Annual Report December 31, 1999
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Oppenheimer
Bond Fund/VA
A Series of Oppenheimer Variable Account Funds
[Logo] OppenheimerFunds(R)
The Right Way to Invest
<PAGE>
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Oppenheimer Variable Account Funds--Oppenheimer Bond Fund/VA
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Objective
Oppenheimer Bond Fund/VA, a series of Oppenheimer Variable Account Funds,
primarily seeks a high level of current income from investing in high yield,
fixed income securities. Secondarily, the Fund seeks capital growth when this is
consistent with its primary objective of high income.
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Narrative by David Negri and John Kowalik, Co-Portfolio Managers
Oppenheimer Bond Fund/VA generated an average annual total return of -1.52% for
the one-year period that ended December 31, 1999.(1) Strong performance from
corporate bonds during the first half of the year was largely offset by weak
market conditions during the second half. Our management approach has been to
focus primarily on corporate securities and other higher yielding bonds in an
investment environment characterized by robust economic growth, rising interest
rates and Y2K-related concerns.
When the reporting period began, evidence began to emerge that 1998's
global financial crisis was easing, helping to resolve investors' fears that
U.S. economic growth might slow in response to weakness overseas. In fact, it
wasn't long before investors became concerned that the opposite was true: by the
second quarter of 1999, they began to worry that the U.S. economy was growing
faster than most analysts expected, potentially reigniting inflationary
pressures. In order to forestall a potential reacceleration of inflation, the
Federal Reserve Board raised short-term interest rates three times during the
summer and fall.
In the U.S. bond market, higher yielding securities benefited from the
resolution of the global financial crisis.(2) The flow of money back into
corporate and mortgage-related securities during the first four months of the
year helped support a rally in these bonds' prices, while prices of U.S.
Treasury securities declined. Beginning in May, however, prices of higher
yielding bonds once again began to fall because of Y2K-related concerns. Many
issuers of corporate bonds decided to "play it safe" by issuing bonds in the
spring that they otherwise would have issued closer to year-end. This sudden
flood of supply caused corporate bond prices to weaken, and they generally
remained low through the end of the year amid decreased investor demand.
In this environment, we took advantage of the bond market's early
weakness to purchase corporate bonds that we believed had been more severely
punished by the global financial crisis than circumstances warranted. As it
turned out, the bond market's recovery from last year's financial crises largely
offset the price erosion caused by higher interest rates over the first half of
the year. The Fund also benefited throughout the year from the relatively high
yields these securities provided.
When the bond market weakened during the period of heavy issuance in
the spring and early summer, we maintained our emphasis on corporate securities
and other higher yielding bonds. Although this stance contributed to
higher-than-normal volatility within the Fund during the second half of the
reporting period, we were once again able to lock in prevailing high yields.
Within the investment-grade corporate bond sector of the market, we
generally emphasized longer maturity securities, including 30-year bonds. We
even purchased a few 100-year bonds from large, well known companies because of
their higher yields. During the second half of the reporting period, after Y2K
concerns caused corporate bond prices to fall, we found particularly attractive
values in fixed income securities issued by insurance companies. By year-end,
these bonds had appreciated to fair value, in our opinion.
In our view, the Fund's broadly diversified portfolio positions us well
for the start of the year 2000, when we expect Y2K fears to dissipate. Taking
advantage of such opportunities is what makes Oppenheimer Bond Fund/VA an
important part of The Right Way to Invest.
1. Includes changes in net asset value per share and does not include the
charges associated with the separate account products, which offer this fund.
Such performance would have been lower if such charges were taken into account.
2. Investing in lower rated high yield domestic corporate bonds (commonly know
as "junk bonds") carries a greater risk of default.
2 Oppenheimer Bond Fund/VA
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Oppenheimer Variable Account Funds--Oppenheimer Bond Fund/VA
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Management's Discussion of Performance. During the Fund's fiscal year that ended
December 31, 1999, the performance of Oppenheimer Bond Fund/VA was strongly
influenced by adverse economic and market conditions, including inflation fears,
rising interest rates and Y2K-related concerns. However, the deleterious effects
of these influences were partly offset by the management team's focus on
corporate bonds, including high yield bonds. In the portfolio managers' opinion,
many corporate bonds represented attractive values early in the year, and the
Fund subsequently benefited from this market sector's rally. Later in the year,
when corporate bond issuance patterns were disrupted by Y2K-related concerns,
corporate bonds' relatively high yields helped cushion the effects on the Fund
of falling prices. The Fund's portfolio holdings, allocations and investment
style are subject to change.
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Comparing the Fund's Performance to the Market. The graph that follows shows the
performance of a hypothetical $10,000 investment in the Fund held until December
31, 1999. Performance information does not reflect charges that apply to
separate accounts investing in the Fund. If these charges were taken into
account, performance would be lower. The graph assumes that all dividends and
capital gains distributions were reinvested in additional shares.
The Fund's performance is compared to the performance of the Lehman
Brothers Corporate Bond Index, an unmanaged index of publicly-issued
non-convertible investment grade corporate debt of U.S. issuers, widely
recognized as a measure of the U.S. fixed rate corporate bond market. Index
performance reflects the reinvestment of income but does not consider the effect
of transaction costs, and none of the data in the graph that follows show the
effect of taxes. The Fund's performance reflects the effects of the Fund's
business and operating expenses. While index comparisons may be useful to
provide a benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the investments in the index.
[Chart]
Comparison of Change in Value of $10,000 Hypothetical Investments in:
OVAF/Oppenheimer Bond Fund/VA and Lehman Brothers Corporate Bond Index
<TABLE>
<CAPTION>
OVAF/Oppenheimer Bond Fund/VA Lehman Brothers Corporate Bond Index
<S> <C> <C>
12.31.89 10000 10000
12.31.90 10791 10705
12.31.91 12694 12687
12.31.92 13520 13789
12.31.93 15282 15466
12.31.94 14986 14858
12.31.95 17533 18163
12.31.96 18374 18759
12.31.97 20075 20679
12.31.98 21440 22452
12.31.99 21114 22013
</TABLE>
Average Annual Total Return of the Fund at 12/31/99
1-Year -1.52% 5-Year 7.10% 10-Year 7.76%
[End Chart]
The Fund's performance may from time to time be subject to substantial
short-term changes, particularly during periods of market or interest rate
volatility. For updates on the Fund's performance, please call us at
1.800.981.2871.
