financial statements and management structure, and analysis of the
company's operations and product development, as well as the industry of which
the issuer is part.
In seeking broad diversification of the Fund's portfolio, the portfolio
manager considers overall and relative economic conditions in U.S. and foreign
markets, and seeks broad diversification in different countries to help moderate
the special risks of foreign investing. The portfolio manager currently focuses
on the factors below (which may vary in particular cases and may change over
time), looking for:
|_| Companies with small capitalizations, that is, $1 billion or less,
|_| Companies with management that has a proven record,
|_| Companies with relatively stable or established businesses in
established markets, that are entering into a growth cycle.
|_| Companies with strong earnings growth.
The Fund's investment Manager, OppenheimerFunds, Inc., will select
securities for appreciation potential. The Fund's diversification strategies,
both with respect to different issuers, different themes and different
countries, is intended to help reduce volatility of the Fund's share price while
seeking growth.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking capital growth in their investment over the long term,
from a fund that may have substantial investments in small-cap stocks. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a fund focusing on stock investments and
investments in small-cap stocks. Since the Fund's income level will fluctuate
and will likely be small, it is not designed for investors needing an assured
level of current income. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors.
Investments in stocks can be volatile and are subject to changes in general
stock market movements (this is referred to as "market risk"). There may be
events or changes affecting particular industries that might be emphasized in
the Fund's portfolio (this is referred to as "industry risk") or the change in
value of a particular stock because of an event affecting the issuer.
Stocks of growth companies may provide greater opportunities for
capital appreciation but may be more volatile than other stocks. That volatility
is likely to be even greater for small-cap companies. The Fund can also buy
foreign securities in both emerging and developed markets that have special
risks not associated with investments in domestic securities, such as the
effects of currency fluctuations on relative prices.
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased. The Fund
attempts to reduce its exposure to market risks by diversifying its investments,
that is, by not holding a substantial amount of stock of any one company and by
not investing too great a percentage of the Fund's assets in any one company.
Also, the Fund does not concentrate 25% or more of its assets in investments in
any one industry. However, changes in the overall market prices of securities
can occur at any time. The share price of the Fund will change daily based on
changes in market prices of securities and market conditions, and in response to
other economic events. There is no assurance that the Fund will achieve its
investment objective.
|X| Risks of Investing in Stocks. Because the Fund invests primarily in
equity securities of small-cap growth companies, the value of the Fund's
portfolio will be affected by the special economic and other factors that might
primarily affect the prices of small cap stocks. 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. The prices of individual stocks do not all
move in the same direction uniformly or at the same time.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer or
its industry. To the extent that the Fund is emphasizing investments in a
particular industry, its share values may fluctuate in response to events
affecting that industry.
|X| Special Risks of Small-Cap Stocks. The Fund focuses its investments
on securities of companies having a market capitalization of $1 billion or less,
which can include both established and newer companies. While newer emerging
growth companies might offer greater opportunities for capital appreciation than
larger, more established companies, they involve substantially greater risks of
loss and price fluctuations than larger cap issuers.
Small-cap companies may have limited product lines or markets for their
products, limited access to financial resources and less depth in management
skill than larger, more established companies. Their stocks may be less liquid
than those of larger issuers. That means the Fund could have greater difficulty
selling a security of a small cap issuer at an acceptable price, especially in
periods of market volatility. That factor increases the potential for losses to
the Fund. Also, it may take a substantial period of time before the Fund
realizes a gain on an investment in a small-cap company, if it realizes any gain
at all.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer.
The Fund can invest in securities of large companies and also small and
medium-size companies, which may have more volatile stock prices than large
companies.
|X| Risks of Foreign Investing. The Fund may invest substantial amounts of
its assets in foreign securities. While foreign securities offer special
investment opportunities, there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities, and if they are not prepared,
there could be delays in settlements of securities trades and additional costs
to the Fund.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is one whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
Options, futures, and forward contracts are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares can go up and down
substantially. In the OppenheimerFunds spectrum, the Fund generally may be less
volatile than funds focusing on investments in emerging markets or small-cap
stock funds, but the Fund has greater risks than funds that focus solely on
large-cap domestic stocks.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
Because the Fund commenced operations on May 1, 1998, calendar year
performance information for 1998 is not included in this Prospectus. To obtain
performance information for the Fund, you can contact the Transfer Agent at the
telephone number on the Back Cover.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. The
Fund's portfolio might not always include all of the different types of
investments described below. The Fund will invest primarily in common stocks and
may invest in securities convertible into common stocks as well. Under normal
conditions, the Fund will emphasize small companies with a market capitalization
of $1 billion or less. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.
|X| Small-Cap Stock Investments. The Fund emphasizes investments in
equity securities of small companies that have growth potential. Small-cap
growth companies tend to be companies that may be developing new products or
services, that have relatively favorable prospects, or that are expanding into
new and growing markets. Current examples include companies in the fields of
telecommunications, biotechnology, computer software, and new consumer products.
Emerging growth companies may be providing new products or services
that can enable them to capture a dominant or important market position. They
may have a special area of expertise or the capability to take advantage of
changes in demographic factors in a more profitable way than larger, more
established companies.
Growth companies tend to retain a large part of their earnings for
research, development or investment in capital assets. Therefore, they do not
tend to emphasize paying dividends, and may not pay any dividends for some time.
They are selected for the Fund's portfolio because the Manager believes the
price of the stock will increase over the long term. While they include
established companies that are entering a growth cycle, they also include newer
companies.
|_| Foreign Securities The Fund Can Buy. The foreign securities the
Fund can buy include equity securities of companies organized under the laws of
a foreign country. The Fund can also buy foreign debt securities, primarily for
liquidity or defensive purposes. It can buy debt securities issued by foreign
companies or by foreign governments and their agencies.
Foreign securities include securities traded primarily on a foreign
securities exchange or over-the-counter market. Securities of companies that
derive a significant portion of their revenue or profits from foreign business,
investments or sales, or have a significant portion of their assets outside the
U.S. are also considered to be foreign securities. Foreign securities include
securities of foreign issuers that are represented in the U.S. securities
markets by American Depository Receipts (ADRs) or similar arrangements.
|_| Cyclical Opportunities. The Fund might also seek to take advantage
of changes in the business cycle by investing in companies that are sensitive to
those changes if the Manager believes they have growth potential. For example,
when the economy is expanding, companies in the consumer durables and technology
sectors might benefit and present long-term growth opportunities. Other cyclical
industries include insurance and forest products. The Fund focuses on seeking
growth over the long term but might seek to take tactical advantage of
short-term market movements or events affecting particular issuers or
industries. There is the risk that those securities can lose value when the
issuer or industry is out of phase in the business cycle.
|_| Industry Focus. At times, the Fund may increase the relative
emphasis of its investments in a particular industry. Stocks of issuers in a
particular industry might be affected by changes in economic conditions or by
changes in government regulations, availability of basic resources or supplies,
or other events that affect that industry more than others. To the extent that
the Fund has a greater emphasis on investments in a particular industry, its
share values may fluctuate in response to events affecting that industry. To
some extent that risk may be limited by the Fund's policy of not concentrating
25% or more of its assets in investments in any one industry.
|_| Other Equity Securities. While the Fund emphasizes investments in
common stocks, it may also buy preferred stocks and securities convertible into
common stock. The Manager considers convertible securities to be "equity
equivalents" because of the conversion feature and because their rating has less
impact on the investment decision than in the case of other debt securities.
Nevertheless, convertible securities are subject to both "credit risk" (the risk
that the issuer will not pay interest or repay principal in a timely manner) and
"interest rate risk" (the risk that the prices of the securities will be
affected inversely by changes in prevailing interest rates). If the Fund buys
convertible securities (or other debt securities) it will focus primarily on
investment-grade securities, which pose less credit risk than lower-grade debt
securities.
The Fund invests in securities issued by companies that the Manager
believes have appreciation potential. The Fund invests primarily in a
diversified portfolio of stocks to seek capital growth. Equity securities
include common stocks, preferred stocks and securities convertible into common
stock. The Manager considers convertible securities to be "equity equivalents"
because of the conversion feature and because their rating has less impact on
the investment decision than in the case of other debt securities.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage costs the
Fund pays. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund may also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| "When-Issued" and Delayed-Delivery Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative investments." In addition to using
hedging instruments, the Fund can use other derivative investments because they
offer the potential for increased income and principal value.
Markets underlying securities and indices might move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively and is not
required to do so to seek its objective. The Fund has limits on its use of
hedging instruments and currently does not use them to a significant degree.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the capital appreciation aspect investment objective.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Managers. The Portfolio Managers of the Fund are Jay W.
Tracey, III and Alan Gilston. They are the persons principally responsible for
the day-to-day management of the Fund since May 1998, and have served as
portfolio managers and officers of other Oppenheimer funds. During the past five
years, Mr. Tracey formerly served as a Managing Director of Buckingham Capital
Management, prior to which he was a portfolio manager and Vice President of
other Oppenheimer funds and a Vice President of the Manager. During the past
five years, Mr. Gilston has served as a Vice President and portfolio manager for
Schroeder Capital Management International, Inc.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, and 0.60% of average annual net assets over $800 million.
The Fund's management fee for its last fiscal year ended December 31, 1998, was
____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total return in the table represent the
rate that an investor would have earned [or lost] on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Small Cap Growth Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0297.001.0599 Printed on recycled paper.
<PAGE>
Oppenheimer Global Securities Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Global Securities Fund is a mutual fund that seeks
long-term capital appreciation by investing a substantial portion of assets in
securities of foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation possibilities. It
invests in equity securities of U.S. and foreign issuers.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's 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 Does the Fund Invest In? The Fund invests mainly in equity securities, such
as common stocks, preferred stocks and convertible securities, of issuers in the
U.S. and foreign countries. The Fund can invest in any country, including
countries with developed or emerging markets, but currently emphasizes
investments in developed markets. As a fundamental policy, the Fund will
normally invest in at least four countries (including the United States).
The Fund can invest in securities of issues of all market
capitalization ranges. The Fund can also use hedging instruments and certain
derivative investments to try to manage investment risks. These investments are
more fully explained in "About the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio manager looks primarily
for foreign companies with high growth potential using fundamental analysis of a
company's financial statements and management structure, and analysis of the
company's operations and product development, as well as the industry of which
the issuer is part.
In seeking broad diversification of the Fund's portfolio, the portfolio
manager considers overall and relative economic conditions in U.S. and foreign
markets, and seeks broad diversification in different countries to help moderate
the special risks of foreign investing. The portfolio manager currently focuses
on the factors below (which may vary in particular cases and may change over
time), looking for:
|_| Companies of different capitalization ranges,
|_| Stocks to provide growth opportunities and bonds to help moderate portfolio
volatility,
|_| Companies in industries with substantial barriers to new competition, such
as high start-up costs.
In applying these and other selection criteria, the portfolio manager
considers the effect of worldwide trends on the growth of various business
sectors. The trends, or global "themes," currently employed include
telecommunications expansion, emerging consumer markets, infrastructure
development, natural resources use and development, corporate restructuring,
capital market development, health care expansion and global integration. The
Manager does not invest a fixed or specific amount of the Fund's assets in any
one sector, and these themes and this strategy may change over time.
The Fund's investment Manager, OppenheimerFunds, Inc., will select
securities for appreciation potential. The Fund's diversification strategies,
both with respect to different issuers, different themes and different
countries, is intended to help reduce volatility of the Fund's share price while
seeking growth.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking capital growth in their investment over the long term,
from a fund that may have substantial investments in foreign securities. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a fund focusing on stock investments and
investments in foreign securities. Since the Fund's income level will fluctuate
and will likely be small, it is not designed for investors needing an assured
level of current income. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of factors.
They include changes in general stock market movements (this is referred to as
"market risk"), or the change in value of particular stocks because of an event
affecting the issuer. The Fund expects to have substantial amounts of its
investments in foreign securities. Therefore, it will be subject to the risks
that economic, political or other events can have on the values of securities of
issuers in particular foreign countries. Changes in interest rates can also
affect stock prices (this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one issuer. Also, the Fund does not concentrate 25%
or more of its investments in any one industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will change
daily based on changes in market prices of securities and market conditions, and
in response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently focuses
its investments primarily in stocks and other equity securities for capital
appreciation, the value of the Fund's portfolio will be affected by changes in
the stock markets. 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. A
variety of factors can affect the price of a particular stock and the prices of
individual stocks do not all move in the same direction uniformly or at the same
time.
Different stock markets may behave differently from each other.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more than
others, or by changes in government regulations, availability of basic resources
or supplies, or other events. To the extent that the Fund has greater emphasis
on investments in a particular industry using its "global themes" strategy, its
share values may fluctuate in response to events affecting that industry.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer.
The Fund can invest in securities of large companies and also small and
medium-size companies, which may have more volatile stock prices than large
companies.
|X| Risks of Foreign Investing. The Fund expects to invest substantial
amounts of its assets in foreign securities. While foreign securities offer
special investment opportunities, there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities, and if they are not prepared,
there could be delays in settlements of securities trades and additional costs
to the Fund.
|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is one whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
Options, futures, and forward contracts are examples of derivatives.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares can go up and down
substantially. In the OppenheimerFunds spectrum, the Fund generally may be less
volatile than funds focusing on investments in emerging markets or small-cap
stock funds, but the Fund has greater risks than funds that focus solely on
large-cap domestic stocks.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year 5 Years Life of Fund
December 31, 1998
Fund Shares ___% ____% _____%
(inception 11/20/90)
MSCI World Index ____% ______% _____%
(from 11/30/90)
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in U.S. and foreign stocks, the
Fund's performance is compared to the Morgan Stanley Capital International World
Index, an unmanaged index of equity securities listed on stock exchanges of 20
foreign countries and the U.S. However, it must be remembered that the index
performance reflects the reinvestment of income but does not consider the
effects of capital gains or transaction costs. Also, the Fund may have
investments that vary from the index, including debt securities, which are not
included in the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. The
Fund's portfolio might not always include all of the different types of
investments described below. The Fund will invest primarily in common stocks and
may invest in securities convertible into common stocks as well. The Statement
of Additional Information contains more detailed information about the Fund's
investment policies and risks.
The Fund invests in securities issued by domestic or foreign companies
that the Manager believes have appreciation potential. The Fund invests
primarily in a diversified portfolio of stocks and other equity securities of
issuers that may be of small, medium or large size, to seek capital growth.
Equity securities include common stocks, preferred stocks and securities
convertible into common stock. The Manager considers convertible securities to
be "equity equivalents" because of the conversion feature and because their
rating has less impact on the investment decision than in the case of other debt
securities.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment 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 Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund may engage in short-term trading to
try to achieve its objective. Portfolio turnover affects brokerage costs the
Fund pays. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund may also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| "When-Issued" and Delayed-Delivery Transactions. The Fund can
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 might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative investments." In addition to using
hedging instruments, the Fund can use other derivative investments because they
offer the potential for increased income and principal value.
Markets underlying securities and indices might move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively and is not
required to do so to seek its objective. The Fund has limits on its use of
hedging instruments and currently does not use them to a significant degree.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Temporary Defensive Investments. For cash management purposes, the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. These would ordinarily be U. S. government
securities, highly-rated commercial paper, bank deposits or repurchase
agreements. To the extent the Fund invests defensively in these securities, it
might not achieve the capital appreciation aspect investment objective.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is William
Wilby. He is a Vice President of the Fund and a Senior Vice President of the
Manager. He has been the person principally responsible for the day-to-day
management of the 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.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, and 0.60% of average annual net assets over $800 million.
The Fund's management fee for its last fiscal year ended December 31, 1998, was
____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Global Securities Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0485.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Global Securities Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Global
Securities Fund (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the eight most recent calendar years, without deducting separate
account expenses. Set forth below are the relevant data that will appear on the
bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Multiple Strategies Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Multiple Strategies Fund is a mutual fund that seeks a
total 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.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek 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.
What Does the Fund Invest In? The Fund's investment Manager, OppenheimerFunds,
Inc., uses a variety of different types of securities and investment strategies
to seek the Fund's objective:
o Equity securities, such as common stocks, preferred stocks and convertible
securities, of issuers in the U.S. and foreign countries
o Debt securities, such as bonds and notes issued by domestic and
foreign companies (which can include lower-grade, high-yield
securities), securities issued or guaranteed by the U.S. government
and its agencies and instrumentalities including mortgage-related
securities (these are referred to as "U.S. government securities"),
and debt obligations of foreign governments
o Money market instruments, which are obligations that have a maturity
of 13 months or less, including short-term U.S. government
securities, corporate and bank debt obligations and commercial paper
o Hedging instruments, such as put and call options, foreign currency
forward contracts, futures and certain derivative investments to try
to enhance income or to manage investment risks.
These investments are more fully explained in "About the Fund's
Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio managers use different
investment styles to carry out an asset allocation strategy that seeks broad
diversification across asset classes. The composition of the 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 the 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 the 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.
The debt securities in the portfolio normally include a mix of U.S.
government securities, high-yield corporate bonds and foreign bonds, to seek
current income. The relative amounts of those types of debt securities in the
portfolio will change over time, because those sectors of the bond markets
generally react differently to changing economic environments.
The portfolio managers employ both "growth" and "value" styles in
selecting equity securities, using fundamental analysis of a company's financial
statements and management structure, and analysis of the company's operations
and product development, as well as the industry of which the issuer is part.
Value investing seeks issuers that are temporarily out of favor or undervalued
in the market by various measures, such as the stock's price/earnings ratio.
Growth investing seeks issuers that the manager believes have possibilities for
increases in stock price because of strong earnings growth compared to the
market, the development of new products or services or other favorable economic
factors.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking high total return from their investment over the long
term, from a fund employing a variety of investments and investment styles in a
diversified portfolio. While the Fund selects investments consistent with the
goal of preservation of principal, investors should be willing to assume the
risks of short-term share price fluctuations that are typical for a fund with
significant investments in stocks and foreign securities. Since the Fund's
income level will fluctuate, it is not designed for investors needing an assured
level of current income.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of factors.
They include changes in general stock and bond market movements (this is
referred to as "market risk"), or the change in value of particular stocks or
bonds because of an event affecting the issuer (in the case of bonds, this is
known as "credit risk"). High-yield, lower-grade bonds (commonly called "junk
bonds") are subject to greater credit risks than investment-grade securities.
The Fund can have significant amounts of its assets invested in foreign
securities. Therefore, it will be subject to the risks of economic, political or
other events that can affect the values of securities of issuers in particular
foreign countries. Changes in interest rates can also affect stock and bond
prices (this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of stock of any one
company and by not investing too great a percentage of the Fund's assets in any
one issuer.
Also, the Fund does not concentrate 25% or more of its investments in any one
industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will change
daily based on changes in market prices of securities and market conditions, and
in response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. The value of the Fund's portfolio
therefore will be affected by changes in the stock markets. 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. A variety of factors can affect the
price of a particular stock and the prices of individual stocks do not all move
in the same direction uniformly or at the same time. Different stock markets may
behave differently from each other.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more than
others, or by changes in government regulations, availability of basic resources
or supplies, or other events. Other factors can affect a particular stock's
price, such as poor earnings reports by the issuer, loss of major customers,
major litigation against the issuer, or changes in government regulations
affecting the issuer. The Fund can invest in securities of large companies and
also small and medium-size companies, which may have more volatile stock prices
than large companies.
|X| Risks of Foreign Investing. The Fund can buy securities issued by
companies or governments in any country, including developed and underdeveloped
countries. There are no limits on the amounts it can invest in foreign
securities. While foreign securities offer special investment opportunities,
there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities. If they are not prepared,
there could be delays in settlement of securities trades and additional costs to
the Fund.
|_| Special Risks of Emerging and Developing Markets.
