Oppenheimer
Strategic Bond Fund/VA
A series of Oppenheimer Variable Account Funds
Prospectus dated May 1, 2000,
revised January 31, 2001
Oppenheimer Strategic Bond Fund/VA is a mutual fund that seeks a high level of
current income principally derived from interest on debt securities. The Fund
invest mainly in three market sectors: debt securities of foreign government and
companies, U.S. Government securities, and lower-rated high yield securities of
U.S. and foreign 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. A prospectus for the insurance
product you have selected accompanies this Prospectus and explains how to select
shares of the Fund as an 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.
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.
(OppenheimerFunds logo)
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
INVESTING IN THE FUND
How to Buy and Sell Shares
Dividends, Capital Gains and Taxes
Financial Highlights
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ABOUT THE FUND
The Fund's Objective and Investment Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks a high level of current
income principally derived from interest on debt securities.
WHAT DOES THE FUND MAINLY 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-grade high-yield securities of U.S. and foreign
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 Fund's investment
Manager, OppenheimerFunds, Inc. (the "Manager") believes that in doing so the
Fund can achieve its objective without undue risk. The Fund can invest in
securities having short, medium, or long-term maturities and may invest with out
limit in lower-grade, high-yield debt obligations, also called "junk bonds."
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.
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:
o Securities offering high current income,
o Overall diversification for the portfolio by seeking securities
whose markets and prices tend to move in different directions, and
o Relative values among the three major market sectors in which the
Fund invests.
WHO IS THE FUND DESIGNED FOR? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for 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 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 have some degree of risk. The Fund's investments, in
particular, are subject to changes in their value from a number of factors
described below. There is also the risk that poor security selection by the
Manager will cause the Fund to underperform other funds having a similar
objective.
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 percentage of the securities of any one
issuer and by not investing too great a percentage of the Fund's assets in any
one issuer. The Fund's diversification strategies, both with respect to
securities in different sectors and securities issued by different companies and
governments are intended to help reduce the volatility of the Fund's share
prices while seeking current income. 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.
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 current 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. The market for these securities may be less liquid, making
it difficult for the Fund to sell them quickly at an acceptable price.
These risks can reduce the Fund's share prices and the income it earns.
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 normally invests
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.
Special Risks of Emerging and Developing Markets. Securities of issuers in
emerging and developing markets may offer special investment
opportunities but 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.
These countries might have less developed trading markets and
exchanges. Emerging market 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 securities 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.
INTEREST RATE RISKS. The prices 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. Also, if interest rates
fall, the Fund's investments in newly issued securities with lower yields will
reduce the Fund's income.
PREPAYMENT RISK. Prepayment risk is the risk that the issuer of a security can
prepay the principal prior to the security's expected maturity. The prices and
yields of mortgage-related securities 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 general interest rates rise. Securities subject to
prepayment risk, including the mortgage-related securities that the Fund buys,
have greater potential for losses when interest rates rise than other types of
debt securities.
The impact of prepayments on the price of a security may be difficult to predict
and may increase the volatility of the price. Interest-only and principal-only
"stripped" securities can be particularly volatile when interest rates change.
If the Fund buys 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 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. 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 the value of the security to
fluctuate more widely in response to changes in interest rates and this could
cause the value of the Fund's shares to fall.
SECTOR ALLOCATION RISKS. The Manager's expectations about the relative
performance of the three principal sectors in which the Fund invests may be
inaccurate, and the Fund's returns might be less than other funds using similar
strategies.
RISK OF 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,
forwards, interest rate swaps, structured notes and CMOs 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? The risks described above collectively form the
overall risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and its price per share. Particular
investments and investment strategies also have risks. 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. There is no assurance that
the Fund will achieve its investment objective.
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. The Fund generally has more risks than bond funds that focus
on U. S. Government securities and investment-grade bonds but may be less
volatile than bond 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 since the Fund's inception and 1, 5 and 10 years by showing how the average
annual total returns of the Fund's shares compare to those of broad-based market
indices. Performance is not shown for the Fund's Service shares, which were not
offered prior to May 1, 2000. Because Service shares are subject to a service
fee, the performance is expected to be lower for any given period. 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]
For the period from 1/1/00 through 3/31/00, the Fund's cumulative return (not
annualized) was 1.10%. 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 5.90% (2ndQ'95) and the lowest return (not
annualized) for a calendar quarter was -3.70% (1stQ'94).