The performance information in the graph for the Lehman Brothers Corporate Bond
Index begins on 12/31/89. The inception date of the Fund is 4/3/85. Total
returns and the ending account value in the graph show change in share value and
include reinvestment of all dividends and capital gains distributions. Past
performance is not predictive of future performance.
Oppenheimer Bond Fund/VA 3
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Statement of Investments December 31, 1999
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<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
===================================================================================================================
Mortgage-Backed Obligations--33.2%
Government Agency--11.7%
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FHLMC/FNMA/Sponsored--10.6%
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Gtd. Multiclass Mtg. Participation Certificates:
Series 151, Cl. F, 9%, 5/15/21 $ 528,711 $ 546,223
Series 1092, Cl. K, 8.50%, 6/15/21 1,988,407 2,031,278
Series 1541, Cl. H, 7%, 10/15/22 4,750,000 4,626,785
Series 1714, Cl. M, 7%, 8/15/23 2,000,000 1,945,000
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Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg. Participation
Certificates, 7%, 4/1/26 3,071,879 2,980,676
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Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security:
Series 197, Cl. IO, 11.419%, 4/1/28(2) 13,692,632 4,483,267
Series 194, Cl. IO, 10.159%, 4/1/28(2) 15,300,874 5,115,035
Series 202, Cl. IO, 10.086%-10.125%, 4/1/29(2) 48,541,614 16,678,595
Series 2178, Cl. PI, 10.359%, 8/15/29(2) 25,675,000 6,137,930
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Federal National Mortgage Assn.:
6.50%, 3/1/11 502,929 488,888
7%, 4/1/04-11/1/25 691,754 672,422
7.50%, 1/1/08-1/1/26 2,153,288 2,137,694
8%, 5/1/17 116,584 118,357
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Federal National Mortgage Assn., Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, 8.75%, 11/25/05 1,262,358 1,291,153
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Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Trust 1989-17, Cl. E, 10.40%, 4/25/19 610,095 648,416
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Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security,
Trust 294, Cl. 2, 10.581%-16.633%, 2/1/28(2) 41,634,511 13,693,852
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63,595,571
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GNMA/Guaranteed--1.1%
Government National Mortgage Assn.:
7%, 1/15/09-5/15/09 388,328 384,321
8%, 1/15/28-9/15/28 6,372,802 6,436,535
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6,820,856
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Private--21.5%
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Commercial--18.3%
Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates:
Series 1997-D5, Cl. A6, 7.186%, 2/14/41(3) 3,000,000 2,427,187
Series 1997-D5, Cl. B2, 6.93%, 2/14/41 5,400,000 3,459,375
Series 1998-MD6, Cl. A3, 7.227%, 3/17/28(3) 4,875,000 4,387,500
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Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security,
Series 1997-D5, Cl. PS1, 9.108%, 2/14/41(2) 18,257,799 1,560,471
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Capital Lease Funding Securitization LP, Interest-Only Stripped Mtg.-Backed Security,
Series 1997-CTL1, 10.29%, 6/22/24(2)(4) 30,606,042 1,209,895
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Commercial Mortgage Acceptance Corp., Collateralized Mtg. Obligations,
Series 1996-C1, Cl. D, 7.367%, 12/25/20(3)(4) 2,500,000 2,414,844
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Commercial Mortgage Asset Trust, Series 1999-C1, Cl. C, 7.35%, 8/17/13 9,750,000 8,921,250
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CRIIMI MAE Trust I, Collateralized Mtg. Obligations,
Series 1996-C1, Cl. A2, 7.56%, 8/30/05(5) 2,000,000 1,860,625
</TABLE>
4 Oppenheimer Bond Fund/VA
<PAGE>
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Statement of Investments (Continued)
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<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
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Commercial (continued)
CRIIMI MAE Trust I, Commercial Mtg. Trust, Series 1998-C1, Cl. A1, 7%, 11/2/06(4) $ 3,300,000 $ 2,919,469
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CS First Boston Mortgage Securities Corp., Interest-Only Stripped
Mtg.-Backed Security, Series 1998-C1, Cl. AX, 8.19%, 4/11/30(2) 24,745,453 1,531,125
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CS First Boston Mortgage Securities Corp., Mtg. Pass-Through Certificates,
Series 1997-C2, Cl. F, 6.85%, 12/17/07 3,250,000 3,055,000
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FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Series 1994-C1, Cl. 2-D, 8.70%, 9/25/25 1,500,000 1,447,500
Series 1994-C1, Cl. 2-E, 8.70%, 9/25/25 1,500,000 1,461,562
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First Union-Lehman Brothers Commercial Mortgage Trust, Commercial Mtg.