Securities in emerging and developing market countries may offer special
investment opportunities, but investments in these countries present risks not
found in more mature markets. Those securities may be more difficult to sell at
an acceptable price and their prices may be more volatile than securities of
issuers in more developed markets. Settlements of trades may be subject to
greater delays so that the Fund might not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges. Emerging countries may have less developed legal and accounting
systems and investments may be subject to greater risks of government
restrictions on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be very speculative.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. While the Fund's investments in U.S. government securities are subject
to little credit risk, the Fund's other investments in debt securities,
particularly high-yield lower-grade debt securities, are subject to risks of
default.
|_| Special Risks of Lower-Grade Securities. Because the Fund
can invest in securities below investment-grade to seek high income, the Fund's
credit risks are greater than those of funds that buy only investment-grade
bonds. Lower-grade debt securities (commonly called "junk bonds") may be subject
to greater market fluctuations and greater risks of loss of income and principal
than investment-grade debt securities. Securities that are (or that have fallen)
below investment grade are exposed to a greater risk that the issuers of those
securities might not meet their debt obligations. These risks can reduce the
Fund's share prices and the income it earns.
|X| Interest Rate Risks. The values of debt securities are subject to
change when prevailing interest rates change. When interest rates fall, the
values of already-issued debt securities generally rise. When interest rates
rise, the values of already-issued debt securities generally fall. The magnitude
of these fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a
security can prepay the principal prior to the security's maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund can buy, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund might buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments might occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|X| There Are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate or index. Options, futures, CMOs, and structured notes are examples of
derivatives the Fund can use.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares will go up and down
in response to those changes. The Fund's income-oriented investments, if any,
may help cushion the Fund's total return from changes in stock prices, but debt
securities are subject to credit and interest rate risks. In the
OppenheimerFunds spectrum, the Fund may be less volatile than funds that focus
only on stock investments, but has more risks than funds that focus solely on
investment grade bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended
December 31, 1998 1 Year 5 Years 10 Years
Fund Shares ____% ____% ______%
S&P 500 Index _____% _____% ______%
Lehman Bros. Aggregate Bond _____% ______% ______%
Index
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in stocks, the Fund's performance is compared
to the Standard & Poor's 500 Index, an unmanaged index of U.S. equity securities
that is a measure of the general domestic stock market. Because the Fund also
invests in debt securities, the Fund also compares its performance to the Lehman
Brothers Aggregate Bond Index, an unmanaged index of U.S. corporate, government
and mortgage-backed securities that is a measure of the domestic bond market.
However, it must be remembered that the index performance reflects the
reinvestment of income but does not consider the effects of capital gains or
transaction costs. Also, the Fund may have investments that vary from the
indices.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. At times
the Fund may focus more on investing for capital appreciation with less emphasis
on income, while seeking to preserve principal. At other times, for example when
stock markets are less stable, the Fund may have substantial amounts of
income-seeking investments, such as money market instruments.
In seeking broad diversification of the Fund's portfolio over asset
classes, issuers and economies, the portfolio managers consider overall and
relative economic conditions in U.S. and foreign markets. They seek broad
diversification by investing in different countries to help moderate the special
risks of investing in foreign securities and lower-grade, high-yield debt
securities. The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.
Stock Investments. The Fund invests in equity securities of issuers that may be
of small, medium or large size, to seek capital growth. Equity securities
include common stocks, preferred stocks and securities convertible into common
stock. Although convertible securities are a type of debt security, the Manager
considers convertible securities to be "equity equivalents" because of the
conversion feature and their rating has less impact on the investment decision
than in the case of other debt securities. The Fund invests in securities issued
by domestic or foreign companies that the Manager believes have appreciation
potential.
The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less liquidity
than exchange-traded securities, and stocks of companies with smaller
capitalization have greater risk of volatility than stocks of larger companies.
Debt Securities. The Fund can also invest in debt securities, such as U.S.
government securities, foreign government securities, and foreign and domestic
corporate bonds, notes and debentures, for their income possibilities.
The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned a rating by the
Manager. The Fund's investments may be above or below investment grade in credit
quality. The Manager does not rely solely on ratings by rating organizations in
selecting debt securities but evaluates business and economic factors affecting
an issuer as well.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies and can include "Brady Bonds." Those are U.S.
dollar-denominated debt securities collateralized by zero-coupon U.S. Treasury
securities. They are typically issued by governments of emerging market
countries and are considered speculative securities with higher risks of
default. The Fund will buy foreign currency only in connection with the purchase
and sale of foreign securities and not for speculation.
|X| U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities". These
are referred to as "U.S. government securities" in this Prospectus. They can
include collateralized mortgage obligations (CMOs) and other mortgage-related
securities. Mortgage-related securities are subject to additional risks of
unanticipated prepayments of the underlying mortgages, which can affect the
income stream to the Fund from those securities as well as their values.
|_| U.S. Treasury Obligations. These include Treasury bills
(having maturities of one year or less when issued), Treasury notes (having
maturities of from one to ten years), and Treasury bonds (having maturities of
more than ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and
repayment of principal. The Fund can buy U. S. Treasury securities that have
been "stripped" of their interest coupons by a Federal Reserve Bank, zero-coupon
U.S. Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS"). Although not rated, Treasury obligations have little credit
risk but prior to their maturity are subject to interest rate risk.
|_| Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities. These include direct obligations and
mortgage-related securities that have different levels of credit support from
the U.S. government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs"). These have
relatively little credit risk.
|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series each having
different interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have significant amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly and if prepayments occur more slowly
than expected, a short- or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks can
make the prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities. That volatility will affect the Fund's share prices.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these would include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings and
loans, mortgage bankers and other non-governmental issuers. Private issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
|X| High-Yield, Lower-Grade Debt Securities. The Fund can invest
without limit in lower-grade, high yield debt securities, including bonds,
debentures, notes, preferred stocks, loan participation interests, structured
notes, asset-backed securities, among others, to seek current income. These
securities are sometimes called "junk bonds." The Fund has no requirements as to
the maturity of the debt securities it can buy, or as to the market
capitalization range of the issuers of those securities.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service or lower than "BBB" by Standard & Poor's or similar ratings by
other nationally-recognized rating organizations. The Fund can invest in
securities rated as low as "C" or "D" or which are in default at the time the
Fund buys them. While securities rated "Baa" by Moody's or "BBB" by S&P are
considered "investment grade," they have some speculative characteristics.
The special risks these securities are subject to mean that the Fund
may not achieve the expected income from them and that the Fund's net asset
value per share may be affected by declines in value of these securities.
Money Market Instruments. The Fund can invest in money market instruments, which
are debt obligations maturing in 13 months or less. They include short-term
certificates of deposit, bankers' acceptances, commercial paper (including
variable amount master demand notes), U.S. Government obligations, and other
debt instruments (including bonds) issued by corporations. These securities may
have variable or floating interest rates. The Fund's investments in commercial
paper in general will be limited to paper in the top two rating categories of
Standard & Poor's or Moody's.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment 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 Fund's
objective is a fundamental policy. Investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of Additional
Information says that it is.
Portfolio Turnover. The Fund can engage in short-term trading to try to achieve
its objective. Portfolio turnover affects brokerage costs the Fund pays. If the
Fund realizes capital gains when it sells its portfolio investments, it must
generally pay those gains out to shareholders, increasing their taxable
distributions. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of the different types of techniques and investments described below.
These techniques involve certain risks, although some are designed to help
reduce investment or market risks.
|X| Bank Loan Participation Agreements. The Fund can invest in bank
loan participation agreements. They provide the Fund an undivided interest in a
loan made by the issuing bank in the proportion the Fund's interest bears to the
total principal amount of the loan. In evaluating the risk of these investments,
the Manager looks to the creditworthiness of the borrower that is obligated to
make principal and interest payments on the loan. Not more than 5% of the Fund's
net assets can be invested in participation interests of any one borrower.
|X| Repurchase Agreements. The Fund can enter into repurchase
agreements. 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 could incur costs in disposing of
the collateral and might experience losses if there is any delay in its ability
to do so. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of 7 days or less.
|X| Zero-Coupon and "Stripped" Securities. Some of the U.S. government
debt securities the Fund buys are zero-coupon bonds that pay no interest. They
are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt security.
Some CMOs or other mortgage-related securities may be stripped, with each
component having a different proportion of principal or interest payments. One
class might receive all the interest and the other all the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The Fund
may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
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 might be a loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, mortgage-related securities and
other hedging instruments the Fund can use may be considered "derivative
investments." In addition to using hedging instruments, the Fund may use other
derivative investments because they offer the potential for increased income and
principal value.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund is not required to use hedging instruments to seek its
objective. The Fund does not use hedging instruments for speculative purposes,
and has limits on its use of them.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The Fund's management team includes four
portfolio managers. Each is a Vice President of the Fund. They are the persons
principally responsible for the day-to-day management of the Fund's portfolio.
Richard H. Rubinstein and David P. Negri, who are both Senior Vice Presidents of
the Manager, and George Evans and Michael Levine, who are both Vice Presidents
of the Manager, have been portfolio managers of the Fund since April 1991,
January 1990, August 1998 and August 1998, respectively. Each serves as an
officer and manager of other Oppenheimer funds. Prior to joining the Manager in
June 1994, Mr. Levine was a portfolio manager and research associate for Amas
Securities, Inc.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, and 0.60% of average annual net assets over $800 million.
The Fund's management fee for its last fiscal year ended December 31, 1998, was
____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Multiple Strategies Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0670.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Multiple Strategies Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Multiple
Strategies Fund (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the ten most recent calendar years, without deducting separate
account expenses.
Set forth below are the relevant data that will appear on the bar chart:
Calendar
Year
Ended Annual Total Returns
- ----- --------------------
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Growth & Income Fund
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 1999
Oppenheimer Growth & Income Fund is a mutual fund that seeks total
return (which includes growth in the value of its shares as well as current
income) from equity and debt securities.
Shares of the Fund are sold only as the underlying investment for
variable life insurance policies, variable annuity contracts and other insurance
company separate accounts. The prospectus for the insurance product (that
accompanies this Prospectus) explains how to select shares of the Fund as the
investment under that insurance product.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. Please read this
Prospectus (and your insurance product Prospectus) carefully before you invest
and keep them for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund's objective is to seek high
total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities.
What Does the Fund Invest In? The Fund invests in equity securities, such as
common stocks, preferred stocks and convertible securities and in debt
securities, of issuers in the U.S. and foreign countries.
Although the Fund can invest in securities of issues of all market
capitalization ranges, it may focus from time to time on small to medium
capitalization issuers (having a market capitalization of less than $5 billion).
The Fund can also use hedging instruments and certain derivative investments to
try to manage investment risks. These investments are more fully explained in
"About the Fund's Investments," below.
What Does the Fund Invest In? The Fund's investment Manager, OppenheimerFunds,
Inc., uses a variety of different types of securities and investment strategies
to seek the Fund's objective:
o Equity securities, such as common stocks, preferred stocks and convertible
securities, of issuers in the U.S. and foreign countries
o Debt securities, such as bonds and notes issued by domestic and
foreign companies (which can include lower-grade, high-yield
securities), securities issued or guaranteed by the U.S. government
and its agencies and instrumentalities including mortgage-related
securities (these are referred to as "U.S. government securities"),
and debt obligations of foreign governments
o Hedging instruments, such as put and call options, foreign currency
forward contracts, futures and certain derivative investments to try
to enhance income or to manage investment risks.
These investments are more fully explained in "About the Fund's
Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio managers use different
investment styles to carry out an asset allocation strategy that seeks broad
diversification across asset classes.
The debt securities in the portfolio normally include a mix of U.S.
government securities, high-yield corporate bonds and foreign bonds, to seek
current income. The relative amounts of those types of debt securities in the
portfolio will change over time, because those sectors of the bond markets
generally react differently to changing economic environments.
The portfolio managers employ both "growth" and "value" styles in
selecting equity securities, using fundamental analysis of a company's financial
statements and management structure, and analysis of the company's operations
and product development, as well as the industry of which the issuer is part.
Value investing seeks issuers that are temporarily out of favor or undervalued
in the market by various measures, such as the stock's price/earnings ratio.
Growth investing seeks issuers that the manager believes have possibilities for
increases in stock price because of strong earnings growth compared to the
market, the development of new products or services or other favorable economic
factors.
Who Is the Fund Designed For? The Fund is designed primarily for variable
account investors seeking high total return from their investment over the long
term, from a fund employing a variety of investments and investment styles in a
diversified portfolio. While the Fund selects investments consistent with the
goal of preservation of principal, investors should be willing to assume the
risks of short-term share price fluctuations that are typical for a fund with
significant investments in stocks and foreign securities. Since the Fund's
income level will fluctuate, it is not designed for investors needing an assured
level of current income.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of factors.
They include changes in general stock and bond market movements (this is
referred to as "market risk"), or the change in value of particular stocks or
bonds because of an event affecting the issuer (in the case of bonds, this is
known as "credit risk"). High-yield, lower-grade bonds (commonly called "junk
bonds") are subject to greater credit risks than investment-grade securities.
The Fund can have significant amounts of its assets invested in foreign
securities. Therefore, it will be subject to the risks of economic, political or
other events that can affect the values of securities of issuers in particular
foreign countries. Changes in interest rates can also affect stock and bond
prices (this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of stock of any one
company and by not investing too great a percentage of the Fund's assets in any
one issuer.
Also, the Fund does not concentrate 25% or more of its investments in any one
industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will change
daily based on changes in market prices of securities and market conditions, and
in response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. The value of the Fund's portfolio
therefore will be affected by changes in the stock markets. 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. A variety of factors can affect the
price of a particular stock and the prices of individual stocks do not all move
in the same direction uniformly or at the same time. Different stock markets may
behave differently from each other.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more than
others, or by changes in government regulations, availability of basic resources
or supplies, or other events. Other factors can affect a particular stock's
price, such as poor earnings reports by the issuer, loss of major customers,
major litigation against the issuer, or changes in government regulations
affecting the issuer. The Fund can focus from time to time on small and
medium-size companies (having a market capitalization of less than $5 billion),
which may have more volatile stock prices than large companies.
|X| Risks of Foreign Investing. The Fund can buy securities issued by
companies or governments in any country, including developed and underdeveloped
countries. There are no limits on the amounts it can invest in foreign
securities. While foreign securities offer special investment opportunities,
there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities. If they are not prepared,
there could be delays in settlement of securities trades and additional costs to
the Fund.
|_| Special Risks of Emerging and Developing Markets.
Securities in emerging and developing market countries may offer special
investment opportunities, but investments in these countries present risks not
found in more mature markets. Those securities may be more difficult to sell at
an acceptable price and their prices may be more volatile than securities of
issuers in more developed markets. Settlements of trades may be subject to
greater delays so that the Fund might not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges. Emerging countries may have less developed legal and accounting
systems and investments may be subject to greater risks of government
restrictions on withdrawing the sales proceeds of securities from the country.
Economies of developing countries may be more dependent on relatively few
industries that may be highly vulnerable to local and global changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be very speculative.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. While the Fund's investments in U.S. government securities are subject
to little credit risk, the Fund's other investments in debt securities,
particularly high-yield lower-grade debt securities, are subject to risks of
default.
|_| Special Risks of Lower-Grade Securities. Because the Fund
can invest in securities below investment-grade to seek high income, the Fund's
credit risks are greater than those of funds that buy only investment-grade
bonds. Lower-grade debt securities (commonly called "junk bonds") may be subject
to greater market fluctuations and greater risks of loss of income and principal
than investment-grade debt securities. Securities that are (or that have fallen)
below investment grade are exposed to a greater risk that the issuers of those
securities might not meet their debt obligations. These risks can reduce the
Fund's share prices and the income it earns.
|X| Interest Rate Risks. The values of debt securities are subject to
change when prevailing interest rates change. When interest rates fall, the
values of already-issued debt securities generally rise. When interest rates
rise, the values of already-issued debt securities generally fall. The magnitude
of these fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a
security can prepay the principal prior to the security's maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund can buy, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund might buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments might occur at slower rates
than expected, which could have the effect of lengthening the expected maturity
of a short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|X| There Are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate or index. Options, futures, CMOs, and structured notes are examples of
derivatives the Fund can use.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? In the short term, domestic and foreign stock
markets can be volatile, and the price of the Fund's shares will go up and down
in response to those changes. The Fund's income-oriented investments, if any,
may help cushion the Fund's total return from changes in stock prices, but debt
securities are subject to credit and interest rate risks. In the
OppenheimerFunds spectrum, the Fund may be less volatile than funds that focus
only on stock investments, but has more risks than funds that focus solely on
investment grade bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance from year to
year for the calendar years since the Fund's inception and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those charges
were included, the returns would be less than those shown. During the period
shown in the bar chart, the highest return (not annualized) for a calendar
quarter was ___% (-Q-) and the lowest return (not annualized) for a calendar
quarter was ____% (-Q-).
Average Annual Total Returns
for the periods ended 1 Year Life of Fund
December 31, 1998
Fund Shares ___% ____%
(inception 7/5/95)
S&P 500 Index ____% ______%
(inception 6/30/95)
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in stocks, the Fund's performance is compared
to the Standard & Poor's 500 Index, an unmanaged index of U.S. equity
securities. However, it must be remembered that the index performance reflects
the reinvestment of income but does not consider the effects of capital gains or
transaction costs. Also, the Fund may have investments that vary from the index.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. At times
the Fund may focus more on investing for capital appreciation with less emphasis
on income, while seeking to preserve principal. At other times, for example when
stock markets are less stable, the Fund may have substantial amounts of
income-seeking investments, such as money market instruments.
In seeking broad diversification of the Fund's portfolio over asset
classes, issuers and economies, the portfolio managers consider overall and
relative economic conditions in U.S. and foreign markets. They seek broad
diversification by investing in different countries to help moderate the special
risks of investing in foreign securities and lower-grade, high-yield debt
securities. The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.
Stock Investments. The Fund invests in equity securities of issuers that may be
of small, medium or large size, to seek capital growth. It can focus from time
to time on small and medium cap companies (having a market capitalization of
less than $5 billion). Equity securities include common stocks, preferred stocks
and securities convertible into common stock. Although convertible securities
are a type of debt security, the Manager considers convertible securities to be
"equity equivalents" because of the conversion feature and their rating has less
impact on the investment decision than in the case of other debt securities. The
Fund invests in securities issued by domestic or foreign companies that the
Manager believes have appreciation potential.
The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less liquidity
than exchange-traded securities, and stocks of companies with smaller
capitalization have greater risk of volatility than stocks of larger companies.
Debt Securities. The Fund can also invest in debt securities, such as U.S.
government securities, foreign government securities, and foreign and domestic
corporate bonds, notes and debentures, for their income possibilities.
