<PAGE>
A Message To Our Policyowners:
We are pleased to forward this combined Annual Report of the segment of
Massachusetts Mutual Variable Life Separate Account I pertaining to Large Case
Variable Life Plus ("Large Case Variable Life Plus Segment"), the MML Series
Investment Fund (the "MML Trust"), the Oppenheimer Variable Account Funds (the
"Oppenheimer Trust") and the Dreyfus Stock Index Fund (the "Dreyfus Index
Fund"). These reports are for the year ended December 31, 1996.
The Annual Report for the Large Case Variable Life Plus Segment begins on page
3. The Large Case Variable Life Plus Segment has net assets of $55,491,263 as of
December 31, 1996. Net asset values per accumulation unit for the MML Equity,
MML Money Market, MML Managed Bond, MML Blend, Oppenheimer High Income,
Oppenheimer Capital Appreciation, Oppenheimer Global Securities and Dreyfus
Index Division, of the Large Case Variable Life Plus Segment for the year ended
December 31, 1996 are shown in detail in the table on page 3.
The Annual Report for the MML Trust begins on page 13. This report contains a
detailed description of the final result of the four series of the MML Trust -
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund, and MML Blend
Fund - for the year ended December 31, 1996.
The Annual Report for the Oppenheimer Trust begins on page 40. This report
contains a detailed description of three of the funds of the Oppenheimer Trust -
Oppenheimer High Income Fund, Oppenheimer Capital Appreciation Fund, and
Oppenheimer Global Securities Fund - for the year ended December 31, 1996.
The Annual Report for the Dreyfus Index Fund begins on page 73. This report
contains a detail description of this Fund for the year ended December 31, 1996.
We thank you for the continued interest and confidence you have shown in the
Large Case Variable Life Plus Segment.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
/s/ Thomas B. Wheeler
-------------------------------------
Thomas B. Wheeler
President and Chief Executive Officer
February 1, 1997
1
<PAGE>
Table of Contents
Massachusetts Mutual Variable Life Separate Account I
<TABLE>
<S> <C>
Large Case Variable Life Plus
Statement of Assets and Liabilities as of December 31, 1996......................................... 3
Statement of Operations For the Year Ended December 31, 1996........................................ 4
Statement of Changes in Net Assets For the Years Ended December 31, 1996 and 1995................... 5
Notes to Financial Statements....................................................................... 7
Report of Independent Accountants................................................................... 12
MML Series Investment Fund
To Our Shareholders................................................................................. 13
Statement of Assets and Liabilities as of December 31, 1996......................................... 18
Statement of Operations For the Year Ended December 31, 1996........................................ 19
Statement of Changes in Net Assets For the Years Ended December 31, 1996 and 1995................... 20
Financial Highlights................................................................................ 21
Schedule of Investments as of December 31, 1996
MML Equity Fund.................................................................................... 24
MML Money Market Fund.............................................................................. 26
MML Managed Bond Fund.............................................................................. 27
MML Blend Fund..................................................................................... 30
Notes to Financial Statements....................................................................... 36
Report of Independent Accountants................................................................... 39
Oppenheimer Variable Account Funds
Oppenheimer Fund Managers' Messages................................................................. 40
Statement of Assets and Liabilities as of December 31, 1996......................................... 42
Statement of Operations For the Year Ended December 31, 1996........................................ 43
Statement of Changes in Net Assets For the Years Ended December 31, 1996 and 1995................... 44
Financial Highlights................................................................................ 45
Statement of Investments as of December 31, 1996
Oppenheimer High Income Fund....................................................................... 48
Oppenheimer Capital Appreciation Fund.............................................................. 56
Oppenheimer Global Securities Fund................................................................. 58
Notes to Financial Statements....................................................................... 61
Independent Auditors' Report........................................................................ 72
Dreyfus Stock Index Fund
Letter to Shareholders.............................................................................. 73
Statement of Assets and Liabilities as of December 31, 1996......................................... 76
Statement of Operations For the Year Ended December 31, 1996........................................ 77
Statement of Changes in Net Assets For the Years Ended December 31, 1996 and 1995................... 78
Financial Highlights................................................................................ 79
Statement of Investments as of December 31, 1996.................................................... 80
Notes to Financial Statements....................................................................... 85
Report of Independent Accountants................................................................... 87
Proxy Results....................................................................................... 88
</TABLE>
2
<PAGE>
Massachusetts Mutual Variable Life Separate Account I -- Large Case Variable
Life Plus
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML High Capital
Equity Market Bond Blend Income Appreciation
Division Division Division Division Division Division
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments --
Number of shares (Note 2) ........ 358,340 990,401 925,348 135,582 161,582 97,068
============ ========== =========== =========== =========== ===========
Identified cost (Note 6) ......... $ 9,895,009 $ 990,402 $10,998,294 $ 2,686,945 $ 1,766,992 $ 3,763,440
============ ========== =========== =========== =========== ===========
Value (Note 3A)................... $ 10,673,634 $ 990,401 $11,148,921 $ 2,979,186 $ 1,798,411 $ 3,755,572
Dividends receivable..................... 497,122 4,492 177,157 101,763 -- --
------------ ---------- ----------- ----------- ----------- -----------
Total assets........................... 11,170,756 994,893 11,326,078 3,080,949 1,798,411 3,755,572
LIABILITIES
Payable to Massachusetts Mutual
Life Insurance Company.................. 124 12 124 34 19 41
------------ ---------- ----------- ----------- ----------- -----------
NET ASSETS............................... $ 11,170,632 $ 994,881 $11,325,954 $ 3,080,915 $ 1,798,392 $ 3,755,531
============ ========== =========== =========== =========== ===========
Net Assets:
For variable life insurance policies..... $ 11,154,203 $ 981,477 $11,314,268 $ 3,066,482 $ 1,791,760 $ 3,748,139
Retained in Variable Life
Separate Account I by
Massachusetts Mutual Life
Insurance Company....................... 16,429 13,404 11,686 14,433 6,632 7,392
------------ ---------- ----------- ----------- ----------- -----------
Net assets............................. $ 11,170,632 $ 994,881 $11,325,954 $ 3,080,915 $ 1,798,392 $ 3,755,531
============ ========== =========== =========== =========== ===========
Accumulation units
Policyowners............................ 4,539,806 732,152 6,444,688 1,421,800 1,351,056 2,535,490
Massachusetts Mutual Life
Insurance Company...................... 6,687 10,000 6,656 6,692 5,000 5,000
------------ ---------- ----------- ----------- ----------- -----------
Total units (Note 8)................... 4,546,493 742,152 6,451,344 1,428,492 1,356,056 2,540,490
============ ========== =========== =========== =========== ===========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1996....................... $ 2.46 $ 1.34 $ 1.76 $ 2.16 $ 1.33 $ 1.48
December 31, 1995....................... 2.05 1.28 1.71 1.90 1.16 1.23
December 31, 1994....................... 1.57 1.22 1.44 1.55 0.96 0.94
December 31, 1993....................... 1.51 1.18 1.50 1.52 -- --
December 31, 1992....................... 1.39 1.15 1.35 1.39 -- --
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer
Global Dreyfus
Securities Index
Division Division Total
-------- -------- -----
<S> <C> <C> <C>
ASSETS
Investments --
Number of shares (Note 2)........... 128,257 1,026,836 3,823,414
============ =========== ===========
Identified cost (Note 6)............ $ 1,980,447 $19,039,355 $51,120,884
============ =========== ===========
Value (Note 3A)..................... $ 2,261,164 $20,824,238 $54,431,527
Dividends receivable................. -- 279,813 1,060,347
------------ ----------- -----------
Total assets....................... 2,261,164 21,104,051 55,491,874
LIABILITIES
Payable to Massachusetts Mutual
Life Insurance Company.............. 25 232 611
------------ ----------- -----------
NET ASSETS........................... $ 2,261,139 $21,103,819 $55,491,263
============ =========== ===========
Net Assets:
For variable life insurance policies. $ 2,255,596 $21,098,092 $55,410,017
Retained in Variable Life
Separate Account I by
Massachusetts Mutual Life
Insurance Company................... 5,543 5,727 81,246
------------ ----------- -----------
Net assets......................... $ 2,261,139 $21,103,819 $55,491,263
============ =========== ===========
Accumulation units
Policyowners........................ 2,034,838 18,406,572
Massachusetts Mutual Life
Insurance Company.................. 5,000 5,000
------------ -----------
Total units (Note 8)............... 2,039,838 18,411,572
============ ===========
NET ASSET VALUE PER
ACCUMULATION UNIT
December 31, 1996................... $ 1.11 $ 1.15
December 31, 1995................... 0.95 --
December 31, 1994................... 0.93 --
December 31, 1993................... -- --
December 31, 1992................... -- --
</TABLE>
3
<PAGE>
Massachusetts Mutual Variable Life Separate Account I -- Large Case Variable
Life Plus
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML High Capital Global
Equity Market Bond Blend Income Appreciation Securities
Division Division Division Division Division Division Division
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends (Note 3B)............. $ 497,438 $ 98,425 $ 402,986 $ 179,650 $ 97,384 $ 524,287 $ --
Expenses
Mortality and expense risk fee
(Note 4)....................... 63,177 8,012 21,779 10,728 4,287 23,287 27,051
------------ ------------ ---------- ----------- ----------- ----------- ----------
Net investment income (loss)
(Note 3C)...................... 434,261 90,413 381,207 168,922 93,097 501,000 (27,051)
------------ ------------ ---------- ----------- ----------- ----------- ----------
Net realized and unrealized
gain on investments
Net realized gain on
investments (Notes 3 and 6).... 2,609,509 -- 7,784 56,686 142,387 750,281 567,458
Change in net unrealized
appreciation/depreciation
of investments................. (619,361) -- 98,857 120,120 (44,813) (739,508) 180,936
------------ ------------ ---------- ----------- ----------- ----------- ----------
Net gain on investments......... 1,990,148 -- 106,641 176,806 97,574 10,773 748,394
------------ ------------ ---------- ----------- ----------- ----------- ----------
Net increase in net assets
resulting from operations...... $ 2,424,409 $ 90,413 $ 487,848 $ 345,728 $ 190,671 $ 511,773 $ 721,343
============ ============ ========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
*Dreyfus
Index
Division Total
-------- -----
<S> <C> <C>
Investment income
Dividends (Note 3B)................... $ 546,557 $ 2,346,727
Expenses
Mortality and expense risk fee
(Note 4)............................. 30,117 188,438
----------- -----------
Net investment income (loss)
(Note 3C)............................ 516,440 2,158,289
----------- -----------
Net realized and unrealized
gain on investments
Net realized gain on
investments (Notes 3 and 6).......... 5,903 4,140,008
Change in net unrealized
appreciation/depreciation
of investments....................... 1,784,882 781,113
Net gain on investments............... 1,790,785 4,921,121
----------- -----------
Net increase in net assets
resulting from operations............ $ 2,307,225 $ 7,079,410
=========== ===========
</TABLE>
*For the Period August 1, 1996 (Date of Commencement of Operations) through
December 31, 1996.
See Notes to Financial Statements.
4
<PAGE>
Massachusetts Mutual Variable Life Separate Account I -- Large Case Variable
Life Plus
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML High Capital
Equity Market Bond Blend Income Appreciation
Division Division Division Division Division Division
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............. $ 434,261 $ 90,413 $ 381,207 $ 168,922 $ 93,097 $ 501,000
Net realized gain
on investments......................... 2,609,509 -- 7,784 56,686 142,387 750,281
Change in net unrealized
appreciation/depreciation
of investments......................... (619,361) -- 98,857 120,120 (44,813) (739,508)
------------ ------------ ---------- ----------- ----------- -----------
Net increase in net assets
resulting from operations.............. 2,424,409 90,413 487,848 345,728 190,671 511,773
------------ ------------ ---------- ----------- ----------- -----------
Capital transactions: (Note 8)
Transfer of net premium.................. 2,416,720 3,155,511 2,894,471 678,896 179,652 1,127,005
Transfer to Guaranteed
Principal Account........................ -- (43,469) -- -- -- --
Transfer of surrender values............. (52,901) (627,614) (8,007) (145,960) -- --
Transfer due to death benefits........... (33,820) (12,683) (12,801) (5,494) -- (9,759)
Transfer due to policy loan,
net of repayment....................... (13,366) -- (18) (18,902) -- (1,270)
Transfer due to reimbursement
(payment) of accumulation unit
value fluctuation....................... (54,633) 3,796 15,423 309 (3,277) 49,430
Withdrawal due to charges for
administrative and insurance costs..... (541,666) (359,358) (132,291) (159,224) (34,070) (156,514)
Divisional transfers..................... (8,794,810) (3,177,869) 6,796,962 206,124 (433,861) (3,842,405)
------------ ------------ ---------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from capital transactions.... (7,074,476) (1,061,686) 9,553,739 555,749 (291,556) (2,833,513)
------------ ------------ ---------- ----------- ----------- -----------
Total increase (decrease)................. (4,650,067) (971,273) 10,041,587 901,477 (100,885) (2,321,740)
NET ASSETS, at beginning
of the period/year....................... 15,820,699 1,966,154 1,284,367 2,179,438 1,899,277 6,077,271
------------ ------------ ---------- ----------- ----------- -----------
NET ASSETS, at end of the year............ $11,170,632 $ 994,881 $11,325,954 $ 3,080,915 $ 1,798,392 $ 3,755,531
=========== ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer
Global *Dreyfus
Securities Index
Division Division Total
-------- -------- -----
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............. $ (27,051) $ 516,440 $ 2,158,289
Net realized gain
on investments......................... 567,458 5,903 4,140,008
Change in net unrealized
appreciation/depreciation
of investments......................... 180,936 1,784,882 781,113
------------ ----------- -----------
Net increase in net assets
resulting from operations.............. 721,343 2,307,225 7,079,410
Capital transactions: (Note 8)
Transfer of net premium.................. 826,409 42,058 11,320,722
Transfer to Guaranteed
Principal Account........................ -- -- (43,469)
Transfer of surrender values............. (4,223) -- (838,705)
Transfer due to death benefits........... (29,607) -- (104,164)
Transfer due to policy loan,
net of repayment....................... (7,471) -- (41,027)
Transfer due to reimbursement
(payment) of accumulation unit
value fluctuation....................... 74,345 54,612 140,005
Withdrawal due to charges for
administrative and insurance costs..... (125,757) (57,013) (1,565,893)
Divisional transfers..................... (9,511,078) 18,756,937 --
------------ ----------- -----------
Net increase (decrease) in net assets
resulting from capital transactions.... (8,777,382) 18,796,594 8,867,469
------------ ----------- -----------
Total increase (decrease)................. (8,056,039) 21,103,819 15,946,879
NET ASSETS, at beginning
of the period/year....................... 10,317,178 -- 39,544,384
------------ ----------- -----------
NET ASSETS, at end of the year............ $ 2,261,139 $21,103,819 $55,491,263
============ =========== ===========
</TABLE>
*For the Period August 1, 1996 (Date of Commencement of Operations) through
December 31, 1996.
See Notes to Financial Statements.
5
<PAGE>
Massachusetts Mutual Variable Life Separate Account I -- Large Case Variable
Life Plus
STATEMENT OF CHANGES IN NET ASSETS
For The Year Ended December 31, 1995
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML High Capital
Equity Market Bond Blend Income Appreciation
Division Division Division Division Division Division
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)................. $ 549,099 $ 167,377 $ 93,395 $ 131,856 $ 202,322 $ (3,925)
Net realized gain (loss)
on investments............................... 54,476 -- 46,215 91,039 38,996 13,381
Change in net unrealized
appreciation/depreciation
of investments............................... 1,427,884 -- 105,076 286,499 117,329 726,097
------------ ----------- ----------- ------------ ------------ -----------
Net increase in net assets
resulting from operations.................... 2,031,459 167,377 244,686 509,394 358,647 735,553
------------ ----------- ----------- ------------ ------------ -----------
Capital transactions: (Note 8)
Transfer of net premium...................... 2,702,545 21,618,465 752,770 374,328 648,684 783,313
Transfer to Guaranteed Principal Account..... -- (69,895) -- (3,791) -- --
Transfer of surrender values................. (244,457) (4,395,665) (102,318) (97,216) (26,113) (102,266)
Withdrawal due to death benefits............. (2,894) (300) -- -- -- --
Transfer due to policy loan,
net of repayment............................. (797) -- (2,689) (3,656) -- (292)
Transfer due to reimbursement (payment) of
accumulation unit value fluctuation.......... (16,996) 13,984 (1,364) 2,788 (315) (5,623)
Withdrawal due to charges for
administrative and insurance costs........... (264,094) (267,040) (74,281) (156,704) (49,826) (63,084)
Divisional transfers......................... 8,096,573 (17,960,607) (695,780) (1,041,522) 440,525 4,141,688
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from capital transactions.......... 10,269,880 (1,061,058) (123,662) (925,773) 1,012,955 4,753,736
------------ ----------- ----------- ------------ ------------ -----------
Total increase (decrease)..................... 12,301,339 (893,681) 121,024 (416,379) 1,371,602 5,489,289
NET ASSETS, at beginning of the year.......... 3,519,360 2,859,835 1,163,343 2,595,817 527,675 587,982
------------ ----------- ----------- ------------ ------------ -----------
NET ASSETS, at end of the year................ $ 15,820,699 $ 1,966,154 $ 1,284,367 $ 2,179,438 $ 1,899,277 $ 6,077,271
============ =========== =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer
Global
Securities
Division Total
-------- -----
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............... $ 33,151 $ 1,173,275
Net realized gain (loss)
on investments............................. (5,647) 238,460
Change in net unrealized
appreciation/depreciation
of investments............................. 162,287 2,825,172
------------ -----------
Net increase in net assets
resulting from operations.................. 189,791 4,236,907
------------ -----------
Capital transactions: (Note 8)
Transfer of net premium.................... 1,672,425 28,552,530
Transfer to Guaranteed Principal Account... -- (73,686)
Transfer of surrender values............... (60,532) (5,028,567)
Withdrawal due to death benefits........... -- (3,194)
Transfer due to policy loan,
net of repayment........................... (503) (7,937)
Transfer due to reimbursement (payment) of
accumulation unit value fluctuation........ (12,352) (19,878)
Withdrawal due to charges for
administrative and insurance costs......... (104,191) (979,220)
Divisional transfers....................... 7,019,123 --
------------ -----------
Net increase (decrease) in net assets
resulting from capital transactions........ 8,513,970 22,440,048
------------ -----------
Total increase (decrease)................... 8,703,761 26,676,955
NET ASSETS, at beginning of the year........ 1,613,417 12,867,429
------------ -----------
NET ASSETS, at end of the year.............. $10,317,178 $39,544,384
============ ===========
</TABLE>
6
<PAGE>
Massachusetts Mutual Variable Life Separate Account I -- Large Case Variable
Life Plus
Notes To Financial Statements
1. HISTORY
Massachusetts Mutual Variable Life Separate Account I ("Separate
Account I") is a separate investment account established on July 13, 1988
by Massachusetts Mutual Life Insurance Company ("MassMutual") in
accordance with the provisions of Section 132G of Chapter 175 of the
Massachusetts General Laws.
MassMutual maintains four segments within Separate Account I. The initial
segment ("Variable Life Plus Segment") is used exclusively for
MassMutual's flexible premium variable whole life insurance policy, known
as Variable Life Plus.
On March 30, 1990, MassMutual established a second segment ("Large Case
Variable Life Plus Segment") within Separate Account I to be used
exclusively for MassMutual's flexible premium variable whole life
insurance policy with table of selected face amounts, known as Large Case
Variable Life Plus.
On July 5, 1995, MassMutual established a third segment ("Strategic
Variable Life Segment") within Separate Account I to be used exclusively
for MassMutual's flexible premium variable whole life insurance policy
with tables of selected face amounts, known as Strategic Variable Life.
On July 24, 1995, MassMutual established a fourth segment ("Variable Life
Select Segment") within Separate Account I to be used exclusively for
MassMutual's flexible premium variable whole life insurance policy, known
as Variable Life Select.
The Separate Account I operates as a registered unit investment trust
pursuant to the Investment Company Act of 1940 and the rules promulgated
thereunder. MassMutual paid $40,000 to the Large Case Variable Life Plus
Segment on March 30, 1990 to provide initial capital: 12,146 shares were
purchased in the four series of shares of the management investment
company described in Note 2 supporting the divisions of the Large Case
Variable Life Plus Segment. On January 3, 1994, MassMutual removed $15,000
of the initial capital from three of the four series of shares of the
management investment company supporting the divisions of the Large Case
Variable Life Plus Segment. On January 3, 1994, MassMutual paid $15,000 to
provide the initial capital for the Large Case Variable Life Plus
Segment's three new divisions: 918 shares were purchased in the management
investment company described in Note 2 supporting the three new divisions
of the Large Case Variable Life Plus Segment. On August 1, 1996,
MassMutual paid $5,000 to provide initial capital for the Large Case
Variable Life Plus Segment's new Dreyfus Index Division.
2. INVESTMENT OF THE LARGE CASE VARIABLE LIFE PLUS
SEGMENT'S ASSETS
The Large Case Variable Life Plus Segment maintains eight divisions. The
MML Equity Division invests in shares of MML Equity Fund, the MML Money
Market Division invests in shares of MML Money Market Fund, the MML
Managed Bond Division invests in shares of MML Managed Bond Fund and the
MML Blend Division invests in shares of MML Blend Fund. The Oppenheimer
High Income Division invests in shares of Oppenheimer High Income Fund,
the Oppenheimer Capital Appreciation Division invests in shares of
Oppenheimer Capital Appreciation Fund, and the Oppenheimer Global
Securities Division invests in shares of Oppenheimer Global Securities
Fund. The Dreyfus Index Division invests in shares of Dreyfus Stock Index
Fund.
MML Equity Fund, MML Money Market Fund, MML Managed Bond Fund and MML
Blend Fund are the four series of MML Series Investment Fund (the "MML
Trust"). The MML Trust is a no-load, registered, open-end, diversified
management investment company for which MassMutual acts as investment
manager. Concert Capital Management, Inc. ("Concert") served as the
investment sub-adviser to MML Equity Fund and the Equity Sector of the MML
Blend Fund from 1993-1996. Concert merged with and into David L. Babson &
Company, Inc. ("Babson") effective December 31, 1996. Both Concert and
Babson are wholly-owned subsidiaries of Babson Acquisition Corporation,
which is a controlled subsidiary of MassMutual. Thus, effective January 1,
1997, Babson serves as the investment sub-adviser to MML Equity Fund and
the Equity Sector of the MML Blend Fund. MassMutual paid Concert a
quarterly fee equal to an annual rate of .13% of the average daily net
asset value of MML Equity Fund and the Equity Sector of MML Blend Fund.
7
<PAGE>
Notes To Financial Statements (Continued)
Oppenheimer High Income Fund, Oppenheimer Capital Appreciation Fund and
Oppenheimer Global Securities Fund (the "Oppenheimer Funds") are part of
the Oppenheimer Variable Account Funds (the "Oppenheimer Trust"). The
Oppenheimer Trust is a registered, open-end, diversified management
investment company, which is available to act as the investment vehicle
for separate accounts for variable insurance policies. OppenheimerFunds,
Inc. ("OFI"), a controlled subsidiary of MassMutual, serves as investment
adviser to the Oppenheimer Trust, (prior to January 5, 1996, OFI was known
as Oppenheimer Management Corporation).
The Dreyfus Stock Index Fund, an open-end, non-diversified management
investment company is managed by the Dreyfus Corporation. Mellon Equity
Associates serves as the sub-adviser to the Dreyfus Stock Index Fund.
In addition to the eight divisions of the Large Case Variable Life Plus
Segment, a policyowner may also allocate funds to the Guaranteed Principal
Account, which is part of MassMutual's general account. Because of
exemptive and exclusionary provisions, interests in the Guaranteed
Principal Account, which is part of MassMutual's general account, are not
registered under the Securities Act of 1933 and the general account is not
registered as an investment company under the Investment Company Act of
1940.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
consistently by the Large Case Variable Life Plus Segment in the
preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation
The investments in MML Trust, the Oppenheimer Trust and the Dreyfus Stock
Index Fund are each stated at market value which is the net asset value of
each of the respective underlying funds.
B. Accounting For Investments
Investment transactions are accounted for on trade date and identified
cost is the basis followed in determining the cost of investments sold for
financial statement purposes. Dividend income is recorded on the
ex-dividend date.
C. Federal Income Taxes
MassMutual is taxed under federal law as a life insurance company under
the provisions of the 1986 Internal Revenue Code, as amended. The Large
Case Variable Life Plus Segment is part of MassMutual's total operation
and is not taxed separately. The Large Case Variable Life Plus Segment
will not be taxed as a "regulated investment company" under Subchapter M
of the Internal Revenue Code. Under existing federal law, no taxes are
payable on investment income and realized capital gains of the Large Case
Variable Life Plus Segment credited to the policies. Accordingly,
MassMutual does not intend to make any charge to the Large Case Variable
Life Plus Segment's divisions to provide for company income taxes.
MassMutual may, however, make such a charge in the future if an
unanticipated change of current law results in a company tax liability
attributable to the Large Case Variable Life Plus Segment.
D. Policy Loan
When a policy loan is made, the Large Case Variable Life Plus Segment
transfers the amount of the loan to MassMutual, thereby decreasing both
the assets and the reserves of the Large Case Variable Life Plus Segment
by an equal amount. The interest rate charged on any loan is 6% per year,
or where permitted, the policyowner may select an adjustable loan rate, in
all jurisdictions except Arkansas, at the time of application. Loan
repayments result in the transfer of values equal to the repayment from
the loaned portion of the Guaranteed Principal Account to the non-loaned
portion of the Guaranteed Principal Account and the divisions of the Large
Case Variable Life Plus Segment.
The policyowner earns interest at a rate which is the greater of 4% or the
policy loan rate less a MassMutual declared charge (maximum .75%) for
expenses and taxes.
E. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
8
<PAGE>
Notes To Financial Statements (Continued)
4. CHARGES
MassMutual charges the Large Case Variable Life Plus Segment's divisions
for the mortality and expense risks it assumes. The charge is made daily
at an effective annual rate of 0.40% of the value of each division's net
assets.
MassMutual makes certain deductions from the annual premium before amounts
are allocated to the Large Case Variable Life Plus Segment and the
Guaranteed Principal Account. The deductions are for sales charges and
state premium taxes. No additional deductions are taken when money is
transferred from the Guaranteed Principal Account to the Large Case
Variable Life Plus Segment. MassMutual also makes certain charges for the
cost of insurance and administrative costs.
5. SALES AGREEMENTS
Effective May 1, 1996, MML Distributors, LLC ("MML Distributors"), a
wholly-owned subsidiary of MassMutual, serves as principal underwriter of
the policies pursuant to an underwriting and servicing agreement among MML
Distributors, MassMutual and Separate Account I. MML Distributors is
registered with the Securities and Exchange Commission (the "SEC") as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. (the "NASD"). MML
Distributors may enter into selling agreements with other broker-dealers
who are registered with the SEC and are members of the NASD in order to
sell the policies.
Prior to May 1, 1996, MML Investors Services, Inc. ("MMLISI") a
wholly-owned subsidiary of MassMutual, served as principal underwriter of
the policies. Effective May 1, 1996, MMLISI serves as co-underwriter of
the policies pursuant to underwriting and servicing agreements among
MMLISI, MassMutual and Separate Account I, MMLISI is registered with the
SEC as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the NASD. Registered representatives of MMLISI sell the policies
as authorized variable life insurance agents under applicable state
insurance laws.
Pursuant to the underwriting and servicing agreements, commissions or
other fees due to registered representatives for selling and servicing the
policies are paid by MassMutual on behalf of MML Distributors or MMLISI.
MML Distributors and MMLISI also receive compensation for their activities
as underwriters of the policies.
6. PURCHASES AND SALES OF INVESTMENTS
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer
MML Money Managed MML High Capital
For The Year Ended Equity Market Bond Blend Income Appreciation
December 31, 1996 Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cost of purchases.................... $11,735,768 $6,405,539 $9,905,418 $1,076,226 $1,620,003 $5,955,523
Proceeds from sales.................. 18,295,194 7,372,770 127,969 390,624 1,818,505 8,288,189
Average monthly value of securities.. $15,491,204 $1,938,642 $5,487,881 $2,670,281 $1,204,539 $5,795,296
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer
Global Dreyfus
For The Year Ended Securities Index
December 31, 1996 Division Division
----------------- -------- --------
<S> <C> <C>
Cost of purchases.................... $1,042,567 $19,120,348
Proceeds from sales.................. 9,847,313 86,896
Average monthly value of securities.. $6,844,065 $19,730,374
</TABLE>
7. NET INVESTMENT RETURN
The following table shows the net investment return for each division in
the Large Case Variable Life Plus Segment:
<TABLE>
<CAPTION>
MML MML *Oppenheimer *Oppenheimer
MML Money Managed MML High Capital
Equity Market Bond Blend Income Appreciation
Division Division Division Division Division Division
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1996 and
**For the Period August 1, 1996
(Date of Commencement of Operations)
Through December 31, 1996................ 15.48% 5.34% 8.52% 12.77% 14.61% 8.77%
For the Year Ended December 31, 1995...... 26.63% 5.81% 16.87% 21.35% 19.26% 34.64%
For the Year Ended December 31, 1994 and
*For the Period January 3, 1994
(Date of Commencement of Operations)
Through December 31, 1994................ 4.58% 3.33% (1.23)% 2.14% *(2.72)% *0.81%
For the Year Ended December 31, 1993...... 8.28% 2.33% 4.07% 8.54% -- --
For the Year Ended December 31, 1992...... 9.74% 2.72% 6.76% 8.73% -- --
</TABLE>
<TABLE>
<CAPTION>
*Oppenheimer
Global **Dreyfus
Securities Index
Division Division
-------- --------
<S> <C> <C>
For the Year Ended December 31, 1996 and
**For the Period August 1, 1996
(Date of Commencement of Operations)
Through December 31, 1996.................. 10.49% **11.27%
For the Year Ended December 31, 1995........ 4.69% --
For the Year Ended December 31, 1994 and
*For the Period January 3, 1994
(Date of Commencement of Operations)
Through December 31, 1994.................. *(6.17)% --
For the Year Ended December 31, 1993........ -- --
For the Year Ended December 31, 1992........ -- --
</TABLE>
The net investment return for each division of the Large Case Variable Life
Plus Segment is computed using the net increase in net assets resulting
from operations as compared to the average monthly net assets. The net
investment return figures shown above do not reflect expenses related to
insurance products. Inclusion of such expenses would reduce the net
investment return figures for all periods shown.
9
<PAGE>
Notes To Financial Statements (Continued)
8. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996 MML MML Oppenheimer Oppenheimer
and *For the Period August 1, 1996 MML Money Managed MML High Capital
(Date of Commencement of Operations) Equity Market Bond Blend Income Appreciation
Through December 31, 1996 Division Division Division Division Division Division
------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Units purchased......................... 1,176,765 3,121,090 1,731,646 352,844 159,639 880,690
Units withdrawn and transferred to
Guaranteed Principal Account........... (370,589) (1,459,166) (127,766) (178,125) (41,196) (215,745)
Units transferred between divisions..... (3,973,031) (2,454,243) 4,095,080 106,794 (406,523) (3,045,604)
----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease)................. (3,166,855) (792,319) 5,698,960 281,513 (288,080) (2,380,659)
Units, at beginning of the period/year.. 7,713,348 1,534,471 752,384 1,146,979 1,644,136 4,921,149
----------- ----------- ----------- ---------- ---------- -----------
Units, at end of the year............... 4,546,493 742,152 6,451,344 1,428,492 1,356,056 2,540,490
=========== =========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996 Oppenheimer
and *For the Period August 1, 1996 Global *Dreyfus
(Date of Commencement of Operations) Securities Index
Through December 31, 1996 Division Division
------------------------- -------- --------
<S> <C> <C>
Units purchased......................... 840,126 39,735
Units withdrawn and transferred to
Guaranteed Principal Account........... (203,232) (47,429)
Units transferred between divisions..... (9,493,490) 18,419,266
----------- -----------
Net increase (decrease)................. (8,856,596) 18,411,572
Units, at beginning of the period/year.. 10,896,434 --
----------- -----------
Units, at end of the year............... 2,039,838 18,411,572
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
MML MML Oppenheimer Oppenheimer Oppenheimer
MML Money Managed MML High Capital Global
For The Year Ended Equity Market Bond Blend Income Appreciation Securities
December 31, 1995 Division Division Division Division Division Division Division
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Units purchased..................... 1,539,221 17,138,525 476,211 214,619 607,924 738,795 1,771,180
Units withdrawn and transferred to
Guaranteed Principal Account....... (287,636) (3,767,540) (116,379) (154,072) (71,573) (167,596) (178,395)
Units transferred between divisions. 4,220,389 (14,183,662) (416,191) (591,133) 560,099 3,721,390 7,568,397
--------- ---------- --------- --------- --------- --------- ---------
Net increase (decrease)............. 5,471,974 (812,677) (56,359) (530,586) 1,096,450 4,292,589 9,161,182
Units, at beginning of the year..... 2,241,374 2,347,148 808,743 1,677,565 547,686 628,560 1,735,252
--------- ---------- --------- --------- --------- --------- ---------
Units, at end of the year........... 7,713,348 1,534,471 752,384 1,146,979 1,644,136 4,921,149 10,896,434
========= ========== ========= ========= ========= ========= ==========
</TABLE>
10
<PAGE>
Notes To Financial Statements (Continued)
9. CONSOLIDATED MASSACHUSETTS MUTUAL VARIABLE LIFE SEPARATE ACCOUNT I
As discussed in Note 1, the financial statements only represent activity
of MassMutual's Large Case Variable Life Plus Segment. The combined net
assets as of December 31, 1996 for Separate Account I, which includes the
Variable Life Plus, Large Case Variable Life Plus, Strategic Variable Life
and Variable Life Select Segments, are as follows:
<TABLE>
<CAPTION>
MML MML Oppenheimer
MML Money Managed MML Oppenheimer High Oppenheimer
Equity Market Bond Blend Money Income Bond
Division Division Division Division Division Division Division
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................. $30,116,869 $1,981,154 $12,312,246 $ 8,919,296 $ 5,380 $ 3,064,566 $ 5,520
Total liabilities............ 132 1,346 234 15,515 4 29 --
----------- ---------- ----------- ----------- ---------- ----------- ----------
Net assets................... $30,116,737 $1,979,808 $12,312,012 $ 8,903,781 $ 5,376 $ 3,064,537 $ 5,520
=========== ========== =========== =========== ========== =========== ==========
Net assets:
For variable life insurance
policies.................... $30,035,948 $1,930,850 $12,256,804 $ 8,833,433 $ -- $ 3,051,700 $ --
Retained in Variable Life
Separate Account I by
Massachusetts Mutual Life
Insurance Company............ 80,789 48,958 55,208 70,348 5,376 12,837 5,520
----------- ---------- ----------- ----------- ---------- ----------- ----------
Net assets.................... $30,116,737 $1,979,808 $12,312,012 $ 8,903,781 $ 5,376 $ 3,064,537 $ 5,520
=========== ========== =========== =========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer Oppenheimer Oppenheimer
Capital Oppenheimer Multiple Global Strategic Oppenheimer Dreyfus
Appreciation Growth Strategies Securities Bond Growth & Income Index
Division Division Division Division Division Division Division
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets.................. $ 5,385,758 $1,082,755 $ 6,139 $ 2,886,458 $ 151,526 $ 8,264 $21,104,051
Total liabilities............. 5,714 2,351 -- 2,403 -- -- 232
----------- ---------- ----------- ----------- ---------- ---------- -----------
Net assets.................... $ 5,380,044 $1,080,404 $ 6,139 $ 2,884,055 $ 151,526 $ 8,264 $21,103,819
=========== ========== =========== =========== =========== ========== ===========
Net assets:
For variable life insurance
policies..................... $ 5,358,777 $1,066,459 $ -- $ 2,866,928 $ 139,640 $ -- $21,098,092
Retained in Variable Life
Separate Account 1 by
Massachusetts Mutual Life
Insurance Company............ 21,267 13,945 6,139 17,127 11,886 8,264 5,727
----------- ---------- ----------- ----------- ---------- ---------- -----------
Net assets.................... $ 5,380,044 $1,080,404 $ 6,139 $ 2,884,055 $ 151,526 $ 8,264 $21,103,819
=========== ========== =========== =========== =========== ========== ===========
</TABLE>
11
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Policyowners of
Massachusetts Mutual Life Insurance Company
We have audited the statements of assets and liabilities of the MML Equity
Division, MML Money Market Division, MML Managed Bond Division, MML Blend
Division, Oppenheimer High Income Division, Oppenheimer Capital Appreciation
Division, Oppenheimer Global Securities Division, and Dreyfus Index Division of
the Large Case Variable Life Plus Segment of Massachusetts Mutual Variable Life
Separate Account I as of December 31, 1996, and the related statements of
operations for the year then ended, and the statements of changes in net assets
for the periods indicated thereon. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements 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 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
verification of investments owned as of December 31, 1996, by examination of the
records of MML Series Investment Fund and by confirmation with Oppenheimer
Variable Account Funds and Dreyfus Stock Index Fund. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the MML Equity Division, MML
Money Market Division, MML Managed Bond Division, MML Blend Division,
Oppenheimer High Income Division, Oppenheimer Capital Appreciation Division,
Oppenheimer Global Securities Division, and Dreyfus Index Division of the Large
Case Variable Life Plus Segment of Massachusetts Mutual Variable Life Separate
Account I as of December 31, 1996, the results of their operations for the year
then ended, and the changes in net assets for the periods indicated thereon, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 4, 1997
12
<PAGE>
MML Series Investment Fund
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
To Our Shareholders..................................................... 2-6
Statement of Assets and Liabilities as of December 31, 1996............. 7
MML Equity Fund
MML Money Market Fund
MML Managed Bond Fund
MML Blend Fund
Statement of Operations For the Year of December 31, 1996............... 8
MML Equity Fund
MML Money Market Fund
MML Managed Bond Fund
MML Blend Fund
Statement of Changes in Net Assets For the Year Ended
December 31, 1996 and 1995............................................ 9
MML Equity Fund
MML Money Market Fund
MML Managed Bond Fund
MML Blend Fund
Financial Highlights
MML Equity Fund................................................. 10
MML Money Market Fund........................................... 10
MML Managed Bond Fund........................................... 11
MML Blend Fund.................................................. 12
Schedule of Investments as of December 31, 1996
MML Equity Fund................................................. 13-14
MML Money Market Fund........................................... 15
MML Managed Bond Fund........................................... 16-18
MML Blend Fund.................................................. 19-24
Notes to Financial Statements........................................... 25-27
Report of Independent Accountants....................................... 28
</TABLE>
1
<PAGE>
MML Series Investment Fund
To Our Shareholders
Another Year of Solid Economic Growth with Low Inflation
Though figures released throughout the year were often contradictory, 1996
closed as the sixth consecutive year of the current U.S. economic expansion.