Pass-Through Certificates, Series 1998-C2, Cl. E, 6.778%, 5/18/13 2,000,000 1,568,750
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First Union-Lehman Brothers Commercial Mortgage Trust, Interest-Only Stripped
Mtg.-Backed Security, Series 1998-C2, 9.274%, 5/18/28(2) 29,447,557 1,074,951
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General Motors Acceptance Corp., Collateralized Mtg. Obligations:
Series 1997-C2, Cl. D, 7.192%, 1/15/08 3,500,000 3,062,500
Series 1998-C1, Cl. E, 7.088%, 3/15/11(3) 3,500,000 3,109,531
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General Motors Acceptance Corp., Interest-Only Stripped Mtg.-Backed Security:
Series 1997-C1, Cl. X, 9.033%, 7/15/27(2) 18,165,432 1,368,084
Series 1997-C1, Cl. X, 8.553%, 7/15/27(2) 9,036,122 680,533
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GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 1997-CL1, Cl. F, 7.155%, 7/13/30(3) 1,000,000 936,875
Series 1997-CL1, Cl. F, 7.625%, 7/13/30(3) 4,000,000 3,478,750
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Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only Stripped
Mtg.-Backed Security, Series 1998-C1, Cl. IO, 9.063%, 2/18/28(2)(4) 43,952,818 2,321,258
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Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates:
Series 1996-C1, Cl. D, 7.42%, 4/25/28 2,000,000 1,900,937
Series 1997-C2, Cl. D, 7.004%, 12/10/29(3) 4,000,000 3,617,500
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Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates:
Series 1996-C1, Cl. D1, 7.421%, 2/15/28(3)(4) 1,000,000 953,906
Series 1997-RR, Cl. D, 7.671%, 4/30/39(4) 4,300,231 3,020,241
Series 1997-XL1, Cl. F, 7.411%, 10/3/30(3) 2,500,000 2,246,875
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NationsCommercial Corp., NB Commercial Mtg. Pass-Through Certificates:
Series DMC, Cl. B, 8.562%, 8/12/11(4) 1,600,000 1,448,500
Series DMC, Cl. C, 8.921%, 8/12/11(4) 4,400,000 3,980,625
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NC Finance Trust, Collateralized Mtg. Obligations,
Series 1999-I, Cl. ECFD, 8.75%, 12/25/28 15,829,568 15,379,415
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Option One Mortgage Trust, Collateralized Mtg. Obligations:
Series 1999-1A, 10.06%, 3/1/29(4) 6,155,847 6,067,357
Series 1999-3, Cl. BB, 10.80%, 12/15/29 6,261,813 6,218,764
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Potomac Gurnee Financial Corp., Commercial Mtg. Pass-Through Certificates,
Series 1, Cl. C, 7.217%, 12/21/26(4) 250,000 235,000
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Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1994-C1, Cl. C, 8%, 6/25/26 1,160,794 1,154,084
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,915,391
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Structured Asset Securities Corp., Multiclass Pass-Through Certificates:
Series 1996-CFL, Cl. D, 7.034%, 2/25/28 1,800,000 1,769,062
Series 1999-1, 10%, 8/25/28 4,955,997 4,900,242
------------
110,064,934
</TABLE>
Oppenheimer Bond Fund/VA 5
<PAGE>
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Statement of Investments (Continued)
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<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Multi-Family--0.2%
Countrywide Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-12, Cl. B1, 6.625%, 2/25/24 $ 946,747 $ 856,215
- ------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Trust, Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 43, Cl. E, 6.50%, 8/27/15 263,338 260,210
------------
1,116,425
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Other--0.0%
Salomon Brothers Mortgage Securities VI, Interest-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. B, 20.132%, 10/23/17(2) 57,595 15,676
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Salomon Brothers Mortgage Securities VI, Principal-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. A, 2.377%-16.21%, 10/23/17(6) 85,230 68,877
------------
84,553
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Residential--3.0%
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through Certificates:
Series 1997-C1, Cl. E, 7.50%, 3/1/11(4) 5,006,000 4,076,761
Series 1999-C1, Cl. C, 7.682%, 9/15/09(3) 6,500,000 6,382,187
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First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997-CHL1, Cl. C, 8.127%, 7/25/06(3)(4) 4,024,000 3,621,600
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Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates,
Series 1997-HF1, Cl. E, 7.55%, 7/15/29(4) 1,500,000 1,365,938
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NationsBank Trust, Lease Pass-Through Certificates,
Series 1997A-1, 7.442%, 1/10/11(3) 2,500,000 2,389,063
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Ryland Mortgage Securities Corp. III, Sub. Bonds,
Series 1992-A, Cl. 1A, 8.259%, 3/29/30(3) 204,852 201,908
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18,037,457
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Total Mortgage-Backed Obligations (Cost $207,143,112) 199,719,796
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U.S. Government Obligations--6.1%
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U.S. Treasury Bonds, 5.25%, 2/15/29 3,705,000 3,065,887
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U.S. Treasury Nts., 5.875%, 8/15/09(7)(8) 34,550,000 33,481,127
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Total U.S. Government Obligations (Cost $37,315,504) 36,547,014
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Foreign Government Obligations--1.5%
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Israel (State of) Bonds, 7.25%, 12/15/28 9,750,000 8,387,204
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Ontario, Canada (Province of) Bonds, 8%, 10/17/01 750,000 765,382
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PT Hutama Karya Medium-Term Nts., Zero Coupon, 3/17/99(4)(9)(10)IDR 1,000,000,000 39,356
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Total Foreign Government Obligations (Cost $10,234,242) 9,191,942
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Loan Participations--0.6%
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Ferrell Companies, Inc., 10.18% Sr. Sec. Nts., 7/17/06(3)(4) (Cost $3,270,429) 3,300,000 3,283,500
========================================================================================================================
Corporate Bonds and Notes--51.8%
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Aerospace/Defense--0.6%
Amtran, Inc., 9.625% Nts., 12/15/05 800,000 772,000
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Atlas Air, Inc.:
8.01% Nts., 1/2/10 2,812,199 2,642,582
9.375% Sr. Unsec. Nts., 11/15/06 500,000 485,000
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3,899,582
</TABLE>
6 Oppenheimer Bond Fund/VA
<PAGE>
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Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
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Chemicals--1.0%
ClimaChem, Inc., 10.75% Sr. Unsec. Nts., Series B, 12/1/07 $ 300,000 $ 76,500
- ---------------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 7.55% Unsec. Debs., 2/15/06 3,250,000 2,641,236
- ---------------------------------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co. plc, 10.125% Sr. Unsec. Sub. Nts., 7/1/09(5) 800,000 832,000
- ---------------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 9.875% Sec. Nts., Series B, 5/1/07 1,000,000 1,025,000