The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned a rating by the
Manager. The Fund's investments may be above or below investment grade in credit
quality. The Manager does not rely solely on ratings by rating organizations in
selecting debt securities but evaluates business and economic factors affecting
an issuer as well.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies and can include "Brady Bonds." Those are U.S.
dollar-denominated debt securities collateralized by zero-coupon U.S. Treasury
securities. They are typically issued by governments of emerging market
countries and are considered speculative securities with higher risks of
default. The Fund will buy foreign currency only in connection with the purchase
and sale of foreign securities and not for speculation.
|X| U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities". These
are referred to as "U.S. government securities" in this Prospectus. They can
include collateralized mortgage obligations (CMOs) and other mortgage-related
securities. Mortgage-related securities are subject to additional risks of
unanticipated prepayments of the underlying mortgages, which can affect the
income stream to the Fund from those securities as well as their values.
|_| U.S. Treasury Obligations. These include Treasury bills
(having maturities of one year or less when issued), Treasury notes (having
maturities of from one to ten years), and Treasury bonds (having maturities of
more than ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and
repayment of principal. The Fund can buy U. S. Treasury securities that have
been "stripped" of their interest coupons by a Federal Reserve Bank, zero-coupon
U.S. Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS"). Although not rated, Treasury obligations have little credit
risk but prior to their maturity are subject to interest rate risk.
|_| Obligations Issued or Guaranteed by U.S. Government
Agencies or Instrumentalities. These include direct obligations and
mortgage-related securities that have different levels of credit support from
the U.S. government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs"). These have
relatively little credit risk.
|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series each having
different interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The Fund
can have significant amounts of its assets invested in mortgage-related U.S.
government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly and if prepayments occur more slowly
than expected, a short- or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks can
make the prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities. That volatility will affect the Fund's share prices.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these would include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings and
loans, mortgage bankers and other non-governmental issuers. Private issuer
mortgage-backed securities are subject to the credit risks of the issuers (as
well as the interest rate risks and prepayment risks of CMOs, discussed above),
although in some cases they may be supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
|X| High-Yield, Lower-Grade Debt Securities. The Fund can purchase a
variety of lower-grade, high yield debt securities, including bonds, debentures,
notes, preferred stocks, loan participation interests, structured notes,
asset-backed securities, among others, to seek current income. These securities
are sometimes called "junk bonds." The Fund has no requirements as to the
maturity of the debt securities it can buy, or as to the market capitalization
range of the issuers of those securities.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service or lower than "BBB" by Standard & Poor's or similar ratings by
other nationally-recognized rating organizations. The Fund can invest in
securities rated as low as "C" or "D" or which are in default at the time the
Fund buys them. While securities rated "Baa" by Moody's or "BBB" by S&P are
considered "investment grade," they have some speculative characteristics.
The special risks these securities are subject to mean that the Fund
may not achieve the expected income from them and that the Fund's net asset
value per share may be affected by declines in value of these securities.
Money Market Instruments. The Fund can invest in money market instruments, which
are debt obligations maturing in 13 months or less. They include short-term
certificates of deposit, bankers' acceptances, commercial paper (including
variable amount master demand notes), U.S. Government obligations, and other
debt instruments (including bonds) issued by corporations. These securities may
have variable or floating interest rates. The Fund's investments in commercial
paper in general will be limited to paper in the top two rating categories of
Standard & Poor's or Moody's.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment 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 Fund's
objective is a fundamental policy. Investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of Additional
Information says that it is.
Portfolio Turnover. The Fund can engage in short-term trading to try to achieve
its objective. Portfolio turnover affects brokerage costs the Fund pays. If the
Fund realizes capital gains when it sells its portfolio investments, it must
generally pay those gains out to shareholders, increasing their taxable
distributions. The Financial Highlights table below shows the Fund's portfolio
turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of the different types of techniques and investments described below.
These techniques involve certain risks, although some are designed to help
reduce investment or market risks.
|X| Bank Loan Participation Agreements. The Fund can invest in bank
loan participation agreements. They provide the Fund an undivided interest in a
loan made by the issuing bank in the proportion the Fund's interest bears to the
total principal amount of the loan. In evaluating the risk of these investments,
the Manager looks to the creditworthiness of the borrower that is obligated to
make principal and interest payments on the loan. Not more than 5% of the Fund's
net assets can be invested in participation interests of any one borrower.
|X| Repurchase Agreements. The Fund can enter into repurchase
agreements. 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 could incur costs in disposing of
the collateral and might experience losses if there is any delay in its ability
to do so. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of 7 days or less.
|X| Zero-Coupon and "Stripped" Securities. Some of the U.S. government
debt securities the Fund buys are zero-coupon bonds that pay no interest. They
are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt security.
Some CMOs or other mortgage-related securities may be stripped, with each
component having a different proportion of principal or interest payments. One
class might receive all the interest and the other all the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The Fund
may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
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 might be a loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active 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 its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, mortgage-related securities and
other hedging instruments the Fund can use may be considered "derivative
investments." In addition to using hedging instruments, the Fund may use other
derivative investments because they offer the potential for increased income and
principal value.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund is not required to use hedging instruments to seek its
objective. The Fund does not use hedging instruments for speculative purposes,
and has limits on its use of them.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its 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. It might do so to try to manage its exposure
to changing interest rates. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised on
an investment that has increased in value, the 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. In writing a put, there
is a risk that the Fund may be required to buy the underlying security at a
disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
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.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of insurance companies
with separate accounts that invest in the Fund, brokers, information services,
the Fund's Custodian and other parties. Therefore, any failure of the computer
systems of those parties to deal with the year 2000 may also have a negative
effect on the services they provide to the Fund. The extent of that risk cannot
be ascertained at this time.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's 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
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Michael S.
Levine. He is a Vice President of the Fund and of the Manager. He has been the
person principally responsible for the day-to-day management of the Fund's
portfolio since April, 1998, and shared that responsibility with another
portfolio manager from July, 1995 to April, 1998. During the past five years,
Mr. Levine was a portfolio manager and research associate for Amos Securities,
Inc., before which he was an analyst for Shearson Lehman Hutton, Inc.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual net
assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of
the next $200 million, and 0.60% of average annual net assets over $800 million.
The Fund's management fee for its last fiscal year ended December 31, 1998, was
____% of the Fund's average annual net assets.
About Your Account
How to Buy and Sell Shares
Shares of the Fund are offered for purchase as an investment medium for
variable life insurance policies and variable annuity contracts and other
insurance company separate accounts, as described in the accompanying account
Prospectus. All the information you need on how to buy or sell shares through
your account investment are described in that prospectus. You cannot contact the
Fund or its transfer agent directly, as all the records that identify you as an
indirect investor are maintained by the insurance company sponsoring your
separate account investment, or its servicing agents.
Classes of Shares. The Fund offers investors two different classes of shares,
one without numerical designation and the other numerically designated as Class
2 shares. The different classes of shares represent investments in the same
portfolio of securities but may be subject to different expenses and will likely
have different share prices.
This prospectus may not be used to offer or sell Class 2 shares.
Accordingly, it does not include a description of the Service Plans that only
affect Class 2 shares of each Fund and the holders of such shares. An
alternative version of the Fund's prospectus that includes such disclosure may
be obtained without charge whenever Class 2 shares are offered, by contacting
any insurance sponsor offering Class 2 shares of the Funds, or by contacting
OppenheimerFunds Distributor, Inc., which may be reached at 1-800-525-7048.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Tax Treatment to the Account As Shareholder. Dividends paid by the Fund from its
ordinary income and distributions of its 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser or the sponsor
of your separate account about the effect of an investment in the Fund on your
particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned [or lost] on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<PAGE>
For More Information on Oppenheimer Growth & Income Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-4108
PR0650.001.0599 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Growth & Income Fund
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Growth &
Income Fund (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical $10,000 investment in shares of the Fund
for each of the three most recent calendar years, without deducting separate
account expenses. Set forth below are the relevant data that will appear on the
bar chart:
Calendar
Year
Ended Annual Total Returns
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
<PAGE>
Oppenheimer Variable Account Funds
6803 S. Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated May 1, 1999
OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is an investment company
consisting of ten separate Funds (the "Funds"):
Oppenheimer Money Fund ("Money Fund")
Oppenheimer High Income Fund ("High Income Fund")
Oppenheimer Bond Fund ("Bond Fund")
Oppenheimer Strategic Bond Fund ("Strategic Bond Fund")
Oppenheimer Aggressive Growth Fund ("Aggressive Growth Fund"). Prior to May 1,
1998, this Fund was named "Oppenheimer Capital Appreciation Fund."
Oppenheimer Growth Fund ("Growth Fund")
Oppenheimer Small Cap Growth Fund ("Small Cap Growth Fund").
Oppenheimer Global Securities Fund ("Global Securities Fund")
Oppenheimer Multiple Strategies Fund ("Multiple Strategies Fund")
Oppenheimer Growth & Income Fund ("Growth & Income Fund")
Shares of the Funds are sold to provide benefits under variable life insurance
policies and variable annuity contracts and other insurance company separate
accounts, as described in the Prospectus.
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Funds and the Trust, and
supplements information in the Funds' Prospectuses dated May 1, 1999. It should
be read together with the Prospectuses. You can obtain a Prospectus 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.
Contents
Page
About the Fund
Additional Information About the Funds' Investment Policies and Risks....
The Funds' Investment Policies......................................
Other Investment Techniques and Strategies..........................
Investment Restrictions.............................................
How the Funds are Managed ...............................................
Organization and History............................................
Trustees and Officers...............................................
The Manager.........................................................
Brokerage Policies of the Funds..........................................
Distribution and Service Plans...........................................
Performance of the Funds.................................................
About Your Account
How To Buy and Sell Shares...............................................
Dividends, Capital Gains and Taxes.......................................
Additional Information About the Funds...................................
Financial Information About the Funds
Independent Auditors' Report.............................................
Financial Statements.....................................................
Appendix A: Ratings Definitions......................................... A-1
Appendix B: Industry Classifications.................................... B-1
Appendix C: Major Shareholders.......................................... C-1
<PAGE>
ABOUT THE FUNDS
Additional Information About the Funds' Investment Policies and Risks
The investment objective, the principal investment policies and the
main risks of the Funds are described in the Prospectus. This Statement of
Additional Information contains supplemental information about those policies
and risks and the types of securities that the Funds' investment Manager,
OppenheimerFunds, Inc., can select for the Funds. Additional information is also
provided about the strategies that the Fund may use to try to achieve its
objective.
The Funds' Investment Policies. The composition of the Funds' portfolio and the
techniques and strategies that the Manager uses in selecting portfolio
securities will vary over time. The Funds are not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. They may use some of the special investment techniques and strategies at
some times or not at all.
In selecting securities for the Funds' portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation of
the issuer's historical operations, prospects for the industry of which the
issuer is part, the issuer's financial condition, its pending product
developments and business (and those of competitors), the effect of general
market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer.
The Funds are categorized by the types of investment they make. Growth
Fund, Aggressive Growth Fund, Small Cap Growth Fund and Global Securities Fund
can be categorized as "Equity Funds." High Income Fund, Bond Fund, and Strategic
Bond Fund can be categorized as "Fixed Income Funds." Multiple Strategies Fund
and Growth & Income Fund share the investment characteristics (and certain of
the Investment Policies) of both the Equity Funds and the Fixed Income Funds,
depending upon the allocations determined from time to time by their portfolio
managers. Money Fund's investment policies are explained separately, and except
for investment restrictions, discussion about other investment policies do not
apply to Money Fund.
|X| Investments in Equity Securities. The Equity Funds focus their
investments in equity securities, which include common stocks, preferred stocks,
rights and warrants, and securities convertible into common stock. Certain
equity securities may be selected not only for their appreciation possibilities
but because they may provide dividend income.
Small-cap growth companies may offer greater opportunities for capital
appreciation than securities of large, more established companies. However,
these securities also involve greater risks than securities of larger companies.
Securities of small capitalization issuers may be subject to greater price
volatility in general than securities of large-cap and mid-cap companies.
Therefore, to the degree that a Fund has investments in smaller capitalization
companies at times of market volatility, that Fund's share price may fluctuate
more. Those investments may be limited to the extent the Manager believes that
such investments would be inconsistent with the goal of preservation of
principal.
|_| Growth Companies. The Equity Funds in particular may
invest in securities of "growth" companies. Growth companies are those companies
that the Manager believes are entering into a growth cycle in their business,
with the expectation that their stock will increase in value. They may be
established companies as well as newer companies in the development stage.
Growth companies may have a variety of characteristics that in the Manager's
view define them as "growth" issuers.
They may be generating or applying new technologies, new or improved
distribution techniques or new services. They may own or develop natural
resources. They may be companies that can benefit from changing consumer demands
or lifestyles, or companies that have projected earnings in excess of the
average for their sector or industry. In each case, they have prospects that the
Manager believes are favorable for the long term. The portfolio managers of the
Funds look for growth companies with strong, capable management sound financial
and accounting policies, successful product development and marketing and other
factors.
|_| Convertible Securities. While convertible securities are a
form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as "equity
equivalents." As a result, the rating assigned to the security has less impact
on the Manager's investment decision with respect to convertible securities than
in the case of non-convertible fixed income securities. Convertible securities
are subject to the credit risks and interest rate risks described below in "Debt
Securities."
To determine whether convertible securities should be regarded as
"equity equivalents," the Manager examines the following factors:
(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its earnings
per share of common stock on a fully diluted basis (considering the effect of
conversion of the convertible securities), and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in the
price of the issuer's common stock.
|_| Rights and Warrants. The Equity Funds may invest in
warrants or rights. The Funds do not expect that their investments in warrants
and rights will exceed 5% of their net assets.
Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed
directly by the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
|_| Convertible Securities. While convertible securities are a
form of debt security in many cases, their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as "equity
equivalents." As a result, the rating assigned to the security has less impact
on the Manager's investment decision with respect to convertible securities than
in the case of non-convertible fixed income securities. To determine whether
convertible securities should be regarded as "equity equivalents," the Manager
examines the following factors:
(4) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(5) whether the issuer of the convertible securities has restated its earnings
per share of common stock on a fully diluted basis (considering the effect of
conversion of the convertible securities), and the extent to which the
convertible security may be a defensive "equity substitute," providing the
ability to participate in any appreciation in the price of the issuer's common
stock.
|X| Investments in Bonds and Other Debt Securities. The Fixed Income
Funds in particular can invest in bonds, debentures and other debt securities to
seek current income as part of its investment objective.
The Funds' debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated in one of the four highest categories by
Moody's Investors Service, Inc., Standard & Poor's Corporation, Fitch IBCA,
Inc., Duff & Phelps, Inc., or that have comparable ratings by another
nationally-recognized rating organization, or if unrated or split-rated,
determined by the Manager to be of comparable quality. In making investments in
debt securities, the Manager may rely to some extent on the ratings of ratings
organizations or it may use its own research to evaluate a security's
credit-worthiness.
|_| U.S. Government Securities. The Funds can buy securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities. Securities issued by the U.S. Treasury are backed by the full
faith and credit of the U.S. government and are subject to very little credit
risk. Obligations of U.S. government agencies or instrumentalities (including
mortgage-backed securities) may or may not be guaranteed or supported by the
"full faith and credit" of the United States. Some are backed by the right of
the issuer to borrow from the U.S. Treasury; others, by discretionary authority
of the U.S. government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. If a security is not backed
by the full faith and credit of the United States, the owner of the security
must look principally to the agency issuing the obligation for repayment and may
not be able to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. The Fund will invest in
securities of U.S. government agencies and instrumentalities only when the
Manager is satisfied that the credit risk with respect to the agency or
instrumentality is minimal.
|_| Special Risks of Lower-Grade Securities. Because
lower-rated securities tend to offer higher yields than investment grade
securities, the Fund may invest in lower grade securities if the Manager is
trying to achieve greater income (and, in some cases, the appreciation
possibilities of lower-grade securities may be a reason they are selected for a
Fund's portfolio).
Some of the special credit risks of lower-grade securities are
discussed in the Prospectus. There is a greater risk that the issuer may default
on its obligation to pay interest or to repay principal than in the case of
investment grade securities. The issuer's low creditworthiness may increase the
potential for its insolvency. An overall decline in values in the high yield
bond market is also more likely during a period of a general economic downturn.
An economic downturn or an increase in interest rates could severely disrupt the
market for high yield bonds, adversely affecting the values of outstanding bonds
as well as the ability of issuers to pay interest or repay principal. In the
case of foreign high yield bonds, these risks are in addition to the special
risk of foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's
or Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's,
Standard & Poor's, Fitch IBCA and Duff & Phelps are included in Appendix A to
this Statement of Additional Information.
|X| Foreign Securities. The Equity Funds and the Fixed Income Funds may
invest in foreign securities, and Global Securities Fund expects to have
substantial investments in foreign securities. These include equity securities
issued by foreign companies and debt securities issued or guaranteed by foreign
companies or governments, including supra-national entities. "Foreign
securities" include equity and debt securities of companies organized under the
laws of countries other than the United States and debt securities issued or
guaranteed by governments other than the U.S. government or by foreign
supra-national entities. They also include securities of companies (including
those that are located in the U.S. or organized under U.S. law) that derive a
significant portion of their revenue or profits from foreign businesses,
investments or sales, or that have a significant portion of their assets abroad.
They may be traded on foreign securities exchanges or in the foreign
over-the-counter markets.
Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or traded
in the U.S. over-the-counter markets are not considered "foreign securities" for
the purpose of the Fund's investment allocations, because they are not subject
to many of the special considerations and risks, discussed below, that apply to
foreign securities traded and held abroad.
Because the Funds may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Funds have available
for distribution. Because a portion of the Funds' investment income may be
received in foreign currencies, the Funds will be required to compute its income
in U.S. dollars for distribution to shareholders, and therefore the Funds will
absorb the cost of currency fluctuations. After the Funds have distributed
income, subsequent foreign currency losses may result in the Fund's having
distributed more income in a particular fiscal period than was available from
investment income, which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include 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. The Funds will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities. Some of these additional risks are: o reduction of income by foreign
taxes; o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting
standards in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and brokers
than in the U.S.; o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of
certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic developments;
and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, 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 re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The Manager
will consider these factors when evaluating securities in these markets, because
the selection of those securities must be consistent with the Fund's goal of
preservation of principal.
The Funds intend to invest less than 5% of its total assets in
securities of issuers of Eastern European countries. The social, political and
economic reforms in most Eastern European countries are still in their early
stages, and there can be no assurance that these reforms will continue. Eastern
European countries in many cases do not have a sophisticated or well-established
capital market structure for the sale and trading of securities. Participation
in the investment markets in some of those countries may be available initially
or solely through investment in joint ventures, state enterprises, private
placements, unlisted securities or other similar illiquid investment vehicles.
In addition, although investment opportunities may exist in Eastern
European countries, any change in the leadership or policies of the governments
of those countries, or changes in the leadership or policies of any other
government that exercises a significant influence over those countries, may halt
the expansion of or reverse the liberalization of foreign investment policies
now occurring. As a result investment opportunities which may currently exist
may be threatened.
The prior authoritarian governments of a number of the Eastern European
countries previously expropriated large amounts of real and personal property,
which may include property which will be represented by or held by entities
issuing the securities the Fund might wish to purchase. In many cases, the
claims of the prior property owners against those governments were never finally
settled. There can be no assurance that any property represented by or held by
entities issuing securities purchased by the Fund will not also be expropriated,
nationalized, or confiscated. If that property were confiscated, the Fund could
lose a substantial portion of its investments in such countries. The Fund's
investments could also be adversely affected by exchange control regulations
imposed in any of those countries.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven
countries in the European Union adopted the euro as their official currency.
However, their current currencies (for example, the franc, the mark, and the
lire) will also continue in use until January 1, 2002. After that date, it is
expected that only the euro will be used in those countries. A common currency
is expected to confer some benefits in those markets, by consolidating the
government debt market for those countries and reducing some currency risks and
costs. But the conversion to the new currency will affect the Fund operationally
and also has potential risks, some of which are listed below. Among other
things, the conversion will affect:
o issuers in which the Funds invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress securities values.
o vendors the Funds depend on to carry out its business, such as its Custodian
(which holds the foreign securities the Fund buys), the Manager (which must
price the Funds' investments to deal with the conversion to the euro) and
brokers, foreign markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to the Funds.
o exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Fund's contracts could pose extra costs to
the Funds.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Funds' Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Funds' portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Funds' investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Funds' holdings and
increase its operational costs.
|X| Portfolio Turnover. "Portfolio turnover" describes the rates at
which the Funds traded their portfolio securities during its last fiscal year.