Growth during the year was driven by consumption and household sales, and by
capital investment by businesses; it was slowed only by relatively weak foreign
trade.
Even with continued growth, however, inflation has remained subdued. In
addition, because prices were stronger during 1996 than they had been in 1995,
the Federal Reserve stopped lowering interest rates after January. The
achievement of an "orchestrated economy" - growth without inflationary pressures
- - meant the Federal Reserve did not have to intervene again during the year. As
a consequence, interest rates rose only slightly.
A Banner Year for Stocks
More efficient and competitive every year, corporate America enjoyed another
period of profitability. The stock market, reflecting this plus the favorable
economic environment and tremendous demand for stocks from investors, climbed to
new record highs throughout the year. While larger stocks gained most over the
course of the year, nearly all sectors of the market outperformed their long-
term averages.
Underlying the market's tremendous positives, it is important to recognize that
an ongoing trend toward more selective markets continued over the year. So,
while market sectors were generally up, there was often disparity between how
well the best and weakest stocks within an industry performed, and expert stock
picking was the identifying trademark of the year's real winners.
Volatility Limits the Bond Market
The bond market, on the other hand, had a difficult year. In contrast to 1995,
when declining interest rates spurred a broad bond rally, 1996's increase in
rates hurt bond prices. Especially in Treasuries, which tend to be most
sensitive to changes in rates, price performance eroded returns. After its
strong run in 1995, the bond market was also subject to changing investor
emotions throughout the past year.
Volatility was the rule in the market during 1996, with the release of changing
economic data alternately sending investors chasing and then running from the
market. In this climate, the best performers were shorter-term securities,
which generally have less price sensitivity than their longer counterparts.
Value Investing in Selective Markets
The stock and bond markets required selectivity during 1996. In selective
markets, value investors like us benefit from the extensive research that is an
inherent part of our strategy. We view temporary price fluctuations as a chance
to buy the stocks and bonds we feel represent strong opportunities over time.
And by the same token, our value requirements mean that we tend not to buy into
or hold stocks and bonds that have already appreciated significantly during a
given cycle. This helps keep us from paying too much for a security, or holding
it too long.
Throughout 1996, our value approach was a benefit. While more growth-oriented
stock strategies often outperform during strong bull markets, at the market's
current price levels, we feel a more conservative approach is appropriate. In
bonds our careful strategies helped us successfully navigate the changing
markets and avoid their pitfalls.
We Enter 1997 Cautiously Optimistic
As we head into 1997, we are entering the seventh year of economic expansion in
the U.S. While such a prolonged cycle is unusual, and the likelihood exists
that growth in the coming year may be slower than what we experienced in 1996,
there are still very few reasons to expect we are moving toward a recession.
Not all data has been finalized at this point, but it appears that the Christmas
season at the end of 1996, though a week shorter than usual, was fair. And
while announcements of layoffs repeatedly made news over the year, there is very
little net change in employment. While consumer debt has risen, consumer
confidence remains quite high. And finally, wages and prices are fairly stable,
with core inflation estimated to be a low three percent.
2
<PAGE>
We believe these factors support cautious optimism for the financial markets in
1997. Until the scenario detailed above changes significantly, the Federal
Reserve should not feel pressure to change monetary policy dramatically.
Without more interest rate increases, the bond market should stabilize, so that
income can dictate returns without a drag from price performance. If rates are
less volatile, then stocks have a better chance of continued positive results.
We will continue to do as we always do . . . look for value in whatever markets
prevail.
/s/ Stuart H. Reese
Stuart H. Reese
President
MML Series Investment Fund
January 31, 1997
3
<PAGE>
MML EQUITY FUND
How has the Fund performed over the past year?
The Fund performed well in 1996. The one year total return was 20.25% as
compared to the S & P 500 Index which was up 22.96%. The Fund's conservative
construction caused it to lag behind the market somewhat for the full year, but
its pattern of performance was consistent with its low risk strategy. The Fund
participated in the continuing advance of stock prices, and in those few months
when the market paused, the Fund retained its value better than the stock market
overall. With the market now entering the seventh year since the most recent
bull market began, we believe that this strategy of maintaining relatively low
portfolio risk will be beneficial to the Fund in future periods.
What was your strategy over the past year's strong, but volatile market?
Our strategy remained consistent over the past year. We maintained a well-
diversified portfolio by following our investment decision process of stock
selection one-by-one. We find stocks through fundamental analysis, a `bottom up
approach' to researching a company. We believe this approach is less risky and
wiser than making investments based on less reliable economic forecasts.
What types of stocks performed best for you over the year?
The Fund's results benefited from strong performance by several of the largest
holdings, such as Bristol Myers, General Electric, and Pfizer. The financial
holdings were outstanding performers, particularly the banks. Contributing to
bank stock gains were an accommodative Fed policy, continued good loan loss
experience, and the relentless trend toward industry consolidation.
Were there any investments that didn't perform as you'd expected?
The telephone industry was a disappointment last year. The major factor here
was the telecommunications deregulation bill which was signed into law in the
spring of 1996. This provides for the eventual opening up of the industry to
competition, and as companies prepare for this, increased marketing spending
will restrain earnings growth. Early in 1996, the Fund had a relatively small
commitment to this industry, but we steadily increased its weighting during the
year as we found companies with competitive advantages which were undervalued
relative to the market. In the long run, the surviving companies will prosper
due to strong growth of telecommunications traffic.
What changes, if any, are you currently making to the portfolio?
As the economic expansion is aging, and valuations are clearly on the high side,
we are trying to minimize risk in the portfolio. We are reducing holdings whose
prices are full, and adding to stocks that we feel are currently underpriced and
can offer good long-term return through a combination of capital appreciation
and current income. In fact, well positioned electric utilities appear
attractive for the first time in a considerable period, and we are modestly
increasing our commitment there.
What is your outlook for the Fund?
We are optimistic about the long term outlook for stocks in general and the Fund
in particular. After a long period of exceptional stock market returns such as
we have seen, a pause in the market's up trend would not be a surprise.
However, the Fund is structured recognizing that there are risks in equity
investing as well as returns, and the conservative nature of the Fund is
intended to help the Fund hold up well in any weakness which might take place.
We believe that by participating in the gains of a rising market and conserving
asset value in a less positive environment, the Fund should show superior
returns over the long term.
MML MONEY MARKET FUND
How has the Fund performed over the past year?
The Fund performed well. This has been another period of consistently good
performance both on an absolute basis and versus other money market type
investments. The yields from the very short maturity fixed income securities we
invest in remained competitive over the year, and that has helped us. For the
purpose of comparison, 91-day Treasuries returned 5.03% for the year while the
Fund was up 5.01%. In all, during a year in which conflicting economic
statistics caused volatility in the longer end of the bond market, "cash"
investments like this one have been a good place for investors.
How are you currently positioning the portfolio?
As a money market fund, we own securities with a relatively short maturity. If
rates were to increase, owning securities that mature quickly would enable us to
replace them with newer, higher-yielding issues more rapidly. That in turn
would boost the portfolio's yield. Beyond maturity considerations, as we always
have, we continue to conduct extensive research into both issuers and specific
issues in an effort to provide stability and competitive income in a highly
liquid investment portfolio.
4
<PAGE>
What is your outlook for the Fund?
Our outlook continues to be positive both for the economy and for the Fund. We
believe the U.S. economy is still strong and growing but at a sustainable,
orchestrated rate with little evidence of inflation. If signs of inflation
should arise - and so far they haven't, even six years into the current growth
phase - we'd expect the Federal Reserve might raise rates slightly in reaction.
If interest rates were increased, it could potentially hurt stocks and the long
bond market. Funds like this one, however, would benefit from higher current
yields. Having said that, economic results for the fourth quarter of 1996 will
not be confirmed before February 1997. We believe the Federal Reserve is
unlikely to make any changes to rates until the statistical data to back such
decisions is available.
MML Managed Bond
How did the Fund perform over the past year?
1996 was a trying year for the bond market, in part because interest rates rose
somewhat over the course of the year, and also because releases of conflicting
economic data filled the market with a high degree of volatility. Even so, the
Fund's performance was positive with a one year total return of 3.25% compared
to the Lehman Brothers Government/Corporate Bond Index which was up 2.90%.
How did the bond market change over the past year?
Although there was a good degree of volatility throughout the year, conditions
changed most during the first half of 1996. During 1995, interest rates fell,
leading to excellent performance. In contrast, as rates increased over the past
year, prices, especially in longer bonds and Treasuries, were damaged. So even
though we were fully diversified across bond market sectors and maturities, this
downturn had a temporary dampening effect on our portfolio's performance.
What investments worked best under these conditions?
Though the impact of the rate increase was felt immediately, the resulting
steepening of the yield curve created value in the market over the longer term.
But not all areas of the market suffered during the year. Non-investment grade
bonds performed particularly well. While we avoid this sector of the market
because of the relative risks associated with it, we were pleased with our
holdings of investment grade corporate bonds and mortgage-backed securities.
Investment grade corporate bonds, which made up 54.8 percent of the portfolio as
of December 31, 1996, remained strong regardless of the broader market's
difficulties. Corporate profits held steady, and as a result, demand in the
bond market supported prices.
In addition to our successes with corporate bonds, mortgage-backed securities
performed well. We tend to buy well-structured, seasoned issues, and, as their
behavior tends to mimic corporate bonds, they worked well for us again this
year. Since concerns about the prepayment of all types of mortgages are
greatest when rates are falling, these securities paid competitive income and
avoided significant price declines during the past year. Mortgage-backed
securities were 21.4 percent of the Fund's portfolio at year end.
What changes, if any, are you currently making within the portfolio?
Because of their strong performance, we would have liked to have owned more
mortgage-backed securities and corporate bonds than we did over the year. After
their dramatic 1996 movements, however, they are currently less compelling as
value investments. So, at this time, we're not really making any major changes
to our sector holdings.
Looking for value is an inherent part of our strategy, and we've continued to do
that. With an impressive growth in assets under management this year, we are
generally sticking with our bottom-up investment approach. We're keeping our
duration neutral relative to our benchmark and constantly performing extensive
credit analyses across the investment grade bond market. We work to add value
for investors by looking at individual issues from a critical risk/reward
perspective, hoping to discover outstanding opportunities for both income and
appreciation.
What is your outlook for the Fund?
Our outlook for both the Fund and the bond market is positive. The economy,
even in the sixth year of an expansion, appears steady, and shows little in the
way of inflation. With that as a background, we expect the coming year to be a
good one. Without threats of inflation, it is unlikely that the Federal Reserve
will move aggressively, so while we may see minor volatility in the market, we'd
expect improvements going forward and a market whose performance is primarily a
product of coupon income.
MML Blend Fund
How did the Fund perform over the past year?
We're very pleased with the Fund's performance. Our one year total return was
13.95% as compared to the Lipper Balanced Index which was up 13.01%. With 58% of
the portfolio invested in stocks, we participated in the strong performance of
the
5
<PAGE>
equity market over the period. But with 19% of the portfolio in bonds and the
remaining 23% in cash and short-term fixed income investments, we were able to
do so with far less risk than pure stock investments.
What types of stocks worked best over the period?
The stocks of the large, well-established companies we tend to own performed
best over the year, and that was a benefit. Within the portfolio, some of our
top performers were financial services, capital spending and technology stocks.
Many of our bank stocks did well due to strong profits and ongoing
consolidations. Capital spending stocks were also strong. We owned a full
position in GE, which was one of our best performers, up approximately 40
percent for the year. And though we tend to be underweighted in technology
stocks since few have the reasonable valuations and dividend records we require,
we added to our position in IBM over the course of the year, and that benefited
us.
On the whole, our stock strategy remained consistent over the past year. We
maintained a well-diversified portfolio of what we considered the best stocks
across numerous industries rather than making investments based on current
economic forecasts. We worked to buy good value wherever we found it in the
market, and we sold stocks that we felt had become risky, reaching what we'd
targeted as peaks for their performance cycles.
What was your bond strategy during the year?
The bond portfolio turned in positive performance for the year, but it fell far
short of the returns generated by stocks. The investment grade fixed income
market had a somewhat difficult year due primarily to two factors. First,
interest rates rose slightly, and that negatively impacted price performance.
Second, a high level of volatility resulting from continuously changing economic
expectations colored the market and investor emotion throughout the year. Our
strategy inside this uneasy environment was to remain diversified between
Treasuries, mortgage-backed securities, asset-backed securities, and corporate
bonds, searching for opportunities to add value over time. This, plus
maintaining a duration of approximately five years, kept our performance closely
in line with our benchmark, the Lehman Brothers Government/Corporate Bond Index.
What is your outlook for the Fund?
We continue to expect that the coming year will be more typical than 1996 or
1995 was for both markets. The economy remains healthy, corporate America is
efficient and competitive, and even after the sixth year of economic expansion,
there are very few signs suggesting inflation is on the rise. As a result, we
believe stocks will have another positive year, but after an impressive two-year
run, one that is more in line with the market's long-term history. In the bond
market, without seeing a need for the Federal Reserve to aggressively tighten
money supply, we expect a better year than last, with income the major component
driving returns. Since it is under historically "normal" conditions like these
that this portfolio typically performs best, our outlook is quite favorable.
6
<PAGE>
MML Series Investment Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Fund Fund Fund Fund
------ ------ ------ ------
<S> <C> <C> <C> <C>
ASSETS
Investments at value (See Schedule of Investments)
(Notes 2A, 2B and 5)
Equities (Identified cost: $1,065,014,489;
$729,315,396 respectively) .................................... $1,639,975,490 $ -- $ -- $1,255,371,097
Bonds and notes (Identified cost: $179,247,302;
$405,340,706 respectively) .................................... -- -- 181,012,920 410,946,072
Short-term investments (Identified cost: $137,806,906;
$145,993,740; $1,379,722; $492,181,705 respectively) .......... 137,753,233 145,993,740 1,379,722 492,100,212
-------------- -------------- -------------- --------------
Total investments ............................................. 1,777,728,723 145,993,740 182,392,642 2,158,417,381
Cash ............................................................ -- 4,354 1,389 --
Interest and dividends receivable ............................... 3,878,415 -- 2,287,822 8,303,276
Receivable for investments sold ................................. 1,700,089 -- -- 1,091,101
Prepaid trustees' fees .......................................... 1,849 1,177 1,177 1,177
-------------- -------------- -------------- --------------
Total assets .................................................. 1,783,309,076 145,999,271 184,683,030 2,167,812,935
-------------- -------------- -------------- --------------
LIABILITIES
Payable for investments purchased ............................... 356,569 -- 1,400 255,381
Payable for settlement of investments
purchased on a forward commitment basis (Note 2D) .............. -- -- -- 6,345
Dividends payable (Note 2C) ..................................... 79,270,107 595,036 2,885,188 71,526,248
Investment management fee payable (Note 4) ...................... 1,628,095 170,636 221,600 2,005,626
Accrued liabilities ............................................. 55,936 2,557 2,557 29,095
-------------- -------------- -------------- --------------
Total liabilities ............................................. 81,310,707 768,229 3,110,745 73,822,695
-------------- -------------- -------------- --------------
NET ASSETS ...................................................... $1,701,998,369 $ 145,231,042 $ 181,572,285 $2,093,990,240
============== ============== ============== ==============
Net assets consist of:
Series shares (par value $.01 per share; an unlimited number
authorized) (Note 6) ........................................... $ 571,402 $ 1,452,311 $ 150,703 $ 952,969
Additional paid-in capital ...................................... 1,126,515,524 143,778,731 180,809,583 1,561,810,884
Undistributed net investment income (Note 2C) ................... 15,927 9,702 (64,100) (870)
Undistributed net realized loss on investments and
forward commitments (Notes 2D and 3) ........................... (11,812) (9,702) (1,089,519) (345,972)
Net unrealized appreciation (depreciation) on:
Investments (Note 2A) .......................................... 574,907,328 -- 1,765,618 531,579,574
Forward commitments (Note 2D) .................................. -- -- -- (6,345)
-------------- -------------- -------------- --------------
NET ASSETS ...................................................... $1,701,998,369 $ 145,231,042 $ 181,572,285 $2,093,990,240
============== ============== ============== ==============
Outstanding series shares ....................................... 57,140,244 145,231,042 15,070,294 95,296,912
============== ============== ============== ==============
Net asset value per share ....................................... $ 29.79 $ 1.00 $ 12.05 $ 21.97
============== ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
MML Series Investment Fund
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
Equity Market Bond Blend
Fund Fund Fund Fund
------ ------ ------- -------
<S> <C> <C> <C> <C>
Investment income (Note 2B)
Dividends ........................................................ $ 37,210,441 $ -- $ -- $ 30,120,486
Interest ........................................................ 8,806,524 6,814,072 12,067,185 55,389,729
-------------- -------------- -------------- --------------
Total income ................................................... 46,016,965 6,814,072 12,067,185 85,510,215
-------------- -------------- -------------- --------------
Expenses
Investment management fee (Note 4) ............................... 5,787,673 612,946 820,434 7,525,674
Trustees' fees ................................................... 25,833 21,042 21,042 20,758
Audit fees ....................................................... 28,450 19,700 25,200 30,950
Other ............................................................ 1,043 776 651 663
-------------- -------------- -------------- --------------
Total expenses ................................................. 5,842,999 654,464 867,327 7,578,045
-------------- -------------- -------------- --------------
Net investment income (Note 2C) .................................. 40,173,966 6,159,608 11,199,858 77,932,170
-------------- -------------- -------------- --------------
Net realized and unrealized gain (loss) on investments
and forward commitments (Notes 2A, 2B and 2D)
Net realized gain (loss) on:
Investments (Notes 2B and 2C) ................................... 39,133,328 32 (404,955) 52,920,562
Forward commitments (Note 2D) ................................... -- -- -- (1,636,934)
-------------- -------------- -------------- --------------
Net realized gain (loss) ....................................... 39,133,328 32 (404,955) 51,283,628
-------------- -------------- -------------- --------------
Change in net unrealized appreciation/depreciation on:
Investments (Note 2A) ........................................... 204,554,604 -- (4,664,274) 138,844,519
Forward commitments (Note 2D) ................................... -- -- -- (1,394,717)
-------------- -------------- -------------- --------------
Total change in net unrealized appreciation/depreciation ....... 204,554,604 -- (4,664,274) 137,449,802
-------------- -------------- -------------- --------------
Net gain (loss) .................................................. 243,687,932 32 (5,069,229) 188,733,430
-------------- -------------- -------------- --------------
Net increase in net assets resulting from operations ............. $ 283,861,898 $ 6,159,640 $ 6,130,629 $ 266,665,600
============== ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
MML Series Investment Fund
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
MML MML
MML Money Managed MML
Equity Market Bond Blend
Fund Fund Fund Fund
------ ------ ------ ------
<S> <C> <C> <C> <C>
Increase (decrease)
in net assets
Operations:
Net investment income $ 40,173,966 $ 6,159,608 $ 11,199,858 $ 77,932,170
Net realized gain (loss)
on investments and
forward commitments 39,133,328 32 (404,955) 51,283,628
Change in net unrealized
appreciation/depreciation on
investments and forward
commitments 204,554,604 -- (4,664,274) 137,449,802
------------- ----------- ------------ -------------
Net increase in net assets
resulting from operations 283,861,898 6,159,640 6,130,629 266,665,600
Dividends to shareholders
from: (Note 2C)
Distribution of net investment
income (40,161,778) (6,159,640) (11,099,070) (77,800,925)
Distribution of net realized gains (39,133,328) -- -- (51,065,539)
Net increase in capital share
transactions (Note 6) 248,532,571 36,310,841 27,842,588 133,050,174
------------ ----------- ------------ --------------
Total increase 453,099,363 36,310,841 22,874,147 270,849,310
NET ASSETS, at beginning
of the year 1,248,899,006 108,920,201 158,698,138 1,823,140,930
------------- ----------- ------------ --------------
NET ASSETS, at end
of the year $1,701,998,369 $145,231,042 $181,572,285 $2,093,990,240
============= =========== ============ ==============
Undistributed net investment
income (loss) included in net
assets at end of the year $ 15,927 $ 9,702 $ (64,100) $ (870)
============= =========== ============ ==============
<CAPTION>
1995
----------------------------------------------------------
MML MML
MML Money Managed MML
Equity Market Bond Blend
Fund Fund Fund Fund
------ ------ ------ -----
<C> <C> <C> <C>
Increase (decrease)
in net assets
Operations:
Net investment income $ 30,576,154 $ 5,460,140 $ 9,299,421 $ 70,293,462
Net realized gain (loss)
on investments and
forward commitments 16,898,835 (841) 1,319,095 35,795,663
Change in net unrealized
appreciation/depreciation on
investments and forward
commitments 237,559,436 -- 13,704,932 243,603,590
------------- ------------- ------------ -------------
Net increase in net assets
resulting from operations 285,034,425 5,459,299 24,323,448 349,692,715
Dividends to shareholders
from: (Note 2C)
Distribution of net investment
income (30,563,214) (5,459,299) (9,294,583) (70,291,011)
Distribution of net realized gains (16,854,045) -- -- (35,463,987)
Net increase in capital share
transactions (Note 6) 190,498,822 17,134,168 22,459,621 134,942,076
------------- ------------ ----------- ------------
Total increase 428,115,988 17,134,168 37,488,486 378,879,793
NET ASSETS, at beginning
of the year 820,783,018 91,786,033 121,209,652 1,444,261,137
------------- ------------ ----------- -------------
NET ASSETS, at end
of the year $1,248,899,006 $ 108,920,201 $158,698,138 $1,823,140,930
============= ============ =========== =============
Undistributed net investment
income (loss) included in net
assets at end of the year $ 3,739 $ 9,734 $ (72,567) $ (7,094)
============= ============ =========== =============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
MML Series Investment Fund
FINANCIAL HIGHLIGHTS
Selected per share data for each series share outstanding throughout each year
ended December 31:
MML EQUITY FUND
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year..................... $ 25.924 $ 20.520 $ 20.510 $ 19.862 $ 18.735 $ 15.659 $ 16.764 $ 14.929
-------- ---------- ---------- --------- --------- ---------- ---------- --------
Income from investment operations:
Net investment income.................. .703 .634 .594 .524 .543 .563 .636 .694
Net realized and unrealized
gain (loss) on investments............ 4.547 5.754 .248 1.365 1.420 3.440 (.722) 2.746
-------- ---------- ---------- --------- --------- ---------- ---------- --------
Total from investment operations....... 5.250 6.388 .842 1.889 1.963 4.003 (.086) 3.440
-------- ---------- ---------- --------- --------- ---------- ---------- --------
Less distributions:
Dividends from net investment income... (.703) (.634) (.594) (.524) (.543) (.562) (.665) (.711)
Distribution from net realized gains... (.685) (.350) (.238) (.717) (.288) (.365) (.354) (.894)
Distribution in excess of net
realized gains........................ -- -- -- -- (.005) -- -- --
-------- ---------- ----------- --------- -------- ---------- ---------- --------
Total distributions.................... (1.388) (.984) (.832) (1.241) (.836) (.927) (1.019) (1.605)
Net asset value:
End of year........................... $ 29.786 $ 25.924 $ 20.520 $ 20.510 $ 19.862 $ 18.735 $ 15.659 $16.764
======== ========== ========= ========= ========= ======== ======== =======
Total return........................... 20.25% 31.13% 4.10% 9.52% 10.48% 25.56% (.51%) 23.04%
Net assets (in millions):
End of year........................... $1,701.99 $1,248.90 $ 820.78 $ 663.09 $ 490.62 $ 355.04 $ 235.45 $226.41
Ratio of expenses to average net
assets................................ .38% .41% .43% .44% .46% .48% .49% .50%
Ratio of net investment income to
average net assets.................... 2.65% 2.89% 3.04% 3.23% 3.09% 3.43% 4.09% 4.30%
Portfolio turnover rate................ 11.42% 11.72% 9.99% 11.28% 9.07% 9.37% 13.50% 15.71%
<CAPTION>
1988 1987
---- ----
Net asset value:
Beginning of year................... $ 13.828 $ 15.591
---------- ---------
Income from investment operations:
Net investment income................ .646 .525
Net realized and unrealized
gain (loss) on investments.......... 1.660 (.066)
--------- ---------
Total from investment operations..... 2.306 .459
--------- ---------
Less distributions:
Dividends from net investment income. (.639) (.988)
Distribution from net realized gains. (.566) (1.234)
Distribution in excess of net realized
gains............................... -- --
--------- ---------
Total distributions.................. (1.205) (2.222)
--------- ---------
Net asset value:
End of year......................... $ 14.929 $ 13.828
========= =========
Total return......................... 16.68% 2.10%
Net assets (in millions):
End of year......................... $ 172.80 $ 150.41
Ratio of expenses to average net
assets.............................. .50% .51%
Ratio of net investment income to
average net assets.................. 4.05% 3.44%
Portfolio turnover rate.............. 15.97% 15.73%
<CAPTION>
MML MONEY MARKET FUND
1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations:
Net investment income................. .049 .054 .038 .027 .034 .059 .078 .088
Total from investment operations...... .049 .054 .038 .027 .034 .059 .078 .088
Less distributions:
Dividends from net investment income.. (.049) (.054) (.038) (.027) (.034) (.059) (.078) (.088)
Total distributions................... (.049) (.054) (.038) (.027) (.034) (.059) (.078) (.088)
Net asset value:
End of year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total return.......................... 5.01% 5.58% 3.84% 2.75% 3.48% 6.01% 8.12% 9.16%
Net assets (in millions):
End of year.......................... $ 145.23 $ 108.92 $ 91.79 $ 73.66 $ 84.56 $ 94.41 $ 114.59 $ 70.16
Ratio of expenses to average net
assets............................... .52% .54% .55% .54% .53% .52% .54% .54%
Ratio of net investment income to
average net assets................... 4.92% 5.43% 3.81% 2.71% 3.42% 5.91% 7.80% 8.79%
<CAPTION>
1988 1987
---- ----
<S> <C>
Net asset value:
Beginning of year ................. $ 1.000 $ 1.000
----------- ----------
Income from investment operations:
Net investment income .............. .072 .063
----------- ----------
Total from investment operations ... .072 .063
----------- ----------
Less distributions:
Dividends from net investment income (.072) (.063)
----------- ----------
Total distributions ................ (.072) (.063)
----------- ----------
Net asset value:
End of year ....................... $ 1.000 $ 1.000
=========== ==========
Total return ....................... 7.39% 6.49%
Net assets (in millions):
End of year ....................... $ 66.35 $ 52.35
Ratio of expenses to average net
assets ............................ .55% .57%
Ratio of net investment income to
average net assets ................ 7.20% 6.35%
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
MML Series Investment Fund
FINANCIAL HIGHLIGHTS (Continued)
MML MANAGED BOND FUND
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year.................. $ 12.448 $ 11.141 $ 12.405 $ 12.041 $ 12.219 $ 11.318 $ 11.354
---------- ---------- ---------- --------- --------- ---------- ----------
Income from investment operations:
Net investment income............... .776 .782 .792 .785 .870 .903 .943
Net realized and unrealized
gain (loss) on investments
and forward commitments............ (.401) 1.307 (1.264) .618 .001 .916 (.036)
---------- ---------- ---------- --------- --------- ---------- ----------
Total from investment operations.... .375 2.089 (.472) 1.403 .871 1.819 .907
---------- ---------- ---------- --------- --------- ---------- ----------
Less distributions:
Dividends from net investment income (.775) (.782) (.792) (.784) (.869) (.902) (.943)
Distribution from net realized gains -- -- -- (.255) (.158) (.016) --
Distribution in excess of net realized
gains.............................. -- -- -- -- (.022) -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Total distributions................. (.775) (.782) (.792) (1.039) (1.049) (.918) (.943)
---------- ---------- ---------- --------- --------- ---------- ----------
Net asset value:
End of year........................ $ 12.048 $ 12.448 $ 11.141 $ 12.405 $ 12.041 $ 12.219 $ 11.318
========== ========== ========== ========= ========= ========== ==========
Total return........................ 3.25% 19.14% (3.76%) 11.81% 7.31% 16.66% 8.38%
Net assets (in millions):
End of year........................ $ 181.57 $ 158.70 $ 121.21 $ 129.11 $ 88.15 $ 66.98 $ 43.07
Ratio of expenses to average
net assets......................... .51% .52% .52% .54% .56% .57% .57%
Ratio of net investment income to
average net assets................. 6.54% 6.63% 6.69% 6.37% 7.28% 7.96% 8.40%
Portfolio turnover rate............. 46.12% 70.00% 32.77% 58.81% 39.51% 61.85% 69.93%
<CAPTION>
1989 1988 1987
---- ---- ----
<S> <C> <C> <C>
Net asset value:
Beginning of year.................. $ 10.919 $ 11.052 $ 12.541
---------- ---------- ----------
Income from investment operations:
Net investment income............... .918 .906 .969
Net realized and unrealized
gain (loss) on investments
and forward commitments............ .454 (.133) (.673)
---------- ---------- ----------
Total from investment operations.... 1.372 .773 .296
---------- ---------- ----------
Less distributions:
Dividends from net investment income (.918) (.906) (1.229)
Distribution from net realized gains (.019) -- (.556)
Distribution in excess of net realized
gains.............................. -- -- --
---------- ---------- ----------
Total distributions................. (.937) (.906) (1.785)
---------- ---------- ----------
Net asset value:
End of year........................ $ 11.354 $ 10.919 $ 11.052
========== ========== ==========
Total return........................ 12.83% 7.13% 2.60%
Net assets (in millions):
End of year........................ $ 40.03 $ 31.35 $ 26.16
Ratio of expenses to average
net assets......................... .59% .61% .60%
Ratio of net investment income to
average net assets................. 8.35% 8.25% 8.24%
Portfolio turnover rate............. 64.77% 74.92% 55.60%
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MML Series Investment Fund
FINANCIAL HIGHLIGHTS (Continued)
MML BLEND FUND
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year $ 20.519 $ 17.672 $ 18.305 $ 17.846 $ 17.307 $ 14.839 $ 15.428
---------- ---------- ---------- --------- --------- ---------- ----------
Income from investment operations:
Net investment income .824 .811 .707 .655 .707 .736 .792
Net realized and unrealized
gain (loss) on investments
and forward commitments 1.990 3.246 (.271) 1.057 .880 2.771 (.445)
---------- ---------- ---------- --------- --------- ---------- ----------
Total from investment operations 2.814 4.057 .436 1.712 1.587 3.507 .347
---------- ---------- ---------- --------- --------- ---------- ----------
Less distributions:
Dividends from net investment income (.824) (.811) (.707) (.655) (.707) (.736) (.811)
Distribution from net realized gains (.536) (.399) (.359) (.598) (.326) (.303) (.125)
Distribution in excess of net realized
gains -- -- (.003) -- (.015) -- --
---------- ---------- ---------- --------- --------- ---------- ----------
Total distributions (1.360) (1.210) (1.069) (1.253) (1.048) (1.039) (.936)
---------- ---------- ---------- --------- --------- ---------- ----------
Net asset value:
End of year $ 21.973 $ 20.519 $ 17.672 $ 18.305 $ 17.846 $ 17.307 $ 14.839
========== ========== ========== ========= ========= ========== ==========
Total return 13.95% 23.28% 2.48% 9.70% 9.36% 24.00% 2.37%
Net assets (in millions):
End of year $ 2,093.99 $ 1,823.14 $ 1,444.26 $1,296.54 $1,013.28 $ 797.04 $ 574.15
Ratio of expenses to average
net assets .38% .38% .39% .40% .41% .42% .44%
Ratio of net investment income to
average net assets 3.87% 4.19% 3.93% 3.60% 4.07% 4.54% 5.37%
Portfolio turnover rate 19.10% 30.78% 26.59% 20.20% 25.43% 26.92% 24.55%
<CAPTION>
1989 1988 1987
---- ---- ----
<S> <C> <C> <C>
Net asset value:
Beginning of year $ 13.876 $ 13.095 $ 13.774
---------- ---------- ----------
Income from investment operations:
Net investment income .823 .734 .624
Net realized and unrealized
gain (loss) on investments
and forward commitments 1.921 1.000 (.148)
---------- ---------- ----------
Total from investment operations 2.744 1.734 .476
---------- ---------- ----------
Less distributions:
Dividends from net investment income (.835) (.728) (.747)
Distribution from net realized gains (.357) (.225) (.408)
Distribution in excess of net realized
gains -- -- --
---------- ---------- ----------
Total distributions (1.192) (.953) (1.155)
---------- ---------- ----------
Net asset value:
End of year $ 15.428 $ 13.876 $ 13.095
========== ========== ==========
Total return 19.96% 13.40% 3.12%
Net assets (in millions):
End of year $ 524.29 $ 401.22 $ 346.12
Ratio of expenses to average
net assets .45% .46% .48%
Ratio of net investment income to
average net assets 5.57% 5.29% 4.77%
Portfolio turnover rate 22.39% 25.70% 36.56%
</TABLE>
Total return information shown in the Financial Highlights tables 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.
See Notes to Financial Statements.