- ---------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., 12.375% Sr. Sec. Nts., Series B, 7/15/06 400,000 416,000
- ---------------------------------------------------------------------------------------------------------
ZSC Specialty Chemical plc, 11% Sr. Nts., 7/1/09(5) 800,000 834,000
-----------
5,824,736
- ---------------------------------------------------------------------------------------------------------
Consumer Non-Durables--0.2%
AKI Holdings, Inc., 10.50% Sr. Unsec. Nts., 7/1/08 300,000 268,500
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Bell Sports, Inc., 11% Sr. Unsec. Sub. Nts., Series B, 8/15/08 210,000 211,050
- ---------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 8.875% Sr. Unsec. Nts., 4/15/06(10) 100,000 5,500
- ---------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9% Sr. Nts., 11/1/06 500,000 377,500
- ---------------------------------------------------------------------------------------------------------
Styling Technology Corp., 10.875% Sr. Unsec. Sub. Nts., 7/1/08(4) 360,000 127,800
-----------
990,350
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Energy--1.8%
Colorado Interstate Gas Corp., 10% Sr. Debs., 6/15/05 500,000 552,649
- ---------------------------------------------------------------------------------------------------------
Eastern Energy Ltd., 6.75% Sr. Nts., 12/1/06(5) 2,000,000 1,858,902
- ---------------------------------------------------------------------------------------------------------
Enron Corp., 9.875% Debs., 6/15/03 375,000 402,221
- ---------------------------------------------------------------------------------------------------------
Gothic Production Corp., 11.125% Sr. Sec. Nts., Series B, 5/1/05(5) 300,000 256,500
- ---------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 500,000 487,500
- ---------------------------------------------------------------------------------------------------------
HNG Internorth/Enron Corp., 9.625% Debs., 3/15/06 500,000 539,416
- ---------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 400,000 409,221
- ---------------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 55,000 56,227
- ---------------------------------------------------------------------------------------------------------
Murphy Oil Corp., 7.05% Sr. Unsec. Nts., 5/1/29 5,190,000 4,667,912
- ---------------------------------------------------------------------------------------------------------
Ocean Rig Norway AS, 10.25% Sr. Sec. Nts., 6/1/08 400,000 334,000
- ---------------------------------------------------------------------------------------------------------
RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 455,000 486,850
- ---------------------------------------------------------------------------------------------------------
Texaco Capital, Inc., 8.875% Gtd. Debs., 9/1/21(11) 500,000 556,443
-----------
10,607,841
- ---------------------------------------------------------------------------------------------------------
Financial--26.1%
Aeltus CBO II Ltd./Aeltus CBO II Corp., 7.982% Sr. Sec. Sub. Bonds, 8/6/09(5) 5,000,000 4,632,350
- ---------------------------------------------------------------------------------------------------------
Astoria Capital Trust I, 9.75% Gtd. Nts., 11/1/29(5) 3,250,000 3,220,480
- ---------------------------------------------------------------------------------------------------------
BHP Finance USA Ltd., 7.25% Nts., 3/1/16 6,500,000 5,848,804
- ---------------------------------------------------------------------------------------------------------
Chase Manhattan Corp., 10.125% Sub. Nts., 11/1/00 750,000 770,051
- ---------------------------------------------------------------------------------------------------------
Conseco, Inc., 9% Unsec. Nts., 10/15/06 19,500,000 20,221,617
- ---------------------------------------------------------------------------------------------------------
Dresdner Funding Trust II, 8.151% Nts., 6/30/31(5) 13,080,000 12,348,135
- ---------------------------------------------------------------------------------------------------------
EOP Operating LP, 7.50% Sr. Nts., 4/19/29 7,800,000 6,846,598
- ---------------------------------------------------------------------------------------------------------
HVB Fund Trust III, 9% Bonds, 10/22/31(5) 6,500,000 6,524,323
- ---------------------------------------------------------------------------------------------------------
KBC Bank Fund Trust III, 9.86% Bonds, 11/29/49(3)(5) 13,000,000 13,477,711
- ---------------------------------------------------------------------------------------------------------
Keycorp Capital III, 7.75% Nts., 7/15/29 6,500,000 6,073,041
- ---------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
7.875% Sr. Nts., 11/1/09 8,450,000 8,447,533
8.80% Sr. Nts., 3/1/15 3,250,000 3,413,946
- ---------------------------------------------------------------------------------------------------------
Liberty Financial Co., 7.625% Unsec. Debs., 11/15/28 6,500,000 5,950,002
- ---------------------------------------------------------------------------------------------------------
Liberty Mutual Insurance Co., 7.697% Unsec. Nts., 10/15/2097(5) 19,000,000 15,927,016
</TABLE>
Oppenheimer Bond Fund/VA 7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Financial (continued)
Nordbanken AB, 8.95% Bonds, 11/29/49(3)(5) $ 16,250,000 $ 16,019,282
- --------------------------------------------------------------------------------------------------------
Rothmans Nederland Holdings BV, 6.875% Sr. Unsec. Unsub. Nts., 5/6/08 13,750,000 12,399,750
- --------------------------------------------------------------------------------------------------------
Safeco Capital Trust I, 8.072% Nts., 7/15/37(11) 7,429,000 6,554,503
- --------------------------------------------------------------------------------------------------------
Standard Chartered Nakornthon Bank, 6.734% Unsec. Sub. Nts., 6/11/06(3)(4) 7,500,000 7,200,000
- --------------------------------------------------------------------------------------------------------
U.S. Leasing International, Inc., 6.625% Sr. Nts., 5/15/03 750,000 732,715
------------
156,607,857
- --------------------------------------------------------------------------------------------------------
Food & Drug--0.0%
Pathmark Stores, Inc.:
10.75% Jr. Sub. Deferred Coupon Nts., 11/1/03 1,095,000 136,875
12.625% Sub. Nts., 6/15/02 400,000 134,000
------------
270,875
- --------------------------------------------------------------------------------------------------------
Food/Tobacco--0.2%
Aurora Foods, Inc., 8.75% Sr. Sub. Nts., Series B, 7/1/08 300,000 287,250
- --------------------------------------------------------------------------------------------------------
Canadaiqua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 1,000,000 1,001,250
------------
1,288,500
- --------------------------------------------------------------------------------------------------------
Forest Products/Containers--0.3%
Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 753,437
- --------------------------------------------------------------------------------------------------------
Potlatch Corp., 9.46% Medium-Term Nts., 4/2/02 500,000 521,701
- --------------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.625% Sr. Unsec. Nts., 8/1/07 450,000 465,750
------------
1,740,888
- --------------------------------------------------------------------------------------------------------
Gaming/Leisure--0.6%