For example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Funds' portfolio turnover rates will
fluctuate from year to year, and the Funds may have portfolio turnover rates of
more than 100% annually.
Other Investment Techniques and Strategies. In seeking their respective
objectives, the Funds may from time to time use the types of investment
strategies and investments described below. It is not required to use all of
these strategies at all times, and at times may not use them.
|X| Investing in Small, Unseasoned Companies. The Funds may invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely affect
the Funds' ability to dispose of them and can reduce the price the Funds might
be able to obtain for them. Other investors that own a security issued by a
small, unseasoned issuer for which there is limited liquidity might trade the
security when the Funds are attempting to dispose of their holdings of that
security. In that case the Funds might receive a lower price for its holdings
than might otherwise be obtained.
|X| When-Issued and Delayed-Delivery Transactions. The Funds may invest
in securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer 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. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, 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 a loss to the Funds.
During the period between purchase and settlement, no payment is made by the
Funds to the issuer and no interest accrues to the Funds from the investment. No
income begins to accrue to the Funds on a when-issued security until the Funds
receive the security at settlement of the trade.
The Funds will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Funds enter into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Funds to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Funds engage in when-issued and delayed-delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies for its portfolio or for delivery pursuant
to options contracts it has entered into, and not for the purpose of investment
leverage. Although the Funds will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Funds choose to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Funds make the commitment to purchase or sell a
security on a when-issued or delayed delivery basis, they record the transaction
on its books and reflects the value of the security purchased in determining the
Funds' net asset value. In a sale transaction, they record the proceeds to be
received. The Funds will identify on their books liquid assets at least equal in
value to the value of the Funds' purchase commitments until the Funds pay for
the investment.
When-issued and delayed-delivery transactions can be used by the Funds
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Funds might sell securities in their 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, the Funds might sell
portfolio securities and purchase the same or similar securities on a
when-issued or delayed-delivery basis to obtain the benefit of currently higher
cash yields.
|X| Repurchase Agreements. The Funds may acquire securities subject to
repurchase agreements. They may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Funds buy a security from, and
simultaneously resells it to, an approved vendor 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. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Funds' Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Funds' limits on holding illiquid investments. No Fund will not enter into a
repurchase agreement that causes more than 15% of its net assets 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 having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are 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. However, if the vendor fails to
pay the resale price on the delivery date, the Funds may incur costs in
disposing of the collateral and may experience losses if there is any delay in
its ability to do so. The Manager will monitor the vendor's creditworthiness to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. To enable the Fund to sell
its holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Funds with the
issuer at the time the Funds buy the securities. When the Funds must arrange
registration because the Funds wish to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Funds could sell it. The Funds would
bear the risks of any downward price fluctuation during that period.
The Funds may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Funds have limitations that apply to purchases of restricted
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Funds' holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
|X| Forward Rolls. The Funds can enter into "forward roll" transactions
with respect to mortgage related securities. In this type of transaction, the
Funds sell a mortgage related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and having the same
coupon and maturity) at a later date at a set price. The securities that are
repurchased will have the same interest rate as the securities that are sold,
but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold.
Proceeds from the sale are invested in short-term instruments, such as
repurchase agreements,. The income from those investments, plus the fees from
the forward roll transaction, are expected to generate income to the Funds in
excess of the yield on the securities that have been sold.
The Funds will only enter into "covered" rolls. To assure their future
payment of the purchase price, the Funds will identify on its books cash, U.S.
government securities or other high-grade debt securities in an amount equal to
the payment obligation under the roll.
These transactions have risks. During the period between the sale and
the repurchase, the Funds will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Funds sell may decline below the price at which the
Funds are obligated to repurchase securities.
|X| Loans of Portfolio Securities. To raise cash for liquidity purposes
or income, the Funds can lend their portfolio securities to brokers, dealers and
other types of financial institutions approved by the Fund's Board of Trustees.
These loans are limited to not more than 25% of the value of that Fund's net
assets. The Funds currently do not intend to engage in loans of securities in
the coming year, but if they do so, such loans will not likely exceed 5% of that
Fund's total assets.
There are some risks in connection with securities lending. The Funds
might experience a delay in receiving additional collateral to secure a loan, or
a delay in recovery of the loaned securities if the borrower defaults. The Funds
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, or securities of the U.S. Government or
its agencies or instrumentalities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Funds if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Funds.
When they lend securities, the Funds receive amounts equal to the
dividends or interest on loaned securities. They also receives one or more of
(a) negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on any short-term debt securities purchased with such loan collateral.
Either type of interest may be shared with the borrower. The Funds may also pay
reasonable finder's, custodian and administrative fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
|X| Borrowing for Leverage. The Funds have the ability to borrow up to
10% of the value of its net assets from banks on an unsecured basis to invest
the borrowed funds in portfolio securities. This speculative technique is known
as "leverage." The Funds may borrow only from banks. Under current regulatory
requirements, borrowings can 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 that
Fund's assets fails to meet this 300% asset coverage requirement, that Fund will
reduce its bank debt within three days to meet the requirement. To do so, that
Fund might have to sell a portion of its investments at a disadvantageous time.
The Funds will pay interest on these loans, and that interest expense
will raise the overall expenses of that Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, that Fund's net asset value per share might
fluctuate more than that of funds that do not borrow. Currently, the Fund does
not contemplate using this technique in the next year but if it does so, it will
not likely be to a substantial degree.
|X| Derivatives. The Funds can invest in a variety of derivative
investments for hedging purposes. Some derivative investments the Funds can use
are the hedging instruments described below in this Statement of Additional
Information. The Equity Funds do not use, and do not currently contemplate
using, derivatives or hedging instruments to a significant degree in the coming
year and they are not obligated to use them in seeking their objectives.
Other derivative investments the Fixed Income Funds can invest in
include "index-linked" notes. Principal and/or interest payments on these notes
depend on the performance of an underlying index. Currency-indexed securities
are another derivative the Fund may use. Typically, these are short-term or
intermediate-term debt securities. Their value at maturity or the 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 type of index security offers the potential for
increased income or principal payments but at a greater risk of loss than a
typical debt security of the same maturity and credit quality.
Other derivative investments the Fixed Income Funds can use 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 it is payable in an amount based on the price of the
issuer's common stock at the time of maturity. Both alternatives present 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 might not be as high as
the Manager expected.
|X| Hedging. Although the Funds can use hedging instruments, they are
not obligated to use them in seeking their objective. To attempt to protect
against declines in the market value of the Funds' portfolio, to permit the
Funds to retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons, the
Funds could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered calls may
also be used to increase the Funds' income, but the Manager does not
expect to engage extensively in that practice.
The Funds can use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In that
case the Funds would normally seek to purchase the securities and then terminate
that hedging position. The Funds might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Funds could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Funds' strategy of hedging with futures and options on futures will
be incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Funds can use are described below. The Funds
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Funds' investment objective and
are permissible under applicable regulations governing the Fund.
|_| Futures. The Equity Funds can buy and sell future contracts that
relate to
(1) broadly-based stock indices (these are referred to as "stock index
futures") and
(2) foreign currencies (these are referred to as "forward contracts").
The Fixed Income Funds can buy and sell futures contracts that relate to
(1) bond indices (these are referred to as "bond index futures"),
(2) debt securities (these are referred to as "interest rate futures"), and
(3) forward contracts.
A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. Bond index futures are similar contracts based on
the future value of the basket of securities that comprise the index. These
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting contract
to close out the position.
No money is paid or received by the Funds on the purchase or sale of a
future. Upon entering into a futures transaction, the Funds will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Funds'
Custodian bank 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 (that is, its value on that Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Funds may elect to
close out their position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to that Fund. Any loss or gain on the future is then realized by
that Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.
|_| Put and Call Options. The Funds can buy and sell certain kinds of
put options ("puts") and call options ("calls"). The Funds can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
|_| Writing Covered Call Options. The Funds can write (that
is, sell) covered calls. If the Funds sell a call option, it must be covered.
That means the Funds must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable that Fund to satisfy its obligations if the
call is exercised. Up to 50% of the Funds' total assets may be subject to calls
the Funds write.
When a Fund writes a call on a security, it receives cash (a premium).
That Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Funds share the risk of
loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Funds receive.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Funds would
keep the cash premium and the investment.
When the Funds write a call on an index, they receive cash (a premium).
If the buyer of the call exercises it, the Funds will pay an amount of cash
equal to the difference between the closing price of the call and the exercise
price, multiplied by a specified multiple that determines the total value of the
call for each point of difference. If the value of the underlying investment
does not rise above the call price, it is likely that the call will lapse
without being exercised. In that case the Funds would keep the cash premium.
The Funds' Custodian, or a securities depository acting for the
Custodian, will act as the Funds' escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Funds
have written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Funds
enter into a closing transaction.
When the Funds write an over-the-counter ("OTC") option, they will
enter into an arrangement with a primary U.S. government securities dealer which
will establish a formula price at which the Funds will have the absolute right
to repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Funds write an OTC option, they will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Funds may
purchase a corresponding call in a "closing purchase transaction." The Funds
will then realize a profit or loss, depending upon whether the net of the amount
of the option transaction costs and the premium received on the call the Funds
wrote is more or less than the price of the call the Funds purchase to close out
the transaction. The Funds may realize a profit if the call expires unexercised,
because the Funds will retain the underlying security and the premium they
received when they wrote the call. Any such profits are considered short-term
capital gains for Federal income tax purposes, as are the premiums on lapsed
calls. When distributed by the Funds they are taxable as ordinary income. If the
Funds cannot effect a closing purchase transaction due to the lack of a market,
they will have to hold the callable securities until the call expires or is
exercised.
The Funds may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Funds must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Funds' receipt of an exercise notice as to that future
require the Funds to deliver a futures contract. It would simply put that Fund
in a short futures position, which is permitted by the Funds' hedging policies.
|_| Writing Put Options. The Funds can sell 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. The Funds will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Funds write a put, the put must be covered by segregated liquid
assets. The premium the Funds receive from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Funds also assume the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Funds have written expires unexercised, the Funds realize a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Funds must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Funds may incur a
loss if it sells the underlying investment. That loss will be 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 the Funds incurred.
When writing a put option on a security, to secure its obligation to
pay for the underlying security the Funds will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Funds therefore forgo the opportunity of investing the
segregated assets or writing calls against those assets.
As long as the Funds' obligation as the put writer continues, they may
be assigned an exercise notice by the broker-dealer through which the put was
sold. That notice will require the Funds to take delivery of the underlying
security and pay the exercise price. The Funds have no control over when they
may be required to purchase the underlying security, since they may be assigned
an exercise notice at any time prior to the termination of their obligation as
the writer of the put. That obligation terminates upon expiration of the put. It
may also terminate if, before it receives an exercise notice, the Funds effect a
closing purchase transaction by purchasing a put of the same series as it sold.
Once the Funds have been assigned an exercise notice, they cannot effect a
closing purchase transaction.
The Funds may decide to effect a closing purchase transaction to
realize a profit on an outstanding put option they have written or to prevent
the underlying security from being put. Effecting a closing purchase transaction
will also permit the Funds to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments. The
Funds will realize a profit or loss from a closing purchase transaction
depending on whether the cost of the transaction is less or more than the
premium received from writing the put option. Any profits from writing puts are
considered short-term capital gains for Federal tax purposes, and when
distributed by the Funds, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Funds can purchase calls to
protect against the possibility that the Funds' portfolio will not participate
in an anticipated rise in the securities market. When the Funds buy a call
(other than in a closing purchase transaction), they pay a premium. The Funds
then have 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 Funds benefit only if they sell the call 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 Fund exercises the call. If the Funds do not exercise the call
or sell it (whether or not at a profit), the call will become worthless at its
expiration date. In that case the Funds will have paid the premium but lost the
right to purchase the underlying investment.
The Funds can buy puts whether or not it holds the underlying
investment in its portfolio. When the Funds purchase a put, they pay a premium
and, except as to puts on indices, have 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 that 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. In that case the
Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Funds may sell the put prior to its expiration. That
sale may or may not be at a profit.
When the Funds purchase a call or put on an index or future, they pays
a premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Funds may buy a call or put only if, after the purchase, the value
of all call and put options held by the Funds will not exceed 5% of the Funds'
total assets.
|_| Buying and Selling Options on Foreign Currencies. The
Funds can buy and sell calls and puts on foreign currencies. They include puts
and calls that trade on a securities or commodities exchange or in the
over-the-counter markets or are quoted by major recognized dealers in such
options. The Funds could use these calls and puts to try to protect against
declines in the dollar value of foreign securities and increases in the dollar
cost of foreign securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Funds' position. The Funds will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Funds write on a foreign currency is "covered" if that 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 it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Funds could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Funds own or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's Custodian
bank.
|_| Risks of Hedging with Options and Futures. 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 the Fund's return. The Funds could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Funds' option activities could affect their portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Funds might
cause a Fund to sell related portfolio securities, thus increasing its turnover
rate. The exercise by the a Fund of puts on securities will cause the sale of
underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within a Fund's control, holding a put
might cause that Fund to sell the related investments for reasons that would not
exist in the absence of the put.
The Funds could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be higher
on a relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Funds' net asset values being more sensitive to changes in
the value of the underlying investment.
If a covered call written by a Fund is exercised on an investment that
has increased in value, that Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that 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. The Funds might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Funds' securities. For example, it is possible that
while the Funds have used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Funds' portfolio might
decline. If that occurred, the Funds would lose money on the hedging instruments
and also experience a decline in the value of its portfolio 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 securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Funds' portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Funds may use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market 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 market depends 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 market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Funds can use 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,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Funds then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Funds will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
|_| 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 Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Funds have bought or sold,
or to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Funds limit their exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Funds hedge against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another
party agrees to sell, a specific currency at a future date. That date may be any
fixed number of days from the date of the contract agreed upon by the parties.
The transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among 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 the risk of fluctuations in the prices of the underlying securities
the Funds own or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts may reduce the risk of loss from a decline
in the value of the hedged currency, at the same time they limit any potential
gain if the value of the hedged currency increases.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, that Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in 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 the payments are made or
received.
The Funds could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the Funds
believe that foreign currency might suffer a substantial decline against the
U.S. dollar, they could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Funds believe that the
U.S. dollar might suffer a substantial decline against a foreign currency, they
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Funds could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Funds
believe that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Funds will cover their short positions in these cases by
identifying to its Custodian bank assets having a value equal to the aggregate
amount of the Fund's commitment under forward contracts. The Funds will not
enter into forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate the Funds 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 or another currency that is the
subject of the hedge.
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Funds are obligated to deliver, the Funds might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Funds are obligated to deliver to settle the
trade, the Funds might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
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 the Funds to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Funds' performance if there are
unanticipated changes in currency prices to a greater degree than if the Funds
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Funds to
sell a currency, the Funds might sell a portfolio security and use the sale
proceeds to make delivery of the currency. In the alternative the Funds might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract the Funds will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Funds might 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 Funds would realize a gain or loss as a result of
entering into such an offsetting forward contract under either circumstance. The
gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and offsetting contract.
The costs to the Funds 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 brokerage fees or commissions are
involved. Because these contracts are not traded on an exchange, the Funds must
evaluate the credit and performance risk of the counterparty under each forward
contract.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds may convert foreign currency from time to
time, and will incur costs in doing so. 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
might offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Funds desire to resell that currency to the
dealer.
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Funds are required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Funds
are exempted from registration with the CFTC as a "commodity pool operator" if
the Funds comply with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of Bond Funds' assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Funds must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Funds' net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Funds are subject to limitations
established by the option exchanges. The exchanges limit the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert. Those limits apply 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 different exchanges or through one or more
brokers. Thus, the number of options that the Funds may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Funds' adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Funds purchase a future,
they must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Funds may invest are treated as
"Section 1256 contracts" under the Internal Revenue Code. In general, gains or
losses relating to Section 1256 contracts are characterized as 60% long-term and
40% short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts
generally are treated as ordinary income or loss. In addition, Section 1256
contracts held by the Funds at the end of each taxable year are
"marked-to-market," and unrealized gains or losses are treated as though they
were realized. These contracts also may be marked-to-market for purposes of
determining the excise tax applicable to investment company distributions and
for other purposes under rules prescribed pursuant to the Internal Revenue Code.
An election can be made by the Funds to exempt those transactions from this
marked-to-market treatment.
Certain forward contracts the Funds enter into may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character and timing of gains (or losses) recognized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position making
up a straddle is allowed only to the extent that the loss exceeds any
unrecognized gain in the offsetting positions making up the straddle. Disallowed
loss is generally allowed at the point where there is no unrecognized gain in
the offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates
that occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Funds actually collect such
receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a
foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency
forward contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
|X| Temporary Defensive Investments. When market conditions are unstable,
or the Manager believes it is otherwise appropriate to reduce holdings in
stocks, the Funds can invest in a variety of debt securities for defensive
purposes. The Funds can also purchase these securities for liquidity purposes to
meet cash needs due to the redemption of Fund shares, or to hold while waiting
to reinvest cash received from the sale of other portfolio securities. The Funds
can buy:
|_| obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
|_| commercial paper (short-term, unsecured, promissory notes of domestic or
foreign companies) rated in the three top rating categories of a nationally
recognized rating organization,
|_| short-term debt obligations of corporate issuers, rated investment grade
(rated at least Baa by Moody's Investors Service, Inc. or at least BBB by
Standard & Poor's Corporation, or a comparable rating by another rating
organization), or unrated securities judged by the Manager to have a comparable
quality to rated securities in those categories,
|_| certificates of deposit and bankers' acceptances of domestic and foreign
banks having total assets in excess of $1 billion, and
|_| repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
O Money Fund Investment Policies. Under Rule 2a-7, Money Fund may
purchase only "Eligible Securities," as defined below, that the Manger, under
procedures approved by 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 (the "Rating Requirements"), (b) a
security that is guaranteed, and either that guarantee or the party providing
that guarantee meets the Rating Requirements, or (c) an unrated security that is
either issued by an issuer having another similar security that meets the Rating
Requirements, or is judged by the Manager to be of comparable quality to
investments that meet the Rating Requirements. 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. 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, INCA, Inc., and Thomson BankWatch, Inc. See Appendix B to the
Prospectus for a description of the rating categories of the Rating
Organizations.
-- Certificates of Deposit and Commercial Paper. 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 in the prospectus), if the collateral for the
agreement complies with Rule 2a-7.
-- Time Deposits. Money 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.
<PAGE>
-- 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 15% limitation applicable to illiquid
securities.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Funds' investment objectives are fundamental policies. Other
policies described in the Prospectus or this Statement of Additional Information
are "fundamental" only if they are identified as such. The Funds' Board of
Trustees can change non-fundamental policies without shareholder approval.
However, significant changes to investment policies will be described in
supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Funds' most significant investment policies are
described in the Prospectus.
|X| Do the Funds Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Funds.
|_| No Fund can buy securities issued or guaranteed by any one issuer
if (i) more than 5% of its total assets would be invested in securities of that
issuer or (ii) it would then own more than 10% of that issuer's voting
securities, or (iii) it would then own more than 10% in principal amount of that
issuer's outstanding debt securities. The restriction on debt securities does
not apply to Strategic Bond Fund. All of the restrictions apply only to 75% of
the Fund's total assets. The limits do not apply to securities issued by the
U.S. Government or any of its agencies or instrumentalities.
|_| The Funds cannot lend money. However, it can invest in all or a
portion of an issue of bonds, debentures, commercial paper or other similar
corporate obligations of the types that are usually purchased by institutions,
whether or not they are publicly distributed. The Funds may also enter into
repurchase agreements, and make loans of portfolio securities.
|_| The Funds cannot concentrate investments. That means they cannot
invest 25% or more of their total assets in companies in any one industry.