<TABLE>
<CAPTION>
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Average Annual Total Returns
for the periods ended 1 Year 5 Years Life of Fund*
December 31, 1999
<S> <C> <C> <C>
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Oppenheimer Strategic 2.83% 8.25% 6.18%
Bond Fund/VA
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Lehman Brothers Aggregate -0.82% 7.73% 6.00%
Bond Index
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
Salomon Brothers World -4.27% 6.42% 5.96%
Government Bond Index
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
* The Fund's inception date was 5/3/93. The "life of class" index performance
is shown from 4/30/93. The Fund's returns in the table measure the
performance of a hypothetical account without deducting charges imposed by
the separate accounts that invest in the Fund 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 governments. However, it
must be remembered that the index performance reflects the reinvestment of
income but does not consider the effects of transaction costs. Also, the Fund
may have investments that vary from the index.
The Fund's total returns should not be expected to be the same as the returns of
other Oppenheimer funds, even if both funds have the same portfolio managers
and/or similar names.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among the different types of permitted investments will vary over time based
upon the Manager's evaluation of economic and market trends. 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. 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.
The Fund can invest in different types of debt securities described
below. 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 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 investment grade
or below investment grade in credit quality and the Fund can invest without
limit in below investment-grade debt securities, commonly called "junk bonds."
These typically offer higher yields than investment grade bonds, because
investors assume greater risks of default of these securities. The ratings
definitions of the principal national rating organizations are included in
Appendix A to the Statement of Additional Information.
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 strategies. The
Fund's portfolio might not always include all of the different types of
investments described below. The statement of Addition Information contains more
detailed information about the Fund's investment policies and risks.
o 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.
o 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 when issued), and Treasury bonds (which have 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 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").
o 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").
o 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. 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. The Fund can purchase a variety of
lower-grade, high-yield debt securities of U.S. and foreign 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.
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 that have similar ratings by other nationally-recognized
rating organizations. The Fund can invest in securities rated as low as
"C" or "D", in unrated bonds or bonds 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 assigns
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.
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.
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, as well as interest rate and prepayment risks.
Foreign 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'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.
o Investments in Emerging and Developing Markets. 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.
SPECIAL PORTFOLIO DIVERSIFICATION REQUIREMENTS. To enable a variable annuity or
variable life insurance contract based on an insurance company separate account
to qualify for favorable tax treatment under the Internal Revenue Code, the
underlying investments must follow special diversification requirements that
limit the percentage of assets that can be invested in securities of particular
issuers. The Fund's investment program is managed to meet those requirements, in
addition to other diversification requirements under the Internal Revenue Code
and the Investment Company Act that apply to publicly-sold mutual funds.
Failure by the Fund to meet those special requirements could cause
earnings on a contract owner's interest in an insurance company separate account
to be taxable income. Those diversification requirements might also limit, to
some degree, the Fund's investment decisions in a way that could reduce its
performance.
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. Other 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.
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.
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 conventional interest-bearing
securities. The Fund may have to pay out the imputed income on
zero-coupon securities without receiving the actual cash currently. The
Fund can invest up to 50% of its total assets in zero-coupon securities
issued by either the U.S. Treasury or companies.
The values of interest-only and principal only mortgage-related
securities are also very sensitive to prepayments of underlying
mortgages. Principal-only securities are also sensitive to prepayment
of underlying mortgages and 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.
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.
Illiquid and Restricted Securities. Investments may be illiquid because there is
no active trading market for them, 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.
Derivative Investments. The Fund can invest in a number of different kinds of
"derivative" investments. 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. In the broadest
sense, options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative" investments. In addition
to using derivatives for hedging, the Fund might use other derivative
investments because they offer the potential for increased value. The
Fund currently does not use derivatives to a significant degree and is
not required to use them in seeking its objective.
Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and
the derivative itself, may not perform the way the Manager expected it
to. As a result of these risks the Fund could realize less principal or
income from the investment than expected or its hedge might be
unsuccessful. As a result, the Fund's share prices could fall. Certain
derivative investments held by the Fund might be illiquid.
o "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments, their principal
payments or interest payments 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 value of these notes will 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. The
prices of these notes 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.
o Hedging. The Fund can buy and sell futures contracts, put and call
options, and forward contracts. These are all referred to as "hedging
instruments." Writing covered call options is a principal strategy that
is part of the Fund's objective, and is used when deemed appropriate by
the Manager. The Fund is not required to use other 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 hedge against falling
prices of its portfolio securities 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 and currency options can be used to
try to manage foreign currency risks on the Fund's foreign investments.