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 300,000 279,000
- --------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08 950,000 935,750
- --------------------------------------------------------------------------------------------------------
Meristar Hospitality Corp., 8.75% Sr. Unsec. Sub. Nts., 8/15/07 700,000 647,500
- --------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority:
8.125% Sr. Nts., 1/1/06 400,000 390,000
8.75% Sr. Unsec. Sub. Nts., 1/1/09 300,000 297,000
- --------------------------------------------------------------------------------------------------------
Premier Parks, Inc.:
0%/10% Sr. Disc. Nts., 4/1/08(12) 300,000 208,500
9.75% Sr. Nts., 6/15/07 600,000 600,000
- --------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.75% Sr. Sub. Nts., 4/15/07 550,000 555,500
------------
3,913,250
- --------------------------------------------------------------------------------------------------------
Healthcare--0.3%
Fresenius Medical Care Capital Trust II, 7.875% Nts., 2/1/08 600,000 555,000
- --------------------------------------------------------------------------------------------------------
ICN Pharmaceutical, Inc., 8.75% Sr. Nts., 11/15/08(5) 400,000 384,000
- --------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.625% Sr. Sub. Nts., 1/15/07 800,000 776,000
------------
1,715,000
- --------------------------------------------------------------------------------------------------------
Housing--1.7%
Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 800,000 728,000
- --------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8% Sr. Nts., 2/1/09 400,000 368,000
- --------------------------------------------------------------------------------------------------------
Kimco Realty Corp., 6.875% Sr. Unsec. Nts., 2/10/09 9,100,000 8,325,390
- --------------------------------------------------------------------------------------------------------
Nortek, Inc.:
9.125% Sr. Nts., Series B, 9/1/07 200,000 194,500
9.25% Sr. Nts., Series B, 3/15/07 800,000 784,000
------------
10,399,890
</TABLE>
8 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Manufacturing--0.1%
Moll Industries, Inc., 10.50% Sr. Unsec. Sub. Nts., 7/1/08 $ 250,000 $ 101,250
- ------------------------------------------------------------------------------------------------------------
Roller Bearing Co. of America, Inc., 9.625% Sr. Sub. Nts., Series B, 6/15/07 500,000 455,000
-----------
556,250
- ------------------------------------------------------------------------------------------------------------
Media/Entertainment: Broadcasting--0.9%
Chancellor Media Corp.:
8.75% Sr. Unsec. Sub. Nts., Series B, 6/15/07 2,500,000 2,531,250
9% Sr. Unsec. Sub. Nts., 10/1/08 2,200,000 2,299,000
- ------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 600,000 573,000
-----------
5,403,250
- ------------------------------------------------------------------------------------------------------------
Media/Entertainment: Cable/Wireless Video--3.1%
Adelphia Communications Corp., 8.375% Sr. Nts., Series B, 2/1/08 1,300,000 1,212,250
- ------------------------------------------------------------------------------------------------------------
Charter Communication Holdings LLC/Charter Communication Holdings Capital Corp.:
8.25% Sr. Unsec. Nts., 4/1/07 3,000,000 2,782,500
8.625% Sr. Unsec. Nts., 4/1/09 750,000 696,562
- ------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 13,000,000 12,155,000
- ------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 1,200,000 1,212,000
- ------------------------------------------------------------------------------------------------------------
Insight Midwest LP/Insight Capital, Inc., 9.75% Sr. Nts., 10/1/09(5) 500,000 518,750
-----------
18,577,062
- ------------------------------------------------------------------------------------------------------------
Media/Entertainment: Diversified Media--0.6%
AMC Entertainment, Inc., 9.50% Sr. Unsec. Sub. Nts., 2/1/11 300,000 267,000
- ------------------------------------------------------------------------------------------------------------
GSP I Corp., 10.15% First Mtg. Bonds, 6/24/10(5) 1,071,442 996,806
- ------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05 900,000 855,000
- ------------------------------------------------------------------------------------------------------------
Mail-Well Corp., 8.75% Sr. Unsec. Sub. Nts., Series B, 12/15/08 535,000 510,925
- ------------------------------------------------------------------------------------------------------------
Reed Elsevier, Inc., 6.625% Nts., 10/15/23(5) 600,000 494,574
- ------------------------------------------------------------------------------------------------------------
SFX Entertainment, Inc., 9.125% Sr. Unsec. Sub. Nts., 12/1/08 600,000 573,000
-----------
3,697,305
- ------------------------------------------------------------------------------------------------------------
Media/Entertainment: Telecommunications--1.6%
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B, 6/1/08 800,000 736,000
- ------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc., 10% Sr. Unsec. Nts., Series B, 11/15/08 650,000 667,875
- ------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc.:
9.625% Sr. Nts., 10/1/07 2,200,000 2,156,000
10.75% Sr. Unsec. Nts., 11/15/08 200,000 207,000
- ------------------------------------------------------------------------------------------------------------
NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 1,000,000 1,090,000
- ------------------------------------------------------------------------------------------------------------
PSINet, Inc.:
10% Sr. Unsec. Nts., Series B, 2/15/05 600,000 596,250
11.50% Sr. Unsec. Nts., 11/1/08 1,000,000 1,050,000
- ------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc., 0%/8.29% Sr. Unsec. Disc. Nts.,
Series B, 2/1/08(12) 1,350,000 1,049,625
- ------------------------------------------------------------------------------------------------------------
Shaw Communications, Inc., 8.54% Debs., 9/30/27CAD 3,000,000 1,868,797
-----------
9,421,547
</TABLE>
Oppenheimer Bond Fund/VA 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Media/Entertainment: Wireless Communications--0.6%
Arch Communications, Inc., 12.75% Sr. Nts., 7/1/07 $ 200,000 $ 159,250
- ---------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd., 9.50% Sr. Nts., 1/15/06 200,000 181,000
- ---------------------------------------------------------------------------------------------------------
Omnipoint Corp.:
11.50% Sr. Nts., 9/15/09(5) 650,000 702,000
11.625% Sr. Nts., Series A, 8/15/06 500,000 532,500
- ---------------------------------------------------------------------------------------------------------
Price Communications Wireless, Inc., 9.125% Sr. Sec. Nts., Series B, 12/15/06 1,000,000 1,017,500
- ---------------------------------------------------------------------------------------------------------
SBA Communications Corp., 0%/12% Sr. Unsec. Disc. Nts., 3/1/08(12) 700,000 416,500
- ---------------------------------------------------------------------------------------------------------
Spectrasite Holdings, Inc., 0%/12% Sr. Disc. Nts., 7/15/08(12) 600,000 361,500
- ---------------------------------------------------------------------------------------------------------
Voicestream Wireless Corp., 10.375% Sr. Nts., 11/15/09(5) 500,000 517,500
-----------
3,887,750
- ---------------------------------------------------------------------------------------------------------