Obligations of the U.S. government, its agencies and instrumentalities are not
considered to be part of an "industry" for the purposes of this restriction.
This policy does not limit investments by Money Fund in obligations issued by
banks.
|_| The Funds cannot buy or sell real estate or interests in real
estate. However, the Funds can purchase debt securities secured by real estate
or interests in real estate, or issued by companies, including real estate
investment trusts, which invest in real estate or interests in real estate.
|_| The Funds cannot underwrite securities of other companies. A
permitted exception is in case it is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own portfolio.
|_| The Funds cannot invest in commodities or commodity contracts,
other than the hedging instruments permitted by any of its other fundamental
policies. It does not matter whether the hedging instrument is considered to be
a commodity or commodity contract.
|_| The Funds cannot invest in the securities issued by any company for
the purpose of exercising control of management of that company.
|_| The Funds cannot invest in or hold securities of any issuer if
officers and Trustees of the Funds or the Manager individually beneficially own
more than 1/2 of 1% of the securities of that issuer and together own more than
5% of the securities of that issuer.
|_| The Funds cannot mortgage, pledge, hypothecate or otherwise
encumber any of its assets to secure a debt or a loan. However, this does not
prohibit the Funds from entering into an escrow, collateral or margin
arrangement with any of its investments.
|_| The Funds cannot invest in oil, gas or other mineral explorations
or development programs. However, the Funds may purchase options, futures
contracts, swaps and other investments which are backed by, or the investment
return from which are linked to oil, gas and mineral values.
|_| The Funds cannot issue "senior securities," but this does not
prohibit certain investment activities for which assets of the Funds are
designated as segregated, or margin, collateral or escrow arrangements are
established, to cover the related obligations. Examples of those activities
include borrowing money, reverse repurchase agreements, delayed-delivery and
when-issued arrangements for portfolio securities transactions, and contracts to
buy or sell derivatives, hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Fund makes an investment. The Fund need not sell securities
to meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
For purposes of the Funds' policy not to concentrate its investments as
described above, the Funds have adopted the industry classifications set forth
in Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Funds Are Managed
Organization and History. Each Fund is an investment portfolio, or "series" of
Oppenheimer Variable Account Funds (the "Trust"), a multi-series open-end
management investment company organized as a Massachusetts business trust that
presently includes ten series. Money Fund, Bond Fund and Growth Fund were all
organized in 1983, High Income Fund, Aggressive Growth Fund and Multiple
Strategies Fund, were all organized in 1986, Global Securities Fund was
organized in 1990, Strategic Bond Fund was organized in 1993, Growth & Income
Fund was organized in 1995, and Small Cap Growth Fund was organized in 1998. All
references to the Fund's Board of Trustees and Officers refer to the Trustees
and Officers, respectively, of Oppenheimer Variable Account Funds.
The Funds are 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
their performance, and review the actions of the Manager. Although the Funds
will not normally hold annual meetings of its shareholders, they 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 Declaration of Trust of Oppenheimer Variable Account Funds.
|X| Classes of Shares. The Board of Trustees has the power,
without shareholder approval, to divide unissued shares of any Fund into two or
more classes. While the Board has done so, and each Fund currently has two
classes of shares: Class 2 shares, and a class of shares without numerical
designation, no Class 2 shares of the Fund are outstanding or have ever been
offered as of the date of this Statement of Additional Information. All classes
invest in the same investment portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes, o may
have a different net asset value, o may have separate voting rights on matters
in which interests of one class are different from interests of another class,
and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one
vote at shareholder meetings, with fractional shares voting proportionally on
matters submitted to the vote of shareholders. Each share of each Fund
represents an interest in that Fund proportionately equal to the interest of
each other share of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Funds into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Funds. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. As a Massachusetts business trust, the
Funds are not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Funds will hold meetings when required to do so by
the Investment Company Act or other applicable law. They will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of all the Funds, 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 all outstanding shares.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the shareholder list available to
the applicants or mail their communication to all other shareholders at the
applicants' expense. The shareholders making the request must have been
shareholders for at least six months and must hold shares of the Funds valued at
$25,000 or more or constituting at least 1% of the Funds' outstanding shares,
whichever is less. The Trustees may also take other action as permitted by the
Investment Company Act.
|X| Shareholder and Trustee Liability. The Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Funds' obligations. It also provides for indemnification and reimbursement of
expenses out of the Funds' property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Trust)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which a Fund would be unable to meet its obligations.
The Funds' contractual arrangements state that any person doing
business with the Funds (and each shareholder of the Funds) agrees under its
Declaration of Trust to look solely to the assets of the Fund for satisfaction
of any claim or demand that may arise out of any dealings with that Fund. The
contracts further state that the Trustees shall have no personal liability to
any such person, to the extent permitted by law.
Trustees and Officers of the Funds. The Trustees and officers of the Fund's
parent, the Trust, and their principal occupations and business affiliations
during the past five years are listed below. Trustees denoted with an asterisk
(*) below are deemed to be "interested persons" of the Fund under the Investment
Company Act. All of the Trustees are also trustees, directors or managing
general partners of the following Denver-based Oppenheimer funds(1):
Oppenheimer Cash Reserves Oppenheimer Total Return Fund, Inc.
Oppenheimer Champion Income Fund Oppenheimer Variable Account Funds
Oppenheimer Equity Income Fund Panorama Series Fund, Inc.
Oppenheimer High Yield Fund Centennial America Fund, L. P.
Oppenheimer International Bond Fund Centennial California Tax Exempt Trust
Oppenheimer Integrity Funds Centennial Government Trust
Oppenheimer Limited-Term Government
Fund Centennial Money Market Trust
Oppenheimer Main Street Funds, Inc. Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund The New York Tax-Exempt Income Fund, Inc.
Oppenheimer Strategic Income Fund
Ms. Macaskill and Messrs. Swain, Bishop, Donohue, Farrar and Zack, who are
officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of April 2, 1999, the Trustees and officers
of the Fund as a group did not beneficially own any shares of the Fund.
Robert G. Avis,* Trustee; Age: 67
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: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen, Trustee; Age: 62
6803 South Tucson Way, Englewood, Colorado 80112
Formerly Senior Vice President (from September, 1987 to April, 1999) and
Treasurer (from March, 1985 to April, 1999) of the Manager; Formerly Vice
President (from June, 1983 to April, 1999) and Treasurer (from March, 1985 to
April, 1999) of the Distributor; formerly Vice President (from October, 1989 to
April, 1999) and Treasurer (from April, 1986 to April, 1999) of HarbourView;
formerly Senior Vice President (from February, 1992 to April, 1999), Treasurer
(from July, 1991 to April, 1999) and a director (from December, 1991 to April,
1999) of Centennial; Formerly President, Treasurer and a director of Centennial
Capital Corporation (from June, 1989 to April, 1999); Formerly Vice President
and Treasurer (from August, 1978 to April, 1999) and Secretary (from April, 1981
to April, 1999) of SSI; formerly Vice President, Treasurer and Secretary of SFSI
(from November, 1989 to April, 1999); Formerly Assistant Treasurer of OAC (from
March 1998 to April, 1999); Formerly Treasurer of Oppenheimer Partnership
Holdings, Inc. (from November, 1989 to April, 1999); Formerly Vice President and
Treasurer of Oppenheimer Real Asset Management, Inc. (from July, 1996 to April,
1999); Formerly Treasurer of OFIL and Oppenheimer Millennium Fund plc (from
October, 1997 to April, 1999).
Charles Conrad, Jr., Trustee; Age: 68
1501 Quail Street, Newport Beach, CA 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services management
company); formerly Vice President of McDonnell Douglas Space Systems Co. prior
to which he was associated with the National Aeronautics and Space
Administration.
Jon S. Fossel, Trustee; Age: 56
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., Shareholder Services, Inc. and Shareholder
Financial Services, Inc.
Sam Freedman, Trustee; Age: 58
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.
and Shareholder Financial Services, Inc., Vice President and a director of
Oppenheimer Acquisition Corp. and a director of the Manager.
Raymond J. Kalinowski, Trustee; Age: 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company).
C. Howard Kast, Trustee; Age: 76
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age: 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
James C. Swain, Chairman, Chief Executive Officer and Trustee*; Age 65
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager (since September 1988); formerly President and a
director of Centennial Asset Management Corporation, and Chairman of the Board
of Shareholder Services, Inc.
Bridget A. Macaskill, President; Age: 50
Two World Trade Center, 34th Floor, New York, New York 10048
President (since June 1991), Chief Executive Officer (since September 1995) and
a director (since December 1994) of the Manager; President and a director (since
June 1991) of HarbourView Asset Management Corp.; Chairman and a director (since
August 1994) of Shareholder Services, Inc. and (since September 1995)
Shareholder Financial Services, Inc.; President (since September 1995) and a
director (since October 1990) of Oppenheimer Acquisition Corp.; President (since
September 1995) and a director (since November 1989) of Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager; a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); President and a
director (since October 1997) of OppenheimerFunds International Ltd., an
offshore fund management subsidiary of the Manager, and Oppenheimer Millennium
Funds plc; President and a director of other Oppenheimer funds; a director of
Hillsdown Holdings plc (a U.K. food company).
Ned M. Steel, Trustee; Age: 84
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
David P. Negri, Vice President and High Income Fund, Bond Fund, Strategic Bond
Fund and Multiple Strategies Fund Portfolio Manager, Age: 45 Two World Trade
Center, 34th Floor, New York, New York 10048 Senior Vice President of the
Manager (since June 1989); an officer of other Oppenheimer funds.
Arthur J. Zimmer, Vice President and Money Fund Portfolio Manager, Age: 53
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President of the Manager (since June 1997); Vice President of
Centennial (since September 1991); an officer of other Oppenheimer funds;
formerly Vice President of the Manager (October 1990-June 1997).
Carol E. Wolf, Vice President and Money Fund Portfolio Manager, Age: 47
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager and Centennial (since June 1990); an officer of
other Oppenheimer funds.
John S. Kowalik, Vice President and Bond Fund Portfolio Manager, Age: 42
Two World Trade Center, 34th Floor, New York, New York 10048
Senior Vice President of the Manager (since July 1998); an officer of other
Oppenheimer funds; formerly Managing Director and Senior Portfolio Manager at
Prudential Global Advisors (1989-1998).
Bruce L. Bartlett, Vice President and Aggressive Growth Fund Portfolio Manager,
Age: 49
Two World Trade Center, 34th Floor, New York, New York 10048
Senior Vice President of the Manager (since January 1998); an officer of other
Oppenheimer funds; formerly a Vice President and Senior Portfolio Manager at
First of America Investment Corp.
Jane Putnam, Vice President and Growth Fund Portfolio Manager, Age: 38
Two World Trade Center, 34th Floor, New York, New York 10048
Vice President of the Manager (since October 1995); previously a portfolio
manager and equity research analyst for Chemical Bank.
Michael S. Levine, Vice President and Multiple Strategies Fund and Growth &
Income Fund Portfolio Manager, Age: 33 Two World Trade Center, 34th Floor, New
York, New York 10048 Vice President of the Manager (since April 1996); formerly
portfolio manager and research associate for Amas Securities, Inc., before which
he was an analyst for Shearson Lehman Hutton Inc.
Richard H. Rubinstein, Vice President and Multiple Strategies
Portfolio Manager, Age: 50
Two World Trade Center, 34th Floor, New York, New York 10048
Senior Vice President of the Manager (since October 1995); an officer of other
Oppenheimer funds (since June 1990).
George Evans, Vice President and Multiple Strategies Fund Portfolio Manager,
Age: 39
Two World Trade Center, 34th Floor, New York, New York 10048
Vice President of the Manager (since September 1990) and HarbourView (since July
1994); an officer of other Oppenheimer funds.
Arthur P. Steinmetz, Vice President and Strategic Bond Fund Portfolio Manager,
Age: 40 Two World Trade Center, 34th Floor, New York, New York 10048 Senior Vice
President of the Manager (since March 1993); an officer of other Oppenheimer
funds.
Jay W. Tracey III, Vice President and Small Cap Growth Fund Portfolio Manager,
Age: 45
Two World Trade Center, 34th Floor, New York, New York 10048
Vice President of the Manager (since September 1994); Vice President and
portfolio manager of other OppenheimerFunds; formerly a Managing Director of
Buckingham Capital Management (February 1994-September 1994), prior to which he
was Portfolio Manager and Vice President of the Fund and other Oppenheimer funds
and a Vice President of the Manager (July 1991-February 1994).
Alan Gilston, Vice President and Small Cap Growth Fund Portfolio Manager,
Age: 41
Two World Trade Center, 34th Floor, New York, New York 10048
Vice President of the Manager (since September 1997); formerly a Vice President
and portfolio manager at Schroder Capital Management International, Inc.
William Wilby, Vice President and Global Securities Fund Portfolio Manager,
Age: 54
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President and the Manager (since July 1994) and HarbourView Asset
Management Corporation (since October 1993); and officer of other Oppenheimer
funds; formerly International Investment Strategist at Brown Brothers Harriman &
Co., prior to which he was a Managing Director and Portfolio Manager at AIG
Global Investors.
Andrew J. Donohue, Vice President and Secretary; Age: 48
Two World Trade Center, 34th Floor, New York, New York 10048
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993) and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView Asset Management Corp., Shareholder Services, Inc., Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc. (since
September 1995); President and a director of Centennial Asset Management Corp.
(since September 1995); President and a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); General Counsel (since May 1996) and
Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice President
and a Director of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Scott T. Farrar, Assistant Treasurer; Age: 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Robert G. Zack, Assistant Secretary; Age: 50
Two World Trade Center, 34th Floor, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary (since October 1997) of Oppenheimer Millennium Funds plc and
OppenheimerFunds International Ltd.; an officer of other Oppenheimer funds.
|X| Remuneration of Trustees. The officers of the Fund and two Trustees of
the Fund (Ms. Macaskill and Mr. Swain) are affiliated with the Manager and
receive no salary or fee from the Fund. The remaining Trustees of the Fund
(other than Mr. Bowen, who was affiliated with the Manager until April, 1999)
received the compensation shown below. The compensation from the Fund was paid
during its fiscal year ended December 31, 1998. The compensation from all of the
Denver- based Oppenheimer funds includes the compensation from the Fund and
represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1998.
<TABLE>
<CAPTION>
Total Compensation
Trustee's Name and Other Positions Aggregate Compensation From all Denver-Based
from Funds Oppenheimer Funds(1)
<S> <C> <C>
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Robert G. Avis $___ $67,998
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
$___ $69,998
William A. Baker
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Charles Conrad, Jr. $___ $67,998
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Jon. S. Fossel $___ $67,496.04
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Sam Freedman
Audit and Review Committee Member $___ $73,998
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Raymond J. Kalinowski
Audit and Review Committee Member
$____ $73,998
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
C. Howard Kast $___ $76,998
Audit and Review Committee Chairman
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Robert M. Kirchner $____ $67,998
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
Ned M. Steel $___ $67,998
- -------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
1. For the 1998 calendar year.
|X| Deferred Compensation Plan. The Board of Trustees has adopted a
Deferred Compensation Plan for disinterested Trustees that enables them to elect
to defer receipt of all or a portion of the annual fees they are entitled to
receive from the Funds. Under the plan, the compensation deferred by a Trustee
is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Trustee. The amount paid
to the Trustee under the plan will be determined based upon the performance of
the selected funds.
Deferral of Trustee's fees under the plan will not materially affect the
Funds' assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Funds may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
O Major Shareholders. As of April 2, 1999 the holders of 5% or more of
the outstanding shares of any Fund were separate accounts of the following
insurance companies and their respective affiliates: (i) Monarch Life Insurance
Company ("Monarch"), Springfield, MA; (ii) ReliaStar Bankers Security Life
Insurance Company ("ReliaStar"), Minneapolis, MN; (iii) GE Life & Annuity
Assurance Company ("GE"), Richmond, VA; (iv) Nationwide Life Insurance Company
("Nationwide"), Columbus, OH; (v) Aetna Life Insurance and Annuity Company
("Aetna"), Hartford, CT; (vi) Massachusetts Mutual Life Insurance Company,
Springfield, MA ("MassMutual"), (vii) Jefferson-Pilot Life Insurance Company,
Greensboro, NC and Alexander Hamilton Life Insurance Company of America, both in
Concord, NH (collectively, "Jefferson Pilot"); (viii) CUNA Mutual Group
("CUNA"), Madison, WI and (ix) American General Annuity Insurance Company,
Houston, TX ("American General"). Such shares were held as shown in Appendix C.
No shares of Class 2 shares of any Fund were outstanding as of that date.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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 the Fund's portfolio
transactions.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
|X| The Investment Advisory Agreements. The Manager provides investment
advisory and management services to each Fund under an investment advisory
agreement between the Manager and the Trust for each Fund. The Manager selects
securities for the Funds' portfolio and handles its day-to-day business. The
portfolio manager of the Fund are employed by the Manager and are the person who
is principally responsible for the day-to-day management of the Funds'
portfolios. Other members of the Manager's Teams, provide the portfolio managers
with counsel and support in managing the Funds' portfolios. For Global
Securities Fund, this includes George Evans and Frank Jennings; for Growth Fund,
this includes Robert C. Doll, and for Small Cap Growth Fund, this includes Susan
Switzer. Similarly, other members of the Manager's Fixed Income Portfolio
Department, particularly portfolio analysts, traders and other portfolio
managers having broad experience with domestic and international government and
fixed-income securities, provide the portfolio managers of the High Income Fund,
Bond Fund and Strategic Bond Fund with support in managing the portfolios of
those Funds.
The agreements require the Manager, at its expense, to provide the Funds
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Funds.
Those responsibilities include 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 the Funds.
The Funds pay expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Funds. The major categories 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. The management
fees paid by the Funds to the Manager are calculated at the rates described in
the Prospectus, which are applied to the assets of the Fund as a whole. Prior to
May 1, 1999, the advisory agreement for Aggressive Growth Fund did not include a
breakpoint above $800 million. In the event more than one class of shares is
issued, the fees would be allocated to each class of shares based upon the
relative proportion of the Funds' net assets represented by that class.
Expenses not expressly assumed by the Manager under the Investment
Advisory Agreements are paid by the Trust. The Investment Advisory Agreements
list examples of expenses paid by the Funds, 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.
The management fees paid by the Funds to the Manager for the Funds'
most recent three fiscal years (except for Small Cap Growth Fund, which
commenced operations in 1998) were as follows:
Fiscal year ended December 31,
1996 1997 1998
Money Fund $445,899 $601,698 $
High Income Fund $1,177,754 $1,667,490 $
Bond Fund $2,188,350 $3,281,556 $
Aggressive Growth Fund $3,382,840 $5,324,309 $
Growth Fund $1,139,255(1) $2,859,202 $
Multiple Strategies Fund $3,132,569 $4,068,887 $
Global Securities Fund $3,395,740 $5,615,606 $
Strategic Bond Fund $618,338 $1,197,613 $
Growth & Income Fund $160,819 $790,577 $
Small Cap Growth Fun N/A N/A $ (2)
- --------------------
(1) During the fiscal year ended December 31, 1996, the Manager reimbursed
Oppenheimer Growth Fund $27,276 for certain SEC registration fees incurred in
connection with the acquisition by that Fund of J.P. Aggressive Growth Fund,
Inc.