12
<PAGE>
MML Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
---------- ------------
<S> <C> <C>
EQUITIES - 96.36%
Aerospace & Defense - 1.76%
Boeing Company....................... 162,500 $ 17,285,938
Raytheon Company..................... 7,400 356,125
TRW, Inc............................. 250,400 12,394,800
---------- ------------
420,300 30,036,863
---------- ------------
Agribusiness - .97%
Pioneer Hi-Bred International, Inc... 235,000 16,450,000
---------- ------------
Apparel, Textiles, Shoes - .91%
VF Corporation....................... 230,000 15,525,000
---------- ------------
Automotive & Parts - 5.12%
Ford Motor Company................... 875,000 27,890,625
Genuine Parts Company................ 573,500 25,520,750
Goodyear Tire & Rubber Company....... 656,000 33,702,000
---------- ------------
2,104,500 87,113,375
---------- ------------
Banking, Savings & Loans - 6.15%
The Bank of New York Company,
Incorporated........................ 870,000 29,362,500
Comerica, Incorporated............... 223,500 11,705,812
CoreStates Financial Corporation..... 585,500 30,372,813
Norwest Corporation.................. 391,000 17,008,500
Wachovia Corporation................. 288,200 16,283,300
---------- ------------
2,358,200 104,732,925
---------- ------------
Beverages - 1.65%
Brown-Forman Corporation (Class B)... 337,300 15,431,475
Pepsico, Incorporated................ 430,000 12,577,500
---------- ------------
767,300 28,008,975
---------- ------------
Chemicals - 4.48%
E.I. du Pont de Nemours and Company.. 166,500 15,713,437
The Lubrizol Corporation............. 565,000 17,515,000
Nalco Chemical Company............... 445,000 16,075,625
Rohm & Haas.......................... 330,000 26,936,250
---------- ------------
1,506,500 76,240,312
---------- ------------
Communications - 3.00%
AT&T Corporation..................... 511,000 22,228,500
GTE Corporation...................... 635,000 28,892,500
---------- ------------
1,146,000 51,121,000
---------- ------------
Computers & Office Equipment - 7.47%
Hewlett-Packard Company 640,000 32,160,000
International Business Machines Corporation 245,000 36,995,000
Pitney Bowes, Inc.................... 552,000 30,084,000
Xerox Corporation.................... 530,000 27,891,250
---------- ------------
1,967,000 127,130,250
---------- ------------
Containers - 1.05%
Temple-Inland, Inc................... 330,000 17,861,250
---------- ------------
Cosmetics & Personal Care - 2.02%
Kimberly-Clark Corporation........... 360,000 34,290,000
---------- ------------
Electric Utilities - 1.57%
NIPSCO Industries, Inc............... 208,000 8,242,000
SCANA Corporation.................... 394,000 10,539,500
Teco Energy Inc...................... 331,400 7,995,025
---------- ------------
933,400 26,776,525
---------- ------------
Electrical Equipment & Electronics - 7.05%
AMP, Incorporated.................... 900,000 34,537,500
General Electric Company............. 488,500 48,300,437
Honeywell Inc........................ 232,500 15,286,875
Hubbell, Incorporated (Class B)...... 504,144 21,804,228
---------- ------------
2,125,144 119,929,040
---------- ------------
Energy - 9.28%
Amoco Corporation.................... 387,500 31,193,750
Atlantic Richfield Company........... 107,300 14,217,250
Chevron Corporation.................. 378,000 24,570,000
Kerr-McGee Corporation............... 226,000 16,272,000
Mobil Corporation.................... 180,000 22,005,000
Occidental Petroleum Corp............ 754,600 17,638,775
Union Pacific Resources Group........ 492,500 14,405,625
Unocal Corporation .................. 432,100 17,554,063
---------- ------------
2,958,000 157,856,463
---------- ------------
Financial Services - 1.33%
American Express Company............. 400,000 22,600,000
---------- ------------
Foods - 2.70%
ConAgra, Inc......................... 470,500 23,407,375
CPC International, Inc............... 291,500 22,591,250
---------- ------------
762,000 45,998,625
---------- ------------
Forest Products & Paper - 2.59%
Westvaco Corporation................. 680,055 19,551,581
Weyerhaeuser Company................. 519,500 24,611,313
---------- ------------
1,199,555 44,162,894
---------- ------------
Hardware & Tools - 1.00%
The Stanley Works.................... 631,000 17,037,000
---------- ------------
Healthcare - 9.37%
Becton, Dickinson and Company........ 536,000 23,249,000
Bristol-Myers Squibb Company......... 520,000 56,550,000
Pfizer, Incorporated................. 400,000 33,150,000
Pharmacia & Upjohn Inc............... 605,000 23,973,125
Schering-Plough Corp................. 347,500 22,500,625
---------- ------------
2,408,500 159,422,750
---------- ------------
Industrial Distribution - 1.16%
W. W. Grainger, Inc.................. 246,000 19,741,500
---------- ------------
Industrial Transportation - 1.26%
Norfolk Southern Corporation......... 246,000 21,525,000
---------- ------------
Insurance - 6.95%
Allstate Corporation................. 192,682 11,151,471
Jefferson-Pilot Corporation.......... 207,000 11,721,375
Marsh & McLennan Companies, Inc...... 280,500 29,172,000
MBIA, Inc............................ 268,000 27,135,000
SAFECO Corporation................... 782,500 30,860,235
Unitrin, Inc......................... 148,000 8,251,000
---------- ------------
1,878,682 118,291,081
---------- ------------
Machinery & Components - 1.61%
Dover Corporation.................... 325,000 16,331,250
Parker-Hannifin Corporation.......... 284,650 11,030,187
---------- ------------
609,650 27,361,437
---------- ------------
</TABLE>
13
<PAGE>
MML Equity Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
------ ---------
<S> <C> <C>
EQUITIES (Continued)
Miscellaneous - 2.42%
Harsco Corporation.............................. 169,500 $ 11,610,750
Minnesota Mining &
Manufacturing Company......................... 356,000 29,503,500
-------------- --------------
525,500 41,114,250
-------------- --------------
Photography - 1.27%
Eastman Kodak Company........................... 268,800 21,571,200
-------------- --------------
Publishing & Printing - 2.27%
McGraw-Hill Companies, Inc...................... 500,000 23,062,500
R. R. Donnelley & Sons Company.................. 497,000 15,593,375
-------------- --------------
997,000 38,655,875
-------------- --------------
Retail - 1.66%
The May Department Stores Company............... 363,000 16,970,250
Sears Roebuck and Company....................... 246,000 11,346,750
-------------- --------------
609,000 28,317,000
-------------- --------------
Retail - Grocery - 2.17%
Albertson's, Inc................................ 847,000 30,174,375
American Stores Company......................... 164,800 6,736,200
-------------- --------------
1,011,800 36,910,575
-------------- --------------
Telephone Utilities - 3.24%
Ameritech Corporation........................... 347,000 21,036,875
Frontier Corporation............................ 884,600 20,014,075
Southern New England
Telecommunications Corporation................ 362,000 14,072,750
-------------- --------------
1,593,600 55,123,700
-------------- --------------
Tobacco - 2.88%
American Brands, Inc............................ 463,000 22,976,375
UST, Inc........................................ 806,000 26,094,250
-------------- --------------
1,269,000 49,070,625
-------------- --------------
Total Equities
(Cost $1,065,014,489)........................... 1,639,975,490
-------------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 8.09%
Commercial Paper
AIG Funding, Inc.
5.280% 2/28/97............................ $ 5,399,000 $ 5,349,463
AIG Funding, Inc.
5.850% 1/6/97............................. 8,000,000 7,993,500
Corestates Bank
5.270% 4/28/97............................ 2,000,000 1,963,289
E.I. du Pont de Nemours and Company
5.250% 5/9/97............................. 9,000,000 8,819,400
E.I. du Pont de Nemours and Company
5.250% 5/19/97............................ 5,000,000 4,891,889
First Union Bank, North Carolina
5.280% 3/28/97............................ 4,000,000 3,945,867
First Union Bank, North Carolina
5.270% 4/23/97............................ 3,000,000 2,947,267
Ford Motor Credit Company
5.290% 3/10/97............................ 14,000,000 13,849,733
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- ---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (Continued)
Commercial Paper (Continued)
H J Heinz Company
5.330% 1/21/97............................ $ 3,000,000 $ 2,991,117
H J Heinz Company
5.400% 1/21/97............................ 11,000,000 10,967,000
Minnesota Mining & Manufacturing Company
5.290% 1/28/97............................ 11,359,000 11,313,933
J P Morgan
5.280% 2/3/97............................. 14,000,000 13,932,240
Shell Oil Company
6.500% 1/2/97............................. 10,325,000 10,323,136
Sonoco Products Company
5.320% 2/4/97............................. 8,000,000 7,957,740
Sonoco Products Company
5.370% 1/21/97............................ 4,183,000 4,170,521
Transamerica Finance Corp.
5.270% 3/14/97............................ 4,297,000 4,248,205
Walt Disney Company
5.320% 1/24/97............................ 10,000,000 9,966,011
Weyerhaeuser Company
5.300% 2/12/97............................ 3,000,000 2,980,097
Weyerhaeuser Company
5.300% 2/10/97............................ 9,200,000 9,142,825
-------------- --------------
Total Short-Term Investments
(Cost $137,806,906)..........................$ 138,763,000 137,753,233
============== --------------
Total Investments -
(Cost $1,202,821,395) (a) 104.45% $1,777,728,723
======= ==============
(a) Federal Income Tax Information: At
December 31, 1996 the net unrealized
appreciation on investments based on cost
of $1,202,833,207 for federal income tax
purposes is as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of market value over tax cost...................... $ 576,523,219
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over market value...................... (1,627,703)
-------------
Net unrealized appreciation........................ $ 574,895,516
=============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
MML Money Market Fund
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 100.53%
Commercial Paper - 97.28%
American Brands, Inc.
5.560% 1/17/97................... $ 3,745,000 $ 3,735,745
Anheuser-Busch Companies, Inc.
5.220% 1/9/97.................... 4,580,000 4,574,687
Aristar, Inc.
5.410% 2/7/97.................... 1,590,000 1,581,159
Aristar, Inc.
5.410% 2/7/97.................... 1,060,000 1,054,106
Atlantic Richfield Corp.
5.240% 2/3/97.................... 4,295,000 4,274,370
Baltimore Gas & Electric Company
6.100% 1/3/97.................... 3,210,000 3,208,912
Bay State Gas Company
5.400% 1/16/97................... 595,000 593,661
Bay State Gas Company
5.380% 1/30/97................... 870,000 866,230
Becton, Dickinson and Company
5.350% 6/19/97................... 3,280,000 3,197,622
Bellsouth Telecommunications, Inc.
5.270% 2/27/97................... 2,300,000 2,280,808
Bellsouth Telecommunications, Inc.
5.270% 3/21/97................... 1,840,000 1,818,721
Carolina Power & Light Company
5.310% 2/14/97................... 1,535,000 1,525,038
Carolina Power & Light Company
5.300% 2/25/97................... 3,650,000 3,620,445
Caterpillar Financial Services Corp.
5.530% 1/13/97................... 2,465,000 2,460,456
Caterpillar Financial Services Corp.
5.280% 1/28/97................... 2,925,000 2,913,417
CIT Group Holdings Inc.
5.290% 1/27/97................... 3,540,000 3,526,475
Coca Cola Company
5.180% 1/21/97................... 2,300,000 2,293,381
Coca Cola Company
5.260% 2/21/97................... 3,375,000 3,349,851
Dean Witter, Discover & Company
5.380% 1/10/97................... 2,715,000 2,711,348
Dean Witter, Discover & Company
5.380% 1/31/97................... 2,585,000 2,573,410
Dean Witter, Discover & Company
6.000% 1/3/97.................... 275,000 274,908
E.I. du Pont de Nemours and Company
5.420% 1/14/97................... 3,700,000 3,692,759
General Electric Capital Corp.
5.320% 1/22/97................... 3,065,000 3,055,488
General Electric Company
5.260% 3/25/97................... 1,985,000 1,960,927
General Motors Acceptance Corporation
5.500% 1/21/97................... 1,390,000 1,385,753
General Motors Acceptance Corporation
5.300% 5/23/97................... 3,055,000 2,991,134
Georgia Power Company
5.450% 2/5/97.................... 5,200,000 5,172,447
Goldman Sachs & Company
5.330% 2/21/97................... 1,290,000 1,280,259
Goldman Sachs & Company
5.260% 6/20/97................... 2,235,000 2,179,485
GTE California
5.540% 1/29/97................... 2,010,000 2,001,339
H J Heinz Company
5.320% 6/18/97................... 4,300,000 4,193,245
IBM Credit Corporation
5.360% 4/16/97................... 2,520,000 2,480,604
Minnesota Mining & Manufacturing Company
5.270% 2/26/97................... 4,320,000 4,284,586
Monsanto Company
5.300% 1/16/97................... 2,000,000 1,995,583
Motorola Incorporated
5.250% 4/7/97.................... 2,140,000 2,110,040
Motorola Incorporated
5.500% 1/23/97................... 3,650,000 3,637,732
Nestle Capital Corporation
5.220% 2/4/97.................... 3,185,000 3,169,298
Nestle Capital Corporation
5.250% 1/24/97................... 1,675,000 1,669,382
Northern Illinois Gas Company
5.310% 2/12/97................... 2,380,000 2,365,256
Northern Indiana Public Service
5.340% 1/30/97................... 4,700,000 4,679,782
Northern States Power Company
5.300% 1/8/97.................... 3,400,000 3,396,496
Pacific Gas & Electric Company
5.520% 2/10/97................... 4,770,000 4,740,744
Pioneer Hi-Bred International, Inc.
5.320% 1/7/97.................... 3,000,000 2,997,340
Pitney Bowes Credit Corporation
5.330% 2/18/97................... 4,190,000 4,160,223
PPG Industries Inc.
5.280% 2/24/97................... 3,950,000 3,918,716
Walt Disney Company
5.280% 3/14/97................... 4,000,000 3,957,760
Walt Disney Company
5.260% 2/28/97................... 1,230,000 1,219,577
Weyerhaeuser Company
5.300% 2/6/97.................... 4,585,000 4,560,699
Wisconsin Gas Company
5.300% 2/20/97................... 3,440,000 3,414,678
Wisconsin Gas Company
5.350% 2/28/97................... 2,185,000 2,166,167
------------- -------------
Total Commercial Paper
(Cost $141,272,249).................. 142,280,000 141,272,249
------------- -------------
U.S. Government Agency Obligations - 3.25%
Federal National Mortgage Association
5.270% 2/11/97................... 4,750,000 4,721,491
------------- -------------
Total U.S. Government Agency Obligations
(Cost $4,721,491) 4,750,000 4,721,491
------------- -------------
Total Short-Term Investments
(Cost $145,993,740)(a) $ 147,030,000 145,993,740
============= -------------
Total Investments -
(Cost $145,993,740)(a) 100.53% $ 145,993,740
======== =============
</TABLE>
(a) Federal Income Tax Information: The aggregate cost for investments
for the MML Money Market Fund as of December 31, 1996 is the same
for financial reporting and federal income tax purposes.
December 31, 1996 seven-day average yield for the portfolio: 4.95%
See Notes to Financial Statements.
15
<PAGE>
MML Managed Bond Fund
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
<S> <C> <C>
BONDS AND NOTES - 99.69%
Asset Backed Securities - 10.84%
Auto Receivables
Capita Equipment Receivables Trust 1996-1,
Class A4
6.280% 6/15/00................... $ 2,000,000 $ 2,003,120
Chase Manhattan Auto Grantor Trust 1996-B,
Class A
6.280% 6/15/00................... 4,572,638 4,604,053
Daimler-Benz Auto Grantor Trust 1995-A,
Class A
5.850% 5/15/02................... 1,670,193 1,669,141
Daimler-Benz Vehicle Trust 1994-A
5.950% 12/15/00.................. 220,873 221,079
Ford Credit 1994-B Grantor Trust
7.300% 10/15/99.................. 536,247 542,280
Jet Equipment Trust 1995-A
8.235% 5/1/15.................... 1,943,350 2,086,070
Keystone Auto Grantor Trust 1996-B,
Class A 144A
6.150% 4/15/03................... 1,400,795 1,399,675
Nissan Auto Receivables 1994-A Grantor Trust,
Class A
6.450% 9/15/99................... 752,300 754,181
Railcar Trust No. 1992-1
7.750% 6/1/04.................... 1,595,220 1,667,005
World Omni 1995-A Automobile Lease
Securitization Trust, Class A
6.050% 11/25/01.................. 2,838,939 2,842,487
World Omni 1996-A Automobile Lease
Securitization Trust, Class A1
6.300% 6/25/02................... 1,900,000 1,906,517
------------ ------------
Total Asset Backed Securities
(Cost $19,639,638)..................... 19,430,555 19,695,608
------------ ------------
Corporate Debt - 54.80%
AirTouch Communications, Inc.
7.500% 7/15/06................... 1,500,000 1,539,720
American West Airlines 1996-1, Class A
6.850% 7/2/09.................... 1,750,000 1,715,000
American Airlines, Inc.
9.780% 11/26/11.................. 2,000,000 2,277,500
AMR Corporation
9.000% 8/1/12.................... 1,000,000 1,131,940
Analog Devices, Inc.
6.625% 3/1/00.................... 1,000,000 987,300
Associates Corporation of North America
6.750% 8/1/01.................... 1,000,000 1,003,670
Associates Corporation of North America
7.875% 9/30/01................... 2,000,000 2,097,700
Atlantic Richfield Company
7.770% 2/13/02................... 3,000,000 3,134,400
Bell Atlantic Financial Services, Inc.
6.610% 2/4/00.................... 2,000,000 2,012,420
BHP Finance (USA) Limited
6.420% 3/1/26.................... 2,000,000 1,979,820
Champion International Corporation
6.400% 2/15/26................... 1,500,000 1,432,035
Charles Schwab Corporation
6.250% 1/23/03................... 2,000,000 1,927,500
CITGO Petroleum Corporation
7.875% 5/15/06................... 750,000 764,700
Columbia Gas System, Inc.
6.610% 11/28/02.................. 2,000,000 1,984,500
Commercial Credit Company
7.750% 3/1/05.................... 3,000,000 3,133,380
Continental Airlines, Inc. Series 1996-B
7.820% 10/15/13.................. 1,500,000 1,550,550
Continental Airlines, Inc. Series 1996-2B
8.560% 7/2/14.................... 999,795 1,088,526
Corning Glass Works
8.875% 3/15/16................... 500,000 564,120
CSC Enterprises 144A
6.500% 11/15/01.................. 2,000,000 1,992,380
Dow Capital
7.125% 1/15/03................... 4,000,000 4,033,880
English China Clays Delaware Inc.
7.375% 10/1/02................... 1,000,000 1,027,760
Equifax, Inc.
6.500% 6/15/03................... 1,250,000 1,216,575
ERAC USA Finance Company 144A
6.950% 1/15/06................... 1,500,000 1,475,625
FBG Finance Ltd. 144A
7.875% 6/1/16.................... 1,250,000 1,270,763
Fletcher Challenge Ltd.
7.750% 6/20/06................... 1,500,000 1,555,575
Foster Wheeler Corporation
6.750% 11/15/05.................. 2,000,000 1,932,440
General American Transportation Corporation
6.750% 3/1/06.................... 2,000,000 1,943,800
General Electric Capital Corporation
8.750% 5/21/07................... 1,000,000 1,133,580
General Motors Acceptance Corporation
6.300% 9/10/97................... 2,500,000 2,508,800
Hercules Incorporated
6.625% 6/1/03.................... 2,000,000 1,979,860
IMCERA Group, Inc.
6.000% 10/15/03.................. 2,000,000 1,915,400
Leucadia National Corporation
7.750% 8/15/13................... 2,000,000 1,977,140
Lockheed Martin Corporation
5.650% 4/1/97.................... 2,000,000 1,999,460
Lockheed Martin Corporation
7.700% 6/15/08................... 1,500,000 1,569,345
McDonnell Douglas Corporation
9.250% 4/1/02.................... 1,400,000 1,563,660
McDonnell Douglas Corporation
6.875% 11/1/06................... 1,000,000 981,260
Newmont Mining Corporation
8.625% 4/1/02.................... 2,000,000 2,111,380
News America Holdings Incorporated
9.250% 2/1/13.................... 2,000,000 2,240,580
Norfolk Southern Corporation
7.220% 9/15/06................... 1,500,000 1,528,290
Norfolk Southern Corporation
7.400% 9/15/06................... 1,000,000 1,015,570
Pearson Inc. 144A
7.375% 9/15/06................... 1,500,000 1,506,450
Penske Truck Leasing Co., L.P.
7.750% 5/15/99................... 1,250,000 1,290,175
Polaroid Corporation
7.250% 1/15/97................... 1,000,000 1,000,220
Polaroid Corporation
8.000% 3/15/99................... 1,000,000 1,026,420
</TABLE>
16
<PAGE>
MML Managed Bond Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
<S> <C> <C>
BONDS AND NOTES (Continued)
Corporate Debt (Continued)
Ralston Purina Company
7.750% 10/1/15................... $ 3,000,000 $ 3,076,380
Rite Aid Corporation
6.700% 12/15/01.................. 1,000,000 998,090
Rolls-Royce Capital Inc.
7.125% 7/29/03................... 1,500,000 1,502,235
Scholastic Corporation
7.000% 12/15/03.................. 2,000,000 1,996,140
Textron Inc.
9.550% 3/19/01................... 1,000,000 1,108,750
Thomas & Betts Corporation
8.250% 1/15/04................... 1,500,000 1,558,695
Time Warner, Inc.
7.750% 6/15/05................... 3,000,000 3,017,790
United Air Lines, Inc.
10.110% 2/19/06................... 469,855 520,195
US Air, Inc.
7.500% 10/15/09.................. 974,038 983,778
US West Capital Funding Corporation
8.375% 10/18/99.................. 3,000,000 3,150,300
Union Oil of California
8.750% 8/15/01................... 1,500,000 1,619,970
Valassis Communications, Inc.
9.550% 12/1/03................... 2,000,000 2,081,280
Westinghouse Electric Corporation
8.375% 6/15/02................... 500,000 509,835
W.R. Grace & Co.
7.750% 10/1/02................... 2,100,000 2,190,132
W.R. Grace & Co.
8.000% 8/15/04................... 1,000,000 1,058,720
-------------- -------------
Total Corporate Debt
(Cost $99,093,971)................... 97,193,688 99,493,459
-------------- -------------
U.S. Government Agency Obligations - 23.62%
Federal Home Loan Mortgage
Corporation (FHLMC) - 3.43%
Collateralized Mortgage Obligations - 3.32%
FHLMC Series 1322
Class G
7.500% 2/15/07................... 2,000,000 2,048,120
FHLMC Series 1460 Class H
7.000% 5/15/07................... 2,000,000 2,020,000
FHLMC Series 1080 Class D
7.000% 7/15/20................... 1,933,546 1,955,898
-------------- -------------
5,933,546 6,024,018
Pass-Through Securities - .11%
FHLMC
9.000% 3/1/17.................... 182,705 194,409
-------------- -------------
6,116,251 6,218,427
-------------- -------------
Federal National Mortgage
Association (FNMA) - 7.73%
Collateralized Mortgage Obligations - 7.32%
FNMA Series 1993-175 Class PL
5.000% 10/25/02.................. 1,390,908 1,381,770
FNMA Series 1993-191 Class PD
5.400% 3/25/04................... 1,500,000 1,487,340
FNMA Series 1993-221 Class D
6.000% 12/25/08.................. 1,000,000 956,250
FNMA Series 1993-134 Class GA
6.500% 2/25/07................... 2,000,000 1,985,620
FNMA Series 1996-54 Class C
6.000% 9/25/08................... 4,000,000 3,840,000
FNMA Series 1993-186 Class G
6.250% 3/25/08................... 3,700,000 3,637,544
-------------- -------------
13,590,908 13,288,524
Pass-Through Securities - .41%
FNMA
9.000% 5/1/09.................... 697,896 741,075
-------------- -------------
14,288,804 14,029,599
-------------- -------------
Government National Mortgage
Association (GNMA) - 10.27%
Collateralized Mortgage Obligations - .47%
JHM Acceptance Corporation, Series E,.Class 5
8.960% 4/1/19.................... 816,874 859,245
-------------- -------------
Pass-Through Securities - 9.80%
GNMA
8.000% 12/15/03 - 4/15/08........ 6,620,004 6,841,309
GNMA
7.500% 3/15/17 - 7/15/17......... 4,610,426 4,640,071
GNMA - ARMS
6.000% 7/20/25 - 12/20/25........ 6,180,532 6,316,677
-------------- -------------
17,410,962 17,798,057
-------------- -------------
18,227,836 18,657,302
-------------- -------------
U.S. Government Guaranteed Notes - 2.19%
1994-A Atlanta, GA
5.780% 8/1/98.................... 130,000 129,433
1994-A Baxter Springs, KS
5.780% 8/1/98.................... 700,000 696,948
1994-A Boston, MA
5.780% 8/1/98.................... 745,000 741,752
1994-A Detroit, MI
5.780% 8/1/98.................... 385,000 383,321
1994-A Egg Harbor, NJ
5.780% 8/1/98.................... 260,000 258,866
1994-A Kansas City, MO
5.780% 8/1/98.................... 550,000 547,602
1994-A Mayaguez, PR
5.780% 8/1/98.................... 295,000 293,714
1994-A Rochester, NY
5.780% 8/1/98.................... 300,000 298,692
1994-A Sacramento, CA
5.780% 8/1/98.................... 55,000 54,760
1994-A Saginaw, MI
5.780% 8/1/98.................... 315,000 313,627
1994-A Youngstown, OH
5.780% 8/1/98.................... 265,000 263,845
-------------- -------------
4,000,000 3,982,560
-------------- -------------
Total U.S. Government Agency Obligations
(Cost $42,228,622)................... 42,632,891 42,887,888
-------------- -------------
</TABLE>
17
<PAGE>
MML Managed Bond Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
<S> <C> <C>
BONDS AND NOTES (Continued)
U.S. Treasury Obligations - 10.43%
U.S. Treasury Bonds - 8.46%
U.S. Treasury Bond
7.250% 5/15/16.................... $ 14,550,000 $ 15,363,927
-------------- -------------
U.S. Treasury Strips - 1.97%
U.S. Treasury Strip - Principal Only
0.000% 2/15/15.................... 12,200,000 3,572,038
-------------- -------------
Total U.S. Treasury Obligations
(Cost $18,285,071) 26,750,000 18,935,965
-------------- -------------
Total Bonds and Notes
(Cost $179,247,302) $ 186,007,134 181,012,920
============== -------------
SHORT-TERM INVESTMENTS - .76%
Commercial Paper
Texas Utilities Electric Co.
7.250% 1/2/97..................... $ 1,380,000 $ 1,379,722
-------------- ------------
Total Short-Term Investments
(Cost $1,379,722) $ 1,380,000 1,379,722
============== ------------
Total Investments
(Cost $180,627,024) (a) 100.45% $182,392,642
======== ============
</TABLE>
(a) Federal Income Tax Information: At
December 31, 1996 the net unrealized
depreciation on investments based on
cost of $180,627,024 for federal income
tax purposes is as follows:
Aggregate gross unrealized appreciation for
all investments and forward commitments in
which there is an excess of market value over
tax cost................................................ $ 3,618,521
Aggregate gross unrealized depreciation for
all investments and forward commitments in
which there is an excess of tax cost over
market value............................................ (1,852,903)
------------
Net unrealized appreciation............................ $ 1,765,618
============
See Notes to Financial Statements.
18
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
--------- -----------
<S> <C> <C>
EQUITIES - 59.95%
Aerospace & Defense - 1.16%
Boeing Company......................... 125,000 $ 13,296,875
Raytheon Company....................... 5,300 255,062
TRW, Inc............................... 218,600 10,820,700
-------------- ------------
348,900 24,372,637
-------------- ------------
Agribusiness - .67%
Pioneer Hi-Bred International, Inc..... 200,000 14,000,000
-------------- ------------
Apparel, Textiles, Shoes - .64%
VF Corporation......................... 200,000 13,500,000
-------------- ------------
Automotive & Parts - 2.92%
Ford Motor Company..................... 465,600 14,841,000
Genuine Parts Company.................. 457,000 20,336,500
Goodyear Tire & Rubber Company......... 505,000 25,944,375
-------------- ------------
1,427,600 61,121,875
-------------- ------------
Banking, Savings & Loans - 3.81%
The Bank of New York Company,
Incorporated 750,000 25,312,500
Comerica, Incorporated................. 180,000 9,427,500
CoreStates Financial Corporation....... 374,800 19,442,750
Norwest Corporation.................... 252,000 10,962,000
Wachovia Corporation................... 260,000 14,690,000
-------------- ------------
1,816,800 79,834,750
-------------- ------------
Beverages - 1.17%
Brown-Forman Corporation (Class B)..... 300,000 13,725,000
Pepsico, Incorporated.................. 365,000 10,676,250
-------------- ------------
665,000 24,401,250
-------------- ------------
Chemicals - 2.54%
E.I. du Pont de Nemours and Company.... 146,000 13,778,750
The Lubrizol Corporation............... 277,800 8,611,800
Nalco Chemical Company................. 355,000 12,824,375
Rohm & Haas............................ 220,000 17,957,500
-------------- ------------
998,800 53,172,425
-------------- ------------
Communications - 1.33%
AT&T Corporation....................... 380,000 16,530,000
GTE Corporation........................ 250,000 11,375,000
-------------- ------------
630,000 27,905,000
-------------- ------------
Computers & Office Equipment - 4.33%
Hewlett-Packard Company................ 536,000 26,934,000
International Business Machines
Corporation 151,000 22,801,000
Pitney Bowes, Inc...................... 371,000 20,219,500
Xerox Corporation...................... 396,000 20,839,500
-------------- ------------
1,454,000 90,794,000
-------------- ------------
Containers - .37%
Temple-Inland, Inc..................... 145,000 7,848,125
-------------- ------------
Cosmetic & Personal Care - .96%
Kimberly-Clark Corporation............. 211,000 20,097,750
-------------- ------------
Electric Utilities - 1.05%
NIPSCO Industries, Inc................. 178,000 7,053,250
SCANA Corporation...................... 326,000 8,720,500
Teco Energy Inc........................ 254,900 6,149,463
-------------- ------------
758,900 21,923,213
-------------- ------------
Electrical Equipment & Electronics - 4.51%
AMP, Inc............................... 700,000 26,862,500
General Electric Company............... 360,000 35,595,000
Honeywell Inc.......................... 203,000 13,347,250
Hubbell, Incorporated (Class B)........ 431,880 18,678,810
-------------- ------------
1,694,880 94,483,560
-------------- ------------
Energy - 6.15%
Amoco Corporation...................... 332,000 26,726,000
Atlantic Richfield Company............. 90,100 11,938,250
Chevron Corporation.................... 324,000 21,060,000
Kerr-McGee Corporation................. 190,000 13,680,000
Mobil Corporation...................... 150,000 18,337,500
Occidental Petroleum Corp.............. 568,300 13,284,013
Union Pacific Resources Group.......... 389,400 11,389,950
Unocal Corporation..................... 304,200 12,358,125
-------------- ------------
2,348,000 128,773,838
-------------- ------------
Financial Services - .93%
American Express Company............... 346,000 19,549,000
-------------- ------------
Foods - 1.70%
ConAgra, Inc........................... 270,100 13,437,475
CPC International, Inc................. 285,000 22,087,500
-------------- ------------
555,100 35,524,975
-------------- ------------
Forest Products & Paper - 1.56%
Westvaco Corporation................... 450,012 12,937,845
Weyerhaeuser Company................... 415,000 19,660,625
-------------- ------------
865,012 32,598,470
-------------- ------------
Hardware & Tools - .69%
The Stanley Works...................... 536,000 14,472,000
-------------- ------------
Healthcare - 6.00%
Becton, Dickinson and Company.......... 468,000 20,299,500
Bristol-Myers Squibb Company........... 400,000 43,500,000
Pfizer, Incorporated................... 322,000 26,685,750
Pharmacia & Upjohn Inc................. 380,000 15,057,500
Schering-Plough Corp................... 310,000 20,072,500
-------------- ------------
1,880,000 125,615,250
-------------- ------------
Industrial Distribution - .80%
W. W. Grainger, Inc.................... 208,000 16,692,000
-------------- ------------
Industrial Transportation - .88%
Norfolk Southern Corporation........... 210,000 18,375,000
-------------- ------------
Insurance - 4.84%
Allstate Corporation................... 165,501 9,578,370
Jefferson-Pilot Corporation............ 183,000 10,362,375
Marsh & McLennan Companies, Inc........ 240,000 24,960,000
MBIA, Inc.............................. 225,500 22,831,875
SAFECO Corporation..................... 668,000 26,344,584
Unitrin, Inc........................... 129,500 7,219,625
-------------- ------------
1,611,501 101,296,829
-------------- ------------
Machinery & Components - 1.07%
Dover Corporation...................... 286,000 14,371,500
Parker-Hannifin Corporation............ 208,750 8,089,063
-------------- ------------
494,750 22,460,563
-------------- ------------
</TABLE>
19
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
--------- -----------
<S> <C> <C>
EQUITIES (Continued)
Miscellaneous - 1.72%
Harsco Corporation........................ 156,050 $ 10,689,425
Minnesota Mining &
Manufacturing Company..................... 305,000 25,276,875
------------- -------------
461,050 35,966,300
------------- -------------
Photography - .83%
Eastman Kodak Company..................... 217,300 17,438,325
------------- -------------
Publishing & Printing - 1.37%
McGraw-Hill Companies, Inc................ 400,000 18,450,000
R.R. Donnelley & Sons Company............. 326,500 10,243,937
------------- -------------
726,500 28,693,937
------------- -------------
Retail - 1.18%
The May Department Stores Company......... 312,000 14,586,000
Sears Roebuck and Company................. 220,000 10,147,500
------------- -------------
532,000 24,733,500
------------- -------------
Retail - Grocery - 1.17%
Albertson's, Inc.......................... 528,000 18,810,000
American Stores Company................... 138,200 5,648,925
------------- -------------
666,200 24,458,925
------------- -------------
Telephone Utilities - 1.76%
Ameritech Corporation..................... 198,000 12,003,750
Frontier Corporation...................... 596,800 13,502,600
Southern New England
Telecommunications Corporation............ 291,000 11,312,625
------------- -------------
1,085,800 36,818,975
------------- -------------
Tobacco - 1.84%
American Brands, Inc...................... 384,000 19,056,000
UST, Inc.................................. 599,000 19,392,625
------------- -------------
983,000 38,448,625
------------- -------------
Total Equities
(Cost $729,315,396)....................... 1,255,371,097
-------------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
BONDS AND NOTES - 19.62%
Asset Backed Securities - 1.53%
Auto Receivables
Capita Equipment Receivables Trust 1996-1,
Class A4
6.280% 6/15/00...................... $ 4,000,000 4,006,240
Chase Manhattan Auto Grantor Trust 1996-B,
Class A
6.610% 9/15/02...................... 4,572,638 4,604,053
Daimler-Benz Auto Grantor Trust 1995-A,
Class A
5.850% 5/15/02...................... 1,391,828 1,390,951
Daimler-Benz Vehicle Trust 1994-A
5.950% 12/15/00..................... 441,747 442,157
Ford Credit Auto Loan Master Trust,
Series 1992-1
6.875% 1/15/99...................... 1,500,000 1,500,465
Ford Credit Auto Owner Trust 1996-B,
Class A-4
6.300% 1/15/01...................... 6,000,000 6,023,940
Ford Credit 1994-B Grantor Trust
7.300% 10/15/99..................... 714,996 723,040
Auto Receivables (Continued)
Keystone Auto Grantor Trust 1996-B,
Class A 144A
6.150% 4/15/03...................... $ 2,334,659 $ 2,332,791
Nissan Auto Receivables 1994-A Grantor
Trust, Class A
6.450% 9/15/99...................... 2,031,209 2,036,287
Railcar Trust No. 1992-1
7.750% 6/1/04....................... 1,443,674 1,508,639
World Omni 1995-A Automobile Lease
Securitization Trust, Class A
6.050% 11/25/01..................... 3,312,095 3,316,235
World Omni 1996-A Automobile Lease
Securitization Trust, Class A1
6.300% 6/25/02...................... 4,200,000 4,214,406
------------- -------------
Total Asset Backed Securities
(Cost $32,097,133)...................... 31,942,846 32,099,204
------------- -------------
Corporate Debt - 7.16%
AirTouch Communications, Inc.
7.500% 7/15/06...................... 4,000,000 4,105,920
America West Airlines 1996-1, Class A
6.850% 7/2/09....................... 4,250,000 4,165,000
American Airlines, Inc.
9.780% 11/26/11..................... 5,000,000 5,693,750
American General Finance Corporation
7.750% 1/15/97...................... 2,000,000 2,000,820
AMR Corporation
9.000% 8/1/12....................... 2,000,000 2,263,880
Analog Devices, Inc.
6.625% 3/1/00....................... 1,500,000 1,480,950
Associates Corporation of North America
6.750% 8/1/01....................... 4,000,000 4,014,680
Bell Atlantic Financial Services, Inc.
6.610% 2/4/00....................... 1,000,000 1,006,210
BHP Finance (USA) Limited
6.420% 3/1/26....................... 4,500,000 4,454,595
Cardinal Distribution, Inc.
8.000% 3/1/97....................... 2,000,000 2,006,260
Champion International Corporation
6.400% 2/15/26...................... 3,500,000 3,341,415
Charles Schwab Corporation
6.250% 1/23/03...................... 2,500,000 2,409,375
Chrysler Financial Corp.
6.620% 4/29/97...................... 2,000,000 2,006,060
CITGO Petroleum Corporation
7.875% 5/15/06...................... 1,000,000 1,019,600
Columbia Gas System, Inc.
6.610% 11/28/02..................... 3,000,000 2,976,750
Commercial Credit Company
7.750% 3/1/05....................... 2,500,000 2,611,150
Continental Airlines, Inc. Series 1996-B
7.820% 10/15/13..................... 2,000,000 2,067,400
Continental Airlines, Inc. Series 1996-2B
8.560% 7/2/14....................... 1,749,640 1,904,921
Corning Glass Works, Inc.
8.875% 3/15/16...................... 500,000 564,120
CSC Enterprises 144A
6.500% 11/15/01..................... 4,500,000 4,482,855
Delta Air Lines, Inc.
8.540% 1/2/07....................... 4,409,887 4,686,211
English China Clays Delaware Inc.
7.375% 10/1/02...................... 1,000,000 1,027,760
</TABLE>
20
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
<S> <C> <C>
BONDS AND NOTES (Continued)
Corporate Debt (Continued)
ERAC USA Finance Company 144A
6.950% 1/15/06................. $ 1,500,000 $ 1,475,625
FBG Finance Ltd. 144A
7.875% 6/1/16.................. 4,000,000 4,066,440
Fletcher Challenge Ltd.
7.750% 6/20/06................. 2,000,000 2,074,100
Ford Motor Credit Company
8.450% 7/15/06................. 1,500,000 1,506,960
Foster Wheeler Corporation
6.750% 11/15/05................ 2,000,000 1,932,440
General American Transportation Corporation
6.750% 3/1/06.................. 3,000,000 2,915,700
General Electric Capital Corporation
8.750% 5/21/07................. 1,500,000 1,700,370
General Motors Corporation
9.125% 7/15/01................. 1,500,000 1,639,875
Goldman Sachs Group, L.P. 144A
6.200% 2/15/01................. 4,000,000 3,920,000
GTE Corporation
9.100% 6/1/03.................. 1,000,000 1,115,490
Leucadia National Corporation
7.750% 8/15/13................. 3,000,000 2,965,710
Lockheed Martin Corporation
7.700% 6/15/08................. 4,000,000 4,184,920
McDonnell Douglas Corporation
9.250% 4/1/02.................. 2,200,000 2,457,180
McDonnell Douglas Corporation
6.875% 11/1/06................. 3,000,000 2,943,780
Newmont Mining Corporation
8.625% 4/1/02.................. 5,000,000 5,278,450
News America Holdings Incorporated
9.250% 2/1/13.................. 4,000,000 4,481,160
Norfolk Southern Corporation
7.400% 9/15/06................. 2,000,000 2,031,140
Norfolk Southern Corporation
7.220% 9/15/06................. 4,000,000 4,075,440
North Finance (Bermuda) Limited 144A
7.000% 9/15/05................. 4,000,000 3,940,000
Pearson Inc. 144A
7.375% 9/15/06................. 3,000,000 3,012,900
Polaroid Corporation
7.250% 1/15/97................. 4,500,000 4,500,990
Ralston Purina Company
7.750% 10/1/15................. 2,000,000 2,050,920
Rite Aid Corporation
6.700% 12/15/01................ 2,000,000 1,996,180
Rolls-Royce Capital Inc.