Metals/Minerals--1.1% AK Steel Corp.:
7.875% Sr. Unsec. Nts., 2/15/09 1,000,000 950,000
9.125% Sr. Nts., 12/15/06 3,250,000 3,323,125
- ---------------------------------------------------------------------------------------------------------
Great Lakes Carbon Corp., 10.25% Sr. Sub. Nts., Series B, 5/15/08 750,000 716,250
- ---------------------------------------------------------------------------------------------------------
National Steel Corp., 9.875% First Mtg. Bonds, Series D, 3/1/09 500,000 517,500
- ---------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 900,000 891,000
-----------
6,397,875
- ---------------------------------------------------------------------------------------------------------
Retail--3.6%
Cooper Tire & Rubber Co., 8% Sr. Nts., 12/15/19 13,000,000 12,494,716
- ---------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 9.125% Sr. Unsec. Sub. Nts., 5/1/08 250,000 176,250
- ---------------------------------------------------------------------------------------------------------
Sherwin-Williams Co., 7.45% Debs., 2/1/2097(11) 9,750,000 8,939,122
-----------
21,610,088
- ---------------------------------------------------------------------------------------------------------
Service--4.9%
Allied Waste North America, Inc.:
7.875% Sr. Unsec. Nts., Series B, 1/1/09 965,000 857,644
10% Sr. Sub. Nts., 8/1/09(5) 450,000 405,000
- ---------------------------------------------------------------------------------------------------------
Arvin Industries, Inc., 6.75% Nts., 3/15/08 1,400,000 1,270,623
- ---------------------------------------------------------------------------------------------------------
Harcourt General, Inc., 7.30% Sr. Debs., 8/1/2097 10,025,000 8,289,091
- ---------------------------------------------------------------------------------------------------------
Philip Morris, Co., Inc., 7.75% Unsec. Debs., 1/15/27 6,500,000 5,884,522
- ---------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc., 7.375% Gtd. Sr. Unsec. Nts., 8/15/05 1,000,000 800,000
- ---------------------------------------------------------------------------------------------------------
Safety-Kleen Corp., 9.25% Sr. Unsec. Nts., 5/15/09 800,000 778,000
- ---------------------------------------------------------------------------------------------------------
Tyco International Group SA, 6.875% Unsec. Unsub. Nts., 1/15/29 13,000,000 11,104,340
-----------
29,389,220
- ---------------------------------------------------------------------------------------------------------
Transportation--0.4%
Great Lakes Dredge & Dock Corp., 11.25% Sr. Unsec. Sub. Nts., 8/15/08 300,000 315,000
- ---------------------------------------------------------------------------------------------------------
Johnson Controls, Inc., 7.70% Debs., 3/1/15 500,000 507,090
- ---------------------------------------------------------------------------------------------------------
Kansas City Southern Industries, Inc., 6.625% Nts., 3/1/05 750,000 742,621
- ---------------------------------------------------------------------------------------------------------
Tenneco, Inc., 11.625% Sr. Sub. Nts., 10/15/09(5) 600,000 615,000
- ---------------------------------------------------------------------------------------------------------
Terex Corp., 8.875% Sr. Unsec. Sub. Nts., Series C, 4/1/08 100,000 95,000
- ---------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 403,825
-----------
2,678,536
</TABLE>
10 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Utility--2.1%
Calpine Corp., 7.75% Sr. Nts., 4/15/09 $ 650,000 $ 617,500
- -----------------------------------------------------------------------------------------------------
Israel Electric Corp. Ltd., 7.70% Bonds, 7/15/18(5) 12,050,000 10,686,976
- -----------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 760,288
- -----------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., 9% Mtg. Bonds, 7/15/06 500,000 531,081
------------
12,595,845
------------
Total Corporate Bonds and Notes (Cost $329,284,286) 311,473,497
<CAPTION>
Shares
<S> <C> <C>
=====================================================================================================
Other Securities--4.2%
- -----------------------------------------------------------------------------------------------------
Allstate Financing I, 7.95% Cum. Quarterly Income Preferred Securities,
Series A, Non-Vtg. 120,000 2,677,500
- -----------------------------------------------------------------------------------------------------
EIX Trust I, 7.875% Quarterly Income Preferred Securities 520,000 11,212,500
- -----------------------------------------------------------------------------------------------------
ING Capital Fund Trust, 7.70% Non-Cum., Non-Vtg. 130,000 2,746,250
- -----------------------------------------------------------------------------------------------------
Westpac Capital Trust I, 8% Trust Originated Preferred Securities 390,000 8,433,750
------------
Total Other Securities (Cost $29,000,000) 25,070,000
<CAPTION>
Date Strike Contracts
<S> <C> <C> <C> <C>
=====================================================================================================
Options Purchased--0.1%
- -----------------------------------------------------------------------------------------------------
U.S. Long Bond Futures, 3/22/00 Put (Cost $258,944) 2/18/00 94% 195 670,313
<CAPTION>
Principal
Amount(1)
<S> <C> <C>
=====================================================================================================
Repurchase Agreements--1.2%
- -----------------------------------------------------------------------------------------------------
Repurchase agreement with Deutsche Bank Securities Inc., 3.20%, dated
12/31/99, to be repurchased at $7,101,893 on 1/3/00, collateralized by
U.S. Treasury Bonds, 6.375%, 8/15/27, with a value of $1,955,059 and
U.S. Treasury Nts., 6.125%, 12/31/01, with a value of $5,311,688
(Cost $7,100,000) $ 7,100,000 7,100,000
- -----------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $623,606,517) 98.7% 593,056,062
- -----------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.3 8,007,537
----------- ------------
Net Assets 100.0% $601,063,599
=========== ============
</TABLE>
1. Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
CAD--Canadian Dollar
IDR--Indonesian Rupiah
2. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
3. Represents the current interest rate for a variable or increasing rate
security.
4. Identifies issues considered to be illiquid or restricted--See Note 8 of
Notes to Financial Statements.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees.These securities amount to $93,111,930 or 15.49% of the Fund's net
assets as of December 31, 1999.
6. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
Oppenheimer Bond Fund/VA 11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. A sufficient amount of liquid assets has been designated to cover outstanding
written options, as follows:
<TABLE>
<CAPTION>
Contracts Expiration Exercise Premium Market Value
Subject to Put Date Price Received Note 1
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
U.S.Treasury Nts. Futures, 10 yr. Put 325 2/18/00 98% $328,453 $782,031
</TABLE>
8. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.
9. Non-income producing security.
10. Issuer is in default.
11. Securities with an aggregate market value of $1,541,589 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
12. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
See accompanying Notes to Financial Statements.