(2)From May 1, 1998 (commencement of operations) to December 31, 1998.
The investment advisory agreements state that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreements permit the Manager to act as investment adviser for any
other person, firm or corporation and 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 a Fund, the Manager may withdraw the right of that Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreements. One of the duties of
the Manager under the investment advisory agreements is to arrange the portfolio
transactions for the Funds. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Funds' portfolio transactions.
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. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Funds to obtain, at reasonable expense, the "best execution" of the Funds'
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Funds as established by its Board of
Trustees.
Under the investment advisory agreements, the Manager may select
brokers (other than affiliates) 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 charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided.
Subject to those considerations, as a factor in selecting brokers for the Funds'
portfolio transactions, the Manager may also consider sales of shares of the
Funds and other investment companies for which the Manager or an affiliate
serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Funds subject to the provisions of the investment advisory agreements and
the procedures and rules described above. Generally, the Manager's portfolio
traders allocate brokerage based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly place
trades and allocate brokerage. In either case, the Manager's executive officers
supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Funds may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Funds ordinarily use the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Funds. Those other funds may purchase or sell the same securities
as the Funds at the same time as the Funds, which could affect the supply and
price of the securities. If two or more funds advised by the Manager purchase
the same security on the same day from the same dealer, the transactions under
those combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. This affects a substantial portion of the portfolio transactions of
Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund. Instead of
using a broker for those transactions, the Funds 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 the
services of a broker. Purchases of portfolio 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 investment advisory agreements permit the Manager to allocate
brokerage for research services. 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. The investment research received for the commissions of
those other accounts may be useful both to one of the Funds and one or more of
the Manager's other accounts. Investment research may be supplied to the Manager
by a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, 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 permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
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 Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
The (i) total brokerage commissions paid by the Funds (other than Money
Fund, which paid no brokerage commissions), not including spreads or concessions
on principal transactions on a net trade basis, for the Funds' fiscal year ended
December 31, 1996, 1997 and 1998; and (ii) for the Funds' fiscal year ended
December 31, 1998, the amount of transactions directed to brokers for research
services, and the amount of the commissions paid to broker-dealers for those
services, is shown in the chart below:
Research Research
Commissions Transactions Commissions
Fund 1996 1997 1998 1998 1998
High Income Fund
Bond Fund
Strategic Bond Fund
Aggressive Growth Fund
Growth Fund
Small Cap Growth Fund
Global Securities Fund
Multiple Strategies Fund
Growth & Income Fund
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund,
the Distributor will act as the principal underwriter of the Fund's Class 2
shares, if and when shares of that class are issued. There is no general
distributor for the Fund's shares without numerical designation.
Class 2 Service Plans
The Trust has adopted a Service Plan for Class 2 shares of each Fund
under Rule 12b-1 of the Investment Company Act, pursuant to which the each Fund
makes payments to the Distributor in connection with the distribution and/or
servicing of the shares of Class 2. Each Class 2 Plan has been approved by a
vote of (i) the Board of Trustees of the Trust, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the Manager as the then-sole initial holder of
such shares. As of the date of this Statement of Additional Information, no
Class 2 shares have been issued and therefore no payments have been made under
the Plans.
Under the Class 2 Plans, no payment will be made to any insurance
company separate account sponsor or affiliate thereof under a Fund's Class 2
Plan (each is referred to as a "Recipient") in any quarter if the aggregate net
assets of all Fund shares held by the Recipient for itself and its customers did
not exceed a minimum amount, if any, that may be determined from time to time by
a majority of the Trust's Independent Trustees. Initially, the Board of Trustees
has set the fee at 0.10% of average annual net assets and set no minimum amount.
In addition, the Manager and the Distributor may, under the Plans, from
time to time from their own resources (which, as to the Manager, may include
profits derived from the advisory fee it receives from each respective Fund)
make payments to Recipients for distribution and administrative services they
perform. The Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of distribution assistance payments they make to
Recipients from their own assets.
Unless terminated as described below, each Class 2 Plan continues in
effect from year to year but only as long as such continuance is specifically
approved at least annually by the Trust's Board of Trustees and its Independent
Trustees by a vote cast in person at a meeting called for the purpose of voting
on such continuance. Any Class 2 Plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class. For purposes of voting with respect to the Class 2 Plans, Account
owners are considered to be shareholders of a Fund's shares. No Class 2 Plan may
be amended to increase materially the amount of payments to be made unless such
amendment is approved by Account owners of the class affected by the amendment.
All material amendments must be approved by the Board the Independent Trustees.
While the plans are in effect and Class 2 shares are outstanding, the
Treasurer of the Trust must provide separate written reports to the Trust's
Board of Trustees at least quarterly describing the amount of payments made
pursuant to each Plan and the purposes for which the payments were made. The
Class 2 reports also must include the identity of each Recipient that received
any payment. These reports are subject to the review and approval of the
Independent Trustees.
The Class 2 Plans provide for the Distributor to be compensated at a
flat rate, whether the Distributor's distribution expenses are more or less than
the amounts paid by the Funds. Such payments are made in recognition that the
Distributor will pay insurance company separate account sponsors for certain
activities, as described in the Prospectus.
Performance of the Funds
Explanation of Performance Terminology. The Funds use a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Funds' most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048.
The Funds' illustrations of their performance data in advertisements
must comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication).
Use of standardized performance calculations enables an investor to
compare the Funds' performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Funds' performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in
a Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if you buy or sell shares during the period, or you bought your
shares at a different time and price than the shares used in the model.
|_| The Fund's performance does not reflect the charges deducted from
an investor's separate account by the insurance company or other sponsor of that
separate account, which vary from product to product. If these charges were
deducted, performance will be lower than as described in the Fund's Prospectus
and Statement of Additional Information. In addition, the separate accounts may
have inception dates different from those of the Funds.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The Funds' performance returns do not reflect the effect of taxes
on dividends and capital gains distributions.
|_| The principal value of the Funds' shares and total returns are not
guaranteed and normally will fluctuate on a daily basis. 1
|_| When an investor's shares are redeemed, they may be worth more or less than
their original cost. 1
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The Funds' total returns are affected by market conditions, the quality
of the Funds' investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses.
|X| Total Return Information. There are different types of "total
returns" to measure the Funds' performance. Total return is the change in value
of a hypothetical investment in a Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. 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 actual
year-by-year performance. The Funds use standardized calculations for its total
returns as prescribed by the SEC. The methodology is discussed below.
1. These statements do not apply to Money Fund, which seeks to maintain a stable
net asset value of $1.00 per share. There can be no assurance that Money Fund
will be able to do so.
<PAGE>
|_| Average Annual Total Return. The "average annual total
return" of each class is an average annual compounded rate of return for each
year in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n" in the formula) to achieve an
Ending Redeemable Value ("ERV" in the formula) of that investment, according to
the following formula:
1/n
( )
( ERV ) - 1 = Average Annual Total Returns
( ----- )
( P )
|_| Cumulative Total Return. The "cumulative total return"
calculation measures the change in value of a hypothetical investment of $1,000
over an entire period of years. 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
The Funds' Total Returns for the Periods Ended 12/31/98
Average Annual Total Return for:
<TABLE>
<CAPTION>
Cumulative
Total
Fiscal Year Five Year Ten Year Return From
Ended Period Period Inception(1) Inception(1)
Fund 12/31/98 Ended 12/31/98 Ended 12/31/98 to 12/31/98 to 12/31/98
- ---- -------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
High Income Fund ____% ____% ____% _____% ______%
Bond Fund ____% ____% ____% ____% _______%
Aggressive Growth Fund _____% _____% _____% _____% ______%
Growth Fund _____% _____% _____% _____% ______%
Multiple Strategies Fund ____% _____% _____% _____% ______%
Global Securities Fund _____% _____% n/a _____% ______%
Strategic Bond Fund ____% n/a n/a ____% _____%
Growth & Income Fund _____% n/a n/a _____% ______%
Small Cap Growth Fund _____% n/a n/a ____% ______%
</TABLE>
- -------------
(1)Inception dates are as follows: 4/30/86 for High Income Fund; 4/3/85 for Bond
Fund and Growth Fund; 8/15/86 for Aggressive Growth Fund; 2/9/87 for Multiple
Strategies Fund; 11/12/90 for Global Securities Fund; 5/3/93 for Strategic Bond
Fund; 7/5/95 for Growth & Income Fund and 5/1/98 for Small Cap Growth Fund.
|_| Standardized Yield. The "standardized yield" (sometimes referred to just
as "yield") is shown for a stated 30-day period. It is not based on actual
distributions paid by the Fixed Income Funds to shareholders in the 30-day
period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments for that period. It may therefore differ from
the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
a - b 6
Standardized Yield = 2 [(----- + 1) - 1]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last
day of the period, adjusted for undistributed net investment
income.
The standardized yield for a particular 30-day period may differ from
the yield for other periods. The SEC formula assumes that the standardized 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. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|_| Dividend Yield. The Fixed Income Funds may quote a
"dividend yield" for each class of its shares. Dividend yield is based on the
dividends paid on a class of shares during the actual dividend period. To
calculate dividend yield, the dividends of a class declared during a stated
period are added together, and the sum is multiplied by 12 (to annualize the
yield) and divided by the maximum offering price on the last day of the dividend
period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
Yields for the 30-Day Periods Ended 12/31/98
Fund Standardized Yield Dividend Yield
High Income Fund
Bond Fund
Strategic Bond Fund
|_| Money Fund Yields. The current yield for Money Fund is calculated
for a seven-day period of time 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 the
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
(1) adding 1 to the base period return (obtained as described above),
(2) raising the sum to a power equal to 365 divided by 7, and (3)
subtracting 1 from the result.
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. 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. Therefore, the return on dividends declared during a period may not
be the same on an annualized basis as the yield for that period.
Other Performance Comparisons. The Funds compare their performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Funds may also compare their performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Funds may publish the
rankings of their performance by Lipper Analytical Services, Inc. Lipper is a
widely-recognized independent mutual fund monitoring 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. Lipper currently ranks the Funds' performance against
other funds in the same investment category. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gain
distributions and income dividends but do not take sales charges or taxes into
consideration. Lipper also publishes "peer-group" indices of the performance of
all mutual funds in a category that it monitors and averages of the performance
of the funds in particular categories.
|X| Morningstar Rankings. From time to time the Funds may publish the
star ranking of the performance of separate accounts that hold its shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
ranks separate accounts in broad investment categories.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Funds may include in its advertisements and
sales literature performance information about the Funds cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The Funds' performance may
be compared in publications to the performance of various market indices or
other investments, and averages, performance rankings or other benchmarks
prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Funds' shares to
the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Funds' returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily,1 while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Funds may publish rankings or ratings of the
Manager or Transfer Agent, and of the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder and
investor services by third parties may include comparisons of their services to
those provided by other mutual fund families selected by the rating or ranking
services. They may be based upon the opinions of the rating or ranking service
itself, using its research or judgment, or based upon surveys of investors,
brokers, shareholders or others.
ABOUT YOUR ACCOUNT
How to Buy and Sell Shares
Shares of the Funds are sold to provide benefits under variable life
insurance policies and variable annuity and other insurance company separate
accounts, as explained in the Funds' Prospectus. Therefore, instructions from an
investor to buy or sell shares of the Funds should be directed to the insurance
sponsor for the investor's separate account, or that insurance sponsor's agent.
|X| Allocation of Expenses. The Funds pay expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's 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.
If and when more than one class of the Funds' shares are issued, the
methodology for calculating the net asset value, dividends and distributions of
the Fund's share classes would recognize two types of expenses. General expenses
that do not pertain specifically to any one class would be allocated pro rata to
the shares of all classes. The allocation would be based on the percentage of
the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class
would be allocated equally to each outstanding share within that class. Examples
of such expenses include service plan (12b-1) fees of Class 2 shares, transfer
and shareholder servicing agent fees and expenses, and shareholder meeting
expenses (to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Funds are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other 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,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of the
Fund's portfolio securities may change significantly on those days, when
shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those securities
are determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
- --------------------
1. These statements do not apply to Money Fund, which seeks to maintain a stable
net asset value of $1.00 per shares. There can be no assurance that Money Fund
will be able to do so.
|X| Securities Valuation. The Funds' Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ are
valued as follows:
(1) if last sale information is regularly reported, they are
valued at the last reported sale price on the principal
exchange on which they are traded or on NASDAQ, as
applicable, on that day, or
(2) if last sale information is not available on a valuation
date, they are valued at the last reported sale price
preceding the valuation date if it is within the spread of
the closing "bid" and "asked" prices on the valuation date
or, if not, at the closing "bid" price on the valuation
date.
|_| Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways: (1) at the last sale price available to the
pricing service approved by the Board of Trustees, or (2) at the last sale price
obtained by the Manager from the report of the principal exchange on which the
security is traded at its last trading session on or immediately before the
valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal
exchange on which the security is traded or, on the basis of reasonable inquiry,
from two market makers in the security.
|_| Long-term debt securities having a remaining maturity in excess of
60 days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid"
and "asked" prices determined by a pricing service approved by the Fund's Board
of Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less
when issued and which have a remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining maturity of 60
days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity
of 397 days or less.
|_| Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the "bid"
and "asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer or
pricing service that the Manager has determined to be reliable are used to value
foreign currency, including forward contracts, and to convert to U.S. dollars
securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale 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. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Funds write an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Funds expires, that Fund has a gain in the amount of the
premium. If that Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received 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.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The dividends and distributions paid by a
class of shares will vary from time to time depending on market conditions, the
composition of the Fund's portfolio, and expenses borne by the Funds or borne
separately by a class (if more than one class of shares are outstanding).
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, if and when Class 2 shares are ever
issued, dividends on Class 2 shares are expected to be lower. That is because of
the effect of the service fee on Class 2 shares. Those dividends will also
differ in amount as a consequence of any difference in the net asset values of
the different classes of shares.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Funds' dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Under the Internal Revenue Code, by December 31 each year, the Funds
must distribute 98% of its taxable investment income earned from January 1
through December 31 of that year and 98% of its capital gains realized in the
period from November 1 of the prior year through October 31 of the current year.
If it does not, the Funds must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Funds will meet those requirements.
However, the Board of Trustees and the Manager might determine in a particular
year that it would be in the best interests of shareholders for the Fund not to
make such distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Funds intend to qualify as a "regulated investment company" under
the Internal Revenue Code (although it reserves the right not to qualify). If
the Funds qualify as "regulated investment companies" under the Internal Revenue
Code, they will not be liable for Federal income taxes on amounts paid by it as
dividends and distributions. The Funds qualified as regulated investment
companies in its last fiscal year. The Internal Revenue Code contains a number
of complex tests relating to qualification which the Funds might not meet in any
particular year. If it did not so qualify, the Fund would be treated for tax
purposes as an ordinary corporation and receive no tax deduction for payments
made to shareholders.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Funds' assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Funds' cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial. Independent Auditors. Deloitte &
Touche LLP are the independent auditors of the Fund. They audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for certain other funds advised by the Manager and its affiliates.
<PAGE>
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. 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, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are 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 with Aaa securities or fluctuation 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 those of Aaa securities.
A: Bonds rated 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: Bonds rated Baa are considered medium grade obligations; that is, 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: Bonds rated Ba are 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: Bonds rated Caa are of poor standing and may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high degree
and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and 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 Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being made
on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the due
date. The rating may also be used if a bankruptcy petition has been filed or
similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and are
extremely speculative. "DDD" designates the highest potential for recovery of
amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free U.S.
Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Appendix B
Industry Classifications
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
APPENDIX C - MAJOR SHAREHOLDERS
As of April 2, 1999, the number of shares and approximate percentage of shares
held of record by separate accounts of the following insurance companies (and
their respective subsidiaries) that held 5% or more of the outstanding shares of
one of the Funds were as follows:
<TABLE>
<CAPTION>
Monarch ReliaStar GE Nationwide Aetna
<S> <C> <C> <C> <C> <C>
Money Fund 21,499,321,030 8,093,264.192 * * 12,369,251.370
17.64% 17.64% 10.15%
High Income Fund * 2,165,823.647 14,990,095.405 ** 2,978,922.048
7.60% 52.69% 10.46%
Bond Fund * * 3,866,286.454 27,008,568.180 *
8.27% 57.80%
Aggressive Growth * 1,301,216.741 5,437,690.776 * 1,532,591.771
Fund 5.77% 24.12% 6.80%
Growth Fund 1,040,760.309 * 5,179,659.799 1,171,925.886 1,782,271.929
5.82% 28.93% 6.55% 9.95%
Multiple Strategies 3,280,203.387 8,093,264.192 4,983,247.856 22,386,053.011 3,244,265.630
Fund 8.27% 6.64% 12.56% 56.41% 8.18%
Global Securities * * * 27,725,753.826 2,630,290.307
Fund 53.57% 5.08%
Strategic Bond Fund * * * * 4,966,074.026
10.72%
Growth & Income * * * * 1,479,984.610
Fund 15.00%
</TABLE>
- ---------------
*Less than 5% of the outstanding shares of that Fund.
(continued)
<PAGE>
<TABLE>
<CAPTION>
MassMutual Jefferson-Pilot CUNA American General
<S> <C> <C> <C> <C>
Money Fund 79,892,214.064 * *
65.56%
High Income Fund 4,986,977.788 * 2,006,997.136
17.52% 7.06%
Bond Fund 10,375,581.125 3,638,780.489 *
22.21% 7.79%
Aggressive Growth 13,04,219.906 * *
Fund 59.91%
Growth Fund 4,513,660.568 3,705,101.994 *
25.21% 20.70%
Multiple Strategies 2,911,017.696 * *
Fund 7.34%
Global Securities 19,905,519.202 * *
Fund 38.46%
Strategic Bond Fund 39,617,075.312 * *
85.52%
Growth & Income 7,570,113.808 * *
Fund 76.72%
</TABLE>
- ---------------
*Less than 5% of the outstanding shares of that Fund.
<PAGE>
Oppenheimer Variable Account Funds
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 Bank
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
[OppenheimerFunds logo]
PX600.0599
<PAGE>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Eighth Restated Declaration of Trust dated 5/1/98: Previously filed with
Registrants Post-Effective Amendment No. 32, (4/29/90) and incorporated herein
by reference.
(b) Amended By-Laws dated 6/26/90: Previously filed with Registrant's
Post-Effective Amendment No. 26 (2/13/95), and incorporated herein by reference.
(i) Oppenheimer Money Fund specimen share certificate: Filed with Registrant's
Post-Effective Amendment No. 30, 4/23/97, and incorporated herein by reference.
(ii) Oppenheimer Bond Fund specimen share certificate: Filed with Registrant's
Post-Effective Amendment No. 30, 4/23/97, and incorporated herein by reference.
<PAGE>
(iii)Oppenheimer Growth Fund specimen share certificate: Filed with Registrant's
Post-Effective Amendment No. 30, 4/23/97, and incorporated herein by reference.
(iv) Oppenheimer High Income Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 30, 4/23/97, and incorporated herein
by reference.
(v) Oppenheimer Aggressive Growth Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated herein
by reference.
(vi) Oppenheimer Multiple Strategies Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 30, 4/23/97, and incorporated herein
by reference.
(vii) Oppenheimer Global Securities Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 30, 4/23/97, and incorporated herein
by reference.
(viii) Oppenheimer Strategic Bond Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 30, 4/23/97, and incorporated herein
by reference.
(ix) Oppenheimer Growth & Income Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 30, 4/23/97, and incorporated herein
by reference.