7.125% 7/29/03................. 2,000,000 2,002,980
Scholastic Corporation
7.000% 12/15/03................ 4,000,000 3,992,280
TCI Communications, Inc.
7.550% 9/2/03.................. 3,000,000 3,037,380
Thomas & Betts Corporation
8.250% 1/15/04................. 1,000,000 1,039,130
Time Warner, Inc.
7.750% 6/15/05................. 3,000,000 3,017,790
The Toro Company
11.000% 8/1/17.................. 2,000,000 2,005,000
US Air, Inc.
7.500% 10/15/09................ 974,038 983,778
Valassis Communications, Inc.
9.550% 12/1/03................. 2,000,000 2,081,280
W.R. Grace & Co.
8.000% 8/15/04................. 5,000,000 5,293,600
-------------- -------------
Total Corporate Debt
(Cost $147,494,780)................ 146,583,565 150,008,670
-------------- -------------
U.S. Government Agency Obligations - 5.19%
Federal Home Loan Mortgage
Corporation (FHLMC) - 1.21%
Collateralized Mortgage Obligations -.1.18%
FHLMC Series 1322 Class G
7.500% 2/15/07................. 5,000,000 5,120,300
FHLMC Series 1460 Class H
7.000% 5/15/07................. 1,789,000 1,806,890
FHLMC Series 1080 Class D
7.000% 7/15/20................. 4,833,866 4,889,745
FHLMC Series 1490 Class PG
6.300% 5/15/07................. 5,000,000 4,965,600
FHLMC Series 1625 Class EA
5.750% 3/15/07................. 5,000,000 4,909,350
FHLMC Series 1625 Class D
5.250% 7/15/04................. 3,100,000 3,067,047
-------------- -------------
24,722,866 24,758,932
Pass-Through Securities - .03%
FHLMC
9.000% 3/1/17.................. 548,116 583,228
-------------- -------------
25,270,982 25,342,160
-------------- -------------
Federal National Mortgage
Association (FNMA) - 1.60%
Collateralized Mortgage Obligations -.1.01%
FNMA Series 1993-134 Class GA
6.500% 2/25/07................. 5,000,000 4,964,050
FNMA Series 1993-71 Class PG
6.250% 7/25/07................. 8,000,000 7,910,000
FNMA Series 1993-175 Class PL
5.000% 10/25/02................ 2,872,226 2,853,355
FNMA Series 1993-191 Class PD
5.400% 3/25/04................. 1,500,000 1,487,340
FNMA Series 1996-54 Class C
6.000% 9/25/08................. 4,000,000 3,840,000
-------------- -------------
21,372,226 21,054,745
Pass-Through Securities - .59%
FNMA
6.000% 5/1/13.................. 2,525,147 2,598,326
FNMA
6.500% 6/25/08................. 5,000,000 4,910,900
FNMA
6.250% 3/25/08................. 5,000,000 4,915,600
-------------- -------------
12,525,147 12,424,826
-------------- -------------
33,897,373 33,479,571
-------------- -------------
</TABLE>
21
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
--------- -----------
<S> <C> <C>
BONDS AND NOTES (Continued)
Government National Mortgage
Association (GNMA) - 1.48%
Collateralized Mortgage Obligations - .08%
JHM Acceptance Corporation, Series E,
Class 5
8.960% 4/1/19.................... $ 1,633,748 $ 1,718,491
-------------- -------------
Pass-Through Securities - 1.40%
GNMA
7.500% 9/15/16 - 10/15/17........ 4,185,629 4,212,542
GNMA
8.000% 1/15/04 - 5/15/08......... 7,451,353 7,700,451
GNMA
9.000% 8/15/08 - 9/15/09......... 2,173,628 2,315,588
GNMA - ARMS
6.000% 7/20/25 - 12/20/25........ 14,744,023 15,067,825
-------------- -------------
28,554,633 29,296,406
-------------- -------------
30,188,381 31,014,897
-------------- -------------
U.S. Government Guaranteed Notes - .90%
1994-A Abilene, TX
5.780% 8/1/98.................... 70,000 69,695
1994-A Bakersfield, CA
5.780% 8/1/98.................... 245,000 243,932
1994-A Barberton, OH
5.780% 8/1/98.................... 75,000 74,673
1994-A Buffalo, NY
5.780% 8/1/98.................... 375,000 373,365
1991-A Caguas, PR
8.740% 8/1/01.................... 280,000 302,924
1991-A Council Bluffs, IA
8.740% 8/1/01.................... 155,000 167,690
1994-A Cumberland, MD
5.780% 8/1/98.................... 55,000 54,760
1994-A Elizabeth, NJ
5.780% 8/1/98.................... 75,000 74,673
1994-A Erie, PA
5.780% 8/1/98.................... 70,000 69,695
1994-A Euclid, OH
5.780% 8/1/98.................... 105,000 104,542
1994-A Fairfax County, VA
5.780% 8/1/98.................... 110,000 109,520
1991-A Fairfax County, VA
8.740% 8/1/01.................... 85,000 91,959
1991-A Fajardo, PR
8.740% 8/1/01.................... 210,000 227,193
1994-A Fort Myers, FL
5.780% 8/1/98.................... 135,000 134,411
1991-A Gasden, AL
8.740% 8/1/01.................... 100,000 108,187
1994-A Lawrence, MA
5.780% 8/1/98.................... 40,000 39,826
1991-A Lorain, OH
8.740% 8/1/01.................... 30,000 32,456
1994-A Los Angeles County, CA
5.780% 8/1/98.................... 175,000 174,237
1994-A Mayaguez, PR
5.780% 8/1/98.................... 65,000 64,717
1991-A Mayaguez, PR
8.740% 8/1/01.................... 150,000 162,281
1994-A Mobile, AL
5.780% 8/1/98.................... 205,000 204,106
1994-A Montgomery County, PA
5.780% 8/1/98.................... 230,000 228,997
1994-A New Orleans, LA
5.780% 8/1/98.................... 175,000 174,237
1994-A Ocean Shores, WA
5.780% 8/1/98.................... 110,000 109,520
1994-A Pasadena, CA
5.780% 8/1/98.................... 140,000 139,390
1994-A Providence, RI
5.780% 8/1/98.................... 50,000 49,782
1994-A Reading, PA
5.780% 8/1/98.................... 65,000 64,717
1994-A Roanoke, VA
5.780% 8/1/98.................... 210,000 209,084
1994-A Rochester, NY
5.780% 8/1/98.................... 165,000 164,281
1991-A Rochester, NY
8.650% 8/1/00.................... 4,295,000 4,590,281
1994-A Sacramento, CA
5.780% 8/1/98.................... 300,000 298,692
1994-A Syracuse, NY
5.780% 8/1/98.................... 50,000 49,782
1994-A Tacoma, WA
5.780% 8/1/98.................... 155,000 154,324
1994-A Trenton, NJ
5.780% 8/1/98.................... 130,000 129,433
1994-A Virginia Beach, VA
5.780% 8/1/98.................... 260,000 258,866
1994-A Waterford Township, MI
5.780% 8/1/98.................... 55,000 54,760
1994-A West Palm Beach, FL
5.780% 8/1/98.................... 105,000 104,542
U.S. Department of Housing and Urban
Development, Series 1995-A
8.240% 8/1/02.................... 8,475,000 9,195,545
-------------- -------------
17,780,000 18,861,075
-------------- -------------
Total U.S. Government Agency Obligations
(Cost $105,983,665).................. 107,136,736 108,697,703
-------------- -------------
U.S. Treasury Obligations - 5.74%
U.S. Treasury Bonds - 3.25%
U.S. Treasury Bond
7.250% 5/15/16................... 24,500,000 25,870,530
U.S. Treasury Bond
8.750% 5/15/17................... 34,500,000 42,095,520
-------------- -------------
59,000,000 67,966,050
-------------- -------------
U.S. Treasury Notes - 1.90%
U.S. Treasury Note
6.125% 5/15/98................... 20,000,000 20,096,800
U.S. Treasury Note
6.375% 1/15/99................... 11,000,000 11,103,070
U.S. Treasury Note
6.375% 5/15/99................... 6,000,000 6,051,540
U.S. Treasury Note
7.250% 5/15/04................... 2,500,000 2,630,475
-------------- -------------
39,500,000 39,881,885
-------------- -------------
</TABLE>
22
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 2A)
--------- -----------
BONDS AND NOTES (Continued)
<S> <C> <C>
U.S. Treasury Strips - .59%
U.S. Treasury Strip - Principal only
0.000% 2/15/99.................. $ 9,750,000 $ 8,618,610
U.S. Treasury Strip - Principal only
0.000% 2/15/10.................. 8,750,000 3,673,950
-------------- -------------
18,500,000 12,292,560
-------------- -------------
Total U.S. Treasury Obligations
(Cost $119,765,128)................. 117,000,000 120,140,495
-------------- -------------
Total Bonds and Notes
(Cost $405,340,706)................. $ 402,663,147 410,946,072
============== -------------
SHORT-TERM INVESTMENTS - 23.50%
Commercial Paper
Aluminum Company of America
5.280% 1/13/97.................. 3,365,000 3,358,783
Aristar, Inc.
5.380% 1/29/97.................. 13,670,000 13,607,892
Baxter International Inc.
5.500% 3/20/97.................. 8,075,000 7,975,767
Central and South West Corporation
5.520% 1/16/97.................. 1,780,000 1,775,906
Central and South West Corporation
5.700% 2/24/97.................. 11,565,000 11,466,207
Central and South West Corporation
5.750% 3/7/97................... 5,890,000 5,829,529
Comdisco, Inc.
5.520% 2/13/97.................. 10,350,000 10,278,549
Comdisco, Inc.
5.580% 3/12/97.................. 8,840,000 8,742,367
Comdisco, Inc.
5.580% 3/14/97.................. 7,530,000 7,444,493
Comdisco, Inc.
5.600% 3/21/97.................. 7,355,000 7,263,471
ConAgra, Inc.
5.480% 2/11/97.................. 9,140,000 9,081,778
ConAgra, Inc.
5.490% 2/14/97.................. 8,270,000 8,213,465
ConAgra, Inc.
5.550% 1/2/97................... 4,815,000 4,814,258
Crown Cork & Seal Company, Inc.
5.510% 1/31/97.................. 10,000,000 9,953,814
Crown Cork & Seal Company, Inc.
5.510% 1/17/97.................. 5,280,000 5,267,070
Crown Cork & Seal Company, Inc.
5.650% 2/27/97.................. 14,090,000 13,958,716
Dana Credit Corporation
5.470% 1/21/97.................. 13,000,000 12,959,972
Dana Credit Corporation
5.520% 1/16/97.................. 5,795,000 5,761,672
Deere Capital Corporation
5.370% 2/28/97.................. 7,365,000 7,297,425
Dominion Resources, Inc.
5.500% 2/20/97.................. 10,000,000 9,916,267
Illinois Power Company
5.480% 2/6/97................... 5,550,000 5,517,923
Illinois Power Company
5.570% 2/19/97.................. 6,700,000 6,647,200
Illinois Power Company
5.650% 2/25/97.................. 6,290,000 6,235,274
Monsanto Company
5.320% 1/30/97.................. 8,000,000 7,961,737
Northern States Power Company
5.300% 1/10/97.................. 8,655,000 6,642,898
NYNEX Corp.
5.420% 3/27/97.................. 13,640,000 13,457,527
ORIX Credit Alliance, Inc.
5.530% 1/6/97................... 2,120,000 2,118,353
ORIX Credit Alliance, Inc.
5.470% 2/4/97................... 10,375,000 10,320,194
ORIX Credit Alliance, Inc.
5.490% 2/7/97................... 4,910,000 4,881,774
ORIX Credit Alliance, Inc.
5.480% 1/27/97.................. 6,615,000 6,587,339
ORIX Credit Alliance, Inc.
5.620% 3/13/97.................. 8,995,000 8,894,256
ORIX Credit Alliance, Inc.
5.800% 3/24/97.................. 3,855,000 3,805,228
Philip Morris Companies
5.300% 1/24/97.................. 9,385,000 9,351,768
Philip Morris Companies
5.270% 1/15/97.................. 12,180,000 12,153,310
Praxair, Inc.
5.450% 1/9/97................... 9,300,000 9,288,055
Praxair, Inc.
5.470% 2/24/97.................. 6,000,000 5,948,746
Praxair, Inc.
5.560% 3/6/97................... 9,665,000 9,765,254
Praxair, Inc.
5.540% 3/24/97.................. 4,010,000 3,958,226
Praxair, Inc.
5.540% 3/20/97.................. 7,495,000 7,402,895
Public Service Company of Colorado
5.800% 2/26/97.................. 5,800,000 5,747,763
Public Service Electric and Gas Company
5.480% 1/13/97.................. 5,245,000 5,235,310
Public Service Electric and Gas Company
5.490% 1/13/97.................. 1,425,000 1,422,367
Public Service Electric and Gas Company
5.490% 2/6/97................... 7,375,000 7,332,375
Public Service Electric and Gas Company
5.480% 2/12/97.................. 11,430,000 11,354,171
Public Service Electric and Gas Company
5.500% 2/21/97.................. 10,000,000 9,920,763
Ralston Purina Company
5.500% 1/6/97................... 5,000,000 4,996,116
Rite Aid Corporation
5.450% 2/10/97.................. 15,000,000 14,906,780
Rite Aid Corporation
5.490% 2/18/97.................. 8,000,000 7,939,254
Rite Aid Corporation
5.600% 3/4/97................... 7,890,000 7,812,678
Sierra Pacific Power Company
5.470% 1/16/97.................. 3,900,000 3,890,693
Textron Financial Corporation
5.500% 1/3/97................... 6,460,000 6,458,026
Textron Financial Corporation
5.480% 2/5/97................... 10,000,000 9,944,715
Textron Financial Corporation
5.530% 3/3/97................... 10,555,000 10,453,203
Timken Company
5.500% 1/28/97.................. 10,000,000 9,956,907
</TABLE>
23
<PAGE>
MML Blend Fund
SCHEDULE OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note 2A)
--------- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (Continued)
Commercial Paper (Continued)
Union Camp Corp.
5.650% 2/3/97..................... $ 8,980,000 $ 8,935,214
Western Resources Inc.
5.650% 1/7/97..................... 7,535,000 7,527,976
Western Resources Inc.
5.490% 1/23/97.................... 12,200,000 12,157,301
Western Resources Inc.
5.470% 1/14/97.................... 8,470,000 8,453,048
Whirlpool Financial Corporation
5.600% 1/22/97.................... 12,760,000 12,718,059
Whirlpool Financial Corporation
5.400% 1/8/97..................... 8,920,000 8,910,137
Xerox Corporation
5.300% 1/17/97.................... 8,120,000 8,099,998
-------------- --------------
Total Short-Term Investments
(Cost $492,181,705) $ 495,180,000 492,100,212
=============== --------------
Total Investments -
(Cost $1,626,837,807) (a) 103.07% $2,158,417,381
======== ==============
</TABLE>
Table of Open Forward Commitment Contracts
<TABLE>
<CAPTION>
Forward Aggregate Expiration
Commitment Face Value of of Unrealized
Contracts Contracts Contracts Depreciation
---------- ------------- ---------- ------------
<S> <C> <C> <C>
United States of America
5.875% due 11/15/99 $5,000,000 February 1997 $ (6,345)
-----------
Total Forward Commitment
Contracts $ (6,345)
===========
</TABLE>
(a) Federal Income Tax Information: At
December 31, 1996 the net unrealized
appreciation on investments and forward
commitment contracts based on cost of
$1,632,176,681 for federal income tax
purposes is as follows:
Aggregate gross unrealized appreciation for
all investments and forward commitments in
which there is an excess of market value
over tax cost..................................... $ 533,669,598
Aggregate gross unrealized depreciation for
all investments and forward commitments in
which there is an excess of tax cost over
market value...................................... (2,453,798)
--------------
Net unrealized appreciation...................... $ 531,215,800
==============
See Notes to Financial Statements.
24
<PAGE>
MML Series Investment Fund
Notes To Financial Statements
1. History
MML Series Investment Fund (the "MML Trust") is registered under the
Investment Company Act of 1940 as a no-load, registered open end, diversified
management investment company. MML Equity Fund, MML Money Market Fund, MML
Managed Bond Fund and MML Blend Fund (the "Funds") are four series of shares
of the MML Trust. The MML Trust is organized as a business trust under the laws
of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust.
The MML Trust was established by Massachusetts Mutual Life Insurance Company
("MassMutual") for the purpose of providing vehicles for the investment of
assets of various separate investment accounts established by MassMutual and by
life insurance companies which are subsidiaries of MassMutual. Shares of the MML
Trust are not offered to the general public.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed
consistently by each Fund in the preparation of the financial statements in
conformity with generally accepted accounting principles.
A. Investment Valuation
Equity securities are valued on the basis of valuations furnished by a
pricing service, authorized by the Board of Trustees, which provides the
last reported sale price for securities listed on a national securities
exchange, or on the NASDAQ national market system. If securities are
unlisted, or there is no reported sale price, the bid price of the prior
trade date will be used. Long-term bonds are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which determines valuations taking into account appropriate
factors such as institutional-size, trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data.
For MML Equity Fund, MML Managed Bond Fund, and MML Blend Fund, short-term
securities with more than sixty days to maturity from the date of purchase
are valued at market and short-term securities having a maturity from the
date of purchase of sixty days or less are valued at amortized cost. MML
Money Market Fund's portfolio securities are valued at amortized cost in
accordance with a rule of the Securities and Exchange Commission pursuant to
which MML Money Market Fund must adhere to certain conditions. It is the
intention of MML Money Market Fund to maintain a per share net asset value
of $1.00.
B. Accounting For Investments
Investment transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Premiums and discounts on short-term securities are amortized in
determining interest income.
The cost basis of long-term bonds is not adjusted for amortization of
premium or accrual of discount since MML Managed Bond Fund and MML Blend
Fund do not generally intend to hold such investments until maturity;
however, the MML Trust has elected to accrue for financial reporting
purposes, certain discounts which are required to be accrued for federal
income tax purposes.
Realized gains and losses on investment transactions and unrealized
appreciation and depreciation of investments are reported for financial
statement and federal income tax purposes on the identified cost method.
C. Federal Income Tax
The MML Trust has established a policy for each of the Funds to comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies. As a result, the Funds will not be subject to federal
income tax on any net investment income and any net capital gains to the
extent they are distributed or are deemed to have been distributed to
shareholders. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to the deferral of wash sale losses, and
paydowns on certain mortgage-backed securities. As a result, net investment
income (loss) and net realized gain (loss) on investment transactions for a
reporting period may differ significantly from distributions during such
period. Accordingly, the Funds may periodically make reclassifications among
certain of their capital accounts without impacting the net asset value of
the Funds.
25
<PAGE>
Notes To Financial Statements (Continued)
D. Forward Commitments
Each Fund may purchase or sell securities on a ``when issued'' or delayed
delivery or on a forward commitment basis. The Funds use forward commitments
to manage interest rate exposure or as a temporary substitute for purchasing
or selling particular debt securities. The Funds may also use forward
commitments to take delivery of the underlying security rather than closing
out the forward contract. Forward commitments are not used for purposes of
trading. Settlement for securities purchased on a forward commitment basis
can take place a month or more after the date of the transaction. The Fund
generally does not take delivery on these forward commitments, but such
commitments are instead settled with offsetting transactions. When a forward
commitment contract is closed, the Funds record a realized gain or loss.
Forward commitments involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date. The Funds could also be
exposed to loss if they cannot close out their forward commitments because
of an illiquid secondary market, or the inability of counterparties to
perform. The Fund monitors exposure to ensure counterparties are credit
worthy and concentration of exposure is minimized. The Funds instruct the
custodian to segregate liquid high quality assets in a separate account with
a current market value at least equal to the amount of its forward purchase
commitments. The price of the underlying security and the date when the
securities will be delivered and paid for are fixed at the time the
transaction is negotiated. The value of the forward commitment is determined
by management using a commonly accepted pricing model and fluctuates based
upon changes in the value of the underlying security and market repo rates.
Such rates equate the counterparty's cost to purchase and finance the
underlying security to the earnings received on the security and forward
delivery proceeds. The Funds record on a daily basis the unrealized
appreciation/depreciation based upon changes in the value of the forward
commitment. At December 31, 1996, the cost (value) of forward commitments to
purchase securities amounted to $4,981,445 ($4,975,100) for the MML Blend
Fund.
E. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Capital Loss Carryforward
The accumulated net realized loss on investments for the MML Money Market Fund
results in a capital loss carryforward of $9,702 which is available for federal
income tax purposes to offset future capital gains. Of the total carryforward,
$453 expires December 31, 1997, $1,639 expires December 31, 1998, $1,204 expires
December 31, 2000, $201 expires December 31, 2001, $5,364 expires December 31,
2002 and $841 expires December 31, 2003.
The accumulated net realized loss on investments for the MML Managed Bond Fund
results in a capital loss carryforward of $1,089,411 which is available for
federal income tax purposes to offset future capital gains. Of the total
carryforward, $766,579 expires December 31, 2002 and $322,832 expires December
31, 2004.
4. Investment Management Fee
MassMutual provides all investment advisory, management and administrative
services needed by the Funds. For acting as such, MassMutual receives a
quarterly fee from each Fund at the annual rate of .50% of the first
$100,000,000 of the average daily net asset value of each Fund, .45% of the next
$200,000,000, .40% of the next $200,000,000, and .35% of any excess over
$500,000,000.
Concert Capital Management, Inc. ("Concert") served as the investment sub-
advisor to MML Equity Fund and the Equity Sector of the MML Blend Fund from
1993-1996. Concert merged with and into David L. Babson & Company, Inc.
("Babson") effective December 31, 1996. At such time, both Concert and Babson
were wholly owned subsidiaries of Babson Acquisition Corporation, which is a
controlled subsidiary of MassMutual. Thus, effective January 1, 1997, Babson
serves as the investment sub-advisor to MML Equity Fund and the Equity Sector of
the MML Blend Fund. MassMutual paid Concert a quarterly fee equal to an annual
rate of .13% of the average daily net asset value of MML Equity Fund and the
Equity Sector of MML Blend Fund.
MassMutual has agreed, at least through April 30, 1997, to bear the expenses of
the Funds to the extent that the aggregate expenses (excluding each Fund's
management fee, interest, taxes, brokerage commissions and extraordinary
expenses) incurred during each Fund's fiscal year exceed .11% of the average
daily net asset value of each Fund for such year. For the year ended December
31, 1996, MassMutual was not required to reimburse the Funds for any expenses.
26
<PAGE>
Notes To Financial Statements (Continued)
5. PURCHASES AND SALES OF INVESTMENTS AND FORWARD COMMITMENTS
<TABLE>
<CAPTION>
Proceeds
For the Year Ended Acquisition from Sales
December 31, 1996 Cost and Maturities
----------------- ----------- --------------
<S> <C> <C>
Investments
-----------
MML EQUITY FUND
Equities............................................................................. $ 397,427,240 $ 156,344,169
Short-term investments............................................................... 1,791,112,656 1,808,050,114
MML MONEY MARKET FUND
Short-term investments............................................................... 678,410,850 648,768,474
MML MANAGED BOND FUND
Bonds and notes...................................................................... 59,285,110 26,101,663
U.S. Government investments - long-term.............................................. 51,001,536 50,006,188
Short-term investments............................................................... 512,399,665 513,856,075
MML BLEND FUND
Equities............................................................................. 216,312,103 114,693,516
Bonds and notes...................................................................... 142,113,933 40,927,976
U.S. Government investments - long-term.............................................. 161,871,816 125,534,828
Short-term investments............................................................... 2,548,921,690 2,672,419,594
<CAPTION>
Cost
Forward Commitments of Contracts
------------------- ------------
<S> <C>
MML MANAGED BOND FUND
U.S. Treasury and GNMA Forward Commitment Contracts:
Contracts opened.................................................................... $ 1,579,688
Contracts closed.................................................................... 1,579,688
Outstanding at December 31, 1996................................................... --
MML BLEND FUND
U.S. Treasury and GNMA Forward Commitment Contracts:
Contracts opened.................................................................... 85,470,699
Contracts closed.................................................................... 133,595,090
Outstanding at December 31, 1996................................................... 4,981,445
</TABLE>
6. NET INCREASE FROM CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
MML MML
MML Money Managed MML
For the Year Ended Equity Market Bond Blend
December 31, 1996 Fund Fund Fund Fund
------------------ -------- -------- --------- -------
<S> <C> <C> <C> <C>
Shares
Reinvestment of dividends.......................... 1,828,658 6,040,304 891,160 5,306,755
Sales of shares.................................... 10,091,590 124,468,969 2,922,396 7,200,298
Redemptions of shares.............................. (2,955,578) (94,198,432) (1,491,952) (6,061,613)
-------------- -------------- ------------- ---------------
Net increase....................................... 8,964,670 36,310,841 2,321,604 6,445,440
============== ============== ============= ===============
Amount
Reinvestment of dividends.......................... $ 47,407,259 $ 6,040,304 $ 10,670,172 $ 110,096,240
Sales of shares.................................... 284,667,043 124,468,969 35,191,792 154,685,163
Redemptions of shares.............................. (83,541,731) (94,198,432) (18,019,376) (131,731,229)
-------------- -------------- ------------- ---------------
Net increase....................................... $ 248,532,571 $ 36,310,841 $ 27,842,588 $ 133,050,174
============== ============== ============= ===============
<CAPTION>
MML MML
MML Money Managed MML
For the Year Ended Equity Market Bond Blend
December 31, 1995 Fund Fund Fund Fund
------------------ -------- -------- --------- -------
<S> <C> <C> <C> <C>
Shares
Reinvestment of dividends.......................... 1,621,795 5,376,748 763,489 5,184,192
Sales of shares.................................... 8,464,024 92,327,266 2,219,273 6,885,480
Redemptions of shares.............................. (1,909,273) (80,569,846) (1,113,390) (4,944,135)
-------------- -------------- ------------- ---------------
Net increase....................................... 8,176,546 17,134,168 1,869,372 7,125,537
============== ============== ============= ===============
Amount
Reinvestment of dividends.......................... $ 33,282,252 $ 5,376,748 $ 8,979,443 $ 96,495,329
Sales of shares.................................... 203,078,940 92,327,266 26,776,179 135,128,246
Redemptions of shares.............................. (45,862,370) (80,569,846) (13,296,001) (96,681,499)
-------------- -------------- ------------- ---------------
Net increase....................................... $ 190,498,822 $ 17,134,168 $ 22,459,621 $ 134,942,076
============== ============== ============= ===============
</TABLE>
27
<PAGE>
Report Of Independent Accountants
To the Board of Trustees and Shareholders of
MML Series Investment Fund
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the MML Equity Fund, the MML Money Market Fund,
the MML Managed Bond Fund and the MML Blend Fund which comprise the MML Series
Investment Fund (a Massachusetts business trust), as of December 31, 1996, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
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, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds as of December 31, 1996, the results of their respective operations
for the year then ended, the changes in their respective net assets for each of
the two years in the period then ended, and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Springfield, Massachusetts
January 31, 1997
28
<PAGE>
Oppenheimer High Income Fund, a series of
Oppenheimer Variable Account Funds
Objective
Oppenheimer High Income Fund, a series of Oppenheimer Variable Account Funds,
seeks a high level of current income. The Fund invests in high-yielding,
lower-rated and unrated fixed income securities.
Narrative by David Negri, Fund Manager
While the bond market of 1996 was somewhat difficult due to rising interest
rates early in the year, Oppenheimer High Income Fund performed very well.
High-yield bonds, while having greater credit risks, continued to perform better
than most other fixed income investments during this generally weak market and
our early, aggressive positioning allowed us to take advantage of that strength.
Over the past year, we benefited most from emphasis on the telecommunications
sector. This industry, which also includes media and cable companies, has tended
to be fairly aggressive and has shown strong performance for several years. In
addition, recent government deregulation caused increased demand for domestic
and international telecommunication products, and this in turn, has driven
earnings growth. This sector also benefited from a surge in the number of
corporate mergers and acquisitions. All of these measures have added up to
increased profitability within this sector.
Another factor that contributed to the Fund's positive performance was reduced
emphasis in the casino and gaming industry. Consolidations within the industry
have not prevented an earnings slowdown. Because we had allocated very little of
the Fund's assets to this industry, we were able to avoid some of these
disappointments. We also benefited from having fewer investments in paper and
forest products, segments that were poor performers during this period due to
light demand coupled with ample supply of these products.
This year we invested about 15 percent of the Fund's assets in foreign
government bonds, split fairly evenly between emerging markets and developed
countries. These securities, while entailing additional risks, such as currency
fluctuations, enjoyed exceptionally strong performance last year, producing even
higher returns than high-yield corporate bonds. By investing internationally, we
were able to diversify the portfolio, as well as significantly increase returns
over the period.
Looking ahead to 1997, we are concentrating on improving the overall relative
credit quality of our holdings. For example, as we decreased the portfolio's
exposure to some cyclical industries that underperformed in 1996, such as metals
and paper and forest products, we substantially increased investments in the oil
and gas sector, which has offered higher-quality, higher-rated investments. In
addition to higher credit quality, these investments tend to be less cyclical by
nature, making them less vulnerable should the economy begin to show signs of
slowing.
We appreciate your confidence in Oppenheimer High Income Fund. We look forward
to helping you reach your financial goals in the future.
Oppenheimer Capital Appreciation Fund, a series of
Oppenheimer Variable Account Funds
Objective
Oppenheimer Capital Appreciation Fund, a series of Oppenheimer Variable Account
Funds, primarily seeks capital appreciation through investments in the common
stocks of "growth-type" companies. In addition, the Fund may selectively invest
in some "special situations" that management believes may provide opportunities
for growth.
Narrative by Paul LaRocco, Fund Manager
Oppenheimer Capital Appreciation Fund had an excellent year in 1996. We
attribute this performance to the strength of the stocks of high growth
companies over the period and some well-timed investment decisions. Because we
use a bottom-up approach to our stock selection, we look for individual
companies that display superior growth characteristics, demonstrate the ability
to have solid earnings and strong management. In addition, these companies are
addressing large, open-ended opportunities by offering new products, new
services or a new way of doing things.
Our strongest performers over the period were from the healthcare and technology
industries. In healthcare, we owned selected physician practice management
stocks. This is a growing part of the healthcare industry that helps doctors
manage their practices, thereby enabling them to spend more time with patients
and less time doing administrative work. Technology stocks were successful due
to the development of efficiency-enhancing products, such as software programs
and other applied technologies. Demand
13
<PAGE>
for these innovations has been strong, largely because they can help reduce
costs of the businesses that implement the systems, while also improving their
revenue opportunities./1/
Another area that performed well for us was the business services area. Our
biggest successes were in information technology services, which benefited from
the explosive growth in technology. We've also done well with our holdings in
the industrial services area, which includes environmental companies, data
processing companies and niche-consumer cyclical companies like selected
retailers, apparel manufacturers and restaurants.
Many of the stocks that disappointed us owe their less-than-spectacular results
mainly to failure to deliver on their growth prospects. In fact, these companies
no longer display superior growth characteristics, and consequently, we sold
many of them.
Going forward, we're focusing on companies that we expect will have solid
earnings growth in 1997. We have trimmed the number of stocks in the portfolio
to concentrate on fewer holdings, but we have a higher degree of confidence in
the ability of these companies to deliver robust growth. In addition, we expect
to see moderate but steady economic growth in the United States, coupled with
stable interest rates in the near term. Both factors should benefit the
portfolio. Of course, we'll continue to select stocks based on their individual
merit, regardless of near-term market predictions, because solid companies with
good fundamentals tend to stand the test of time.
We appreciate your confidence in Oppenheimer Capital Appreciation Fund. We look
forward to helping you reach your financial goals in the future.
Oppenheimer Global Securities Fund, a series of
Oppenheimer Variable Account Funds
Objective
Oppenheimer Global Securities Fund, a series of Oppenheimer Variable Account
Funds, seeks capital growth by investing in a diversified portfolio of foreign
and domestic stocks.
Narrative by William Wilby, Fund Manager
The Fund performed well over the past year, despite difficulties in the foreign
markets. By combining our theme approach with strong individual stock selection,
we were able to produce solid returns for the year.
Despite on-again, off-again fears of too much or too little growth, the U.S.
market has been the Fund's biggest contributor of positive return this year.
Economic growth overseas has been weak, and most foreign markets lagged the U.S.
despite their lower valuations. We attribute this to the universal focus of
investors on "shareholder friendly" managements which are generally more
numerous in the U.S. As European managements have moved to embrace "shareholder
value", those markets began to perform while the less "shareholder oriented"
managements in Asia lagged./1/
Our natural resources theme also provided some big winners during this period.
Several years ago, we began to invest in oil service companies in Europe and
North America. These companies, which specialize in deep-water drilling rigs,
had seen a steady decline in day rates to well below replacement cost, while the
demand for offshore drilling facilities increased. In 1996, day rates rose
sharply along with the oil price, which in turn rose because of seasonally low
inventory levels. Meanwhile, demand for oil in emerging economies has continued
to grow unabated.
On the negative side, our Japanese holdings did not perform as expected.
Although we correctly anticipated the economic recovery in Japan, and the
positive impact it would have on corporate earnings, the market did not bounce
back. In fact, it declined.
Going forward, we have recently added to our biotechnology holdings within our
healthcare theme. Prior to the election, biotechnology stocks fell sharply on
fears that a Democratic Congress might reintroduce a Clinton healthcare plan. We
believed those fears were overblown and felt that the long-term fundamentals of
these companies remained excellent. We used the sharp decline to buy into this
sector before the election, and we are continuing to add shares where the
fundamentals are strong.
As the global economic cycle continues to age, and stock valuations move higher,
we have approached 1997 with caution. We believe, however, that the Fund's
portfolio, with substantial investments in high-growth-potential stocks,
continues to offer investors an outstanding opportunity both for diversification
and long-term appreciation potential.
We appreciate your confidence in Oppenheimer Global Securities Fund. We look
forward to helping you reach your financial goals in the future.
- ---------------------
/1/ The Fund's portfolio is subject to change.