The Fund could write covered call options to seek cash for liquidity
purposes or to distribute to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. 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. There are also special risks in particular
hedging strategies. 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 its investment objective.
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 been an investment adviser since 1960 and currently
manages investment companies including other Oppenheimer funds. The Manager
(including subsidiaries and affiliates ) manages assets of $120 billions as of
January 31, 2000 and with more than 5 million shareholder accounts. The Manager
is located at Two World Trade Center, 34th Floor, New York, New York 10048-0203.
Portfolio Managers. 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 its inception in May 1993.
Both are Vice Presidents of the Fund and Senior Vice Presidents of the Manager.
They also serve as officers and portfolio managers for other Oppenheimer funds.
Mr. Steinmetz has been employed by the Manager since 1986, and Mr. Negri, since
1989.
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, 1999,
was 0.74% of the Fund's average annual net assets.
Possible Conflicts of Interest. The Fund offers its shares to separate accounts
of different insurance companies that are not affiliated with each
other, as an investment for their variable annuity, variable life and
other investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is
possible that the interests of owners of different contracts
participating in the Fund through different separate accounts might
conflict. For example, a conflict could arise because of differences in
tax treatment.
The Fund's Board has procedures to monitor the portfolio for possible
conflicts to determine what action should be taken. If a conflict
occurs, the Board might require one or more participating insurance
company separate accounts to withdraw their investments in the Fund.
That could force the Fund to sell securities at disadvantageous prices,
and orderly portfolio management could be disrupted. Also, the Board
might refuse to sell shares of the Fund to a particular separate
account, or could terminate the offering of the Fund's shares if
required to do so by law or if it would be in the best interests of the
shareholders of the Fund to do so.
INVESTING IN THE FUND
How to Buy and Sell Shares
HOW ARE SHARES PURCHASED? Shares of the Fund may be purchased only by separate
investment accounts of participating insurance companies as an underlying
investment for variable life insurance policies, variable annuity contracts or
other investment products. Individual investors cannot buy shares of the Fund
directly. Please refer to the accompanying prospectus of the participating
insurance company for information on how to select the Fund as an investment
option for that variable life insurance policy, variable annuity or other
investment product. That Prospectus will indicate whether you are only eligible
to purchase Service shares of the Fund. The Fund reserves the right to refuse
any purchase order when the Manager believes it would be in the Fund's best
interests to do so.
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only from
your participating insurance company or its servicing agent. The Fund's Transfer
Agent does not hold or have access to those records. Instructions for buying or
selling shares of the Fund should be given to your insurance company or its
servicing agent, not directly to the Fund or its Transfer Agent.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price, which is
the net asset value per share. The Fund does not impose any sales charge on
purchases of its shares. If there are any charges imposed under the variable
annuity, variable life or other contract through which Fund shares are
purchased, they are described in the accompanying prospectus of the
participating insurance company.
The net asset value per share is determined as of the close of The New
York Stock Exchange on each day that the exchange is open for trading (referred
to in this Prospectus as a "regular business day"). The Exchange normally closes
at 4:00 P.M., New York time, but may close earlier on some days. All references
to time in this Prospectus mean "New York time."
The net asset value per share is determined by dividing the value of
the Fund's net assets attributable to a class of shares by the number of shares
of that class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine the Fund's net asset
value, in general based on market values. The Board has adopted special
procedures for valuing illiquid and restricted securities and securities for
which market values cannot be readily obtained. Because some foreign securities
trade in markets and on exchanges that operate on weekends and U.S. holidays,
the values of some of the Fund's foreign investments might change significantly
on days when shares of the Fund cannot be purchased or redeemed.
The offering price that applies to an order from a participating
insurance company is based on the next calculation of the net asset value per
share that is made after the insurance company (as the Fund's designated agent
to receive purchase orders) receives a purchase order from its contract owners
to purchase Fund shares on a regular business day, provided that the Fund
receives the order from the insurance company, generally by 9:30 A.M. on the
next regular business day at the offices of its Transfer Agent in Denver,
Colorado.
CLASSES OF SHARES. The Fund offers two different classes of shares. The class
designated as Service shares are subject to a Distribution and Service Plan. The
impact of the expenses of the Plan on Service shares is described below. The
class of shares that are not subject to a Plan has no class "name" designation.
The different classes of shares represent investments in the same portfolio of
securities but are expected to have different expenses and share prices.