(x) Oppenheimer Small Cap Growth Fund specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 32, 4/29/98, and incorporated herein
by reference.
(xi) Oppenheimer Money Fund Class 2 specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated herein
by reference.
(xii) Oppenheimer Bond Fund Class 2 specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated herein
by reference.
(xiii) Oppenheimer Growth Fund Class 2 specimen share certificate: Filed with
Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated herein
by reference.
(xiv) Oppenheimer High Income Fund Class 2 specimen share certificate: Filed
with Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated
herein by reference.
<PAGE>
(xv) Oppenheimer Aggressive Growth Fund Class 2 specimen share certificate:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98, and
incorporated herein by reference.
(xvi) Oppenheimer Multiple Strategies Fund Class 2 specimen share certificate:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98, and
incorporated herein by reference.
(xvii) Oppenheimer Global Securities Fund Class 2 specimen share certificate:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98, and
incorporated herein by reference.
(viii) Oppenheimer Strategic Bond Fund Class 2 specimen share certificate: Filed
with Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated
herein by reference.
(xix) Oppenheimer Growth & Income Fund Class 2 specimen share certificate: Filed
with Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated
herein by reference.
(xx) Oppenheimer Small Cap Growth Fund Class 2 specimen share certificate: Filed
with Registrant's Post-Effective Amendment No. 31, 1/30/98, and incorporated
herein by reference.
(d) (i) Investment Advisory Agreement for Oppenheimer Money 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 High Income Fund dated
9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated
herein by reference.
(iii) 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.
(iv) Investment Advisory Agreement for Oppenheimer Aggressive Growth Fund dated
9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated
herein by reference.
(v) Revised and Restated Investment Advisory Agreement for Oppenheimer
Aggressive Growth Fund dated May 1, 1999: To be filed by Post-Effective
Amendment.
(vi) 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.
<PAGE>
(vii) Investment Advisory Agreement for Oppenheimer Multiple Strategies Fund
dated 9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and
incorporated herein by reference.
(viii) Investment Advisory Agreement for Oppenheimer Global Securities Fund
dated 9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and
incorporated herein by reference.
(ix) Investment Advisory Agreement for Oppenheimer Strategic Bond Fund dated
9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated
herein by reference.
(x) Investment Advisory Agreement for Oppenheimer Growth & Income Fund dated
5/1/95: Filed with Post-Effective Amendment No. 29, 4/22/96, and incorporated
herein by reference.
(xi) Investment Advisory Agreement for Oppenheimer Small Cap Growth Fund dated
5/1/98 - Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98, and
incorporated herein by reference.
(e) (i) General Distributor's Agreement for Class 2 shares of Oppenheimer Money
Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98, and
incorporated herein by reference.
(ii) General Distributor=s Agreement for Class 2 shares of Oppenheimer Bond Fund
dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98, and
incorporated herein by reference.
(iii) General Distributor's Agreement for Class 2 shares of Oppenheimer Growth
Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98, and
incorporated herein by reference.
(iv) General Distributor's Agreement for Class 2 shares of Oppenheimer High
Income Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98,
and incorporated herein by reference.
(v) General Distributor's Agreement for Class 2 shares of Oppenheimer Aggressive
Growth Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98,
and incorporated herein by reference.
(vi) General Distributor's Agreement for Class 2 shares of Oppenheimer Multiple
Strategies Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32,
4/29/98, and incorporated herein by reference.
(vii) General Distributor's Agreement for Class 2 shares of Oppenheimer Global
Securities Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32,
4/29/98, and incorporated herein by reference.
(viii) General Distributor's Agreement for Class 2 shares of Oppenheimer
Strategic Bond Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32,
4/29/98, and incorporated herein by reference.
(ix) General Distributor's Agreement for Class 2 shares of Oppenheimer Growth &
Income Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98,
and incorporated herein by reference.
(x) General Distributor's Agreement for Class 2 shares of Oppenheimer Small Cap
Growth Fund dated 5/1/98: Filed with Post-Effective Amendment No. 32, 4/29/98,
and incorporated herein by reference.
(f) Form of Deferred Compensation Plan for Disinterested Trustees\Directors:
Filed with Post-Effective Amendment No. 40 to the Registration Statement of
Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/27/98, and incorporated
herein by reference.
(g) 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.
(h) Not applicable.
(i) (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 herein by reference.
(ii) Opinion and Consent of Counsel, 4/28/86: Previously filed with
Registrant's Post-Effective Amendment No. 5, 8/12/86, 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-Effective Amendment 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.
<PAGE>
(vii) Opinion and Consent of Counsel dated April 18, 1995: Filed with
Post-Effective Amendment No. 29, 4/22/96, and incorporated herein by reference.
(viii) Opinion and Consent of Counsel: Filed with Post-Effective Amendment No.
32, 4/29/98, and incorporated herein by reference.
(j) Independent Auditors Consent: To be filed by Post-Effective Amendment.
(k) Not applicable.
(l) Not applicable.
(m) (i) Service Plan and Agreement for Class 2 shares of Oppenheimer Money Fund:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98 and
incorporated herein by reference.
(ii) Service Plan and Agreement for Class 2 shares of Oppenheimer Bond Fund:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98 and
incorporated herein by reference.
(iii) Service Plan and Agreement for Class 2 shares of Oppenheimer Growth Fund:
Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98 and
incorporated herein by reference.
(iv) Service Plan and Agreement for Class 2 shares of Oppenheimer High Income
Fund: Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98 and
incorporated herein by reference.
(v) Service Plan and Agreement for Class 2 shares of Oppenheimer Aggressive
Growth Fund: Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98
and incorporated herein by reference.
(vi) Service Plan and Agreement for Class 2 shares of Oppenheimer Multiple
Strategies Fund: Filed with Registrant's Post-Effective Amendment No. 31,
1/30/98 and incorporated herein by reference.
(vii) Service Plan and Agreement for Class 2 shares of Oppenheimer Global
Securities Fund: Filed with Registrant's Post-Effective Amendment No. 31,
1/30/98 and incorporated herein by reference.
<PAGE>
(viii) Service Plan and Agreement for Class 2 shares of Oppenheimer Strategic
Bond Fund: Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98 and
incorporated herein by reference.
(ix) Service Plan and Agreement for Class 2 shares of Oppenheimer Growth &
Income Fund: Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98
and incorporated herein by reference.
(x) Service Plan and Agreement for Class 2 shares of Oppenheimer Small Cap
Growth Fund: Filed with Registrant's Post-Effective Amendment No. 31, 1/30/98
and incorporated herein by reference.
(n) (i) Financial Data Schedules: To be filed by Post-Effective Amendment.
(o) Oppenheimer Funds Multiple Class Plan under Rule 18f-3 updated through
8/25/98: Previously filed with Post-Effective Amendment No. 70 to the
Registration Statement of Oppenheimer Global Fund (Reg. No. 2-31661), 9/14/98,
and incorporated herein by reference.
- -- Powers of Attorney: Filed with Post-Effective Amendment No. 29, 4/22/96, and
with Registrant's Post-Effective Amendment No. 24, 2/25/94, and incorporated
herein by reference.
Item 24. Persons Controlled by or Under Common Control with the Fund
None.
Item 25. Indemnification
Reference is made to the provisions of Article Seventh of Registrant's
Amended and Restated Declaration of Trust filed as Exhibit 23(a) to this
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 26. Business and Other Connections of the Investment Adviser
(a) OppenheimerFunds, Inc. is the investment adviser of the Registrant; it and
certain subsidiaries and affiliates act in the same capacity to other investment
companies, including with limitation those described in Parts A and B hereof and
listed in Item 26(b) below.
(b) There is set forth below information as to any other business, profession,
vocation or employment of a substantial nature in which each officer and
director of OppenheimerFunds, Inc. is, or at any time during the past two fiscal
years has been, engaged for his/her own account or in the capacity of director,
officer, employee, partner or trustee.
Name and Current Position Other Business and Connections
with OppenheimerFunds, Inc. During the Past Two Years
Charles E. Albers,
Senior Vice President An officer
and/or portfolio manager of
certain Oppenheimer funds
(since April 1998); a
Chartered Financial
Analyst; formerly, a Vice
President and portfolio
manager for Guardian
Investor Services, the
investment management
subsidiary of The Guardian
Life Insurance Company
(since 1972).
Edward Amberger,
Assistant Vice President Formerly
Assistant Vice President,
Securities Analyst for
Morgan Stanley Dean Witter
(May 1997 - April 1998);
and Research Analyst (July
1996 - May 1997), Portfolio
Manager (February 1992 -
July 1996) and Department
Manager (June 1988 to
February 1992) for The Bank
of New York.
Mark J.P. Anson,
Vice President
Vice President of Oppenheimer Real Asset Management, Inc. ("ORAMI"); formerly,
Vice President of Equity Derivatives at Salomon Brothers, Inc.
Peter M. Antos,
Senior Vice President
An officer and/or portfolio manager of certain Oppenheimer funds; a Chartered
Financial Analyst; Senior Vice President of HarbourView Asset Management
Corporation ("HarbourView"); prior to March, 1996 he was the senior equity
portfolio manager for the Panorama Series Fund, Inc. (the "Company") and other
mutual funds and pension funds managed by G.R. Phelps & Co. Inc. ("G.R.
Phelps"), the Company's former investment adviser, which was a subsidiary of
Connecticut Mutual Life Insurance Company; he was also responsible for managing
the common stock department and common stock investments of Connecticut Mutual
Life Insurance Co.
Lawrence Apolito,
Vice President None.
Victor Babin,
Senior Vice President None.
Bruce Bartlett,
Vice President An officer and/or
portfolio manager of
certain Oppenheimer funds.
Formerly, a Vice President
and Senior Portfolio
Manager at First of America
Investment Corp.
George Batejan,
Executive Vice President,
Chief Information Officer
Formerly Senior Vice
President, Group Executive,
and Senior Systems Officer
for American International
Group (October 1994 - May,
1998).
John R. Blomfield,
Vice President Formerly Senior
Product Manager (November,
1995 - August, 1997) of
International Home Foods
and American Home Products
(March, 1994 - October,
1996).
Connie Bechtolt,
Assistant Vice President None.
Kathleen Beichert,
Vice President None.
Rajeev Bhaman,
Vice President
Formerly, Vice President (January 1992 - February, 1996) of Asian Equities for
Barclays de Zoete Wedd, Inc.
Robert J. Bishop,
Vice President Vice President of
Mutual Fund Accounting
(since May 1996); an
officer of other
Oppenheimer funds;
formerly, an Assistant Vice
President of OFI/Mutual
Fund Accounting (April
1994-May 1996), and a Fund
Controller for OFI.
Chad Boll,
Assistant Vice President None
George C. Bowen,
Senior Vice President, Treasurer
and Director
Vice President (since June 1983) and Treasurer (since March 1985) of
OppenheimerFunds Distributor, Inc. (the "Distributor"); Vice President
(since October 1989) and Treasurer (since April 1986) of HarbourView;
Senior Vice President (since February 1992), Treasurer (since July 1991)and
a director (since December 1991) of Centennial; President, Treasurer and a
director of Centennial Capital Corporation (since June 1989); Vice
President and Treasurer (since August 1978) and Secretary (since April
1981) of Shareholder Services, Inc. ("SSI"); Vice President, Treasurer and
Secretary of Shareholder Financial Services, Inc. ("SFSI") (since November
1989); Assistant Treasurer of Oppenheimer Acquisition Corp. ("OAC") (since
March, 1998); Treasurer of Oppenheimer Partnership Holdings, Inc. (since
November 1989); Vice President and Treasurer of ORAMI (since July 1996); an
officer of other Oppenheimer funds.
Scott Brooks,
Vice President None.
Kevin Brosmith,
Vice President None.
Nancy Bush,
Assistant Vice President
Adele Campbell,
Assistant Vice President & Assistant
Treasurer: Rochester Division
Formerly, Assistant Vice President of Rochester Fund Services, Inc.
Michael Carbuto,
Vice President An officer and/or
portfolio manager of
certain Oppenheimer funds;
Vice President of
Centennial.
John Cardillo,
Assistant Vice President None.
Mark Curry,
Assistant Vice President
H.C. Digby Clements,
Vice President:
Rochester Division None.
O. Leonard Darling,
Executive Vice President Chief
Executive Officer and
Senior Manager of
HarbourView Asset
Management Corporation;
Trustee (1993 - present) of
Awhtolia College - Greece.
William DeJianne, None.
Assistant Vice President
Robert A. Densen,
Senior Vice President None.
Sheri Devereux,
Assistant Vice President None.
Craig P. Dinsell
Executive Vice President Formerly,
Senior Vice President of
Human Resources for
Fidelity Investments-Retail
Division (January, 1995 -
January, 1996), Fidelity
Investments FMR Co.
(January, 1996 - June,
1997) and Fidelity
Investments FTPG (June,
1997 - January, 1998).
Robert Doll, Jr.,
Executive Vice President and
Chief Investment Officer and
Director An officer and/or portfolio manager of certain Oppenheimer funds.
John Doney,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Andrew J. Donohue,
Executive Vice President,
General Counsel and Director
Executive Vice President (since September 1993), and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel
and a director of HarbourView, SSI, SFSI and Oppenheimer Partnership
Holdings, Inc. since (September 1995); President and a director of
Centennial (since September 1995); President and a director of ORAMI (since
July 1996); General Counsel (since May 1996) and Secretary (since April
1997) of OAC; Vice President and Director of OppenheimerFunds
International, Ltd. ("OFIL") and Oppenheimer Millennium Funds plc (since
October 1997); an officer of other Oppenheimer funds.
Patrick Dougherty, None.
Assistant Vice President
Bruce Dunbar, None.
Vice President
Daniel Engstrom,
Assistant Vice President
George Evans,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Edward Everett,
Assistant Vice President None.
George Fahey,
Vice President None.
Scott Farrar,
Vice President Assistant
Treasurer of Oppenheimer
Millennium Funds plc (since
October 1997); an officer
of other Oppenheimer funds;
formerly, an Assistant Vice
President of OFI/Mutual
Fund Accounting (April
1994-May 1996), and a Fund
Controller for OFI.
Leslie A. Falconio,
Assistant Vice President None.
Katherine P. Feld,
Vice President and Secretary
Vice President and
Secretary of the
Distributor; Secretary of
HarbourView, and
Centennial; Secretary, Vice
President and Director of
Centennial Capital
Corporation; Vice President
and Secretary of ORAMI.
Ronald H. Fielding,
Senior Vice President; Chairman:
Rochester Division
An officer, Director and/or portfolio manager of certain Oppenheimer funds;
Presently he holds the following other positions: Director (since 1995) of
ICI Mutual Insurance Company; Governor (since 1994) of St. John's College;
Director (since 1994 - present) of International Museum of Photography at
George Eastman House. Formerly, he held the following positions: formerly,
Chairman of the Board and Director of Rochester Fund Distributors, Inc.
("RFD"); President and Director of Fielding Management Company, Inc.
("FMC"); President and Director of Rochester Capital Advisors, Inc.
("RCAI"); Managing Partner of Rochester Capital Advisors, L.P., President
and Director of Rochester Fund Services, Inc. ("RFS"); President and
Director of Rochester Tax Managed Fund, Inc.; Director (1993 - 1997) of
VehiCare Corp.; Director (1993 - 1996) of VoiceMode.
Patricia Foster,
Vice President Formerly, she
held the following
positions: An officer of
certain former Rochester
funds (May, 1993 - January,
1996); Secretary of
Rochester Capital Advisors,
Inc. and General Counsel
(June, 1993 - January 1996)
of Rochester
Capital Advisors, L.P.
David Foxhoven,
Assistant Vice President
Jennifer Foxson,
Vice President None.
Erin Gardiner,
Assistant Vice President None.
Linda Gardner,
Vice President None.
Alan Gilston,
Vice President
Formerly, Vice President (1987-1997) for Schroder Capital Management
International.
Jill Glazerman,
Vice President None.
Robyn Goldstein-Liebler
Assistant Vice President None.
Mikhail Goldverg
Assistant Vice President None.
Jeremy Griffiths,
Executive Vice President and
Chief Financial Officer Chief
Financial Officer and
Treasurer (since March,
1998) of Oppenheimer
Acquisition Corp.; a Member
and Fellow of the Institute
of Chartered Accountants;
formerly, an accountant for
Arthur Young (London,
U.K.).
Robert Grill,
Senior Vice President
Formerly, Marketing Vice President for Bankers Trust Company (1993-1996);
Steering Committee Member, Subcommittee Chairman for American Savings
Education Council (1995-1996).
Caryn Halbrecht,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Elaine T. Hamann,
Vice President
Formerly, Vice President (September, 1989 - January, 1997) of Bankers Trust
Company.
Robert Haley
Assistant Vice President Formerly,
Vice President of
Information Services for
Bankers Trust Company
(January, 1991 - November,
1997).
Thomas B. Hayes,
Vice President None.
Barbara Hennigar,
Executive Vice President and
Chief Executive Officer of
OppenheimerFunds Services,
a division of the Manager
President and Director of SFSI; President and Chief executive Officer of
SSI.
Dorothy Hirshman, None.
Assistant Vice President
Merryl Hoffman,
Vice President None.
Nicholas Horsley,
Vice President
Formerly, a Senior Vice President and Portfolio Manager for Warburg, Pincus
Counsellors, Inc. (1993-1997), Co-manager of Warburg, Pincus Emerging
Markets Fund (12/94 - 10/97), Co-manager Warburg, Pincus Institutional
Emerging Markets Fund - Emerging Markets Portfolio (8/96 - 10/97), Warburg
Pincus Japan OTC Fund, Associate Portfolio Manager of Warburg Pincus
International Equity Fund, Warburg Pincus Institutional Fund - Intermediate
Equity Portfolio, and Warburg Pincus EAFE Fund.
Scott T. Huebl,
Assistant Vice President None.
Richard Hymes,
Vice President None.
Jane Ingalls,
Vice President None.
Kathleen T. Ives,
Vice President None.
Christopher Jacobs,
Assistant Vice President None.
William Jaume,
Vice President
Frank Jennings,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Susan Katz,
Vice President
Thomas W. Keffer,
Senior Vice President None.
Erica Klein,
Assistant Vice President
Avram Kornberg,
Vice President None.
John Kowalik,
Senior Vice President
An officer and/or portfolio manager for certain OppenheimerFunds; formerly,
Managing Director and Senior Portfolio Manager at Prudential Global
Advisors (1989 - 1998).
Joseph Krist,
Assistant Vice President None.
Michael Levine,
Vice President None.
Shanquan Li,
Vice President None.
Stephen F. Libera,
Vice President
An officer and/or portfolio manager for certain Oppenheimer funds; a
Chartered Financial Analyst; a Vice President of HarbourView; prior to
March 1996, the senior bond portfolio manager for Panorama Series Fund
Inc., other mutual funds and pension accounts managed by G.R. Phelps; also
responsible for managing the public fixed-income securities department at
Connecticut Mutual Life Insurance Co.
Mitchell J. Lindauer,
Vice President None.
Dan Loughran,
Assistant Vice President:
Rochester Division None.
David Mabry,
Assistant Vice President None.
Steve Macchia,
Vice President None.
Bridget Macaskill, President, Chief Executive Officer and Director Chief
Executive Officer (since September 1995); President and director (since
June 1991) of HarbourView; Chairman and a director of SSI (since August
1994), and SFSI (September 1995); President (since September 1995) and a
director (since October 1990) of OAC; President (since September 1995) and
a director (since November 1989) of Oppenheimer Partnership Holdings, Inc.,
a holding company subsidiary of OFI; a director of ORAMI (since July 1996)
; President and a director (since October 1997) of OFIL, an offshore fund
manager subsidiary of OFI and Oppenheimer Millennium Funds plc (since
October 1997); President and a director of other Oppenheimer funds; a
director of Hillsdown Holdings plc (a U.K. food company); formerly, an
Executive Vice President of OFI.