14
<PAGE>
Oppenheimer Variable Account Funds
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Oppenheimer Capital Global
High Income Appreciation Securities
Fund Fund Fund
-------------- ------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost *) (including repurchase agreements **)
- See accompanying statements......................................... $ 188,944,878 $ 624,437,033 $ 588,435,102
Unrealized appreciation on forward foreign currency exchange -------------- -------------- ---------------
contracts - See applicable note....................................... 214,142 -- 2,384,877
Cash.................................................................... 1,661,545 1,370,404 249,257
Receivables:
Closed forward foreign currency exchange contracts.................... 39,075 -- 141,470
Dividends, interest and principal paydowns............................ 2,648,895 87,611 729,667
Shares of beneficial interest sold.................................... 48,723 743,805 325,558
Investments sold...................................................... 2,034,126 3,398,148 965,585
Other................................................................... 5,662 7,041 7,129
-------------- -------------- ---------------
Total assets.......................................................... 195,597,046 630,044,042 593,238,645
-------------- -------------- ---------------
LIABILITIES:
Options written, at value (premiums received ***)
- See accompanying statements and notes............................... 85,670 -- --
Unrealized depreciation on forward foreign currency exchange
contracts - See applicable note....................................... 817 -- 259,966
Payables and other liabilities:
Closed forward foreign currency exchange contracts.................... 73,512 -- --
Daily variation on futures contracts - See applicable note............ 16,431 627,000 --
Custodian fees........................................................ 21,606 12,417 144,157
Investments purchased (including those purchased on a
when-issued basis ****) - See applicable note....................... 3,985,947 9,598,112 10,463,998
Shares of beneficial interest redeemed................................ 87,930 2,324,434 229,118
Other................................................................. 31,760 89,807 61,217
-------------- -------------- ---------------
Total liabilities..................................................... 4,303,673 12,651,770 11,158,456
-------------- -------------- ---------------
NET ASSETS.............................................................. $ 191,293,373 $ 617,392,272 $ 582,080,189
============== ============== ===============
COMPOSITION OF NET ASSETS:
Paid-in capital......................................................... $ 180,181,078 $ 481,442,351 $ 508,449,760
Undistributed net investment income..................................... 913,946 1,479,312 7,724,243
Accumulated net realized gain (loss) from investments and
foreign currency transactions......................................... (367,314) 29,248,149 (17,047,799)
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies.............. 10,565,663 105,222,460 82,953,985
-------------- -------------- ---------------
NET ASSETS.............................................................. $ 191,293,373 $ 617,392,272 $ 582,080,189
============== ============== ===============
SHARES OF BENEFICIAL INTEREST OUTSTANDING............................... 17,186,015 15,949,976 32,946,137
NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE................................................ $ 11.13 $ 38.71 $ 17.67
*Cost................................................................... $ 178,526,490 $ 519,731,267 $ 507,602,388
**Repurchase agreements................................................. $ 12,900,000 $ 138,000,000 $ 60,500,000
***Premiums received.................................................... $ 42,285 $ -- $ --
****When-issued basis................................................... $ 1,137,309 $ -- $ --
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Oppenheimer Variable Account Funds
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Oppenheimer Capital Global
High Income Appreciation Securities
Fund Fund Fund
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of withholding taxes of *)........................... $ 14,989,197 $ 4,761,662 $ 2,558,378
Dividends (net of withholding taxes of **)......................... 722,664 255,664 6,284,482
------------ ------------ ------------
Total income..................................................... 15,711,861 5,017,326 8,842,860
------------ ------------ ------------
EXPENSES:
Management fees - See applicable note.............................. 1,177,754 3,382,840 3,395,740
Custodian fees and expenses........................................ 59,180 38,039 292,641
Legal and auditing fees............................................ 16,801 14,799 20,195
Insurance expenses................................................. 5,140 8,469 8,139
Trustees' fees and expenses........................................ 3,406 4,586 4,647
Registration and filing fees....................................... 18,035 71,749 44,572
Other.............................................................. 602 507 1,196
------------ ------------ ------------
Total expense.................................................... 1,280,918 3,520,989 3,767,130
------------ ------------ ------------
NET INVESTMENT INCOME.............................................. 14,430,943 1,496,337 5,075,730
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments:
Unaffiliated companies............................................ 2,988,616 29,669,378 13,879,186
Affiliated companies.............................................. -- -- 20,580
Closing of futures contracts....................................... (110,588) (99,708) --
Closing and expiration of options written.......................... 256,826 -- --
Foreign currency transactions...................................... 198,737 -- (2,124,032)
Net change in unrealized appreciation or depreciation on:
Investments........................................................ 4,835,153 42,247,113 61,185,137
Translation of assets and liabilities denominated in foreign
currencies....................................................... 5,267 -- (2,041,403)
------------ ------------ ------------
Net realized and unrealized gain................................... 8,174,011 71,816,783 70,919,468
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......................................... $ 22,604,954 $ 73,313,120 $ 75,995,198
============ ============ ============
*Interest.......................................................... $ 10,053 $ -- $ --
**Dividends........................................................ $ -- $ -- $ 397,043
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Oppenheimer Variable Account Funds
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Oppenheimer Capital Global
High Income Appreciation Securities
Fund Fund Fund
----------------------- --------------------- ----------------------
1996 1995 1996 1995 1996 1995
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income..................... $ 14,430,943 $ 11,343,977 $ 1,496,337 $ 1,123,451 $ 5,075,730 $ 2,845,513
Net realized gain (loss).................. 3,333,591 622,733 29,569,670 22,379,477 11,775,734 (25,767,883)
------------ ------------ ------------ ------------ ------------ ------------
Net change in unrealized
appreciation or depreciation............ 4,840,420 9,413,001 42,247,113 47,042,428 59,143,734 31,653,008
Net increase in net assets resulting
from operations......................... 22,604,954 21,379,711 73,313,120 70,545,356 75,995,198 8,730,638
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment income...... (15,283,448) (12,039,383) (1,132,964) (719,183) -- --
Distributions from net realized gain...... -- -- (21,289,429) (363,458) -- (8,174,158)
BENEFICIAL INTEREST TRANSACTIONS:
Net increase in net assets resulting from
beneficial interest transactions -
See applicable note..................... 50,521,087 28,412,143 241,097,454 70,167,835 145,106,158 62,580,432
------------ ------------ ------------ ------------ ------------ ------------
Total increase............................ 57,842,593 37,752,471 291,988,181 139,630,550 221,101,356 63,136,912
============ ============ ============ ============ ============ ============
NET ASSETS:
Beginning of the year..................... 133,450,780 95,698,309 325,404,091 185,773,541 360,978,833 297,841,921
End of the year........................... $191,293,373 $133,450,780 $617,392,272 $325,404,091 $582,080,189 $360,978,833
Undistributed (overdistributed)
net investment income................... $ 913,946 $ 1,473,129 $ 1,479,312 $ 1,115,939 $ 7,724,243 $ (1,068)
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.63 $9.79 $11.02 $9.74 $9.40
Income (loss) from investment operations:
Net investment income .97 .98 .94 .82 1.19
Net realized and unrealized gain (loss) .58 .94 (1.27) 1.65 .43
---------------------------------------------------------------------------
Total income (loss) from investment operations 1.55 1.92 (.33) 2.47 1.62
---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.05) (1.08) (.66) (1.19) (1.28)
Distributions from net realized gain -- -- (.24) -- --
---------------------------------------------------------------------------
Total dividends and distributions to shareholders (1.05) (1.08) (.90) (1.19) (1.28)
---------------------------------------------------------------------------
Net asset value, end of period $11.13 $10.63 $9.79 $11.02 $9.74
===========================================================================
TOTAL RETURN, AT NET ASSET VALUE/(1)/ 15.26% 20.37% (3.18)% 26.34% 17.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $191,293 $133,451 $95,698 $93,011 $40,817
Average net assets (in thousands) $157,203 $115,600 $101,096 $67,000 $36,861
Ratios to average net assets:
Net investment income 9.18% 9.81% 9.15% 10.50% 12.08%
Expenses .81% .81% .67% .68% .73%
Portfolio turnover rate/(2)/ 125.00% 107.10% 110.10% 135.70% 144.20%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of these
charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended December 31, 1996 were
$216,284,607 and $177,884,266, respectively.
See Notes to Financial Statements.
18
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $34.21 $25.95 $31.64 $26.04 $23.24
Income (loss) from investment operations:
Net investment income .09 .11 .10 .05 .06
Net realized and unrealized gain (loss) 6.59 8.29 (2.22) 6.71 3.43
---------------------------------------------------------------------------
Total income (loss) from investment operations 6.68 8.40 (2.12) 6.76 3.49
---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.11) (.09) (.04) (.06) (.14)
Distributions from net realized gain (2.07) (.05) (3.53) (1.10) (.55)
---------------------------------------------------------------------------
Total dividends and distributions to shareholders (2.18) (.14) (3.57) (1.16) (.69)
---------------------------------------------------------------------------
Net asset value, end of period $38.71 $34.21 $25.95 $31.64 $26.04
===========================================================================
TOTAL RETURN, AT NET ASSET VALUE/(1)/ 20.22% 32.52% (7.59)% 27.32% 15.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $617,392 $325,404 $185,774 $136,885 $83,335
Average net assets (in thousands) $467,080 $240,730 $153,832 $98,228 $56,371
Ratios to average net assets:
Net investment income .32% .47% .50% .23% .30%
Expenses .75% .78% .57% .47% .54%
Portfolio turnover rate/(2)/ 100.10% 125.50% 96.50% 122.80% 78.90%
Average brokerage commission rate/(3)/ $.0583 $.0577 -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of these
charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended December 31, 1996 were
$507,743,146 and $384,247,154, respectively.
3. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total of related shares
purchased and sold.
See Notes to Financial Statements.
19
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $15.00 $15.09 $16.30 $9.57 $10.38
Income (loss) from investment operations:
Net investment income (loss) .15 .12 .04 (.02) .07
Net realized and unrealized gain (loss) 2.52 .19 (.96) 6.75 (.80)
-------------------------------------------------------------------------------
Total income (loss) from investment operations 2.67 .31 (.92) 6.73 (0.73)
-------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.04) -- (.04)
Distributions from net realized gain -- (.40) (.25) -- (.04)
-------------------------------------------------------------------------------
Total dividends and distributions to shareholders -- (.40) (.29) -- (.08)
-------------------------------------------------------------------------------
Net asset value, end of period $17.67 $15.00 $15.09 $16.30 $9.57
===============================================================================
TOTAL RETURN, AT NET ASSET VALUE/(1)/ 17.80% 2.24% (5.72)% 70.32% (7.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $580,998 $360,979 $297,842 $96,425 $13,537
Average net assets (in thousands) $466,750 $332,336 $214,545 $31,696 $11,181
Ratios to average net assets:
Net investment income 1.09% .86% .54% .72% 1.04%
Expenses .81% .89% .91% .92% 1.06%
Portfolio turnover rate/(2)/ 89.90% 131.30% 70.40% 65.10% 34.10%
Average brokerage commission rate/(3)/ $.0045 $.0092 -- -- --
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Total returns are not annualized for periods of less than one full
year. Total return information does not reflect expenses that apply at the
separate account level or to related insurance products. Inclusion of these
charges would reduce the total return figures for all periods shown.
2. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended December 31, 1996 were
$508,437,343 and $396,821,829, respectively.
3. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of related
shares purchased and sold.
See Notes to Financial Statements.
20
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) (Note 1)
--------- ------------
<S> <C> <C>
Mortgage-Backed Obligations -- 4.1%
CBA Mortgage Corp., Mtg. Pass-
Through Certificates, Series 1993-C1,
Cl. F, 7.773%, 12/25/03 /(2)(3)/....... $ 700,000 $ 548,625
Commercial Mortgage Acceptance Corp.,
Collateralized Mtg. Obligation, Series
1996-C1, Cl. E, 8.075%, 12/25/20 /(2)(4)/ 250,000 252,344
Merrill Lynch Mortgage Investors, Inc.,
Mtg. Pass-Through Certificates, Series
1995-C2, Cl. D, 7.989%, 6/15/21 /(2)/.. 449,587 456,050
Morgan Stanley Capital I, Inc.,
Commercial Mtg. Pass-Through
Certificates, Series 1996-C1, Cl. E,
7.51%, 2/15/28 /(2)(3)/................ 835,342 678,715
Mortgage Capital Funding, Inc.,
Multifamily Mtg. Pass-Through
Certificates, Series 1996-MC1, Cl. G,
7.15%, 6/15/06 /(4)/................... 750,000 607,969
NationsCommercial Corp., NB
Commercial Mtg. Pass-Through
Certificates, Series-DMC, Cl. C,
8.921%, 8/12/11 /(4)/.................. 900,000 916,312
Nomura Asset Securities Corp., Series
1994-MD1, Cl. B2, 8.421%,
3/15/18 /(2)(3)/....................... 750,000 658,008
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates:
Series 1994-C1, Cl. E, 8%, 6/25/26.... 700,166 644,153
Series 1994-C2, Cl. G, 8%, 4/25/25.... 815,728 732,244
Series 1995-C1, Cl. F, 6.90%, 2/25/27. 913,739 805,519
Salomon Brothers Mortgage Securities
VII, Series 1996-B, Cl. 1, 7.136%,
4/25/26................................ 1,491,164 892,835
Structured Asset Securities Corp.,
Multiclass Pass-Through Certificates,
Series 1996-C3, Cl. E, 8.458%,
6/25/30 /(4)/.......................... 650,000 574,234
------------
Total Mortgage-Backed Obligations
(Cost $7,521,680) 7,767,008
------------
Foreign Government Obligations -- 10.7%
Argentina (Republic of):
Treasury Bills, Zero Coupon, 12.117%,
1/17/97 /(5)/ ARP..................... 700,000 698,215
Unsec. Unsub. Bonds, 11.50%,
8/14/01 GBP........................... 120,000 211,727
Banco Estado Minas Gerais, 8.25%,
2/10/00............................... 550,000 531,094
Banco Nacional de Comercio Exterior
SNC International Finance BV Gtd.
Registered Bonds, 11.25%, 5/30/06..... 180,000 196,425
Bonos de la Tesoreria de la Federacion,
Zero Coupon:
25.785%, 11/6/97 /(5)/ MXP............ 4,000,000 416,640
29.171%, 7/3/97 /(5)/ MXP............. 3,450,000 387,598
27.799%, 9/4/97 /(5)/ MXP............. 3,900,000 423,613
Brazil (Federal Republic of) Multi-Year
Discount Facility Agreement Trust
Certificates, Series REGS, 6.688%,
9/15/07 /(2)/.......................... 390,000 334,669
Buenos Aires (Province of) Bonds,
10%, 3/5/01 DEM........................ 420,000 291,881
Bulgaria (Republic of) Disc. Bonds,
Tranche A, 6.688%, 7/28/24 /(2)/....... 540,000 306,450
Canada (Government of) Debs., 10.50%,
7/1/00 CAD............................. 2,015,000 1,724,474
Central Bank of Costa Rica Interest
Claim Bonds, Series B, 6.344%,
5/21/05 /(2)(4)/....................... 224,763 212,120
Denmark (Kingdom of) Bonds, 8%,
11/15/01 DKK........................... 6,640,000 1,249,452
Financiera Energetica Nacional SA Nts.,
9.375%, 6/15/06........................ 820,000 875,042
Hashemite Kingdom of Jordan:
Disc. Bonds, 6.50%, 12/23/23 /(2)/..... 1,000,000 773,750
Interest Arrears Bonds, 6.50%,
12/23/05 /(2)/........................ 300,000 276,750
Italy (Republic of):
Sr. Unsec. Unsub. Global Bonds, 0.563%,
7/26/99 /(2)/ JPY..................... 91,000,000 788,086
Treasury Bonds, Buoni del Tesoro
Poliennali, 10.50%, 11/1/98 ITL....... 940,000,000 662,028
New Zealand (Government of):
Bonds, 8%, 4/15/04 NZD................. 545,000 402,253
Index Linked Bonds, 4.60%,
2/15/16 /(2)/ NZD..................... 303,000 209,750
Norwegian Government Bonds, 9.50%,
10/31/02 NOK........................... 1,105,000 206,693
Panama (Republic of) Interest
Reduction Bonds, 3.50%, 7/17/14 (6).... 1,550,000 1,078,707
Portugal (Republic of) Gtd. Bonds,
Obrigicion do tes Medio Prazo, 11.625%,
2/23/98 PTE............................ 146,000,000 997,525
Russia (Government of) Interest Nts.,
12/29/49 /(7)(8)/...................... 330,000 229,763
Sweden (Kingdom of) Bonds, Series
1030, 13%, 6/15/01 SEK................. 3,600,000 679,774
Telecomunicacoes Brasileiras SA
Bonds, 13%, 2/5/99 ITL................. 385,000,000 272,666
Telkom SA Ltd. Bonds, Series TK05,
12%, 3/31/98 ZAR....................... 955,000 194,442
Treasury Corp. of Victoria Gtd. Bonds,
12%, 9/22/01 AUD....................... 1,325,000 1,258,521
United Kingdom Treasury Nts., 12.50%,
11/21/05 GBP........................... 975,000 2,115,904
United Mexican States Bonds, 10.375%,
1/29/03 DEM............................ 1,895,000 1,326,160
Venezuela (Republic of):
Collateralized Par Bonds, Series W-A,
6.75%, 3/31/20........................ 250,000 191,875
Front-Loaded Interest Reduction Bonds,
Series B, 6.50%, 3/31/07 /(2)/......... 500,000 446,875
New Money Bonds, Series P, 6.50%,
12/18/05 /(2)/......................... 500,000 447,344
------------
Total Foreign Government Obligations
(Cost $19,831,187) 20,418,266
------------
Loan Participations -- 1.3%
Algeria (Republic of) Reprofiled Debt
Loan Participation Agreement, Tranche
A, 6.625%, 9/4/06 /(2)(4)/............. 1,305,000 1,008,113
Morocco (Kingdom of) Loan Participation
Agreement, Tranche A, 6.437%,
1/1/09 /(2)(9)/........................ 990,000 807,159
Trinidad & Tobago Loan Participation
Agreement, Tranche B, 1.772%,
9/30/00 /(2)(4)/ JPY................... 82,062,000 657,514
------------
Total Loan Participations
(Cost $2,329,670) 2,472,786
------------
</TABLE>
21
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) (Note 1)
--------- ------------
<S> <C> <C>
Municipal Bonds and Notes -- 0.8%
San Joaquin Hills, California
Transportation Corridor Agency Toll
Road Capital Appreciation Revenue
Bonds, Jr. Lien, Zero Coupon,
9.002%, 1/1/28 (Cost $816,147) /(5)/........ $ 12,500,000 $ 1,499,000
------------
Corporate Bonds and Notes -- 61.0%
Basic Industry -- 5.5%
Chemicals -- 0.3% NL Industries, Inc.:
0%/13% Sr. Sec. Disc. Nts.,
10/15/05 /(8)/............................. 300,000 260,250
11.75% Sr. Sec. Nts., 10/15/03.............. 260,000 276,250
------------
536,500
------------
Metals/Mining -- 0.9%
Carbide/Graphite Group, Inc. (The),
11.50% Sr. Nts., 9/1/03..................... 454,000 498,265
Royal Oak Mines, Inc., 11% Sr. Sub.
Nts., 8/15/06............................... 1,250,000 1,275,000
------------
1,773,265
------------
Paper -- 3.0%
APP International Finance Co. BV,
11.75% Gtd. Sec. Nts., 10/1/05.............. 1,400,000 1,499,750
Florida Coast Paper Co. LLC, 12.75%
First Mtg. Nts., 6/1/03..................... 550,000 598,125
Indah Kiat International Finance Co. BV:
11.875% Sr. Sec. Gtd. Nts., 6/15/02......... 100,000 109,375
12.50% Sr. Sec. Gtd. Nts., Series C,
6/15/06.................................... 1,000,000 1,106,250
Repap New Brunswick, Inc., 10.625%
Second Priority Sr. Sec. Nts., 4/15/05...... 1,000,000 1,050,000
Repap Wisconsin, Inc., 9.25% First
Priority Sr. Sec. Nts., 2/1/02.............. 500,000 508,750
SD Warren Co., 12% Sr. Sub. Nts.,
Series B, 12/15/04.......................... 250,000 271,250
Stone Container Corp.:
10.75% First Mtg. Nts., 10/1/02............. 500,000 528,750
10.75% Sr. Sub. Nts., 6/15/97............... 100,000 101,750
------------
5,774,000
------------
Steel -- 1.3%
AK Steel Corp., 9.125% Sr. Nts.,
12/15/06 /(3)/.............................. 1,400,000 1,438,500
Bar Technologies, Inc., 13.50% Sr. Sec.
Nts., 4/1/01................................ 600,000 612,000
Gulf States Steel, Inc. (Alabama),
13.50% First Mtg. Nts., Series B,
4/15/03..................................... 200,000 190,000
Jorgensen (Earle M.) Co., 10.75% Sr.
Nts., 3/1/00................................ 175,000 179,375
------------
2,419,875
------------
Consumer Related -- 7.7%
Consumer Products -- 2.4%
Coleman Holdings, Inc., Zero Coupon
Sr. Sec. Disc. Nts., Series B, 11.617%,
5/27/98 /(5)/............................... 750,000 629,062
E & S Holdings Corp., 10.375% Sr.
Sub. Nts., 10/1/06 /(3)/.................... 550,000 578,187
Harman International Industries, Inc.,
12% Sr. Sub. Nts., 8/1/02................... 1,650,000 1,806,750
International Semi-Tech Microelectronics,
Inc., 0%/11.50% Sr. Sec. Disc. Nts.,
8/15/03 /(8)/............................... 500,000 326,250
Revlon Worldwide Corp., Zero Coupon
Sr. Sec. Disc. Nts., 12.333%,
3/15/98 /(5)/............................... 350,000 305,375
TAG Heuer International SA, 12% Sr.
Sub. Nts., 12/15/05......................... 350,000 404,250
Williams (J. B.) Holdings, Inc., 12% Sr.
Nts., 3/1/04................................ 600,000 612,000
------------
4,661,874
------------
Food/Beverages/Tobacco -- 0.5%
Consolidated Cigar Corp., 10.50% Sr.
Sub. Nts., 3/1/03........................... 400,000 418,000
Doane Products Co., 10.625% Sr. Nts.,
3/1/06...................................... 250,000 265,000
Foodbrands America, Inc., 10.75% Sr.
Sub. Nts., 5/15/06.......................... 235,000 250,275
------------
933,275
------------
Healthcare -- 1.4%
Genesis Health Ventures, Inc., 9.25% Sr.
Sub. Nts., 10/1/06 /(3)/.................... 850,000 877,625
Icon Health & Fitness, Inc., 13% Sr.
Sub. Nts., 7/15/02.......................... 400,000 452,000
IHF Holdings, Inc., 0%/15% Sr. Sub.
Disc. Nts., Series B, 11/15/04 /(4)(8)/..... 1,050,000 769,303
Magellan Health Services, Inc., 11.25%
Sr. Sub. Nts., Series A, 4/15/04............ 500,000 557,500
------------
2,656,428
------------
Hotel/Gaming -- 1.0%
Capital Gaming International, Inc.,
Promissory Nts., 8/1/95 /(10)/.............. 9,500 --
Majestic Star Casino LLC (The),
12.75% Sr. Sec. Nts., 5/15/03............... 280,000 302,400
Mohegan Tribal Gaming Authority,
13.50% Sr. Sec. Nts., Series B, 11/15/02.... 600,000 795,000
Showboat Marina Casino
Partnership/Showboat Marina Finance
Corp., 13.50% First Mtg. Nts., Series B,
3/15/03..................................... 750,000 828,750
------------
1,926,150
------------
Leisure -- 0.1%
Gillett Holdings, Inc., 12.25% Sr. Sub.
Nts., Series A, 6/30/02 /(4)/............... 278,779 290,976
Restaurants -- 1.1%
Ameriking, Inc., 10.75% Sr. Nts., 12/1/06.... 505,000 525,200
Carrols Corp., 11.50% Sr. Nts., 8/15/03...... 430,000 456,875
Foodmaker, Inc.:
9.25% Sr. Nts., 3/1/99...................... 200,000 204,000
9.75% Sr. Sub. Nts., 6/1/02................. 950,000 971,375
------------
2,157,450
------------
Textile/Apparel -- 1.2%
Clark-Schwebel, Inc., 10.50% Sr. Nts.,
4/15/06..................................... 725,000 775,750
Polysindo International Finance Co. BV,
11.375% Gtd. Sec. Nts., 6/15/06............. 600,000 647,250
Synthetic Industries, Inc., 12.75% Sr.
Sub. Debs., 12/1/02......................... 500,000 553,750
William Carter Co., 10.375% Sr. Sub.
Nts., 12/1/06 /(3)/......................... 350,000 364,000
------------
2,340,750
------------
Energy -- 6.9%
BP America, Inc., 10.875% Nts.,
8/1/01 CAD.................................. 350,000 307,221
Chesapeake Energy Corp.:
10.50% Sr. Nts., 6/1/02..................... 600,000 654,000
9.125% Sr. Nts., 4/15/06.................... 1,000,000 1,042,500
</TABLE>
22
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
------------ ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Energy (Continued)
DeepTech International, Inc., 12% Sr.
Sec. Nts., 12/15/00........................ $ 200,000 $ 215,000
Falcon Drilling Co., Inc., 8.875% Sr.
Nts., Series B, 3/15/03.................... 300,000 307,875
J. Ray McDermott SA, 9.375% Sr.
Sub. Bonds, 7/15/06........................ 1,400,000 1,473,500
Mariner Energy, Inc., 10.50% Sr. Sub.
Nts., 8/1/06 /(3)/......................... 925,000 985,125
Maxus Energy Corp., 11.50% Debs.,
11/15/15................................... 800,000 848,000
Mesa Operating Co.:
0%/11.625% Gtd. Sr. Sub. Disc. Nts.,
7/1/06 /(8)/.............................. 1,050,000 729,750
10.625% Gtd. Sr. Sub. Nts., 7/1/06......... 1,450,000 1,576,875
Parker Drilling Corp., 9.75% Gtd. Sr.
Nts., 11/15/06 /(3)/....................... 150,000 158,625
Petroleum Heat & Power Co., Inc.:
12.25% Sub. Debs., 2/1/05.................. 157,000 176,232
9.375% Sub. Debs., 2/1/06.................. 850,000 828,750
TransTexas Gas Corp., 11.50% Sr. Sec.
Gtd. Nts., 6/15/02......................... 3,300,000 3,584,625
Triton Energy Corp., 9.75% Sr. Sub.
Disc. Nts., 12/15/00....................... 200,000 210,000
Vintage Petroleum, Inc., 9% Sr. Sub.
Nts., 12/15/05............................. 100,000 103,000
------------
13,201,078
------------
Financial Services -- 4.2%
Banks & Thrifts -- 1.8%
Bank of America Malaysia, Zero Coupon
Nts., 7.12%, 4/30/97 /(5)//(7)/ MYR........ 1,100,000 425,930
Chase Malaysia, Zero Coupon Nts.,
7.203%, 4/25/97 /(5)/ MYR.................. 1,000,000 387,455
Citibank Malaysia Banker's Acceptance,
Zero Coupon Negotiable CD, 7.169%,
4/30/97 /(5)/ MYR.......................... 500,000 193,567
First Nationwide Escrow Corp.,
10.625% Sr. Sub. Nts., 10/1/03 /(3)/....... 750,000 813,750
Ocwen Financial Corp., 11.875% Nts.,
10/1/03.................................... 800,000 876,000
PT Inti Indorayon Utama, Zero Coupon
Promissory Nts., 17.234%,
2/12/97(5) IDR ............................ 1,800,000,000 748,885
------------
3,445,587
------------
Diversified Financial -- 2.0%
Aames Financial Corp., 9.125% Sr. Nts.,
11/1/03.................................... 200,000 204,500
ECM Fund, L.P.I., 14% Sub. Nts.,
6/10/02 /(4)/.............................. 144,131 159,265
GPA Delaware, Inc., 8.75% Gtd. Nts.,
12/15/98................................... 1,500,000 1,533,750
Snap Ltd., 11.50% Sec. Bonds,
1/29/09 DEM................................ 2,070,000 1,359,978
Wilshire Financial Services Group, Inc.,
13% Nts., 1/1/04........................... 600,000 606,000
------------
3,863,493
------------
Insurance -- 0.4%
Veritas Holdings, Inc., 9.625% Sr. Nts.,
12/15/03 /(3)/............................. 750,000 761,250
------------
Housing Related -- 1.4%
Building Materials -- 0.1%
Building Materials Corp. of America,
8.625% Sr. Nts., 12/15/06 /(3)/............ 165,000 164,587
------------
Homebuilders/Real Estate -- 1.3%
First Place Tower, Inc.:
9.22% First Mtg. Bonds, 12/15/05 CAD........ 300,400 244,863
Units (each unit consists of one $10
principal amount of 8.50% cv. sub.
debs., 12/15/15 and 40 common
shares)/(11)/ CAD.......................... 180,660 270,202
Saul (B.F.) Real Estate Investment Trust,
11.625% Sr. Sec. Nts., Series B, 4/1/02.... 1,200,000 1,296,000
Tribasa Toll Road Trust, 10.50% Nts.,
Series 1993-A, 12/1/11 /(3)/............... 700,000 586,687
------------
2,397,752
------------
Manufacturing -- 2.3%
Aerospace/Electronics/Computers -- 1.2%
Communications & Power Industries, Inc.,
12% Sr. Sub. Nts., Series B, 8/1/05........ 1,000,000 1,117,500
Rohr, Inc., 11.625% Sr. Nts., 5/15/03....... 800,000 900,000
Unisys Corp., 11.75% Sr. Nts., 10/15/04..... 250,000 267,813
------------
2,285,313
------------
Automotive -- 0.9%
Aftermarket Technology Corp., 12% Sr.
Sub. Nts., Series B, 8/1/04................ 400,000 446,000
Foamex LP/Foamex Capital Corp.,
9.50% Gtd. Sr. Sec. Nts., 6/1/00........... 240,000 247,200
Hayes Wheels International, Inc., 11%
Sr. Sub. Nts., 7/15/06..................... 400,000 436,000
Lear Corp., 9.50% Sub. Nts., 7/15/06........ 300,000 321,000
Penda Corp., 10.75% Sr. Nts., Series B,
3/1/04..................................... 225,000 218,250
------------
1,668,450
------------
Capital Goods -- 0.2%
Farley, Inc., Zero Coupon Sub. Debs.,
14.143%, 12/30/12) /(4)//(5)/.............. 198,000 22,516
Mettler Toledo, Inc., 9.75% Gtd. Sr.
Sub. Nts., 10/1/06......................... 350,000 369,250
------------
391,766
------------
Media -- 11.5%
Broadcasting -- 2.3%
American Radio Systems Corp., 9% Sr.
Sub. Nts., 2/1/06.......................... 700,000 693,000
Argyle Television, Inc., 9.75% Sr. Sub.
Nts., 11/1/05.............................. 200,000 203,000
Outlet Broadcasting, Inc., 10.875% Sr.
Sub. Nts., 7/15/03 /(12)/.................. 1,000,000 1,104,535
Paxson Communications Corp., 11.625%
Sr. Sub. Nts., 10/1/02..................... 815,000 855,750
Summit Communications Group, Inc.,
10.50% Sr. Sub. Debs., 4/15/05 /(4)/....... 850,000 928,625
Young Broadcasting, Inc., 9% Sr. Sub.
Nts., Series B, 1/15/06.................... 550,000 537,625
------------
4,322,535
------------
Cable Television -- 5.8%
American Telecasting, Inc., 0%/14.50%
Sr. Disc. Nts., 6/15/04 /(8)/.............. 50,106 20,794
Bell Cablemedia plc:
0%/11.875% Sr. Disc. Nts., 9/15/05 /(8)/... 1,100,000 893,750
0%/11.95% Sr. Disc. Nts., 7/15/04 /(8)/.... 1,700,000 1,496,000
</TABLE>
23
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
----------- ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Media (Continued)
Cable Television (Continued)
Cablevision Industries Corp., 9.25% Sr.
Debs., Series B, 4/1/08..................... $ 600,000 $ 637,107
Cablevision Systems Corp.:
10.50% Sr. Sub. Debs., 5/15/16.............. 250,000 260,000
10.75% Sr. Sub. Debs., 4/1/04............... 500,000 521,250
Comcast UK Cable Partner Ltd.,
0%/11.20% Sr. Disc. Debs., 11/15/07 /(8)/... 800,000 574,000
Diamond Cable Communications plc:
0%/11.75% Sr. Disc. Nts., 12/15/05 /(8)/.... 1,425,000 1,020,656
0%/13.25% Sr. Disc. Nts., 9/30/04 /(8)/..... 250,000 206,563
EchoStar Communications Corp.,
0%/12.875% Sr. Disc. Nts., 6/1/04 /(8)/..... 400,000 333,000
Helicon Group LP/Helicon Capital Corp.,
11% Sr. Sec. Nts., Series B, 11/1/03 /(2)/.. 885,000 907,125
International CableTel, Inc.:
0%/10.875% Sr. Deferred Coupon Nts.,
10/15/03 /(8)/............................. 100,000 85,250
0%/12.75% Sr. Deferred Coupon Nts.,
4/15/05 /(8)/.............................. 350,000 263,375
Rogers Cablesystems Ltd.:
10% Sr. Sec. Second Priority Debs.,
12/1/07.................................... 200,000 212,000
11% Sr. Sub. Gtd. Debs., 12/1/15............. 250,000 269,375
TeleWest plc, 0%/11% Sr. Disc. Debs.,
10/1/07 /(8)/............................... 4,050,000 2,835,000
TKR Cable I, Inc., 10.50% Sr. Debs.,
10/30/07.................................... 300,000 324,608
Videotron Holdings plc, 0%/11% Sr.
Disc. Nts., 8/15/05 /(8)/................... 250,000 204,375
------------
11,064,228
------------
Diversified Media -- 2.5%
Ackerley Communications, Inc., 10.75%
Sr. Sec. Nts., Series A, 10/1/03............ 750,000 798,750
GSPI Corp., 10.15% First Mtg. Bonds,
6/24/10 /(3)/............................... 471,719 443,846
Heritage Media Corp., 8.75% Sr. Sub.
Nts., 2/15/06............................... 350,000 337,750
Katz Media Corp., 10.50% Sr. Sub. Nts.,
1/15/07 /(3)/............................... 475,000 486,281
Lamar Advertising Co., 9.625% Sr. Sub.
Nts., 12/1/06............................... 400,000 416,000
Panamsat LP/Panamsat Capital Corp.,
0%/11.375% Sr. Sub. Disc. Nts.,
8/1/03 /(8)/................................ 1,850,000 1,725,125
Universal Outdoor, Inc.:
9.75% Sr. Sub. Nts., 10/15/06............... 250,000 258,750
9.75% Sr. Sub. Nts., 10/15/06 /(3)/......... 250,000 258,125
------------
4,724,627
------------
Entertainment/Film -- 0.9%
Imax Corp., 7% Sr. Nts., 3/1/01 /(6)/........ 1,600,000 1,640,000
Other -- 1.3%
Conglomerates -- 0.0%
Maxxam Group, Inc., 0%/12.25% Sr.
Sec. Disc. Nts., 8/1/03 /(8)/............... 100,000 85,000
Environmental -- 0.3%
Allied Waste North America, Inc.,
10.25% Sr. Sub. Nts., 12/1/06 /(3)/......... 525,000 553,219
Services -- 1.0%
Coinstar, Inc., Units (each unit consists of
$1,000 principal amount of 0%/13% sr.
sub. disc. nts., 10/1/06 and one warrant
to purchase seven ordinary
shares)/(4)//(8)//(11)/..................... 750,000 526,500
Iron Mountain, Inc., 10.125% Sr. Sub.
Nts., 10/1/06............................... 500,000 532,500
Protection One Alarm Monitoring, Inc.:
0%/13.625% Sr. Disc. Nts., 6/30/05 /(8)/.... 550,000 525,250
6.75% Cv. Gtd. Sr. Sub. Nts., 9/15/03....... 390,000 358,800
------------
1,943,050
------------
Retail -- 1.9%
Specialty Retailing -- 0.4%
Eye Care Centers of America, Inc., 12%
Sr. Nts., 10/1/03........................... 630,000 683,550
Supermarkets -- 1.5%
Grand Union Co., 12% Sr. Nts., 9/1/04........ 800,000 852,000
Ralph's Grocery Co.:
10.45% Sr. Nts., 6/15/04.................... 250,000 266,875
10.45% Sr. Nts., 6/15/04.................... 1,100,000 1,174,250
Smith's Food & Drug Centers, Inc.,
11.25% Sr. Unsec. Sub. Nts., 5/15/07........ 550,000 610,500
------------
2,903,625
------------
Transportation -- 1.3%
Air Transportation -- 0.4%
Atlas Air, Inc., 12.25% Pass-Through
Certificates, 12/1/02....................... 750,000 836,250
Railroads -- 0.9%
Transtar Holdings LP/Transtar Capital
Corp., 0%/13.375% Sr. Disc. Nts.,
Series B, 12/15/03 /(8)/.................... 2,200,000 1,771,000
Utilities -- 17.0%
Electric Utilities -- 2.4%
CalEnergy, Inc., 9.50% Sr. Nts.,
9/15/06 /(3)/............................... 425,000 440,938
California Energy, Inc., 0%/10.25% Sr.
Disc. Nts., 1/15/04 /(8)/................... 1,400,000 1,487,500
El Paso Electric Co., 9.40% First Mtg. Bonds,
Series E, 5/1/11............................. 1,000,000 1,075,000
First PV Funding Corp.:
10.15% Lease Obligation Bonds, Series
1986B, 1/15/16............................. 210,000 223,913
10.30% Lease Obligation Bonds, Series
1986A, 1/15/14............................. 740,000 789,025
Subic Power Corp., 9.50% Sr. Sec.
Nts., 12/28/08.............................. 620,689 648,621
------------
4,664,997
------------
Telecommunications -- 14.6%
American Communications Services, Inc.:
0%/12.75% Sr. Disc. Nts., 4/1/06 /(8)/...... 600,000 334,500
0%/13% Sr. Disc. Nts., 11/1/05 /(8)/........ 500,000 297,500
Arch Communications Group, Inc.,
0%/10.875% Sr. Disc. Nts., 3/15/08 /(8)/.... 200,000 115,250
Brooks Fiber Properties, Inc.:
0%/10.875% Sr. Disc. Nts., 3/1/06 /(8)/..... 200,000 134,500
0%/11.875% Sr. Disc. Nts.,
11/1/06 /(3)//(8)/......................... 2,050,000 1,317,125
Celcaribe SA, 0%/13.50% Sr. Sec. Nts.,
3/15/04 /(4)//(8)/.......................... 1,025,000 855,875
CellNet Data Systems, Inc., 0%/13%
Sr. Disc. Nts., 6/15/05 /(4)//(8)/.......... 600,000 417,000
</TABLE>
24
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
----------- ------------
<S> <C> <C>
Corporate Bonds and Notes (Continued)
Utilities (Continued)
Telecommunications (Continued)
Cellular Communications International, Inc.,
Zero Coupon Sr. Disc. Nts.,
12.376%, 8/15/00 /(5)//(9)//(13)/............ $ 3,600,000 $ 2,511,000
Cellular, Inc., 0%/11.75% Sr. Sub. Disc.