Distribution and Service Plan for Service Shares. The Fund has adopted a
Distribution and Service Plan for Service shares to pay the distributor, for
distribution related services for the Fund's Service shares. Although the Plan
allows for payment to be made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund, that rate is currently
reduced to 0.15%. The Board may increase that rate to no more than 0.25% per
annum, without advance notification. The distributor currently uses all of those
fees to compensate sponsor(s) of the insurance product that offers Fund shares,
for providing personal service and maintenance of accounts of their variable
contract owners that hold Service shares. The impact of the service plan is to
increase operating expenses of the Service shares, which results in lower
performance compared to the Fund's shares that are not subject to a service fee.
HOW ARE SHARES REDEEMED? As with purchases, only the participating insurance
companies that hold Fund shares in their separate accounts for the benefit of
variable annuity contracts, variable life insurance policies or other investment
products can place orders to redeem shares. Contract holders and policy holders
should not directly contact the Fund or its transfer agent to request a
redemption of Fund shares. Contract owners should refer to the withdrawal or
surrender instructions in the accompanying prospectus of the participating
insurance company.
The share price that applies to a redemption order is the next net
asset value per share that is determined after the participating insurance
company (as the Fund's designated agent) receives a redemption request on a
regular business day from its contract or policy holder, provided that the Fund
receives the order from the insurance company, generally by 9:30 A.M. the next
regular business day at the office of its Transfer Agent in Denver, Colorado.
The Fund normally sends payment by Federal Funds wire to the insurance company's
account the day after the Fund receives the order (and no later than 7 days
after the Fund's receipt of the order). Under unusual circumstances determined
by the Securities and Exchange Commission, payment may be delayed or suspended.
Dividends, Capital Gains and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for each class of
shares from net investment income, if any, on an annual basis and to pay those
dividends in March on a date selected by the Board of Trustees. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee that
it will pay any dividends.
All dividends (and any capital gains distributions will be reinvested
automatically in additional Fund shares at net asset value for the account of
the participating insurance company (unless the insurance company elects to have
dividends or distributions paid in cash).
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 March 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.
TAXES. For a discussion of the tax status of a variable annuity contract, a
variable life insurance policy or other investment product of a participating
insurance company, please refer to the accompanying prospectus of your
participating insurance company. Because shares of the Fund may be purchased
only through insurance company separate accounts for variable annuity contracts,
variable life insurance policies or other investment products, dividends paid by
the Fund from net investment income and distributions (if any) of net realized
short-term and long-term capital gains will be taxable, if at all, to the
participating insurance company.
This information is only a summary of certain federal income tax
information about an investment in Fund shares. You should consult with your tax
advisor or your participating insurance company representative about the effect
of an investment in the Fund under your contract or policy.
<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.
Because Service shares of the Fund were not issued prior to May 1, 2000, no
financial information is shown for Service shares in the Financial Highlights
table or in the financial statements included in the Statement of Additional
Information.
<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 $5.12 $5.12 $5.09 $4.91 $4.60
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .39 .39 .38 .38
Net realized and unrealized gain (loss) (.31) (.24) .04 .19 .30
------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations .14 .15 .43 .57 .68
------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.29) (.09) (.39) (.39) (.37)
Distributions from net realized gain -- (.06) (.01) -- --
------------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.29) (.15) (.40) (.39) (.37)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.97 $5.12 $5.12 $5.09 $4.91
===== ===== ===== ===== =====
------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(1) 2.83% 2.90% 8.71% 12.07% 15.33%
==============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $282,086 $279,200 $207,839 $118,716 $60,098
------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $278,668 $250,227 $159,934 $82,604 $37,698
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 9.08% 8.17% 8.23% 8.48% 9.32%
Expenses 0.78% 0.80%(3) 0.83%(3) 0.85%(3) 0.85%(3)
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 81% 134% 150% 144% 87%
</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 $242,578,613 and $216,840,010, respectively.
11
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer Strategic Bond Fund/VA:
The following additional information about Oppenheimer Strategic Bond Fund/VA 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.
By Telephone: Call OppenheimerFunds Services toll-free:
1-888-470-0861
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 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained upon payment of
a duplicating fee by electronic request at the SEC's e-mail address:
publicinfo@secgov., or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
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
PR0265.001.0101
Printed on recycled paper.
Appendix to Prospectus of
Oppenheimer Strategic Bond Fund/VA
(a series of Oppenheimer Variable Account Funds)
Graphic material included in the Prospectus of Oppenheimer Strategic
Bond Fund/VA (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
12/31/95 15.33%
12/31/96 12.07%
12/31/97 8.71%
12/31/98 2.90%
12/31/99 2.83%
OVAF/265psp200012b.doc