Philip T. Masterson,
Vice President
Loretta McCarthy,
Executive Vice President None.
Kelley A. McCarthy-Kane
Assistant Vice President
Formerly, Product Manager, Assistant Vice President (June 1995- October,
1997) of Merrill Lynch Pierce Fenner & Smith.
Beth Michnowski,
Assistant Vice President Formerly
Senior Marketing Manager
May, 1996 - June, 1997) and
Director of Product
Marketing (August, 1992 -
May, 1996) with Fidelity
Investments.
Lisa Migan,
Assistant Vice President None.
Denis R. Molleur,
Vice President None.
Nikolaos Monoyios,
Vice President A Vice President
and/or portfolio manager of
certain Oppenheimer funds
(since April 1998); a
Certified Financial
Analyst; formerly, a Vice
President and portfolio
manager for Guardian
Investor Services, the
management subsidiary of
The Guardian Life Insurance
Company (since 1979).
Linda Moore,
Vice President
Formerly, Marketing Manager (July 1995-November 1996) for Chase Investment
Services Corp.
Kenneth Nadler,
Vice President None.
David Negri,
Senior Vice President An officer and/or portfolio manager of certain Oppenheimer
funds.
Barbara Niederbrach,
Assistant Vice President None.
Robert A. Nowaczyk,
Vice President None.
Ray Olson,
Assistant Vice President None.
Richard M. O'Shaugnessy,
Assistant Vice President:
Rochester Division None.
Gina M. Palmieri,
Assistant Vice President None.
Robert E. Patterson,
Senior Vice President An officer and/or portfolio manager of certain Oppenheimer
funds.
James Phillips
Assistant Vice President None.
Stephen Puckett,
Vice President None.
Jane Putnam,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Michael Quinn,
Assistant Vice President
Formerly, Assistant Vice President (April, 1995 - January, 1998) of Van
Kampen American Capital.
Julie Radtke,
Vice President
Russell Read,
Senior Vice President
Vice President of Oppenheimer Real Asset Management, Inc. (since March,
1995).
Thomas Reedy,
Vice President An officer and/or
portfolio manager of
certain Oppenheimer funds;
formerly, a Securities
Analyst for the Manager.
John Reinhardt,
Vice President: Rochester Division None
Ruxandra Risko,
Vice President None.
Michael S. Rosen,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Richard H. Rubinstein,
Senior Vice President An officer and/or portfolio manager of certain Oppenheimer
funds.
Lawrence Rudnick,
Assistant Vice President None.
James Ruff,
Executive Vice President & Director None.
Valerie Sanders,
Vice President None.
Ellen Schoenfeld,
Assistant Vice President None.
Martha Shapiro,
Assistant Vice President None
Stephanie Seminara,
Vice President None.
Michelle Simone,
Assistant Vice President None.
Richard Soper,
Vice President None.
Cathleen Stahl,
Vice President
Nancy Sperte,
Executive Vice President None.
Donald W. Spiro,
Chairman Emeritus and Director Vice
Chairman and Trustee of the
New York-based Oppenheimer
Funds; formerly, Chairman
of the Manager and the
Distributor.
Richard A. Stein,
Vice President: Rochester Division
Assistant Vice President (since 1995) of Rochester Capitol Advisors, L.P.
Arthur Steinmetz,
Senior Vice President An officer and/or portfolio manager of certain Oppenheimer
funds.
Ralph Stellmacher,
Senior Vice President An officer and/or portfolio manager of certain Oppenheimer
funds.
John Stoma,
Senior Vice President None.
Michael C. Strathearn,
Vice President An officer and/or
portfolio manager of
certain Oppenheimer funds;
a Chartered Financial
Analyst; a Vice President
of HarbourView.
Wayne Strauss,
Assistant Vice President: Rochester
Division
James C. Swain,
Vice Chairman of the Board
Chairman, CEO and Trustee, Director or Managing Partner of the Denver-based
Oppenheimer Funds; formerly, President and Director of OAMC, CAMC and
Chairman of the Board of SSI.
Susan Switzer,
Assistant Vice President None.
Anthony A. Tanner,
Vice President: Rochester Division None.
James Tobin,
Vice President None.
Jay Tracey,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
James Turner,
Assistant Vice President None.
Maureen VanNorstrand,
Assistant Vice President None.
Ashwin Vasan,
Vice President An officer and/or portfolio manager of certain Oppenheimer funds.
Annette Von Brandis,
Assistant Vice President None.
Teresa Ward,
Assistant Vice President None.
Jerry Webman,
Senior Vice President
Director of New York-based tax-exempt fixed income Oppenheimer funds.
Christine Wells,
Vice President None.
Joseph Welsh,
Assistant Vice President None.
Kenneth B. White,
Vice President An officer and/or
portfolio manager of
certain Oppenheimer funds;
a Chartered Financial
Analyst; Vice President of
HarbourView.
William L. Wilby,
Senior Vice President An officer
and/or portfolio manager of
certain Oppenheimer funds;
Vice President of
HarbourView.
Carol Wolf,
Vice President
An officer and/or portfolio manager of certain Oppenheimer funds; Vice
President of Centennial; Vice President, Finance and Accounting; Point of
Contact: Finance Supporters of Children; Member of the Oncology Advisory
Board of the Childrens Hospital.
Caleb Wong,
Assistant Vice President None.
Robert G. Zack,
Senior Vice President and
Assistant Secretary, Associate
General Counsel Assistant Secretary
of SSI (since May 1985),
SFSI (since November 1989),
OFIL (since 1998),
Oppenheimer Millennium
Funds plc (since October
1997); an officer of other
Oppenheimer funds.
Jill Zachman,
Assistant Vice President:
Rochester Division None.
Arthur J. Zimmer,
Senior Vice President An officer
and/or portfolio manager of
certain Oppenheimer funds;
Vice President of
Centennial.
The Oppenheimer Funds include the New York-based Oppenheimer Funds, the
Denver-based Oppenheimer Funds and the Oppenheimer Quest /Rochester Funds, as
set forth below:
New York-based Oppenheimer Funds
Oppenheimer California Municipal Fund Oppenheimer Capital Appreciation Fund
Oppenheimer Developing Markets Fund Oppenheimer Discovery Fund Oppenheimer
Enterprise Fund Oppenheimer Global Fund Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Growth Fund Oppenheimer
International Growth Fund Oppenheimer International Small Company Fund
Oppenheimer Large Cap Growth Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Multi-Sector Income Trust Oppenheimer Multi-State Municipal Trust
Oppenheimer Multiple Strategies Fund Oppenheimer Municipal Bond Fund Oppenheimer
New York Municipal Fund Oppenheimer Series Fund, Inc. Oppenheimer U.S.
Government Trust Oppenheimer World Bond Fund
Quest/Rochester Funds
Limited Term New York Municipal Fund
Oppenheimer Convertible Securities Fund
Oppenheimer MidCap Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest For Value Funds
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Rochester Fund Municipals
Denver-based Oppenheimer Funds
Centennial America Fund, L.P. Centennial California Tax Exempt Trust Centennial
Government Trust Centennial Money Market Trust Centennial New York Tax Exempt
Trust Centennial Tax Exempt Trust Oppenheimer Cash Reserves Oppenheimer Champion
Income Fund Oppenheimer Equity Income Fund Oppenheimer High Yield Fund
Oppenheimer Integrity Funds Oppenheimer International Bond Fund Oppenheimer
Limited-Term Government Fund Oppenheimer Main Street Funds, Inc. Oppenheimer
Municipal Fund Oppenheimer Real Asset Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund, Inc. Oppenheimer Variable Account Funds Panorama
Series Fund, Inc. The New York Tax-Exempt Income Fund, Inc.
The address of OppenheimerFunds, Inc., the New York-based Oppenheimer
Funds, the Quest Funds, OppenheimerFunds Distributor, Inc., HarbourView
Asset Management Corp., Oppenheimer Partnership Holdings, Inc., and
Oppenheimer Acquisition Corp. is Two World Trade Center, New York, New York
10048-0203.
The address of the Denver-based Oppenheimer Funds, Shareholder Financial
Services, Inc., Shareholder Services, Inc., OppenheimerFunds Services,
Centennial Asset Management Corporation, Centennial Capital Corp., and
Oppenheimer Real Asset Management, Inc. is 6803 South Tucson Way, Englewood,
Colorado 80112.
The address of the Rochester-based funds is 350 Linden Oaks, Rochester, New York
14625-2807.
Item 27. Principal Underwriter
(a) OppenheimerFunds Distributor, Inc. is the Distributor of the Registrant's
Class 2 shares. It is also the Distributor of each of the other registered
open-end investment companies for which OppenheimerFunds, Inc. is the investment
adviser, as listed in Item 26(b) above (except Oppenheimer Multi-Sector Income
Trust and Panorama Series Fund, Inc.) and for MassMutual Institutional Funds.
(b) The directors and officers of the Registrant's principal underwriter are:
<TABLE>
<CAPTION>
Name & Principal Positions & Offices Positions & Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
Jason Bach Vice President None
31 Racquel Drive
Marietta, GA 30364
Peter Beebe Vice President None
876 Foxdale Avenue
Winnetka, IL 60093
Douglas S. Blankenship Vice President None
17011 Woodbank
Spring, TX 77379
George C. Bowen(1) Vice President and Vice President and
Treasurer Treasurer of the
Oppenheimer funds.
Peter W. Brennan Vice President None
1940 Cotswold Drive
Orlando, FL 32825
Susan Burton(2) Vice President None
Erin Cawley(2) Assistant Vice President None
Robert Coli Vice President None
12 White Tail Lane
Bedminster, NJ 07921
William Coughlin Vice President None
542 West Surf - #2N
Chicago, IL 60657
Mary Crooks(1)
Daniel Deckman Vice President None
12252 Rockledge Circle
Boca Raton, FL 33428
Christopher DeSimone Vice President None
5105 Aldrich Avenue South
Minneapolis, MN 55403
Joseph DiMauro Vice President None
244 McKinley Avenue
Grosse Pointe Farms, MI 48236
Rhonda Dixon-Gunner(1) Assistant Vice President None
Andrew John Donohue(2) Executive Vice Secretary of the
President & Director Oppenheimer funds.
And General Counsel
John Donovan Vice President None
868 Washington Road
Woodbury, CT 06798
Kenneth Dorris Vice President None
4104 Harlanwood Drive
Fort Worth, TX 76109
Eric Edstrom(2) Vice President None
Wendy H. Ehrlich Vice President None
4 Craig Street
Jericho, NY 11753
Kent Elwell Vice President None
35 Crown Terrace
Yardley, PA 19067
Todd Ermenio Vice President None
11011 South Darlington
Tulsa, OK 74137
John Ewalt Vice President None
2301 Overview Dr. NE
Tacoma, WA 98422
George Fahey Vice President None
412 Commons Way
Doylestown, PA 18901
Patrice Falagrady(1) Senior Vice President None
Eric Fallon Vice President None
10 Worth Circle
Newton, MA 02158
Katherine P. Feld(2) Vice President None
& Secretary
Mark Ferro Vice President None
43 Market Street
Breezy Point, NY 11697
Ronald H. Fielding(3) Vice President None
John ("J") Fortuna(2) Vice President None
Ronald R. Foster Senior Vice President None
11339 Avant Lane
Cincinnati, OH 45249
Patricia Gadecki-Wells Vice President None
950 First St., S.
Suite 204
Winter Haven, FL 33880
Luiggino Galleto Vice President None
10239 Rougemont Lane
Charlotte, NC 28277
Michelle Gans Vice President None
8327 Kimball Drive
Eden Prairie, MN 55347
L. Daniel Garrity Vice President None
2120 Brookhaven View, N.E.
Atlanta, GA 30319
Mark Giles Vice President None
5506 Bryn Mawr
Dallas, TX 75209
Ralph Grant(2) Vice President/National None
Sales Manager
Michael Guman Vice President None
3913 Pleasent Avenue
Allentown, PA 18103
Allen Hamilton Vice President None
5 Giovanni
Aliso Viejo, CA 92656
C. Webb Heidinger Vice President None
138 Gales Street
Portsmouth, NH 03801
Byron Ingram(1) Assistant Vice President None
Kathleen T. Ives(1) Vice President None
Eric K. Johnson Vice President None
3665 Clay Street
San Francisco, CA 94118
Mark D. Johnson Vice President None
409 Sundowner Ridge Court
Wildwood, MO 63011
Elyse Jurman Vice President None
1194 Hillsboro Mile, #51
Hillsboro Beach, FL 33062
Michael Keogh(2) Vice President None
Brian Kelly Vice President None
60 Larkspur Road
Fairfield, CT 06430
John Kennedy Vice President None
799 Paine Drive
Westchester, PA 19382
Richard Klein Vice President None
4820 Fremont Avenue So.
Minneapolis, MN 55409
Daniel Krause Vice President None
560 Beacon Hill Drive
Orange Village, OH 44022
Ilene Kutno(2) Vice President/ None
Director of Sales
Oren Lane Vice President None
5286 Timber Bend Drive
Brighton, MI 48116
Todd Lawson Vice President None
3333 E. Bayaud Avenue
Unit 714
Denver, CO 80209
Dawn Lind Vice President None
7 Maize Court
Melville, NY 11747
James Loehle Vice President None
2714 Orchard Terrace
Linden, NJ 07036
Steve Manns Vice President None
1941 W. Wolfram Street
Chicago, IL 60657
Todd Marion Vice President None
39 Coleman Avenue
Chatham, N.J. 07928
Marie Masters Vice President None
8384 Glen Eagle Drive
Manlius, NY 13104
LuAnn Mascia(2) Assistant Vice President None
Wesley Mayer(2) Vice President None
Theresa-Marie Maynier Vice President None
2421 Charlotte Drive
Charlotte, NC 28203
Anthony Mazzariello Vice President None
100 Anderson Street, #427
Pittsburgh, PA 15212
John McDonough Vice President None
3812 Leland Street
Chevey Chase, MD 20815
Wayne Meyer Vice President None
2617 Sun Meadow Drive
Chesterfield, MO 63005
Tanya Mrva(2) Assistant Vice President None
Laura Mulhall(2) Senior Vice President None
Charles Murray Vice President None
18 Spring Lake Drive
Far Hills, NJ 07931
Wendy Murray Vice President None
32 Carolin Road
Upper Montclair, NJ 07043
Denise-Marke Nakamura Vice President None
2870 White Ridge Place, #24
Thousand Oaks, CA 91362
Chad V. Noel Vice President None
2408 Eagleridge Dr.
Henderson, NV 89014
Joseph Norton Vice President None
2518 Fillmore Street
San Francisco, CA 94115
Kevin Parchinski Vice President None
8409 West 116th Terrace
Overland Park, KS 66210
Gayle Pereira Vice President None
2707 Via Arboleda
San Clemente, CA 92672
Charles K. Pettit Vice President None
22 Fall Meadow Dr.
Pittsford, NY 14534
Bill Presutti Vice President None
130 E. 63rd Street, #10E
New York, NY 10021
Steve Puckett Vice President None
5297 Soledad Mountain Road
San Diego, CA 92109
Elaine Puleo(2) Senior Vice President None
Minnie Ra Vice President None
100 Delores Street, #203
Carmel, CA 93923
Dustin Raring Vice President None
378 Elm Street
Denver, CO 80220
Michael Raso Vice President None
16 N. Chatsworth Ave.
Apt. 301
Larchmont, NY 10538
John C. Reinhardt(3) Vice President None
Douglas Rentschler Vice President None
677 Middlesex Road
Grosse Pointe Park, MI 48230
Ruxandra Risko(2) Vice President None
Ian Robertson Vice President None
4204 Summit Wa
Marietta, GA 30066
Michael S. Rosen(2) Vice President None
Kenneth Rosenson Vice President None
3505 Malibu Country Drive
Malibu, CA 90265
James Ruff(2) President None
Alfredo Scalzo Vice President None
19401 Via Del Mar, #303
Tampa, FL 33647
Timothy Schoeffler Vice President None
1717 Fox Hall Road
Washington, DC 77479
Michael Sciortino Vice President None
785 Beau Chene Drive
Mandeville, LA 70471
Eric Sharp Vice President None
862 McNeill Circle
Woodland, CA 95695
Michelle Simone(2) Assistant Vice President None
Stuart Speckman(2) Vice President None
Timothy Stegner Vice President None
794 Jackson Street
Denver, CO 80206
Peter Sullivan Vice President None
21445 S. E 35th Street
Issaquah, WA 98029
David Sturgis Vice President None
44 Abington Road
Danvers, MA 0923
Scott Such(1) Senior Vice President None
Brian Summe Vice President None
239 N. Colony Drive
Edgewood, KY 41017
George Sweeney Vice President None
5 Smokehouse Lane
Hummelstown, PA 17036
Andrew Sweeny Vice President None
5967 Bayberry Drive
Cincinnati, OH 45242
Scott McGregor Tatum Vice President None
704 Inwood
Southlake, TX 76092
David G. Thomas Vice President None
7009 Metropolitan Place, #300
Falls Church, VA 22043
Susan Torrisi(2) Assistant Vice President None
Sarah Turpin Vice President None
2201 Wolf Street, #5202
Dallas, TX 75201
Mark Vandehey(1) Vice President None
Andrea Walsh(1) Vice President None
Suzanne Walters(1) Assistant Vice President None
James Wiaduck Vice President None
29900 Meridian Place
#22303
Farmington Hills, MI 48331
Marjorie Williams Vice President None
6930 East Ranch Road
Cave Creek, AZ 85331
Donn Weise Vice President None
3249 Earlmar Drive
Los Angeles, CA 90064
</TABLE>
(1) 6803 South Tucson Way, Englewood, CO 80112
(2) Two World Trade Center, New York, NY 10048
(3) 350 Linden Oaks, Rochester, NY 14623
(c) Not applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of OppenheimerFunds, Inc. at its
offices at 6803 South Tucson Way, Englewood, Colorado 80112.
Item 29. Management Services
Not applicable
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
County of Arapahoe and State of Colorado on the 9th day of February, 1998.
Oppenheimer Variable Account Funds
By: /s/ James C. Swain*
James C. Swain, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ James C. Swain* Chairman of the February 9, 1998
- ------------------------------------- Board of Trustees
James C. Swain and Principal Executive
Officer
/s/ George C. Bowen* Chief Financial and February 9,1998
- ------------------------------------- Accounting Officer
George C. Bowen and Treasurer
/s/ Bridget A. Macaskill* President February 9, 1998
- -------------------------------------
Bridget A. Macaskill
/s/ Robert G. Avis* Trustee February 9, 1998
- -------------------------------------
Robert G. Avis
/s/ William A. Baker* Trustee February 9, 1998
- -------------------------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee February 9, 1998
- -------------------------------------
Charles Conrad, Jr.
/s/ Jon S. Fossel* Trustee February 9, 1998
- -------------------------------------
Jon S. Fossel
/s/ Sam Freedman* Trustee February 9, 1998
- -------------------------------------
Sam Freedman
/s/ Raymond J. Kalinowski* Trustee February 9, 1998
- -------------------------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee February 9, 1998
- -------------------------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee February 9, 1998
- -------------------------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee February 9, 1998
- -------------------------------------
Ned M. Steel
*By:
/s/ Robert G. Zack
- ---------------------------------------------
Robert G. Zack, Attorney-in-Fact
</TABLE>