12 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
==================================================================================================
Assets
Investments, at value (cost $623,606,517)--see accompanying statement $593,056,062
- --------------------------------------------------------------------------------------------------
Cash 505,935
- --------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 9,159,859
Shares of beneficial interest sold 45,586
Other 6,358
------------
Total assets 602,773,800
==================================================================================================
Liabilities
Unrealized depreciation on foreign currency contracts 36,676
- --------------------------------------------------------------------------------------------------
Options written, at value (premiums received $328,453)--see accompanying statement 782,031
- --------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 634,114
Daily variation on futures contracts 212,352
Trustees' compensation 1,274
Transfer and shareholder servicing agent fees 184
Other 43,570
------------
Total liabilities 1,710,201
==================================================================================================
Net Assets $601,063,599
============
==================================================================================================
Composition of Net Assets
Paid-in capital $604,669,053
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 45,409,363
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (17,446,218)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies (31,568,599)
------------
Net assets--applicable to 52,166,643 shares of beneficial interest outstanding $601,063,599
============
==================================================================================================
Net Asset Value, Redemption Price Per Share and Offering Price Per Share $11.52
</TABLE>
See accompanying Notes to Financial Statements.
Oppenheimer Bond Fund/VA 13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
======================================================================================
Investment Income
Interest (net of foreign withholding taxes of $8,672) $ 48,592,479
- --------------------------------------------------------------------------------------
Dividends 1,690,940
------------
Total income 50,283,419
======================================================================================
Expenses
Management fees 4,539,138
- --------------------------------------------------------------------------------------
Custodian fees and expenses 53,239
- --------------------------------------------------------------------------------------
Trustees' compensation 6,651
- --------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 2,102
- --------------------------------------------------------------------------------------
Other 23,256
------------
Total expenses 4,624,386
Less expenses paid indirectly (27,033)
------------
Net expenses 4,597,353
======================================================================================
Net Investment Income 45,686,066
======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (18,429,849)
Closing of futures contracts 1,187,215
Closing and expiration of option contracts written (86,721)
Foreign currency transactions (238,230)
------------
Net realized loss (17,567,585)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (38,172,276)
Translation of assets and liabilities denominated in foreign currencies 265,182
------------
Net change (37,907,094)
------------
Net realized and unrealized loss (55,474,679)
======================================================================================
Net Decrease in Net Assets Resulting from Operations $ (9,788,613)
============
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
<S> <C> <C>
================================================================================================
Operations
Net investment income $ 45,686,066 $ 37,001,034
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) (17,567,585) 5,539,991
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (37,907,094) (5,203,148)
------------ ------------
Net increase (decrease) in net assets resulting from operations (9,788,613) 37,337,877
================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income (30,081,522) (9,009,958)
- ------------------------------------------------------------------------------------------------
Distributions from net realized gain (2,888,886) (8,154,014)
================================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from
beneficial interest transactions (11,720,079) 115,290,766
================================================================================================
Net Assets
Total increase (decrease) (54,479,100) 135,464,671
- ------------------------------------------------------------------------------------------------
Beginning of period 655,542,699 520,078,028
------------ ------------
End of period (including undistributed net investment
income of $45,409,363 and $30,079,292, respectively) $601,063,599 $655,542,699
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Oppenheimer Bond Fund/VA 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $12.32 $11.91 $11.63 $11.84 $10.78
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .88 .72 .76 .69 .72
Net realized and unrealized gain (loss) (1.06) .07 .28 (.15) 1.07
- ------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (.18) .79 1.04 .54 1.79
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.20) (.72) (.74) (.73)
Distributions from net realized gain (.05) (.18) (.04) (.01) --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.62) (.38) (.76) (.75) (.73)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.52 $12.32 $11.91 $11.63 $11.84
====== ====== ====== ====== ======
==============================================================================================================================
Total Return, at Net Asset Value(1) (1.52)% 6.80% 9.25% 4.80% 17.00%
==============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $601,064 $655,543 $520,078 $426,439 $211,232
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $633,059 $586,242 $449,760 $296,253 $170,929
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 7.22% 6.31% 6.72% 6.72% 6.91%
Expenses 0.73% 0.74%(3) 0.78%(3) 0.78%(3) 0.80%(3)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 256% 76% 117% 82% 79%
</TABLE>
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period.
Total returns are not annualized for periods less than one full year. Total
return information does not reflect expenses that apply at the separate account
level or to related insurance products. Inclusion of these charges would reduce
the total return figures for all periods shown.
2. Annualized for periods less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1999, were $1,625,487,960 and $1,547,628,962, respectively.
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Bond Fund/VA (the Fund) is a separate series of Oppenheimer Variable
Account Funds (the Trust), a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek a high level of current income. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The following is a
summary of significant accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
Securities Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Foreign currency exchange contracts are valued based on the
closing prices of the foreign currency contract rates in the London foreign
exchange markets on a daily basis as provided by a reliable bank or dealer.
Options are valued based upon the last sale price on the principal exchange on
which the option is traded or, in the absence of any transactions that day, the
value is based upon the last sale price on the prior trading date if it is
within the spread between the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid is used.
- --------------------------------------------------------------------------------
Security Credit Risk. The Fund invests in high yield securities, which may be
subject to a greater degree of credit risk, greater market fluctuations and risk
of loss of income and principal, and may be more sensitive to economic
conditions than lower yielding, higher rated fixed income securities. The Fund
may acquire securities in default, and is not obligated to dispose of securities
whose issuers subsequently default. As of December 31, 1999, securities with an
aggregate market value of $44,856, representing 0.01% of the Fund's net assets,
were in default.
- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments
is separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers to shareholders. As of December 31,
1999, the Fund had available for federal income tax purposes an unused capital
loss carryover of approximately $14,340,000, which expires in 2007.
Oppenheimer Bond Fund/VA 17
<PAGE>
================================================================================
1. Significant Accounting Policies (continued)
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of distributions made during the year from net investment income or
net realized gains may differ from its ultimate characterization for federal
income tax purposes. Also, due to timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the fiscal year in which
the income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended December 31, 1999, amounts have been reclassified to reflect a
decrease in paid-in capital of $17,573, a decrease in undistributed net
investment income of $274,473, and a decrease in accumulated net realized loss
on investments of $292,046.