Nts., 9/1/03 /(8)/........................... 2,000,000 1,830,000
Central Temica Guemes, 12% Bonds,
11/26/01 /(4)/............................... 200,000 203,000
Colt Telecom Group plc, Units (each unit
consists of $1,000 principal amount of
0%/12% sr. disc. nts., 12/15/06 and
one warrant to purchase 7.8 ordinary
shares)/(8)//(11)/........................... 1,100,000 665,500
Comunicacion Celular SA, 0%/13.125%
Sr. Deferred Coupon Bonds,
11/15/03/(8)/................................ 875,000 581,875
Geotek Communications, Inc., 0%/15%
Sr. Sec. Disc. Nts., 7/15/05 /(8)/........... 1,350,000 857,250
GST Telecommunications, Inc.,
0%/13.875% Cv. Sr. Sub. Disc. Nts.,
12/15/05 /(3)//(8)/.......................... 178,000 115,700
GST USA, Inc., 0%/13.875% Bonds,
12/15/05 /(8)/............................... 1,499,000 921,885
Hyperion Telecommunications, Inc.,
0%/13% Sr. Disc. Nts., Series B,
4/15/03 /(8)/................................ 100,000 57,250
IntelCom Group (USA), Inc.:
0%/12.50% Gtd. Sr. Disc. Nts., 5/1/06 /(8)/.. 150,000 98,625
0%/13.50% Sr. Disc. Nts., 9/15/05 /(8)/...... 1,550,000 1,108,250
Metrocall, Inc., 10.375% Sr. Sub. Nts.,
10/1/07...................................... 1,225,000 1,047,375
MFS Communications Co., Inc.,
0%/9.375% Sr. Disc. Nts., 1/15/04 /(8)/...... 1,650,000 1,443,750
Occidente y Caribe Celular SA, Units
(each unit consists of $1,000 principal
amount of 0%/14% sr. disc. nts., 3/15/04
and one warrant to purchase 5.709 ordinary
shares)/(3)//(8)//(11)/...................... 300,000 181,500
Omnipoint Corp.:
11.625% Sr. Nts., 8/15/06.................... 700,000 731,500
11.625% Sr. Nts., 8/15/06 /(3)/.............. 500,000 522,500
ORBCOMM Global LP/ORBCOMM
Capital Corp., 14% Sr. Nts., 8/15/04 /(3)/... 1,060,000 1,078,550
Petersburg Long Distance, Inc.:
9% Cv. Sub. Nts., 6/1/06 /(3)/............... 170,000 179,350
Units (each unit consists of $1,000
principal amount of 0%/14% sr. disc.
nts., 6/1/04 and one warrant to purchase
34 ordinary shares)/(3)//(8)//(11)/......... 1,150,000 948,750
PriCellular Wireless Corp.:
0%/12.25% Sr. Sub. Disc. Nts.,
10/1/03 /(8)/................................ 500,000 430,000
0%/14% Sr. Sub. Disc. Nts., 11/15/01 /(8)/... 1,750,000 1,710,625
10.75% Sr. Nts., 11/1/04 /(3)/............... 800,000 834,000
Real Time Data, Inc., Units (each unit
consists of $1,000 principal amount of
0%/13.50% sub. disc. nts., 8/15/06 and one
warrant to purchase six ordinary
shares)/(4)//(8)//(11)/...................... 1,900,000 1,045,000
Sprint Spectrum LP/Sprint Spectrum
Finance Corp., 0%/12.50% Sr. Disc.
Nts., 8/15/06 /(8)/.......................... 1,350,000 914,625
Teleport Communications Group, Inc.:
0%/11.125% Sr. Disc. Nts., 7/1/07 /(8)/...... 2,975,000 2,052,750
9.875% Sr. Nts., 7/1/06...................... 300,000 322,500
USA Mobile Communications, Inc. II,
9.50% Sr. Nts., 2/1/04....................... 150,000 143,250
Western Wireless Corp.:
10.50% Sr. Sub. Nts., 2/1/07 /(3)/........... 350,000 367,063
10.50% Sr. Sub. Nts., 6/1/06 /(9)/........... 1,400,000 1,471,750
------------
27,846,923
------------
Total Corporate Bonds and Notes
(Cost $110,703,118).......................... 116,688,823
------------
<CAPTION>
Shares
------
<S> <C> <C>
Common Stocks -- 1.7%
Berg Electronics Corp./(3)//(14)/............. 11,246 330,351
Celcaribe SA/(4)//(14)/....................... 121,950 207,315
EchoStar Communications Corp.,
Cl. A/(14)/.................................. 4,000 88,000
ECM Fund, L.P.I./(4)/......................... 150 150,750
El Paso Electric Co./(14)/.................... 12,384 80,496
Equitable Bag, Inc./(4)//(14)/................ 3,723 18,615
Gillett Holdings, Inc./(4)//(14)/............. 22,355 804,780
Grand Union Co./(14)/......................... 20,511 102,555
GST Telecommunications, Inc./(14)/............ 8,800 78,100
J. Ray McDermott SA/(14)/..................... 10,965 241,230
MFS Communications, Inc./(14)/................ 147 8,011
Omnipoint Corp./(4)//(14)/.................... 46,875 857,227
Triangle Wire & Cable, Inc./(4)//(14)/........ 21,111 21,111
Walter Industries, Inc./(14)/................. 18,455 260,677
------------
Total Common Stocks
(Cost $2,637,945)............................ 3,249,218
------------
Preferred Stocks -- 7.9%
BankAmerica Corp., 8.375%, Series K........... 13,000 328,250
BankUnited Capital Trust Preferred
Securities/(3)/.............................. 600 600,750
Cablevision Systems Corp., 8.50% Cum.
Cv., Series I................................ 14,600 299,300
California Federal Bank, 10.625%
Non-Cum., Series B........................... 9,500 1,054,500
CRIIMI MAE, Inc., 10.875% Cum. Cv.
Preferred Stock, Series B.................... 37,000 1,073,000
Earthwatch, Inc., 12% Cv. Sr. Preferred
Stock, Series C/(4)//(15)/................... 90,000 900,000
El Paso Electric Co., 11.40% Series A
Preferred Stock/(15)/........................ 5,367 601,104
Fidelity Federal Bank, 12% Non-Cum.
Exchangeable Perpetual Preferred
Stock, Series A/(4)/......................... 20,000 565,000
First Nationwide Bank, 11.50%
Non-Cum...................................... 6,000 688,500
Fresenius Medical Care Trust, 9%
Preferred Securities......................... 2,260,000 2,305,200
Glendale Federal Bank, F.S.B., 8.75%
Non-Cum. Cv., Series E....................... 16,500 969,375
K-III Communications Corp., $11.625
Exchangeable, Series B/(4)//(15)/............ 8,423 852,849
Kelley Oil & Gas Corp., $2.625 Cv./(14)/...... 13,000 310,375
Navistar International Corp., $6.00 Cv.,
Series G..................................... 2,500 141,250
Panamsat Corp., 12.75% Sr. Preferred
Exchangeable/(4)//(15)/...................... 1,450 1,779,875
</TABLE>
25
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
------ ------------
<S> <C> <C>
Preferred Stocks (Continued)
Pantry Pride, Inc., $14.875
Exchangeable, Series B....................... 2,000 $ 201,000
Prime Retail, Inc., $19.00 Cv., Series B 7,000 152,250
SDW Holdings Corp., 15% Cum. Sr.
Exchangeable Preferred Stock/(4)/............ 37,500 1,312,500
Walden Residential Properties, Inc.:
Preferred Stock.............................. 5,000 120,625
9.16% Cv. Preferred Stock, Series B.......... 30,000 866,250
------------
Total Preferred Stocks
(Cost $13,725,104)........................... 15,121,953
------------
Other Securities -- 0.6%
MFS Communications Co., Inc., 8% Cv.
Depository Shares each Representing
1/100 Share of Dividend Enhanced
Convertible Stock (Cost $968,719)............ 13,000 1,186,250
------------
Units
-----
Rights, Warrants and Certificates -- 0.5%
American Communications Services,
Inc. Wts., Exp. 11/05........................ 475 42,750
American Telecasting, Inc. Wts., Exp.
6/99......................................... 6,000 10,500
Ames Department Stores, Inc.:
Excess Cash Flow Payment
Certificates, Series AG-7A/(4)/.............. 12,400 124
Litigation Trust/(4)/........................ 39,658 397
Australis Media Ltd. Wts., Exp. 5/00/(4)/..... 125 1
Capital Gaming International, Inc. Wts.,
Exp. 2/99/(4)/............................... 21,112 327
CellNet Data Systems, Inc. Wts., Exp.
6/05 /(3)/................................... 4,800 70,200
Cellular Communications International,
Inc. Wts., Exp. 8/03 /(4)/................... 2,920 58,400
Comunicacion Celular SA Wts., Exp.
11/03 /(4)/.................................. 875 65,625
Eye Care Centers of America, Inc.
Wts., Exp. 10/03 /(4)/....................... 630 2,835
Foamex LP/JPS Automotive Corp.
Wts., Exp. 7/99 /(4)/........................ 500 15,000
Gaylord Container Corp. Wts., Exp.
11/02........................................ 14,410 88,261
Geotek Communications, Inc. Wts., Exp.
7/05......................................... 52,500 131,250
Hyperion Telecommunications, Inc. Wts.,
Exp. 4/01 /(4)/.............................. 100 2,000
Icon Health & Fitness, Inc. Wts., Exp.
11/99 /(4)/.................................. 400 20,000
IHF Holdings, Inc. Wts., Exp. 11/99 /(4)/..... 250 37,500
In-Flight Phone Corp. Wts., Exp. 8/02......... 950 --
IntelCom Group, Inc. Wts., Exp. 9/05.......... 5,940 53,460
Jewel Recovery LP, Participation Units
of Limited Partners' Interest................ 2,360 --
Omnipoint Corp. Wts., Exp. 11/00 /(4)/........ 7,500 137,157
Protection One, Inc. Wts.:
Exp. 11/03 /(4)/............................. 28,000 175,000
Exp. 6/05 /(4)/.............................. 1,600 13,200
SDW Holdings Corp., Cl. B Wts., Exp.
12/06 /(4)/.................................. 3,750 48,750
Trizec Corp. Wts., Exp. 7/99.................. 3,970 16,944
United International Securities Ltd.
Wts., Exp. 11/99 /(4)/....................... 1,440 28,800
Venezuela Government Wts., Exp. 4/20.......... 1,250 --
------------
Total Rights, Warrants and
Certificates (Cost $399,755)................. 1,018,481
------------
<CAPTION>
Principal
Amount/(1)/
-----------
<S> <C> <C>
Structured Instruments -- 3.4%
Bayerische Landesbank Girozentrale,
New York Branch, 6.28% Deutsche
Mark Currency Protected Yield Curve
CD, 7/25/97................................ $ 300,000 298,950
Canadian Imperial Bank of Commerce,
New York Branch:
16.75% CD, 4/16/97 (indexed to the
Federation GKO, Zero Coupon,
4/9/97)/(4)/.............................. 800,000 797,600
17% CD, 2/26/97 (indexed to the
Federation GKO, Zero Coupon,
2/19/97)/(4)/............................. 250,000 249,625
17% CD, 4/2/97 (indexed to the
Russian Federation GKO, Zero Coupon,
3/26/97).................................. 400,000 399,000
17.30% CD, 2/26/97 (indexed to the
Federation GKO, Zero Coupon,
2/19/97)/(4)/............................. 300,000 299,550
ING (U.S.) Financial Holdings Corp., Zero
Coupon:
Korean Won/U.S. Dollar Linked Nts.,
10.871%, 6/9/97 /(5)/.................... 200,000 185,960
Nts. Linked to the Greek
Drachma/Swiss Franc Exchange Rate,
14.829%, 12/4/97 /(5)/................... 600,000 509,040
Nts., Linked to Greek Drachma/Swiss
Franc Exchange Rate, 14.437%,
12/10/97 /(5)/........................... 285,000 243,048
Internationale Nederlanden (U.S.) Capital
Holdings Corp., Zero Coupon:
Chilean Peso Linked Nts., 11.813%,
6/23/97 /(5)/............................ 420,000 384,468
Czech Koruna Linked Nts., 11.911%,
6/26/97 /(5)/............................ 350,000 333,585
Lehman Brothers Holdings:
U.S. Dollar Nts. Linked to Czech
Koruna/Swiss Franc, 15%, 12/21/98......... 100,000 99,920
Zero Coupon, U.S. Dollar Nts. Linked to:
Czech Koruna/Swiss Franc, 15.411%,
12/29/97 /(5)/............................ 500,000 500,900
Greek Drachma/Swiss Franc, 15.453%,
12/26/97 /(5)/............................ 400,000 399,440
Greek Drachma/Swiss Franc, 15.499%,
12/30/97 /(5)/............................ 200,000 200,000
Greek Drachma/Swiss Franc, 15.639%,
12/23/97 /(5)/............................ 400,000 398,640
Salomon Brothers, Inc., Zero Coupon
Brazilian Credit Linked Nts., 12.677%,
1/3/97 (indexed to the Brazilian National
Treasury Nts., Zero Coupon, 1/2/97)/(5)/... 800,000 799,680
</TABLE>
26
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
---------- ------------
<S> <C> <C>
Structured Instruments (Continued)
Swiss Bank Corp., New York Branch,
6.05% CD, 6/20/97 (indexed to the
closing Nikkei 225 Index on 1/23/97, 5 yr.
& 3 mos. Japanese Yen Swap rate &
New Zealand Dollar)......................... $ 450,000 $ 459,225
------------
Total Structured Instruments
(Cost $6,588,493)........................... 6,558,631
------------
</TABLE>
<TABLE>
<CAPTION>
Date Strike Contracts
---- ------ ---------
<S> <C> <C> <C> <C>
Put Options Purchased -- 0.0%
Australian Dollar Put Opt........... Jan-97 1.28/AUD/ 770,000 1,040
Australian Dollar Put Opt........... Feb-97 1.282/AUD/ 770,000 2,041
Deutsche Mark Put Opt............... Feb-97 1.545/DEM/ 6,160,000 33,855
Italy (Republic of) Treasury
Bonds, Buoni del Tesoro
Poliennali, 9.50%,
2/1/06 Put Opt..................... Jul-97 99.96%/ITL/ 480 336
Japanese Yen Put Opt................ Mar-97 115/JPY/ 165,000,000 22,770
New Zealand Dollar Put Opt.......... Mar-97 1.4286/NZD/ 573,000 3,461
New Zealand Dollar Put Opt.......... Mar-97 1.44/NZD/ 205,700 749
New Zealand Dollar Put Opt.......... Mar-97 1.453NZD 91,500 210
---------
Total Put Options Purchased
(Cost $104,672).................... 64,462
---------
</TABLE>
<TABLE>
<CAPTION>
Principal Market Value
Amount/(1)/ (Note 1)
----------- ------------
<S> <C> <C>
Repurchase Agreements -- 6.8%
Repurchase agreement with Goldman,
Sachs & Co., 6.52%, dated 12/31/96, to be
repurchased at $12,904,673 on 1/2/97,
collateralized by U.S. Treasury Nts., 5.50%-
7.50%, 7/15/99-8/15/05, with a value of
$13,195,771 (Cost $12,900,000)............... $ 12,900,000 $ 12,900,000
Total Investments, at Value
(Cost $178,526,490).......................... 98.8% 188,944,878
------ ------------
Other Assets Net of Liabilities............... 1.2 2,348,495
------ ------------
Net Assets.................................... 100.0% $191,293,373
====== ============
</TABLE>
(1) Principal amount is reported in U.S. Dollars, except for those denoted in
the following currencies:
ARP - Argentine Peso JPY - Japanese Yen
AUD - Australian Dollar MXP - Mexican Peso
CAD - Canadian Dollar MYR - Malaysian Ringgit
DEM - German Deutsche Mark NOK - Norwegian Krone
DKK - Danish Krone NZD - New Zealand Dollar
GBP - British Pound Sterling PTE - Portuguese Escudo
IDR - Indonesian Rupiah SEK - Swedish Krona
ITL - Italian Lira ZAR - South African Rand
(2) Represents the current interest rate for a variable rate security.
(3) 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 $17,341,932 or 9.07% of the Fund's
net assets, at December 31, 1996.
(4) Identifies issues considered to be illiquid - See applicable note of Notes
to Financial Statements.
(5) For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
(6) Represents the current interest rate for an increasing rate security.
(7) When-issued security to be delivered and settled after December 31, 1996.
(8) Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
(9) A sufficient amount of securities has been designated to cover outstanding
written call options, as follows:
<TABLE>
<CAPTION>
Contracts/
Principal
Subject Expiration Exercise Premium Market Value
To Call Date Price Received (Note 1)
------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Call option on Australian Dollar 626,780 Jan-97 1.2285/AUD/ $ 4,043 $ 63
Call option on British Pound Sterling 300,000 Jan-97 1.632/GBP/ 6,756 23,970
Call option on British Pound Sterling 600,000 Mar-97 1.69/GBP/ 11,040 20,004
Call option on British Pound Sterling 200,000 Mar-97 1.71/GBP/ 3,906 6,220
Call option on Morocco (Kingdom of)
Loan Participation Agreement,
Tranche A, 6.437%, 1/01/09 990,000 Jan-97 179.88% 10,791 29,700
Call option on New Zealand Dollar 205,700 Mar-97 1.4194/NZD/ 1,327 1,483
Call option on New Zealand Dollar 573,000 Mar-97 1.4124/NZD/ 3,782 3,364
Call option on New Zealand Dollar 91,500 Mar-97 1.4276/NZD/ 640 866
------- -------
$ 42,285 $ 85,670
======= =======
</TABLE>
(10) Non-income producing - issuer is in default of interest payment.
(11) Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents
total underlying principal.
(12) Securities with an aggregate market value of $104,535 are held in
collateralized accounts to cover initial margin requirements on open
futures sales contracts. See applicable note of Notes to Financial
Statements.
(13) A sufficient amount of securities has been designated to cover outstanding
forward foreign currency exchange contracts. Seeapplicable note of Notes to
Financial Statements.
(14) Non-income producing security.
(15) Interest or dividend is paid in kind.
See Notes to Financial Statements.
27
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
STATEMENT OF INVESTMENTS (Continued)
December 31,1996
<TABLE>
<CAPTION>
Contracts/
Principal Market
Subject Expiration Exercise Premium Value
To Call Date Price Received (Note 1)
------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Call option on
Australian Dollar 626,780 Jan-97 1.2285/AUD/ $ 4,043 $ 63
Call option on
British Pound
Sterling 300,000 Jan-97 1.632/GBP/ 6,756 23,970
Call option on
British Pound
Sterling 600,000 Mar-97 1.69/GBP/ 11,040 20,004
Call option on
British Pound
Sterling 200,000 Mar-97 1.71/GBP/ 3,906 6,220
Call option on
Morocco (Kingdom
of) Loan
Participation
Agreement, Tranche
A, 6.437%, 1/01/09 990,000 Jan-97 179.88% 10,791 29,700
Call option on
New Zealand Dollar 205,700 Mar-97 1.4194/NZD/ 1,327 1,483
Call option on
New Zealand Dollar 573,000 Mar-97 1.4124/NZD/ 3,782 3,364
Call option on
New Zealand Dollar 91,500 Mar-97 1.4276/NZD/ 640 866
-------- --------
$ 42,285 $ 65,670
======== ========
</TABLE>
(10)Non-income producing - issuer is in default of interest payment.
(11)Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units which
represent debt securities, principal amount disclosed represents total
underlying principal.
(12)Securities with an aggregate market value of $104,535 are held in
collateralized accounts to cover minimal margin requirements on open futures
sales contracts. See applicable note of Notes to Financial Statements.
(13)A Sufficient amount of securities has been designed to cover outstanding
forward foreign currency exchange contracts. See applicable note Of Notes to
Financial Statements.
(14)Non-income producing security.
(15)Interest or dividend is paid in kind.
See Notes to Financial Statements.
28
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
STATEMENT OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount (Note 1)
--------- ------------
<S> <C> <C>
Convertible Corporate Bonds and Notes -- 0.7%
Danka Business Systems plc, 6.75%
Cv. Sub. Nts., 4/1/02 /(1)/.................. $ 800,000 $ 1,083,000
Southern Pacific Funding Corp., 6.75%
Cv. Sub. Nts., 10/15/06...................... 1,000,000 1,068,750
United Waste Systems, Inc., 4.50% Cv.
Sub. Nts., 6/1/01 /(2)/...................... 2,000,000 2,392,500
------------
Total Convertible Corporate Bonds and
Notes (Cost $3,800,000)...................... 4,544,250
------------
<CAPTION>
Shares
------
<S> <C> <C>
Common Stocks -- 78.1%
Consumer Cyclicals -- 14.1%
Autos & Housing -- 0.3%
Alrenco, Inc./(3)/............................ 42,000 446,250
NHP, Inc./(3)/................................ 75,000 1,162,500
------------
1,608,750
------------
Leisure & Entertainment -- 4.8%
Applebee's International, Inc................. 120,000 3,300,000
CKE Restaurants, Inc.......................... 230,000 8,280,000
HFS, Inc./(3)/................................ 80,000 4,780,000
International Game Technology................. 220,000 4,015,000
Landry's Seafood Restaurants, Inc./(3)/....... 200,000 4,275,000
Rainforest Cafe, Inc./(3)/.................... 75,000 1,762,500
Regal Cinemas, Inc./(3)/...................... 99,900 3,071,925
------------
29,484,425
------------
Media -- 1.6%
Chancellor Broadcasting Co., Cl. A/(3)/....... 58,900 1,398,875
Evergreen Media Corp., Cl. A/(3)/............. 50,000 1,250,000
Getty Communications plc, ADR/(3)/............ 130,000 1,950,000
Infinity Broadcasting Corp., Cl. A/(3)/....... 60,000 2,017,500
Raster Graphics, Inc./(3)/.................... 220,000 2,612,500
SFX Broadcasting, Inc., Cl. A/(3)/............ 23,200 690,200
------------
9,919,075
------------
Retail: General -- 3.1%
Fila Holding SpA, Sponsored ADR............... 40,000 2,325,000
Meyer (Fred), Inc./(3)/....................... 97,000 3,443,500
Nautica Enterprises, Inc./(3)/................ 105,000 2,651,250
North Face, Inc. (The)/(3)/................... 115,000 2,213,750
Vans, Inc./(3)/............................... 350,000 4,375,000
Wolverine World Wide, Inc..................... 133,500 3,871,500
------------
18,880,000
------------
Retail: Specialty -- 4.3%
Abercrombie & Fitch Co., Cl. A/(3)/........... 24,800 409,200
Central Garden & Pet Co./(3)/................. 230,000 4,844,375
Corporate Express, Inc./(3)/.................. 62,500 1,839,844
CUC International, Inc./(3)/.................. 300,000 7,125,000
Linens 'N Things, Inc./(3)/................... 200,500 3,934,812
Petco Animal Supplies, Inc./(3)/.............. 135,000 2,801,250
Staples, Inc./(3)/............................ 61,250 1,106,328
TJX Cos., Inc................................. 90,000 4,263,750
------------
26,324,559
------------
Consumer Non-Cyclicals -- 21.9%
Food -- 1.6%
Richfood Holdings, Inc........................ 150,000 3,637,500
Safeway, Inc./(3)/............................ 150,000 6,412,500
------------
10,050,000
------------
Healthcare/Drugs -- 7.3%
Agouron Pharmaceuticals, Inc./(3)/............ 30,000 2,032,500
Alpha-Beta Technology, Inc./(3)/.............. 126,900 1,340,381
BioChem Pharma, Inc./(3)/..................... 165,000 8,291,250
Biogen, Inc./(3)/............................. 200,000 7,750,000
Dura Pharmaceuticals, Inc./(3)/............... 180,000 8,595,000
Incyte Pharmaceuticals, Inc./(3)/............. 80,000 4,120,000
Millennium Pharmaceuticals, Inc./(3)/......... 100,000 1,737,500
Nuerocrine Biosciences, Inc./(3)/............. 105,000 1,050,000
Physician Support Systems, Inc./(3)/.......... 220,000 4,235,000
SangStat Medical Corp./(3)/................... 220,000 5,830,000
------------
44,981,631
------------
Healthcare/Supplies & Services -- 11.1%
AmeriSource Health Corp., Cl. A/(3)/.......... 165,500 7,985,375
Apache Medical Systems, Inc./(3)/............. 50,000 534,375
Biosource International, Inc./(3)/............ 7,500 51,562
Capstone Pharmacy Services, Inc./(3)/......... 190,000 2,161,250
Cardinal Health, Inc.......................... 97,500 5,679,375
Cardiovascular Dynamics, Inc./(3)/............ 139,700 1,816,100
ESC Medical Systems Ltd./(3)/................. 107,100 2,731,050
FPA Medical Management, Inc./(3)/............. 230,000 5,146,250
HEALTHSOUTH Corp./(3)/........................ 170,000 6,566,250
Hologic, Inc./(3)/............................ 50,000 1,237,500
IMPATH, Inc./(3)/............................. 135,000 2,531,250
Integ, Inc./(3)/.............................. 126,500 1,233,375
MedPartners, Inc./(3)/........................ 150,000 3,150,000
OccuSystems, Inc./(3)/........................ 45,000 1,215,000
Omnicare, Inc................................. 153,600 4,934,400
Orthodontic Centers of America, Inc./(3)/..... 120,000 1,920,000
Pediatrix Medical Group, Inc./(3)/............ 127,500 4,701,562
PhyCor, Inc./(3)/............................. 97,500 2,766,562
Renal Treatment Centers, Inc./(3)/............ 200,000 5,100,000
Total Renal Care Holdings, Inc./(3)/.......... 197,600 7,163,000
------------
68,624,236
------------
Household Goods -- 1.3%
Blyth Industries, Inc./(3)/................... 170,000 7,756,250
Nu Skin Asia Pacific, Inc., Cl. A/(3)/........ 7,500 231,562
------------
7,987,812
------------
Tobacco -- 0.6%
Swisher International Group, Inc., Cl. A/(3)/. 225,000 3,571,875
------------
Energy -- 2.8%
Calpine Corp./(3)/............................ 225,000 4,500,000
Diamond Offshore Drilling, Inc./(3)/.......... 76,900 4,383,300
Energy Ventures, Inc./(3)/.................... 100,200 5,097,675
Nabors Industries, Inc./(3)/.................. 150,000 2,887,500
NUMAR Corp./(3)/.............................. 51,000 698,063
------------
17,566,538
------------
Financial -- 5.3%
Diversified Financial -- 2.8%
Associates First Capital Corp., Cl. A......... 161,000 7,104,125
Concord EFS, Inc./(3)/........................ 100,000 2,825,000
Green Tree Financial Corp..................... 85,000 3,283,125
Southern Pacific Funding Corp./(3)/........... 130,000 4,046,250
------------
17,258,500
------------
Insurance -- 2.5%
Berkley (W.R.) Corp........................... 30,000 1,522,500
CapMAC Holdings, Inc.......................... 100,600 3,332,375
Conseco, Inc.................................. 100,000 6,375,000
Executive Risk, Inc........................... 120,000 4,440,000
------------
15,669,875
------------
Industrial -- 8.8%
Electrical Equipment -- 0.4%
Honeywell, Inc................................ 40,000 2,630,000
Industrial Services -- 6.3%
Abacus Direct Corp./(3)/...................... 80,000 1,500,000
Affiliated Computer Services, Inc., Cl. A/(3)/ 160,000 4,760,000
CIBER, Inc./(3)/.............................. 63,000 1,890,000
Corrections Corp. of America/(3)/............. 100,000 3,062,500
</TABLE>
29
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
------ ------------
<S> <C> <C>
Common Stocks (Continued)
Industrial (Continued)
Industrial Services (Continued)
CORT Business Services Corp./(3)/............. 106,800 $ 2,202,750
Danka Business Systems plc,
Sponsored ADR................................ 70,000 2,476,250
May & Speh, Inc./(3)/......................... 34,900 427,525
Precision Response Corp./(3)/................. 85,000 2,985,625
SITEL Corp./(3)/.............................. 152,200 2,168,850
Tetra Technologies, Inc./(3)/................. 125,000 3,156,250
Transaction Systems Architects, Inc., Cl. A/(3)/ 92,000 3,059,000
United Waste Systems, Inc./(3)/............... 94,000 3,231,250
USA Waste Services, Inc./(3)/................. 171,300 5,460,188
Whittman-Hart, Inc./(3)/...................... 110,000 2,818,750
------------
39,198,938
------------
Manufacturing -- 2.1%
PRI Automation, Inc./(3)/..................... 70,000 3,185,000
RockShox, Inc./(3)/........................... 200,000 2,900,000
U.S. Filter Corp./(3)/........................ 208,600 6,623,050
------------
12,708,050
------------
Technology -- 24.0%
Computer Hardware -- 0.5%
Cascade Communications Corp./(3)/............. 60,000 3,307,500
------------
Computer Software -- 10.7%
Adobe Systems, Inc............................ 50,000 1,868,750
Aspen Technologies, Inc./(3)/................. 70,000 5,617,500
Centennial Technologies, Inc./(3)/............ 55,000 2,860,000
Computer Associates International, Inc........ 135,000 6,716,250
CyberMedia, Inc./(3)/......................... 100,300 1,579,725
Eidos plc, Sponsored ADR/(3)/................. 100,000 1,200,000
First Data Corp............................... 67,576 2,466,524
HBO & Co...................................... 70,000 4,156,250
Indus Group, Inc. (The)/(3)/.................. 75,000 1,931,250
Informix Corp./(3)/........................... 50,000 1,018,750
Legato Systems, Inc./(3)/..................... 60,000 1,957,500
Mecon, Inc./(3)/.............................. 55,000 364,375
Oracle Corp./(3)/............................. 67,500 2,818,125
Pure Atria Corp./(3)/......................... 51,400 1,272,150
Rational Software Corp./(3)/.................. 87,500 3,461,719
Rogue Wave Software, Inc./(3)/................ 200,000 3,150,000
SELECT Software Tools Ltd. ADR/(3)/........... 220,000 4,015,000
Sunquest Information Systems, Inc./(3)/....... 50,000 712,500
Systemsoft Corp./(3)/......................... 100,000 1,487,500
Transition Systems, Inc./(3)/................. 40,000 565,000
Vantive Corp./(3)/............................ 70,000 2,187,500
Verilink Corp./(3)/........................... 175,000 5,818,750
Versant Object Technology Corp./(3)/.......... 200,000 3,725,000
Visigenic Software, Inc./(3)/................. 235,000 3,583,750
White Pine Software, Inc./(3)/................ 183,000 1,326,750
------------
65,860,618
------------
Electronics -- 4.0%
Altera Corp./(3)/............................. 50,000 3,634,375
ESS Technology, Inc./(3)/..................... 175,000 4,921,875
Nokia Corp., A Shares, Sponsored ADR.......... 85,000 4,898,125
Sawtek, Inc./(3)/............................. 95,100 3,768,338
SDL, Inc./(3)/................................ 165,000 4,331,250
Waters Corp./(3)/............................. 100,000 3,037,500
------------
24,591,463
------------
Telecommunications-Technology -- 8.8%
Ascend Communications, Inc./(3)/.............. 40,000 2,485,000
Cisco Systems, Inc./(3)/...................... 115,000 7,316,875
Converse Technology, Inc./(3)/................ 170,000 6,428,125
Davox Corp./(3)/.............................. 60,000 2,475,000
LCI International, Inc./(3)/.................. 120,600 2,592,900
Newbridge Networks Corp./(3)/................. 130,000 3,672,500
PageMart Wireless, Inc., Cl. A/(3)/........... 103,100 683,038
Periphonics Corp./(3)/........................ 205,800 6,019,650
Sterling Commerce, Inc./(3)/.................. 45,500 1,603,875
Tel-Save Holdings, Inc./(3)/.................. 100,000 2,900,000
Teledata Communications Ltd./(3)/............. 240,000 5,520,000
Tellabs, Inc./(3)/............................ 160,000 6,020,000
U.S. Robotics Corp./(3)/...................... 95,000 6,840,000
------------
54,556,963
------------
Utilities -- 1.2%
ACC Corp./(3)/................................ 58,200 1,760,550
Advanced Fibre Communications, Inc./(3)/...... 45,000 2,503,125
West TeleServices Corp./(3)/.................. 125,200 2,848,300
------------
7,111,975
------------
Total Common Stocks
(Cost $377,931,267).......................... 481,892,783
------------
<CAPTION>
Units
-----
<S> <C> <C>
Rights, Warrants and Certificates -- 0.0%
PerSeptive Biosystems, Inc. Wts., Exp. 9/03
(Cost $0) 961 --
------------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
Repurchase Agreements -- 22.3%
Repurchase agreement with PaineWebber,
Inc., 6.50%, dated 12/31/96, to be
repurchased at $15,905,742 on 1/2/97,
collateralized by U.S. Treasury Nts., 5.75%-
8.75%, 9/30/97-8/31/00, with a value of
$16,394,610..................................$ 15,900,000 $ 15,900,000
Repurchase agreement with Goldman, Sachs
& Co., 6.52%, dated 12/31/96, to be
repurchased at $122,144,227 on 1/2/97,
collateralized by U.S. Treasury Nts., 5.50%-
7.50%, 7/15/99-8/15/05, with a value of
$124,899,505................................. 122,100,000 122,100,000
------------
Total Repurchase Agreements
(Cost $138,000,000) 138,000,000
------------
Total Investments, at Value
(Cost $519,731,267) 101.1% 624,437,033
------ ------------
Liabilities in Excess of Other Assets (1.1) (7,044,761)
------ ------------
Net Assets 100.0% $617,392,272
====== ============
</TABLE>
(1) Identifies issues considered to be illiquid - See applicable note 6 of Notes
to Financial Statements.
(2) 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 $2,392,500 or 0.39% of the Fund's
net assets, at December 31, 1996.
(3) Non-income producing security.
See Notes to Financial Statements.
30
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
STATEMENT OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Principal Market Value
Amount(1) (Note 1)
--------- ------------
<S> <C> <C>
Foreign Government Obligations -- 0.9%
Bonos de la Tesoreria de la Federacion,
Zero Coupon, 36.92%, 4/3/97 (Cost
$5,151,307)(2) MXP......................... $ 41,760,000 $ 4,978,611
------------
Shares
------
Common Stocks -- 88.1%
Basic Materials -- 2.4%
Chemicals -- 0.7%
Minerals Technologies, Inc.................. 100,000 4,100,000
------------
Gold -- 0.9%
Newmont Mining Corp......................... 120,500 5,392,375
------------
Metals -- 0.8%
Cia de Minas Buenaventura SA,
Sponsored ADR.............................. 46,000 787,750
Cia Vale Do Rio Doce, Preference............ 31,000 596,674
Freeport-McMoRan Copper & Gold,
Inc., Cl. B............................... 107,000 3,196,625
------------
4,581,049
------------
Consumer Cyclicals -- 12.6%
Autos & Housing -- 2.9%
Brazil Realty SA, GDR/(3)(4)/............... 60,000 1,140,000
IRSA Inversiones y Representaciones SA...... 1,028,807 3,303,052
Mahindra & Mahindra Ltd., GDR/(4)/.......... 200,000 2,350,000
Porsche AG, Preference/(3)/................. 9,750 8,699,093
Solidere, GDR/(3)/.......................... 100,000 1,145,000
------------
16,637,145
------------
Leisure & Entertainment -- 4.0%
Nintendo Co. Ltd............................ 275,000 19,641,164
Resorts World Berhad........................ 770,000 3,506,228
------------
23,147,392
------------
Media -- 0.8%
News Corp. Ltd., ADR........................ 150,000 3,131,250
Reuters Holdings plc, Series B, ADR......... 20,000 1,530,000
------------
4,661,250
------------
Retail: General -- 0.2%
PT Matahari Putra Prima..................... 1,000,000 1,164,021
------------
Retail: Specialty -- 4.7%
Adidas AG................................... 25,000 2,157,537
Giordano International Ltd.................. 2,100,000 1,791,856
Jusco Co.................................... 85,000 2,878,005
Reebok International Ltd.................... 80,000 3,360,000
Wella AG.................................... 24,305 12,932,310
Wolford AG.................................. 33,600 4,060,690
------------
27,180,398
------------
Consumer Non-Cyclicals -- 15.5%
Beverages -- 2.2%
Allied Domecq plc........................... 344,400 2,702,005
Hellenic Bottling Co., SA................... 35,000 1,121,458
Panamerican Beverages, Inc., Cl. A.......... 100,000 4,687,500
South African Breweries Ltd................. 178,900 4,532,265
------------
13,043,228
------------
Food -- 0.6%
Dairy Farm International Holdings Ltd....... 1,186,000 954,730
Disco SA, Sponsored ADR/(3)/................ 93,200 2,632,900
------------
3,587,630
------------
Healthcare/Drugs -- 8.3%
Amgen, Inc./(3)/............................ 100,000 5,437,500
Astra AB Free, Series A..................... 100,000 4,935,541
BioChem Pharma, Inc./(3)/................... 125,000 6,281,250
Genzyme Corp./(3)/.......................... 220,800 4,802,400
Gilead Sciences, Inc./(3)/.................. 72,700 1,817,500
Glaxo Wellcome plc, Sponsored ADR........... 400,000 12,700,000
Johnson & Johnson........................... 23,000 1,144,250
Novartis AG/(3)/............................ 4,266 4,870,541
Sanofi SA................................... 60,000 5,955,293
------------
47,944,275
------------
Healthcare/Supplies & Services -- 3.0%
Gehe AG..................................... 69,990 4,489,307
Rhoen-Klinikum AG, Preference, Non-vtg...... 4,820 476,962
United States Surgical Corp................. 315,500 12,422,812
------------
17,389,081
------------
Tobacco -- 1.4%
B.A.T. Industries plc....................... 600,000 4,979,692
Philip Morris Cos., Inc..................... 20,000 2,252,500
PT Gudang Garam/(3)/........................ 79,500 343,238
PT Hanjaya Mandala Sampoerna/(3)/........... 100,000 533,333
------------
8,108,763
------------
Energy -- 6.4%
Energy Services & Producers -- 2.9%..........
Coflexip SA, Sponsored ADR/(3)/............. 105,000 2,756,250
Global Marine, Inc./(3)/.................... 117,500 2,423,437
Transocean Offshore, Inc.................... 135,459 8,483,120
Western Atlas, Inc./(3)/.................... 49,300 3,494,138
------------
17,156,945
------------
Oil-Integrated -- 3.5%
British Petroleum Co. plc, ADR.............. 25,442 3,596,863
Gulf Canada Resources Ltd./(3)/............. 565,600 4,126,500
Lukoil Oil Co., Sponsored ADR............... 66,900 3,005,502
Petroleo Brasileiro SA, Preference.......... 34,132,000 5,436,324
Renaissance Energy Ltd./(3)/................ 45,800 1,558,797
Unocal Corp................................. 64,000 2,600,000
------------
20,323,986
------------
Financial -- 17.1%
Banks -- 11.6%
ABN Amro Holding NV......................... 70,000 4,548,668
Banco Bradesco SA, Preference............... 455,260,951 3,299,142
Banco Frances del Rio de la Plata SA,
Sponsored ADR.............................. 63,250 1,739,375
Banco Latinoamericano de
Exportaciones SA, Cl. E.................... 80,000 4,060,000
Banque Libanaise Pour Le Comm SAL,
GDR, Cl. B/(3)/............................ 50,000 607,500
Barclays plc................................ 300,414 5,148,666
Chase Manhattan Corp. (New)................. 52,000 4,641,000
Cie Financiere de Paribas, Series A......... 180,000 12,149,489
Citicorp.................................... 45,000 4,635,000
HSBC Holdings plc........................... 154,836 3,312,912
Industrial Credit & Investment Corp.
of India Ltd. (The), GDR/(3)(4)/........... 162,500 1,584,375
Industrial Finance Corp..................... 758,100 2,054,909
Merita Ltd., Cl. A/(3)/..................... 2,000,000 6,205,237
Northern Trust Corp......................... 37,400 1,355,750
PT Panin Bank............................... 387,000 442,286
Societe Generale............................ 110,000 11,870,191
------------
67,654,500
------------
Diversified Financial -- 2.9%
American Express Co......................... 24,500 1,384,250
First NIS Regional Fund/(5)/................ 180,000 2,115,000
ING Groep NV................................ 90,432 3,251,865
MBNA Corp................................... 55,000 2,282,500
Merrill Lynch & Co., Inc.................... 30,000 2,445,000
</TABLE>
31
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
------ ------------
<S> <C> <C>
Common Stocks (Continued)
Financial (Continued)
Diversified Financial (Continued)
Promise Co. Ltd./(3)/....................... 40,000 $ 1,964,332
Takefuji Corp./(3)/......................... 50,000 3,596,967
------------
17,039,914
------------
Insurance -- 2.6%
American International Group, Inc........... 35,000 3,788,750
National Mutual Asia Ltd.................... 2,634,000 2,502,897
Reinsurance Australia Corp. Ltd............. 2,283,000 8,885,089
------------
15,176,736
------------
Industrial -- 11.3%
Electrical Equipment -- 0.4%
FORE Systems, Inc./(3)/..................... 38,000 1,249,250
Ushio, Inc.................................. 100,000 1,085,552
------------
2,334,802
------------
Industrial Services -- 5.6%
Adecco SA................................... 17,000 4,254,048
Boskalis Westminster........................ 150,000 3,035,143
IHC Caland NV............................... 45,000 2,567,731
PT Citra Marga Nusaphala Persada............ 2,331,000 1,825,333
Rentokil Group plc.......................... 700,000 5,276,041
VBH Holding AG.............................. 247,000 5,489,391
WPP Group plc............................... 2,290,100 9,964,274
------------
32,411,961
------------
Manufacturing -- 4.1%
Bic Corp.................................... 24,200 3,621,572
Bobst Bearers AG............................ 2,000 2,696,018
Bombardier, Inc., Cl. B..................... 250,000 4,614,589
Hutchison Whampoa Ltd....................... 751,000 5,898,290
Powerscreen International plc............... 730,100 7,066,238
------------
23,896,707
------------
Transportation -- 1.2%
Brambles Industries Ltd..................... 180,000 3,509,811
Guangshen Railway Co. Ltd., Sponsored
ADR/(3)/................................... 180,000 3,712,500
------------
7,222,311
------------
Technology -- 16.4%
Aerospace/Defense -- 1.7%
Rolls-Royce plc............................. 2,210,075 9,729,659
------------
Computer Software -- 6.4%
Cap Gemini SA/(3)/.......................... 205,000 9,893,653
Computer Associates International, Inc...... 60,000 2,985,000
First Data Corp............................. 174,236 6,359,614
Ines Corp................................... 42,000 611,528
Microsoft Corp./(3)/........................ 70,000 5,783,750
Misys plc................................... 201,600 3,836,737
Oracle Corp./(3)/........................... 117,900 4,922,325
SAP AG, Preference.......................... 20,000 2,748,670
------------
37,141,277
------------
Electronics -- 3.7%
Advanced Semiconductor Engineering,
Inc., GDR.................................. 102,420 1,003,716
Intel Corp.................................. 20,000 2,618,750
Keyence Corp................................ 25,000 3,080,038
SGS-Thomson Microelectronics NV/(3)/........ 200,000 14,000,000
Taiwan Semiconductor Manufacturing
Co./(3)(5)/................................ 512,000 1,051,926
------------
21,754,430
------------
Telecommunications-Technology -- 4.6%
Ascend Communications, Inc./(3)/............ 18,800 1,167,950
Cisco Systems, Inc./(3)/.................... 74,600 4,746,425
Korea Mobile Telecommunications Corp........ 3,000 3,029,734
Millicom International Cellular SA/(3)/..... 90,000 2,891,250
Millicom, Inc./(3)/......................... 25,000 --
QUALCOMM, Inc./(3)/......................... 130,700 5,211,663
Telecom Italia Mobile SpA................... 1,819,700 4,600,230
Telecom Italia SpA.......................... 2,000,000 5,194,463
------------
26,841,715
------------
Utilities -- 6.4%
Electric Utilities -- 0.7%
Empresa Nacional de Electricidad SA......... 60,000 4,269,542
------------
Gas Utilities -- 0.3%
Gazprom, ADR/(3)(4)/........................ 110,000 1,933,250
------------
Telephone Utilities -- 5.4%
CPT Telefonica del Peru SA, Cl. B........... 3,400,031 6,362,708
PLD Telekom, Inc./(3)/...................... 159,900 979,388
Portugal Telecom SA......................... 144,000 4,099,709
SBC Communications, Inc..................... 128,500 6,649,875
Telecomunicacoes Brasileiras SA,
Preference................................. 172,548,000 13,284,509
------------
31,376,189
------------
Total Common Stocks
(Cost $436,933,605)........................ 513,200,531
------------
Preferred Stocks -- 1.7%
Marschollek, Lautenschlaeger und Partner-VO,
Non-vtg. Preferred Stock (Cost $5,017,476). 70,257 9,755,960
------------
<CAPTION>
Units
-----
<S> <C> <C>
Rights, Warrants and Certificates -- 0.0%
American Satellite Network, Inc. Wts.,
Exp. 6/99 (Cost $0)........................ 6,250 --
------------
<CAPTION>
Principal
Amount
------
<S> <C> <C>
Repurchase Agreement -- 10.4%
Repurchase agreement with Goldman,
Sachs & Co., 6.52%, dated 12/31/96,
to be repurchased at $60,521,914 on
1/2/97, collateralized by U.S.
Treasury Nts., 5.50%- 7.50%, 7/15/99-
8/15/05, with a value of $61,887,142
(Cost $60,500,000)......................... $ 60,500,000 60,500,000
Total Investments, at Value
(Cost $507,602,388)........................ 101.1% 588,435,102
------ ------------
Liabilities in Excess of Other Assets....... (1.1) (6,354,913)
------ ------------
Net Assets 100.0% $582,080,189
====== ============
</TABLE>
32
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
(1) Principal amount is reported in U.S. Dollars, except for those denoted in
the following currency - MXP - Mexican Peso
(2) For zero coupon bonds, the
interest rate shown is the effective yield on the date of purchase.
(3) Non-income producing security.
(4) 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 $7,007,625 or 1.21% of the Fund's
net assets, at December 31, 1996.
(5) Identifies issues considered to be illiquid - See applicable note of Notes
to Financial Statements.
Affiliated company. Represents ownership of at least 5% of the voting securities
of the issuer and is or was an affiliate, as defined in the Investment Company
Act of 1940, at or during the period ended December 31, 1996. There were no
affiliate securities held as of December 31, 1996. Transactions during the
period in which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
Balance Balance
December 31, 1995 Gross Additions Gross Reductions December 31, 1996
----------------- --------------- ---------------- ----------------- Dividend
Shares Cost Shares Cost Shares Cost Shares Cost Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmavit GDS.......... 114,000 $1,401,000 -- $ -- 114,000 $1,401,000 -- $ -- $ --
<CAPTION>
Distribution of investments by country of issue, as a percentage of total investments at value, is as follows:
Country Market Value Percent
- ------- ------------ -------
<S> <C> <C>
United States....................................................................... $ 186,544,759 31.7%
Great Britain....................................................................... 66,530,176 11.3
France.............................................................................. 60,246,448 10.2
Germany............................................................................. 46,749,230 7.9
Japan............................................................................... 32,857,584 5.6
Brazil.............................................................................. 23,756,648 4.0
Canada.............................................................................. 16,581,137 2.8
Australia........................................................................... 15,526,150 2.6
Hong Kong........................................................................... 14,460,685 2.5
Netherlands......................................................................... 13,403,408 2.3
Switzerland......................................................................... 11,820,607 2.0
Italy............................................................................... 9,794,693 1.7
Mexico.............................................................................. 9,666,111 1.6
Russia.............................................................................. 8,033,140 1.4
Argentina........................................................................... 7,675,327 1.3
Peru................................................................................ 7,150,458 1.2
Finland............................................................................. 6,205,237 1.1
Sweden.............................................................................. 4,935,541 0.8
South Africa........................................................................ 4,532,265 0.8
Indonesia........................................................................... 4,308,211 0.7
Spain............................................................................... 4,269,542 0.7
Portugal............................................................................ 4,099,709 0.7
Austria............................................................................. 4,060,690 0.7
Panama.............................................................................. 4,060,000 0.7
India............................................................................... 3,934,375 0.7
China............................................................................... 3,712,500 0.6
Malaysia............................................................................ 3,506,228 0.6
Korea, Republic of (South).......................................................... 3,029,734 0.5
Taiwan.............................................................................. 2,055,642 0.4
Thailand............................................................................ 2,054,909 0.4
Lebanon............................................................................. 1,752,500 0.3
Greece.............................................................................. 1,121,458 0.2
------------- -----
Total............................................................................. $ 588,435,102 100.0%
============= =====
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer High Income Fund (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 from investments in high yield fixed income
securities. The Trust's investment adviser is OppenheimerFunds, Inc. (the
Manager). Shares of the Oppenheimer Variable Account Funds are sold only to
separate accounts of insurance companies, principally MassMutual Life
Insurance Company, as affiliate of the Manager, Aetna Life Insurance &
Annuity Company, Merrill Lynch Insurance Group, Bankers Security Life
Insurance Society, Life Insurance Company of Virginia, Nationwide Life
Insurance Company, and Jefferson Pilot. The following is a summary of
significant accounting policies consistently followed by the Fund.
A. Investment 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 the approved portfolio pricing service are valued
using dealer-supplied valuations provided the Manager is satisfied that
the firm rendering the quotes is reliable and that the quotes reflect
current market value, or are valued under consistently applied
procedures established by the Board of Trustees to determine fair value
in good faith. Short-term "money market type" debt securities having a
remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount. Forward foreign currency exchange contracts are
valued based on the closing prices of the forward currency contract
rates in the London foreign exchange markets on a daily basis as
provided by a reliable bank or dealer. Options are valued based upon the
last sale price on the principal exchange on which the option is traded
or, in the absence of any transactions that day, the value is based upon
the last sale on the prior trading date if it is within the spread
between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid is used.
B. Securities Purchased on a When-Issued Basis.
Delivery and payment for securities that have been purchased by the Fund
on a forward commitment or when-issued basis can take place a month or
more after the transaction date. During this period, such securities do
not earn interest, are subject to market fluctuation and may increase or
decrease in value prior to their delivery. The Fund maintains, in a
segregated account with its custodian, assets with a market value equal
to the amount of its purchase commitments. The purchase of securities on
a when-issued or forward commitment basis may increase the volatility of
the Fund's net asset value to the extent the Fund makes such purchases
while remaining substantially fully invested.
In connection with its ability to purchase securities on a when-issued
or forward commitment basis, the Fund may enter into mortgage "dollar-
rolls" in which the Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to
repurchase similar (same type coupon and maturity) but not identical
securities on a specified future date. The Fund records each dollar-roll
as a sale and a new purchase transaction.
C. 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.
D. Foreign Currency Translation.
The accounting records of the Fund are maintained in U.S. dollars.
Prices of securities purchased that are denominated in foreign
currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and
investment income are translated at the rates of exchange prevailing on
the respective dates of such transactions.
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.
34
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
Notes to Financial Statements (Continued)
E. 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.
F. Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized
gain on investments not offset by loss carryovers, to shareholders.
Therefore, no federal income or excise tax provision is required.
G. Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
H. 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 the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes. The character of the distributions made
during the year from net investment income or net realized gains may
differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1996, the Fund adjusted 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, 1996, amounts have been reclassified
to reflect an increase in undistributed net investment income of
$293,322. Accumulated net realized loss was increased by the same
amount.
I. Other.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded on
the ex-dividend date. Discount on securities purchased is amortized over
the life of the respective securities, in accordance with federal income
tax requirements. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified
cost basis, which is the same basis used for federal income tax
purposes. Dividends-in-kind are recognized as income on the ex-dividend
date, at the current market value of the underlying security. Interest
on payment-in-kind debt instruments is accrued as income at the coupon
rate, and a market adjustment is made 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.
35
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
Notes to Financial Statements (Continued)
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, 1996 Year Ended December 31, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 9,857,582 $ 107,788,590 5,873,231 $ 60,932,670
Dividends and
distributions reinvested 1,412,713 15,283,448 1,162,957 12,040,152
Redeemed (6,635,862) (72,550,951) (4,263,757) (44,560,679)
-------------------------------------------------------------------------
Net increase 4,634,433 $ 50,521,087 2,772,431 $ 28,412,143
=========================================================================
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS AND OPTIONS WRITTEN
At December 31, 1996, net unrealized appreciation on investments and
options written of $10,375,003 was composed of gross appreciation of
$11,696,415, and gross depreciation of $1,321,412.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreements with the Trust. The annual fees are 0.75% of the first
$200 million of net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million, 0.60% of the next $200
million and 0.50% of net assets in excess of $1 billion.
5. FORWARD CONTRACTS
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks.
They may also be used to tactically shift portfolio currency risk. The Fund
generally enters into forward contracts as a hedge upon the purchase or
sale of a security denominated in a foreign currency. In addition, the Fund
may enter into such contracts as a hedge against changes in foreign
currency exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on a daily
basis as provided by a reliable bank or dealer. The Fund will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure on outstanding
forward contracts are noted in the Statement of Investments where
applicable. Unrealized appreciation or depreciation on forward contracts is
reported in the Statement of Assets and Liabilities. Realized gains and
losses are reported with all other foreign currency gains and losses in the
Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet the terms
of the contract and unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
At December 31, 1996, the Fund had outstanding forward contracts to
purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Contract Amount Valuation as of Unrealized Unrealized
Contracts to Purchase Expiration Date (000's) December 31, 1996 Appreciation Depreciation
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South African Rand (ZAR) 1/3/97 940 ZAR $ 200,737 $ 547 $ --
Spanish Peseta (ESP) 10/20/97 135,015 ESP 1,038,134 9,835 --
------------- -------------- --------------
$ 1,238,871 10,382 --
------------- -------------- --------------
Contracts to Sell
----------------------------
Swiss Franc (CHF) 1/21/97-10/20/97 4,920 CHF $ 3,708,898 203,760 817
------------- -------------- --------------
Total Unrealized Appreciation and Depreciation $ 214,142 $ 817
============== ==============
</TABLE>
36
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
Notes to Financial Statements (Continued)
6. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or 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 in an amount (initial margin) 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 recognizes 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
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.
At December 31, 1996, the Fund had outstanding futures contracts to
purchase debt securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Expiration Date Futures Contracts December 31, 1996 Depreciation
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts........................... 3/97 35 $3,730,781 $17,500
</TABLE>
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 footnote to the Statement of Investments. Options written are
reported as a liability in the Statement of Assets and Liabilities. Gains
and losses are reported in the Statement of Operations.
The risk in writing a call option is that the 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. The Fund may also write over-the-counter
options where the completion of the obligation is dependent upon the credit
standing of the counterparty.
37
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer High Income Fund
Notes to Financial Statements (Continued)
Written option activity for the year ended December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
----------------------------------------------------------------------
Number of Amount of Number of Amount of
Options Premiums Options Premiums
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1995 100 $ 1,430 -- $ --
Options written 13,189,736 158,172 229,892 288,149
Options closed or expired (8,691,827) (94,602) (229,892) (288,149)
Options exercised (2,037,479) (22,715) -- --
----------------------------------------------------------------------
Options outstanding at December 31, 1996 2,460,530 $ 42,285 -- $ --
----------------------------------------------------------------------
</TABLE>
8. ILLIQUID AND RESTRICTED SECURITIES
At December 31, 1996, 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 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 10% of its net assets (determined
at the time of purchase and reviewed from time to time) in illiquid and
restricted securities. Certain restricted securities, eligible for resale
to qualified institutional investors, are not subject to that limit. The
aggregate value of illiquid and restricted securities subject to this 10%
limitation at December 31, 1996 was $18,868,579, which represents 9.86% of
the Fund's net assets. Information concerning restricted securities is as
follows:
<TABLE>
<CAPTION>
Acquisition Cost Valuation Per Unit as of
Security Date Per Unit December 31, 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds
-----
ECM Fund L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 100.00% 110.50%
Stocks and Warrants
-------------------
ECM Fund L.P.I. 4/14/92 $1,000.00 $1,005.00
Gillett Holdings, Inc. 12/1/92-1/18/96 $ 16.27 $ 36.00
Omnipoint Corp. 1/26/96 $ 16.00 $ 18.29
Omnipoint Corp. Wts., Exp. 11/00 11/29/95 $ 0.00 $ 18.29
Triangle Wire & Cable, Inc. 5/2/94 $ 9.50 $ 1.00
</TABLE>
38
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Appreciation Fund (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 achieve capital
appreciation by investing in "growth-type" companies. The Trust's
investment adviser is OppenheimerFunds, Inc. (the Manager). Shares of the
Oppenheimer Variable Account Funds are sold only to separate accounts of
insurance companies, principally MassMutual Life Insurance Company, as
affiliate of the Manager, Aetna Life Insurance & Annuity Company, Merrill
Lynch Insurance Group, Bankers Security Life Insurance Society, Life
Insurance Company of Virginia, Nationwide Life Insurance Company, and
Jefferson Pilot. The following is a summary of significant accounting
policies consistently followed by the Fund.
A. Investment 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 the approved portfolio pricing service are valued
using dealer-supplied valuations provided the Manager is satisfied that
the firm rendering the quotes is reliable and that the quotes reflect
current market value, or are valued under consistently applied
procedures established by the Board of Trustees to determine fair value
in good faith. Short-term "money market type" debt securities having a
remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount.
B. 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.
C. Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized
gain on investments not offset by loss carryovers, to shareholders.
Therefore, no federal income or excise tax provision is required.
D. Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
E. Classification of Distributions to Shareholders.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of the distributions
made during the year from net investment income or net realized gains
may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
F. Other.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded on
the ex-dividend date. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified
cost basis, which is the same basis used for federal income tax
purposes.
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.
39
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
Notes to Financial Statements (Continued)
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, 1996 Year Ended December 31, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 12,247,492 $ 455,862,164 8,882,212 $ 260,650,476
Dividends and
distributions reinvested 643,582 22,422,394 40,594 1,082,642
Redeemed (6,453,749) (237,187,104) (6,567,729) (191,565,283)
-----------------------------------------------------------------------
Net increase 6,437,325 $ 241,097,454 2,355,077 $ 70,167,835
=======================================================================
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1996, net unrealized appreciation on investments of
$104,705,766, was composed of gross appreciation of $116,514,163, and gross
depreciation of $11,808,397.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
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 net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million and 0.60% of net assets
in excess of $800 million.
5. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or 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 in an amount (initial margin) 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 recognizes 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
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.
At December 31, 1996, the Fund had outstanding futures contracts as
follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Contracts Expiration Date Futures Contracts December 31, 1996 Appreciation
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Russell 2000 Index........................ 3/97 440 $79,805,000 $516,694
</TABLE>
40
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Capital Appreciation Fund
Notes to Financial Statements (Continued)
6. ILLIQUID AND RESTRICTED SECURITIES
At December 31, 1996, 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 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 10% of its net assets (determined at the
time of purchase and reviewed from time to time) in illiquid or restricted
securities. Certain restricted securities, eligible for resale to qualified
institutional investors, are not subject to that limit. The aggregate value
of illiquid or restricted securities subject to this limitation at December
31, 1996 was $1,083,000, which represents 0.18% of the Fund's net assets.
41
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Global Securities Fund (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 long-term
capital appreciation by investing a substantial portion of assets in
securities of foreign issuers, "growth-type" companies, cyclical industries
and special institutions which are considered to have appreciation
possibilities. The Trust's investment adviser is OppenheimerFunds, Inc.
(the Manager). Shares of the Oppenheimer Variable Account Funds are sold
only to separate accounts of insurance companies, principally MassMutual
Life Insurance Company, as affiliate of the Manager, Aetna Life Insurance &
Annuity Company, Merrill Lynch Insurance Group, Bankers Security Life
Insurance Society, Life Insurance Company of Virginia, Nationwide Life
Insurance Company, and Jefferson Pilot. The following is a summary of
significant accounting policies consistently followed by the Fund.
A. Investment 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 the approved portfolio pricing service are valued
using dealer-supplied valuations provided the Manager is satisfied that
the firm rendering the quotes is reliable and that the quotes reflect
current market value, or are valued under consistently applied
procedures established by the Board of Trustees to determine fair value
in good faith. Short-term "money market type" debt securities having a
remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount. Forward foreign currency exchange contracts are
valued based on the closing prices of the forward currency contract
rates in the London foreign exchange markets on a daily basis as
provided by a reliable bank or dealer.
B. Foreign Currency Translation.
The accounting records of the Fund are maintained in U.S. dollars.
Prices of securities purchased that are denominated in foreign
currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and
investment income are translated at the rates of exchange prevailing on
the respective dates of such transactions.
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.
C. 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.
D. Federal Taxes.
The Trust intends for each Fund to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized
gain on investments not offset by loss carryovers, to shareholders.
Therefore, no federal income or excise tax provision is required. At
December 31, 1996, the Fund had available for federal income tax
purposes an unused capital loss carryover of approximately $16,867,000,
which expires in 2003.
E. Distributions to Shareholders.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
42
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
Notes to Financial Statements (Continued)
F. Classification of Distributions to Shareholders.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of the distributions
made during the year from net investment income or net realized gains
may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year
in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1996, the Fund adjusted 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, 1996, amounts have been reclassified
to reflect an increase in undistributed net investment income of
$2,649,581. Accumulated net realized loss was increased by the same
amount.
G. Other.
Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded on
the ex-dividend date. Discount on securities purchased is amortized over
the life of the respective securities, in accordance with federal income
tax requirements. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified
cost basis, which is the same basis used for federal income tax
purposes.
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, 1996 Year Ended December 31, 1995
---------------------------- -----------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 14,595,634 $ 237,535,239 11,235,722 $ 166,766,446
Dividends and
distributions reinvested -- -- 585,961 8,174,158
Redeemed (5,717,318) (92,429,081) (7,497,205) (112,360,172)
--------------------------------------------------------------------------
Net increase 8,878,316 $ 145,106,158 4,324,478 $ 62,580,432
==========================================================================
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1996, net unrealized appreciation on investments of
$80,832,714 was composed of gross appreciation of $89,877,396, and gross
depreciation of $9,044,682.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
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 net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million and 0.60% of net assets
in excess of $800 million.
43
<PAGE>
Oppenheimer Variable Account Funds - Oppenheimer Global Securities Fund
Notes to Financial Statements (Continued)
5. FORWARD CONTRACTS
A forward foreign currency exchange contract (forward contract) is a
commitment to purchase or sell a foreign currency at a future date, at a
negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks.
They may also be used to tactically shift portfolio currency risk. The
Fund generally enters into forward contracts as a hedge upon the purchase
or sale of a security denominated in a foreign currency. In addition, the
Fund may enter into such contracts as a hedge against changes in foreign
currency exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of the forward
currency contract rates in the London foreign exchange markets on a daily
basis as provided by a reliable bank or dealer. The Fund will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statement of Investments
where applicable. Unrealized appreciation or depreciation on forward
contracts is reported in the Statement of Assets and Liabilities. Realized
gains and losses are reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet the
terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At December 31, 1996, the Fund had outstanding forward contracts to
purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Contract Amount Valuation as of Unrealized Unrealized
Contracts to Purchase Expiration Date (000's) December 31, 1996 Appreciation Depreciation
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
British Pound Sterling (GBP) 1/7/97 126 GBP $ 216,416 $ 2,493 $ --
Deutsche Mark (DEM) 1/2/97-1/3/97 3,477 DEM 2,256,966 19,488 --
-------------- ---------------- ---------------
$ 2,473,382 21,981 --
-------------- ---------------- ---------------
Contracts to Sell
-----------------------------------
Brazilian Real (BRR) 1/2/97 303 BRR $ 292,022 -- 339
French Franc (FRF) 3/11/97 130,595 FRF 25,256,084 -- 256,084
Swiss Franc (CHF) 1/8/97 17,203 CHF 12,832,949 990,675 --
Deutsche Mark (DEM) 1/6/97-1/8/97 29,194 DEM 19,081,287 1,372,221 3,543
-------------- ---------------- ---------------
$ 57,462,342 2,362,896 259,966
============== ---------------- ---------------
Total Unrealized Appreciation and Depreciation $ 2,384,877 $ 259,966
================ ===============
</TABLE>
6. ILLIQUID AND RESTRICTED SECURITIES
At December 31, 1996, 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 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 10% of its net assets (determined
at the time of purchase and reviewed from time to time) in illiquid and
restricted securities. Certain restricted securities, eligible for resale
to qualified institutional investors, are not subject to that limit. The
aggregate value of illiquid and restricted securities subject to this 10%
limitation at December 31, 1996 was $3,166,926, which represents 0.55% of
the Fund's net assets.
44
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Variable Account Funds:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Oppenheimer High Income Fund, Oppenheimer
Capital Appreciation Fund and Oppenheimer Global Securities Fund (all of which
are series of Oppenheimer Variable Account Funds) as of December 31, 1996, the
related statements of operations for the year then ended, the statements of
changes in net assets for the years ended December 31, 1996 and 1995, and the
financial highlights for the applicable periods ended December 31, 1996, 1995,
1994, 1993 and 1992. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1996 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer High
Income Fund, Oppenheimer Capital Appreciation Fund and Oppenheimer Global
Securities Fund at December 31, 1996, the results of their operations, the
changes in their net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 22, 1997
45
<PAGE>
Dreyfus Stock Index Fund
Letter to Shareholders
Dear Shareholder:
We are pleased to inform you that Dreyfus Stock Index Fund produced a total
return of 22.54% for the 12 months ended December 31, 1996, based on net asset
value.* This compares with a total return of 22.95% for the Standard & Poor's
500 Composite Stock Price Index (the S&P 500), which serves as the benchmark for
the Fund.** The difference is accounted for by transaction fees and other Fund
expenses.
Stocks of the kind represented in the S&P 500, which is dominated by large
capitalization companies, had a particularly good year. Small companies, as
measured by the Russell 2000 Index, did not move upward as strongly. That Index
provided a total return of 16.50% for the year.***
ECONOMIC REVIEW
The much-heralded "Goldilocks" phase of the U.S. economy--not too hot and not
too cold--may be ending. First, the slowdown to 2% GDP growth seems to have been
confined to the summer and recent data depict faster growth for the fourth
quarter of 1996. Second, inflation has begun a cyclical climb, although there is
yet little linkage to the tight labor market. The economy is operating with very
little slack near the close of its sixth year of expansion. Hence, the
resumption of faster growth quickly restored a rising trend to bond yields and
pulled short-term rates above their December lows. As yet there is little
expectation of tighter Federal Reserve policy, although sustained above-trend
growth would probably justify higher rates during 1997. Modest tightening in
1997 would in our opinion help allay inflation fears and sustain another year of
economic growth.
Although the economy grew near its 2.4% long-term trend rate in 1996, it was
nonetheless quite volatile during the year. After a strong first half, and then
the summer slowdown, the return to faster growth late in the year is not broad-
based. Strong sectors are in manufacturing, exports, services and construction.
By contrast, some retailers found Christmas sales disappointing and capital
goods orders are mixed. However, inventories are quite lean and this tilts the
odds towards yet another year of growth in 1997. While corporate profit growth
slowed in 1996, profits still tended to surprise on the upside and should
maintain steady growth in 1997 too.
Accelerating wage growth in 1996 did not fuel higher prices. And surging energy
prices have failed to lift inflation elsewhere. Indeed, core inflation
(excluding food and energy) decelerated last year. The general price structure
has so far ignored the higher oil price, responding to it as temporary. However,
oil prices have been rising now for a year and, at some point, their ability to
raise the overall price level may become worrisome, especially if the Fed finds
them significant.
Both long-term and short-term interest rates were quite volatile in 1996. The
strength of the economy prompted rising rates through summer's end, but bond
yields then fell 90 basis points after the economy slowed. That period of low
rates may have ended now that faster growth is again apparent.
We believe the economy has reverted to a period of growth above the long-term
average. Key issues are whether faster growth will fuel higher inflation this
time and at what point rising oil prices would disturb price stability. The
economy will shortly begin a seventh expansion year and continued volatility in
growth and in sentiment is likely.
MARKET OVERVIEW
The stock market in 1996 was a mixture of agony and ecstasy, with the accent for
most of the year on the more desirable of those two alternatives. By the end of
the year, the Standard & Poor's 500 Composite Stock Price Index had registered a
gain of 22.95%, while the blue chip Dow Jones Industrial Average ("DJIA") gained
28.91%.+ The road leading to those impressive year-end gains was not a smooth
one, however.
The market year began haltingly, in the wake of shaky business conditions at the
end of the previous year. As 1996 unfolded, however, the market picked up steam.
The economy took on characteristics that continued for much of the year--low
inflation, moderate growth and relatively low interest rates. This was a
combination that investors liked, perhaps too much. By midyear, satisfaction
with the economy turned into fear that economic growth might be overdone.
The prevailing nervousness about potential inflation served to boost interest
rates temporarily, without the need for Federal Reserve intervention. This was a
temporary setback for large capitalization stocks, but more damaging to Nasdaq
issues and particularly to the smaller capitalization stocks measured by the
Russell 2000 Index.
As summer turned into fall, interest rates eased and inflation remained at bay.
The benign economic environment allowed many stocks to resume their upward
course, causing a string of record-breaking performances by the DJIA and other
broad market indexes. In mid-fall the prospect that government would continue
divided in Washington, with a Democratic President and a Republican-controlled
Congress, appeared to be another plus factor for the market. Stocks continued to
surge, hardly pausing
46
<PAGE>
for breath when Chairman Alan Greenspan raised a caution signal in early
December by referring to "irrational exuberance" in the equity markets.
Stock market veterans issued a stream of warnings that what goes up so strongly
and consistently must, at some point, come down. Nonetheless, a fairly steady
flow of new money coming into stocks from people putting money aside for
retirement seemed to be fueling the boom. While at the very end of the year,
caution caused a softening of stock prices, which backed away from the year's
record of 6560.91 on the DJIA, that record was surpassed in early 1997, when the
average surpassed 6700.
Among the best performing groups for 1996 were oil drillers, semi-conductors,
computers, financial enterprises and consumer nondurables. Corporate earnings
were very strong for much of the year, but showed signs of flagging as the year
wore on. This raised questions in the minds of many market observers whether the
scorching pace of the past year could be maintained.
We appreciate your investment and your confidence in the Dreyfus Corporation.
Sincerely,
/s/ Steven A. Falci
Steven A. Falci, CFA
Portfolio Manager
January 20, 1997
New York, N.Y.
* Total return includes reinvestment of dividends and any capital gains
paid.
** SOURCE: LIPPER ANALYTICAL SERVICES, INC.--Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions.
The Standard & Poor's 500 Composite Stock Price Index is a widely
accepted unmanaged index of U.S. stock market performance.
*** The Russell 2000 Index is a widely accepted unmanaged index of small
cap stock performance.
+ The Dow Jones Industrial Average (DJIA) is a price weighted average of
30 actively traded blue chip stocks.
47
<PAGE>
Dreyfus Stock Index Fund December 31, 1996
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN DREYFUS STOCK INDEX
FUND AND THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX
[LINE GRAPH APPEARS HERE]
*Source: Lipper Analytical Services, Inc.
Average Annual Total Returns
- --------------------------------------------------------------------------------
One Year Ended Five Years Ended From Inception (9/29/89)
December 31, 1996 December 31, 1996 to December 31, 1996
----------------- ----------------- ------------------------
22.54% 14.64% 13.69%
Past performance is not predictive of future performance.
The Fund's performance does not reflect the deduction of additional charges
applicable to separate accounts of participating insurance companies using the
Fund as an underlying investment.
The above graph compares a $10,000 investment made in Dreyfus Stock Index Fund
on 9/29/89 (Inception Date) to a $10,000 investment made in the Standard &
Poor's 500 Composite Stock Price Index on that date. For comparative purposes,
the value of the Index on 9/30/89 is used as the beginning value on 9/29/89. All
dividends and capital gain distributions are reinvested.
The Fund's performance shown in the line graph takes into account all applicable
fees and expenses. The Standard & Poor's 500 Composite Stock Price Index is a
widely accepted, unmanaged index of overall stock market performance, which does
not take into account charges, fees and other expenses. Further information
relating to Fund performance, including expense reimbursements, if applicable,
is contained in the Financial Highlights section of the Prospectus and elsewhere
in this report.
48
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Cost Value
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities--See Statement of
Investments ................................................................. $ 702,016,886 $ 816,408,826
Cash ........................................................................ 3,146,261
Dividends and interest receivable ........................................... 1,074,756
Receivable for investment securities sold ................................... 154,980
Prepaid expenses ............................................................ 698
--------------
820,785,521
--------------
LIABILITIES:
Due to The Dreyfus Corporation and affiliates ............................... 170,483
Payable for investment securities purchased ................................. 5,081,867
Payable for futures variation margin--Note 4(a) ............................. 1,377,500
Accrued expenses ............................................................ 196,898
--------------
6,826,748
--------------
NET ASSETS .................................................................. $ 813,958,773
==============
REPRESENTED BY:
Paid-in capital ............................................................. $ 675,673,544
Accumulated undistributed investment income--net ............................ 96,693
Accumulated net realized gain (loss) on investments ......................... 24,063,766
Accumulated net unrealized appreciation (depreciation)
on investments [including ($267,170) net unrealized
(depreciation) on financial futures]--Note 4(b) ............................ 114,124,770
--------------
NET ASSETS .................................................................. $ 813,958,773
==============
SHARES OUTSTANDING
(200 million shares of $.001 par value Common Stock authorized) ............. 40,128,613
NET ASSET VALUE, offering and redemption price per share .................... $ 20.28
==============
</TABLE>
See Notes to Financial Statements
49
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Cash dividends (net of $62,931 foreign taxes withheld at source) ............................ $ 10,395,226
Interest .................................................................................... 2,964,524
--------------
Total Income ............................................................................... 13,359,750
--------------
EXPENSES:
Management fee--Note 3(a) ................................................................... 1,278,312
Registration fees ........................................................................... 125,515
Professional fees ........................................................................... 77,292
Prospectus and shareholders' reports ........................................................ 40,817
Directors' fees and expenses--Note 3(c) ..................................................... 37,160
Shareholder servicing costs--Note 3(b) ...................................................... 6,090
Miscellaneous ............................................................................... 6,794
--------------
Total Expenses ............................................................................. 1,571,980
--------------
NET INVESTMENT INCOME ....................................................................... 11,787,770
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments--Note 4(a) ................................................. 23,146,990
Net realized gain on financial futures--Note 4(a) ........................................... 8,737,790
--------------
Net Realized Gain .......................................................................... 31,884,780
Net unrealized appreciation (depreciation) on investments
[including ($32,355) net unrealized (depreciation) on financial futures] ................... 67,782,146
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ............................................. 99,666,926
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $ 111,454,696
==============
</TABLE>
See Notes to Financial Statements
50
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF CHANGES IN NET ASSETS
For Years Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net Investment income.............................................................. $ 11,787,770 $ 4,465,773
Net realized gain on investments................................................... 31,884,780 8,075,002
Net unrealized appreciation (depreciation) on investments.......................... 67,782,146 43,128,888
-------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations................. 111,454,696 55,669,663
-------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment income.............................................................. (11,705,971) (4,476,568)
Net realized gain on investments................................................... (12,675,130) (2,357,447)
-------------- ---------------
Total Dividends.................................................................... (24,381,101) (6,834,015)
-------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold...................................................... 520,828,128 219,772,239
Dividends reinvested............................................................... 24,381,101 6,834,015
Cost of shares redeemed............................................................ (131,010,511) (59,561,665)
-------------- ---------------
Increase (Decrease) in Net Assets from Capital Stock Transactions.................. 414,198,718 167,044,589
-------------- ---------------
Total Increase (Decrease) in Net Assets........................................... 501,272,313 215,880,237
NET ASSETS:
Beginning of Period................................................................ 312,686,460 96,806,223
-------------- ---------------
End of Period...................................................................... $ 813,958,773 $ 312,686,460
============== ===============
Undistributed investment income--net............................................... $ 96,693 $ 14,894
-------------- ---------------
<CAPTION>
CAPITAL SHARE TRANSACTIONS:
Shares Shares
-------------- ---------------
<S> <C> <C>
Shares sold........................................................................ 27,543,376 14,313,682
Shares issued for dividends reinvested............................................. 1,269,483 417,105
Shares redeemed.................................................................... (6,861,606) (4,033,543)
-------------- ---------------
Net Increase (Decrease) in Shares Outstanding................................... 21,951,253 10,697,244
============== ===============
</TABLE>
See Notes to Financial Statements
51
<PAGE>
Dreyfus Stock Index Fund
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of Common
Stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from the Fund's financial statements.