- --------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Discount on securities purchased is
amortized over the life of the respective securities, in accordance with federal
income tax requirements. Realized gains and losses on investments and options
written and unrealized appreciation and depreciation are determined on an
identified cost basis, which is the same basis used for federal income tax
purposes. Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on payment-in-kind
debt instruments is accrued as income at the coupon rate and a market adjustment
is made periodically.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
----------------------------- -----------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 10,494,053 $ 123,504,590 24,245,723 $ 293,126,941
Dividends and/or distributions reinvested 2,820,394 32,970,408 1,463,254 17,163,972
Redeemed (14,357,807) (168,195,077) (16,150,244) (195,000,147)
----------- ------------- ----------- -------------
Net increase (decrease) (1,043,360) $ (11,720,079) 9,558,733 $ 115,290,766
=========== ============= =========== =============
</TABLE>
18 Oppenheimer Bond Fund/VA
<PAGE>
================================================================================
3. Unrealized Gains and Losses on Securities
As of December 31, 1999, net unrealized depreciation on securities and options
written of $31,004,033 was composed of gross appreciation of $6,069,024, and
gross depreciation of $37,073,057.
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust. The annual fees are 0.75% of the
first $200 million of average annual net assets, 0.72% of the next $200 million,
0.69% of the next $200 million, 0.66% of the next $200 million, 0.60% of the
next $200 million and 0.50% of average annual net assets over $1 billion. The
Fund's management fee for the year ended December 31, 1999, was 0.72% of average
annual net assets.
- --------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer agent for the Fund and is responsible for maintaining the
shareholder registry and shareholder accounting records for the Fund. OFS
provides these services for cost.
================================================================================
5. Foreign Currency Contracts
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates as provided by a reliable bank, dealer or pricing service. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of
the foreign currency transactions. Realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.
As of December 31, 1999, the Fund had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
Expiration Contract Valuation as of Unrealized
Contract Description Date Amounts(000s) December 31, 1999 Depreciation
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Contracts to Sell
- -----------------
Canadian Dollar (CAD) 6/1/00 3,000 CAD $2,080,272 $36,676
=======
</TABLE>
Oppenheimer Bond Fund/VA 19
<PAGE>
================================================================================
6. Futures Contracts
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases
in interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
As of December 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Unrealized
Expiration Number of Valuation as of Appreciation
Contract Description Date Contracts December 31, 1999 (Depreciation)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Contracts to Purchase
- ---------------------
U.S. Treasury Bonds, 30 yr. 3/22/00 67 $ 6,092,813 $ (17,781)
U.S. Treasury Nts., 5 yr. 3/22/00 639 62,631,984 (167,970)
U.S. Treasury Nts., 10 yr. 3/22/00 238 22,814,531 (351,422)
---------
(537,173)
---------
Contracts to Sell
- -----------------
Federal Funds Interest Rate 1/31/00 322 126,871,441 (73,798)
U.S. Treasury Bonds, 30 yr. 3/22/00 130 11,821,875 60,938
U.S. Treasury Nts., 5 yr. 3/22/00 123 12,055,922 21,453
---------
8,593
---------
$(528,580)
=========
</TABLE>
20 Oppenheimer Bond Fund/VA
<PAGE>
================================================================================
7. Option Activity
The Fund may buy and sell put and call options, or write put and
covered call options on portfolio securities in order to produce incremental
earnings or protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in
the Statement of Investments where applicable. Shares subject to call,
expiration date, exercise price, premium received and market value are detailed
in a note to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended December 31, 1999, was as follows:
<TABLE>
<CAPTION>
Put Options
------------------------------
Number of Amount of
Options Premiums
<S> <C> <C>
- ----------------------------------------------------------------------------------
Options outstanding as of December 31, 1998 -- $ --
Options written 1,170 969,017
Options closed or expired (845) (640,564)
----- ---------
- ----------------------------------------------------------------------------------
Options outstanding as of December 31, 1999 325 $ 328,453
===== =========
</TABLE>
================================================================================
8. Illiquid or Restricted Securities
As of December 31, 1999, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of December 31, 1999, was $44,286,050,
which represents 7.37% of the Fund's net assets.
Oppenheimer Bond Fund/VA 21
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
================================================================================
To the Board of Trustees and Shareholders of Oppenheimer Bond Fund/VA:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Bond Fund/VA (which is a series of
Oppenheimer Variable Account Funds) as of December 31, 1999, the related
statement of operations for the year then ended, the statements of changes in
net assets for the years ended December 31, 1999 and 1998, and the financial
highlights for the period January 1, 1995 to December 31, 1999. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Bond Fund/VA as of December 31, 1999, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
January 24, 2000
22 Oppenheimer Bond Fund/VA
<PAGE>
- --------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
- --------------------------------------------------------------------------------
================================================================================
In early 2000 shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1999. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
Dividends paid by the Fund during the fiscal year ended December 31,
1999, which are not designated as capital gain distributions should be
multiplied by 3.72% to arrive at the net amount eligible for the corporate
dividend-received deduction.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax advisor for specific
guidance.
Oppenheimer Bond Fund/VA 23
<PAGE>
- --------------------------------------------------------------------------------
Oppenheimer Bond Fund/VA
- --------------------------------------------------------------------------------
A Series of Oppenheimer Variable Account Funds
<TABLE>
<S> <C>
==========================================================================================
Officers and Trustees James C. Swain, Trustee and Chairman of the Board
Bridget A. Macaskill, President
William H. Armstrong, Trustee
Robert G. Avis, Trustee
William A. Baker, Trustee
Edward L. Cameron, Trustee
Jon S. Fossel, Trustee
Sam Freedman, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
John S. Kowalik, Vice President
David P. Negri, Vice President
Andrew J. Donohue, Vice President and Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
==========================================================================================
Investment Advisor OppenheimerFunds, Inc.
==========================================================================================
Transfer Agent OppenheimerFunds Services
==========================================================================================
Custodian of Portfolio Securities The Bank of New York
==========================================================================================
Independent Auditors Deloitte & Touche LLP
==========================================================================================
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
This is a copy of a report to shareholders of
Oppenheimer Bond Fund/VA. This report must be
preceded or accompanied by a Prospectus of
Oppenheimer Bond Fund/VA. For material
information concerning the Fund, see the
Prospectus.
Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by
any bank, are not insured by the FDIC or any
other agency, and involve investment risks,
including the possible loss of the principal
amount invested.
</TABLE>
24 Oppenheimer Bond Fund/VA