<TABLE>
<CAPTION>
Four Months
Ended Year Ended
December 31, December 31, August 31,
---------------------------------------------- ----------- ----------
PER SHARE DATA: 1996 1995 1994 1993 1992 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $17.20 $12.94 $13.20 $15.32 $14.87 $14.20
------- ------- ------- ------- ------- -------
Investment Operations:
Investment income--net ........................... .39 .33 .32 .37 .13 .37
Net realized and unrealized gain (loss)
on investments .................................. 3.43 4.39 (.21) 1.04 .77 .68
------- ------- ------- ------- ------- -------
Total from Investment Operations ................. 3.82 4.72 .11 1.41 .90 1.05
------- ------- ------- ------- ------- -------
Distributions:
Dividends from investment income--net ............ (.39) (.33) (.31) (.34) (.21) (.38)
Dividends in excess of investment income--net .... -- -- -- (.03) -- --
Dividends from net realized gain
on investments .................................. (.35) (.13) -- (3.00) (.24) --
Dividends in excess of net realized gain
on investments .................................. -- -- (.06) (.16) -- --
------- ------- ------- ------- ------- -------
Total Distributions .............................. (.74) (.46) (.37) (3.53) (.45) (.38)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................... $20.28 $17.20 $12.94 $13.20 $15.32 $14.87
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN .......................... 22.54% 36.78% .88% 9.33% 6.05%(1) 7.49%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses
to average net assets ........................... .30% .39% .40% .40% .13%(1) .40%
Ratio of net investment income
to average net assets ........................... 2.24% 2.38% 2.57% 2.38% .85%(1) 2.63%
Decrease reflected in above expense ratios
due to undertakings by the Manager .............. -- .03% .16% .27% .03%(1) .13%
Portfolio Turnover Rate .......................... 10.92% 11.95% 2.82% 71.71% 6.94%(1) 7.66%
Average commission rate paid (2) ................. $.0317 -- -- -- -- --
Net Assets, end of period (000's Omitted) ........ $813,959 $312,686 $96,806 $61,319 $70,072 $74,446
</TABLE>
(1) Not annualized.
(2) For fiscal years beginning January 1, 1996, the Fund is required to disclose
its average commission rate paid per share for purchases and sales of investment
securities.
See Notes to Financial Statements
52
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCKS--91.6% Value
---------- --------------
<C> <S> <C>
Basic Industries--5.2%
14,700 Air Products & Chemicals .............. $ 1,016,137
17,200 Alco Standard ......................... 887,950
5,400 Armstrong World Industries ............ 375,300
13,800 Avery Dennison ........................ 488,175
4,000 Ball .................................. 104,000
6,900 Bemis ................................. 254,437
6,400 Boise Cascade ......................... 203,200
3,700 Centex ................................ 139,212
12,500 Champion International ................ 540,625
16,900 Crown Cork & Seal ..................... 918,937
32,000 Dow Chemical .......................... 2,508,000
74,100 duPont (E.I.) de Nemours .............. 6,993,187
10,300 Eastman Chemical ...................... 569,075
4,900 (a) FMC ................................... 343,612
11,000 Fluor ................................. 690,250
12,000 Georgia Pacific ....................... 864,000
7,100 Goodrich (B.F.) ....................... 287,550
11,700 Grace (W.R.) .......................... 605,475
8,300 Great Lakes Chemical .................. 388,025
13,500 Hercules .............................. 583,875
39,600 International Paper ................... 1,598,850
11,300 James River ........................... 374,312
37,200 Kimberly-Clark ........................ 3,543,300
14,300 Louisiana Pacific ..................... 302,087
6,900 Mead .................................. 401,062
55,000 Minnesota Mining & Manufacturing ...... 4,558,125
77,344 Monsanto .............................. 3,006,748
18,700 Morton International .................. 762,025
8,900 Nalco Chemical ........................ 321,512
43,300 Occidental Petroleum .................. 1,012,137
24,200 PPG Industries ........................ 1,358,225
3,700 Potlach ............................... 159,100
20,600 Praxair ............................... 950,175
8,400 Rohm & Haas ........................... 685,650
11,300 Sherwin-Williams ...................... 632,800
6,600 Sigma-Aldrich ......................... 412,087
13,000 Stone Container ....................... 193,375
7,300 Temple-Inland ......................... 395,112
9,200 Union Camp ............................ 439,300
16,800 Union Carbide ......................... 686,700
13,400 Westvaco .............................. 385,250
26,100 Weyerhaeuser .......................... 1,236,487
7,300 Willamette Industries ................. 508,262
--------------
42,683,703
--------------
Capital Goods--21.3%
28,900 AMP ................................... 1,109,037
18,000 (a) Advanced Micro Devices ................ 463,500
5,900 Alexander & Alexander Services ........ 102,512
22,932 Allegheny Teledyne .................... 527,436
37,200 AlliedSignal .......................... 2,492,400
16,000 (a) Amdahl ................................ 194,000
22,400 American Brands ....................... 1,111,600
8,000 (a) Andrew ................................ 424,500
16,400 Apple Computer ........................ 342,350
23,700 (a) Applied Materials ..................... 851,718
6,000 Autodesk .............................. 168,000
38,200 Automatic Data Processing ............. 1,637,825
25,500 (a) Bay Networks .......................... 532,312
48,397 Boeing ................................ 5,148,230
3,800 Briggs & Stratton ..................... 167,200
28,000 Browning-Ferris Industries ............ 735,000
35,600 (a) COMPAQ Computer ....................... 2,643,300
51,850 (a) CUC International ..................... 1,231,437
20,500 (a) Cabletron Systems ..................... 681,625
9,700 Case .................................. 528,650
25,200 Caterpillar ........................... 1,896,300
9,100 (a) Ceridian .............................. 368,550
5,200 Cincinnati Milacron ................... 113,750
85,400 (a) Cisco Systems ......................... 5,433,575
22,500 Cognizant ............................. 742,500
47,950 Computer Associates International ..... 2,385,512
10,000 (a) Computer Sciences ..................... 821,250
14,200 Cooper Industries ..................... 598,175
6,050 Crane ................................. 175,450
5,200 Cummins Engine ........................ 239,200
15,400 (a) DSC Communications .................... 275,275
5,100 (a) Data General .......................... 73,950
34,000 Deere ................................. 1,381,250
23,700 (a) Dell Computer ......................... 1,259,062
10,900 Deluxe ................................ 356,975
20,400 (a) Digital Equipment ..................... 742,050
14,800 Dover ................................. 743,700
12,700 Dow Jones & Co ........................ 430,212
23,100 Dresser Industries .................... 716,100
22,400 Dun & Bradstreet ...................... 532,000
6,200 EG&G .................................. 124,775
30,600 EMC ................................... 1,013,625
10,200 Eaton ................................. 711,450
29,500 Emerson Electric ...................... 2,854,125
58,900 First Data ............................ 2,149,850
5,300 Foster Wheeler ........................ 196,762
8,300 General Dynamics ...................... 585,150
216,700 General Electric ...................... 21,426,285
6,600 General Signal ........................ 282,150
15,900 Genuine Parts ......................... 707,550
4,300 Giddings & Lewis ...................... 55,362
7,000 Grainger (W.W.) ....................... 561,750
13,700 H&R Block ............................. 397,300
6,500 Harnischfeger Industries .............. 312,812
5,100 Harris ................................ 349,987
133,900 Hewlett-Packard ....................... 6,728,475
16,700 Honeywell ............................. 1,098,025
16,300 Illinois Tool Works ................... 1,301,962
14,400 Ingersoll-Rand ........................ 640,800
68,200 International Business Machines ....... 10,298,200
108,000 Intel ................................. 14,141,250
6,300 (a) Intergraph ............................ 64,575
10,700 Interpublic Group Cos ................. 508,250
5,400 Johnson Controls ...................... 447,525
17,000 (a) LSI Logic ............................. 454,750
41,300 Laidlaw, Cl. B ........................ 474,950
25,400 Lockheed Martin ....................... 2,324,100
83,898 Lucent Technologies ................... 3,880,282
9,800 Mallinckrodt Group .................... 432,425
9,500 Marsh & McLennan ...................... 988,000
7,200 McDermott International ............... 119,700
27,900 McDonnell Douglas ..................... 1,785,600
27,500 Micron Technology ..................... 800,937
157,300 (a) Microsoft ............................. 12,996,912
78,000 Motorola .............................. 4,787,250
18,300 (a) National Semiconductor ................ 446,062
6,200 National Service Industries ........... 231,725
34,000 Northern Telecommunications ........... 2,103,750
7,600 (a) Northrop Grumman ...................... 628,900
45,300 (a) Novell ................................ 428,934
86,500 (a) Oracle ................................ 3,611,375
6,800 Owens-Corning ......................... 289,850
15,101 Pall .................................. 385,075
9,800 Parker-Hannifin ....................... 379,750
5,700 Perkin-Elmer .......................... 335,587
</TABLE>
53
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCKS (continued) Value
---------- --------------
<C> <S> <C>
Capital Goods (continued)
19,500 Pitney Bowes ......................... $ 1,062,750
29,300 Rockwell ............................. 1,783,638
5,900 Raychem .............................. 472,737
31,100 Raytheon ............................. 1,496,687
10,800 Ryder System ......................... 303,750
7,700 Safety-Kleen ......................... 126,087
10,200 Scientific-Atlanta ................... 153,000
32,700 (a) Seagate Technology ................... 1,291,650
31,000 Service Corp. International .......... 868,000
3,100 Shared Medical Systems ............... 152,675
23,000 (a) Silicon Graphics ..................... 586,500
8,050 Snap-On .............................. 286,781
11,700 Stanley Works ........................ 315,900
48,300 (a) Sun Microsystems ..................... 1,240,706
22,900 (a) 3COM ................................. 1,680,287
3,700 TRINOVA .............................. 134,587
16,700 TRW .................................. 826,650
15,600 (a) Tandem Computers ..................... 214,500
4,300 Tektronix ............................ 220,375
23,600 (a) Tellabs .............................. 887,950
25,000 Texas Instruments .................... 1,593,750
10,900 Textron .............................. 1,027,325
20,000 Thermo Electron ...................... 825,000
7,000 Thomas & Betts ....................... 310,625
4,100 Timken ............................... 188,087
20,600 Tyco International ................... 1,089,225
23,000 (a) Unisys ............................... 155,250
31,700 United Technologies .................. 2,092,200
82,500 Westinghouse Electric ................ 1,639,687
63,800 WMX Technologies ..................... 2,081,475
42,700 Xerox ................................ 2,247,087
--------------
172,576,298
--------------
Consumer Cyclical--10.8%
33,100 Albertson's .......................... 1,179,187
9,900 American Greetings, Cl. A ............ 280,912
19,100 American Stores ...................... 780,712
20,000 (a) Autozone ............................. 550,000
16,400 Becton, Dickinson & Co ............... 711,350
11,500 Black & Decker ....................... 346,437
12,900 Brunswick ............................ 309,600
13,900 CVS .................................. 575,113
13,800 (a) Charming Shoppes ..................... 69,862
95,900 Chrysler ............................. 3,164,700
12,900 Circuit City Stores .................. 388,612
42,900 Comcast, Cl. A ....................... 764,156
10,900 Cooper Tire and Rubber ............... 215,275
13,400 Dana ................................. 437,175
20,700 Darden Restaurants ................... 181,125
28,500 Dayton Hudson ........................ 1,118,625
15,000 Dillard Department Stores, Cl. A ..... 463,125
89,300 Disney (Walt) ........................ 6,217,512
19,800 Donnelley (R.R.) & Sons .............. 621,225
8,200 Echlin ............................... 259,325
27,300 (a) Federated Department Stores .......... 931,612
4,600 Fleetwood Enterprises ................ 126,500
4,900 Fleming Cos .......................... 84,525
156,100 Ford Motor ........................... 4,975,687
10,200 (a) Fruit of the Loom, Cl. A ............. 386,325
18,500 Gannett .............................. 1,385,187
37,300 Gap .................................. 1,123,662
18,100 (a) General Instrument ................... 391,412
99,500 General Motors ....................... 5,547,125
7,900 Giant Food, Cl. A .................... 272,550
20,400 Goodyear Tire & Rubber ............... 1,048,050
5,000 Great Atlantic & Pacific ............. 159,375
17,000 (a) HFS .................................. 1,015,750
9,400 Harcourt General ..................... 433,575
4,000 Harland (John H.) .................... 132,000
13,500 (a) Harrah's Entertainment ............... 268,312
11,300 Hasbro ............................... 439,287
32,600 Hilton Hotel ......................... 851,675
63,200 Home Depot ........................... 3,167,900
15,300 (a) ITT .................................. 663,637
15,600 ITT Industries ....................... 382,200
5,100 Jostens .............................. 107,737
63,700 (a) K mart ............................... 660,887
4,900 (a) King World Productions ............... 180,687
12,300 Knight-Ridder ........................ 470,475
16,600 (a) Kroger ............................... 771,900
35,700 Limited .............................. 655,987
9,400 Liz Claiborne ........................ 363,075
2,600 Longs Drug Stores .................... 127,725
22,800 Lowes ................................ 809,400
16,900 Marriott International ............... 933,725
21,100 Masco ................................ 759,600
35,800 Mattel ............................... 993,450
33,100 May Department Stores ................ 1,547,425
13,200 Maytag ............................... 260,700
91,800 McDonald's ........................... 4,153,950
13,100 McGraw-Hill Cos ...................... 604,237
4,800 Mercantile Stores .................... 237,000
3,600 Meredith ............................. 189,900
13,100 Moore ................................ 266,912
1,133 NACCO Industries, Cl. A .............. 60,615
37,900 NIKE, Cl. B .......................... 2,264,525
9,700 (a) Navistar International ............... 88,512
12,700 New York Times, Cl. A ................ 482,600
10,700 Nordstrom ............................ 379,181
5,100 PACCAR ............................... 346,800
30,400 Penney (J.C.) ........................ 1,482,000
8,200 Pep Boys-Manny, Moe & Jack ........... 252,150
25,800 (a) Price/Costco ......................... 648,225
7,300 Reebok International ................. 306,600
16,200 Rite Aid ............................. 643,950
5,000 Russell .............................. 148,750
51,500 Sears, Roebuck & Co .................. 2,375,437
2,700 Springs Industries ................... 116,100
6,500 Stride Rite .......................... 65,000
8,900 Supervalu ............................ 252,537
23,600 Sysco ................................ 769,950
10,300 TJX Cos .............................. 487,962
7,700 Tandy ................................ 338,800
87,400 (a) Tele-Communications, Cl. A ........... 1,141,662
74,900 Time Warner .......................... 2,808,750
13,000 Times Mirror, Cl. A .................. 646,750
36,100 (a) Toys R Us ............................ 1,083,000
8,100 Tribune .............................. 638,887
82,200 (a) US West Media Group .................. 1,520,700
8,400 V.F .................................. 567,000
46,601 (a) Viacom, Cl. B ........................ 1,625,209
301,900 Wal-Mart Stores ...................... 6,905,962
32,400 Walgreen ............................. 1,296,000
17,100 Wendy's International ................ 350,550
9,800 Whirlpool ............................ 456,925
19,900 Winn-Dixie Stores .................... 629,337
17,600 (a) Woolworth ............................ 385,000
--------------
88,080,572
--------------
</TABLE>
54
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCKS (continued) Value
---------- --------------
<C> <S> <C>
Consumer Staples (continued)
31,700 ConAgra............................... $ 1,577,075
5,000 Coors (Adolph), Cl. B................. 95,000
43,900 Eastman Kodak......................... 3,522,975
8,500 Ecolab................................ 319,812
20,600 General Mills......................... 1,305,525
73,500 Gillette.............................. 5,714,625
48,400 Heinz (H.J.).......................... 1,730,300
20,200 Hershey Foods......................... 883,750
14,600 International Flavors & Fragrances.... 657,000
175,300 Johnson & Johnson..................... 8,721,175
27,700 Kellogg............................... 1,817,812
8,300 Manor Care............................ 224,100
20,900 Newell................................ 658,350
204,500 PepsiCo............................... 5,981,625
107,200 Philip Morris Cos..................... 12,073,400
10,900 Pioneer Hi-Bred International......... 763,000
6,000 Polaroid.............................. 261,000
89,800 Procter & Gamble...................... 9,653,500
17,900 Quaker Oats........................... 682,437
13,900 Ralston-Ralston Purina Group.......... 1,019,912
19,700 Rubbermaid............................ 448,175
63,700 Sara Lee.............................. 2,372,825
49,100 Seagram............................... 1,902,625
8,200 Tupperware............................ 439,725
24,500 UST................................... 793,187
21,100 Unilever, N.V......................... 3,697,775
13,600 Whitman............................... 311,100
15,300 Wrigley, (Wm) Jr...................... 860,625
-------------
97,918,256
-------------
Energy--9.1%
12,200 Amerada Hess.......................... 706,075
65,400 Amoco................................. 5,264,700
8,500 Ashland............................... 372,937
21,200 Atlantic Richfield.................... 2,809,000
19,000 Baker Hughes.......................... 655,500
16,400 Burlington Resources.................. 826,150
85,900 Chevron............................... 5,583,500
13,800 Coastal............................... 674,475
7,300 Columbia Gas System................... 464,462
12,500 Consolidated Natural Gas.............. 690,625
2,700 Eastern Enterprises................... 95,512
33,500 Enron................................. 1,444,687
9,200 Enserch............................... 211,600
163,500 Exxon................................. 16,023,000
16,500 Halliburton........................... 994,125
3,320 Helmerich & Payne..................... 173,055
6,400 Kerr-McGee............................ 460,800
4,500 Louisiana Land & Exploration.......... 241,312
51,900 Mobil................................. 6,344,775
6,500 Nicor................................. 232,375
18,100 Noram Energy.......................... 278,287
3,600 Oneok................................. 108,000
13,800 (a) Oryx Energy........................... 341,550
11,100 Pacific Enterprises................... 337,162
19,900 Panenergy............................. 895,500
6,100 Pennzoil.............................. 344,650
4,600 Peoples Energy........................ 155,825
34,600 Phillips Petroleum.................... 1,531,050
11,200 (a) Rowan Cos............................. 253,400
70,500 Royal Dutch Petroleum................. 12,037,875
11,900 (a) Santa Fe Energy Resources............. 165,112
32,500 Schlumberger.......................... 3,245,937
11,300 Sonat................................. 581,950
21,900 Tenneco............................... 988,238
Consumer Staples--12.0%
3,700 Alberto-Culver, Cl. B................. 177,600
65,700 Anheuser-Busch Cos.................... 2,628,000
71,551 Archer Daniels Midland................ 1,574,122
17,500 Avon Products......................... 999,687
9,100 Brown-Forman, Cl. B................... 416,325
18,900 CPC International..................... 1,464,750
30,800 Campbell Soup......................... 2,471,700
6,800 Clorox................................ 682,550
327,500 Coca-Cola............................. 17,234,687
19,300 Colgate-Palmolive..................... 1,780,425
9,600 Sun................................... 234,000
34,800 Texaco................................ 3,414,750
37,900 USX-Marathon Group.................... 904,862
32,944 Union Pacific Resources Group......... 963,614
32,900 Unocal................................ 1,336,562
7,100 (a) Western Atlas......................... 503,212
20,700 Williams Cos.......................... 776,250
-------------
73,666,451
-------------
Health Care-- 8.3%
102,300 Abbott Laboratories................... 5,191,725
8,600 (a) Allergan.............................. 306,375
11,100 Alza.................................. 287,212
84,000 American Home Products................ 4,924,500
34,800 (a) Amgen................................. 1,892,250
7,500 Bard (C.R.)........................... 210,000
7,300 Bausch & Lomb......................... 255,500
35,900 Baxter International.................. 1,471,900
13,100 (a) Beverly Enterprises................... 167,025
15,200 Biomet................................ 229,900
23,400 (a) Boston Scientific..................... 1,404,000
65,900 Bristol-Myers Squibb.................. 7,166,625
88,350 Columbia/HCA Healthcare............... 3,600,262
30,300 Corning............................... 1,401,375
9,600 Guidant............................... 547,200
21,400 (a) Humana................................ 409,275
72,600 Lilly (Eli)........................... 5,299,800
31,600 Medtronic............................. 2,148,800
158,600 Merck & Co............................ 12,569,050
5,700 Millipore............................. 235,837
84,800 Pfizer................................ 7,027,800
66,900 Pharmacia & Upjohn.................... 2,650,912
48,600 Schering-Plough....................... 3,146,850
10,700 St. Jude Medical...................... 456,087
28,600 (a) Tenet Healthcare...................... 625,625
8,300 U.S. Surgical......................... 326,812
24,300 United Healthcare..................... 1,093,500
35,700 Warner-Lambert........................ 2,677,500
-------------
67,723,697
-------------
Interest Sensitive--13.5%
19,799 Aetna................................. 1,583,920
13,900 Ahmanson (H.F.) & Co.................. 451,750
58,500 Allstate.............................. 3,385,687
62,300 American Express...................... 3,519,950
26,700 American General...................... 1,091,362
61,800 American International Group.......... 6,689,850
14,200 Aon................................... 882,175
56,200 Banc One.............................. 2,416,600
51,600 Bank of New York...................... 1,741,500
47,300 BankAmerica........................... 4,718,175
20,100 Bank of Boston........................ 1,291,425
10,800 Bankers Trust New York................ 931,500
25,600 Barnett Banks......................... 1,052,800
7,100 Beneficial............................ 449,962
20,300 Boatmens Bancshares................... 1,309,350
</TABLE>
55
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCKS (continued) Value
---------- --------------
<C> <S> <C>
Interest Sensitive (continued)
11,900 Worthington Industries..................$ 215,687
9,900 CIGNA................................... 1,352,587
57,800 Chase Manhattan......................... 5,158,650
22,900 Chubb................................... 1,230,875
62,000 Citicorp................................ 6,386,000
14,100 Comerica................................ 738,487
29,300 CoreStates Financial.................... 1,519,937
21,101 Dean Witter, Discover & Co.............. 1,397,941
143,700 Federal National Mortgage Association... 5,352,825
23,600 Federal Home Loan Mortgage.............. 2,598,950
13,900 Fifth Third Bancorp..................... 873,093
17,700 First Bank Systems...................... 1,208,025
41,900 First Chicago NBD....................... 2,252,125
37,400 First Union............................. 2,767,600
34,500 Fleet Financial Group................... 1,720,687
10,900 General Re.............................. 1,719,475
7,600 Golden West Financial................... 479,750
18,200 Great Western Financial................. 527,800
18,100 Green Tree Financial.................... 699,112
12,700 Household International................. 1,171,575
15,500 ITT Hartford............................ 1,046,250
9,400 Jefferson Pilot......................... 532,275
5,100 Kaufman & Broad Home.................... 65,662
29,700 Keycorp................................. 1,499,850
13,700 Lincoln National........................ 719,250
15,200 Loews................................... 1,432,600
5,700 MBIA.................................... 577,125
29,300 MBNA.................................... 1,215,950
7,800 MGIC Investment......................... 592,800
17,100 Mellon Bank............................. 1,214,100
21,700 Merrill Lynch & Co...................... 1,768,550
24,600 Morgan (J.P.) & Co...................... 2,401,575
20,000 Morgan Stanley Group.................... 1,142,500
29,200 National City........................... 1,310,350
37,900 NationsBank............................. 3,704,725
48,700 Norwest................................. 2,118,450
44,900 PNC Bank................................ 1,689,362
12,300 Providian............................... 631,912
3,100 Pulte................................... 95,325
7,300 Republic New York....................... 595,862
16,600 Safeco.................................. 654,662
14,300 Salomon................................. 673,887
10,900 St. Paul Cos............................ 639,012
29,400 SunTrust Banks.......................... 1,447,950
9,300 Torchmark............................... 469,650
8,700 Transamerica............................ 687,300
84,266 Travelers Group......................... 3,823,600
9,700 UNUM.................................... 700,825
15,200 USF&G................................... 317,300
4,500 USLife.................................. 149,625
19,900 U.S. Bancorp............................ 894,256
21,700 Wachovia................................ 1,226,050
12,100 Wells Fargo............................. 3,263,975
--------------
109,974,065
--------------
Mining and Metals--1.3%
14,000 (a) ARMCO................................... 57,750
5,600 ASARCO.................................. 139,300
29,800 Alcan Aluminium......................... 1,002,025
22,800 Aluminum Co. of America................. 1,453,500
47,100 Barrick Gold............................ 1,354,125
29,600 Battle Mountain Gold.................... 203,500
14,700 (a) Bethlehem Steel......................... 132,300
12,200 Cyprus Amax Minerals.................... 285,175
18,300 Echo Bay Mines.......................... 121,237
18,900 Engelhard............................... 361,462
25,500 Freeport-McMoRan Copper, Cl. B.......... 761,812
19,300 Homestake Mining........................ 275,025
22,200 Inco.................................... 707,625
6,400 Inland Steel Industries................. 128,000
13,101 Newmont Mining.......................... 586,269
11,500 Nucor................................... 586,500
8,600 Phelps Dodge............................ 580,500
31,500 Placer Dome............................. 685,125
8,400 Reynolds Metals......................... 473,550
17,301 Santa Fe Pacific Gold................... 266,002
11,100 USX-U.S. Steel.......................... 348,262
--------------
10,724,731
--------------
Transportation--1.3%
11,900 (a) AMR..................................... 1,048,687
20,100 Burlington Northern Santa Fe............ 1,736,137
28,500 CSX..................................... 1,204,125
5,100 Caliber System.......................... 98,175
10,600 Conrail................................. 1,056,025
9,900 Delta Air Lines......................... 701,662
15,000 Federal Express......................... 667,500
16,500 Norfolk Southern........................ 1,443,750
19,100 Southwest Airlines...................... 422,587
8,500 (a) USAir Group............................. 198,687
32,300 Union Pacific........................... 1,942,037
--------------
10,519,372
--------------
Utilities--8.8%
25,000 ALLTEL.................................. 784,375
213,300 AT&T.................................... 9,278,550
66,000 (a) Airtouch Communications................. 1,666,500
24,700 American Electric Power................. 1,015,787
72,300 Ameritech............................... 4,383,187
19,400 Baltimore Gas & Electric................ 518,950
57,600 Bell Atlantic........................... 3,729,600
130,800 BellSouth............................... 5,281,050
20,700 CINergy................................. 690,862
19,900 Carolina Power & Light.................. 726,350
27,700 Central & Southwest..................... 709,812
31,000 Consolidated Edison..................... 906,750
19,100 DTE Energy.............................. 618,362
23,700 Dominion Resources...................... 912,450
26,500 Duke Power.............................. 1,225,625
57,000 Edison International.................... 1,132,875
30,400 Entergy................................. 843,600
24,100 FPL Group............................... 1,108,600
22,000 Frontier................................ 497,750
15,900 GPU..................................... 534,637
126,600 GTE..................................... 5,760,300
30,900 Houston Industries...................... 699,112
90,200 MCI Communications...................... 2,948,412
57,900 NYNEX................................... 2,786,437
19,000 Niagara Mohawk Power.................... 187,625
9,100 Northern States Power................... 417,462
20,100 Ohio Edison............................. 457,275
29,300 PECO Energy............................. 739,825
21,400 PP&L Resources.......................... 492,200
54,300 Pacific Gas & Electric.................. 1,140,300
56,400 Pacific Telesis Group................... 2,072,700
38,800 PacifiCorp.............................. 795,400
31,400 Public Service Enterprise Group......... 855,650
79,400 SBC Communications...................... 4,108,950
88,700 Southern................................ 2,006,837
56,600 Sprint.................................. 2,256,925
29,600 Texas Utilities......................... 1,206,200
28,400 UniCom.................................. 770,350
13,400 Union Electric.......................... 515,900
</TABLE>
56
<PAGE>
Dreyfus Stock Index Fund
STATEMENT OF INVESTMENTS (Continued)
December 31, 1996
<TABLE>
<CAPTION>
Shares COMMON STOCKS (continued) Value
--------- --------------
<C> <S> <C>
Utilities (continued)
62,800 US West ............................. 2,025,300
114,400 (a) WorldCom ............................ 2,981,550
--------------
71,790,382
==============
TOTAL COMMON STOCKS
(cost $631,260,923) ................ $ 745,657,527
</TABLE>
<TABLE>
<CAPTION>
Principal SHORT-TERM
Amount INVESTMENTS--8.7% Value
---------- --------------
<C> <S> <C>
U.S. Treasury Bills:
$ 979,000 4.9%, 1/2/1997........................ $ 978,873
2,628,000 4.94%, 1/9/1997....................... 2,625,188
4,979,000 (b) 4.96%, 1/16/1997...................... 4,968,744
3,041,000 4.99%, 1/23/1997...................... 3,031,938
499,000 5.01%, 1/30/1997...................... 497,054
3,443,000 4.98%, 2/27/1997...................... 3,416,006
26,111,000 4.94%, 3/6/1997....................... 25,880,701
29,643,000 4.89%, 3/13/1997...................... 29,352,795
--------------
TOTAL SHORT-TERM
(cost $70,755,963)................... $ 70,751,299
==============
TOTAL INVESTMENTS
(cost $702,016,886) .......................... 100.3% $ 816,408,826
====== ==============
LIABILITIES LESS CASH AND
RECEIVABLES .................................. (.3)% $ (2,450,053)
====== ==============
NET ASSETS .................................... 100.0% $ 813,958,773
====== ==============
</TABLE>
Notes to Statement of Investments:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) Partially held by custodian in a segregated account as collateral for open
financial future positions.
Statement of Financial Futures December 31, 1996
- --------------------------------------------------------------------------------
Financial Futures Purchased
<TABLE>
<CAPTION>
Market Value Unrealized
Number of Covered (Depreciation)
Issuer Contracts by Contracts Expiration at 12/31/96
--------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Standard & Poor's 500......... 187 $69,610,750 March 1997 ($267,170)
</TABLE>
See Notes to Financial Statements
57
<PAGE>
Dreyfus Stock Index Fund
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Stock Index Fund (the "Fund") is registered under the Investment Company
Act of 1940 ("Act") as a non-diversified open-end management investment company,
that is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of life
insurance companies. The Fund's investment objective is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks as represented by the Standard and Poor's 500 Composite Stock
Price Index. The Dreyfus Corporation ("Dreyfus") serves as the Fund's manager
and Mellon Equity Associates ("Mellon Equity"), an affiliate of Dreyfus, serves
as the Fund's index manager. Boston Safe Deposit and Trust Company, an affiliate
of Dreyfus, is the Fund's custodian. Dreyfus is a direct subsidiary of Mellon
Bank, N.A. Premier Mutual Fund Services, Inc. acts as the distributor of the
Fund's shares, which are sold without a sales charge.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management estimates
and assumptions. Actual results could differ from those estimates.
(a) Portfolio valuation: Investments in securities (including financial
futures) are valued at the last sales price on the securities
exchange on which such securities are primarily traded or at the last
sales price on the national securities market. Securities not listed
on an exchange or the national securities market, or securities for
which there were no transactions, are valued at the average of the
most recent bid and asked prices. Bid price is used when no asked
price is available. Investments denominated in foreign currencies are
translated to U.S. dollars at the prevailing rates of exchange.
(b) Securities transactions and investment income: Securities
transactions are recorded on a trade date basis. Realized gain and
loss from securities transactions are recorded on the identified cost
basis. Dividend income is recognized on the ex-dividend date and
interest income, including, where applicable, amortization of
discount on investments, is recognized on the accrual basis.
(c) Dividends to shareholders: Dividends are recorded on the ex-dividend
date. Dividends from investment income-net are declared and paid on a
quarterly basis. Dividends from net realized capital gain are
normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the
distribution requirements of the Internal Revenue Code. This may
result in distributions that are in excess of investment income-net
on a fiscal year basis. To the extent that net realized capital gain
can be offset by capital loss carryovers, if any, it is the policy of
the Fund not to distribute such gain.
(d) Federal income taxes: It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is
in the best interests of its shareholders, by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make
distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
NOTE 2--Bank Line of Credit:
The Fund participates with other Dreyfus managed funds in a $100 million
unsecured line of credit primarily to be utilized for temporary or emergency
purposes, including the financing of redemptions. Interest is charged to the
Fund at rates which are related to the Federal Funds rate in effect at the time
of borrowings. For the period ended December 31, 1996, the Fund did not borrow
under the line of credit.
NOTE 3--Management Fee and Other Transactions With Affiliates:
(a) Pursuant to an Investment Advisory Agreement with Dreyfus, the
investment advisory fee is computed at the annual rate of .245 of 1%
of the value of the Fund's average daily net assets, and is payable
monthly. Dreyfus has agreed to pay Mellon Equity, a monthly fee at
the annual rate of .095 of 1% of the value of the Fund's average
daily net assets. Dreyfus has currently undertaken from January 1,
1996 until December 31, 1996 and thereafter until such a time as they
give shareholders at least 180 days notice to the contrary that if in
any full fiscal year the Fund's aggregate expenses (exclusive of
brokerage commissions, transaction fees and extraordinary expenses)
exceed an annual rate of .40 of 1% of the value of the Fund's average
daily net assets, the Fund may deduct from the payments to be made to
Dreyfus, or Dreyfus will bear, such excess expense. There was no
expense reimbursement for the period ended December 31, 1996.
58
<PAGE>
(b) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus, an
amount not to exceed an annual rate of .25 of 1% of the value of the
Fund's average daily net assets for certain allocated expenses with
respect to servicing and/or maintaining shareholder accounts. During
the period ended December 31, 1996, the Fund was charged an aggregate
of $9,218 pursuant to the Shareholder Services Plan.
The Fund compensates Dreyfus Transfer, Inc., a wholly-owned
subsidiary of the Manager, under a transfer agency agreement for
providing personnel and facilities to perform transfer agency
services for the Fund. Such compensation amounted to $362 during the
period ended December 31, 1996.
(c) Each director who is not an "affiliated person" as defined in the Act
receives from the Fund an annual fee of $2,500 and an attendance fee
of $500 per meeting. The Chairman of the Board receives an additional
25% of such compensation.
NOTE 4--Securities Transactions:
(a) The aggregate amount of purchases and sales of investment securities,
excluding short-term securities, during the period ended December 31,
1996 amounted to $424,886,551 and $51,539,693, respectively.
The Fund may invest in financial futures contracts in order to gain
exposure to or protect against changes in the market. The Fund is
exposed to market risk as a result of changes in the value of the
underlying financial instruments (see the Statement of Financial
Futures). Investments in financial futures require the Fund to "mark
to market" on a daily basis, which reflects the change in the market
value of the contract at the close of each day's trading.
Accordingly, variation margin payments are received or made to
reflect daily unrealized gains or losses. When the contracts are
closed, the Fund recognizes a realized gain or loss. These
investments require initial margin deposits with a custodian, which
consist of cash or cash equivalents, up to approximately 10% of the
contract amount. The amount of these deposits is determined by the
exchange or Board of Trade on which the contract is traded and is
subject to change. Contracts open at December 31, 1996 and their
related unrealized market depreciation are set forth in the Statement
of Financial Futures.
(b) At December 31, 1996, accumulated net unrealized appreciation on
investments was $114,124,770, consisting of $121,757,907 gross
unrealized appreciation and $7,633,137 gross unrealized depreciation.
At December 31, 1996, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial
reporting purposes (see the Statement of Investments).
59
<PAGE>
Dreyfus Stock Index Fund
Report of Independent Accountants
To the Shareholders and Board of Directors of Dreyfus Stock Index Fund:
We have audited the accompanying statement of assets and liabilities of Dreyfus
Stock Index Fund, including the statements of investments and financial futures,
as of December 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, for the period September 1, 1992 to December 31, 1992,
and the year ended August 31, 1992. 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, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Dreyfus Stock Index Fund as of December 31, 1996, the results of its operations,
the changes in its net assets, and the financial highlights for the periods
referred to above, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 29, 1997
Important Tax Information (Unaudited)
For Federal tax purposes the Fund hereby designates $.1175 per share as a
long-term capital gain distribution of the $.2725 per share paid on December 31,
1996 and also designates $.101 per share as a long-term capital gain
distribution of the $.165 per share paid on August 30, 1996.
60
<PAGE>
Dreyfus Stock Index Fund
Proxy Results (Unaudited)
A special meeting of stockholders of the Fund was held on July 26, 1996, at
which shareholders approved the election of the following Board members: Joseph
S. DiMartino, by a vote of 23,175,588 shares in favor of and 882,570 shares
withholding authority to vote; John M. Fraser, Jr., by a vote of 23,124,031
shares in favor of and 934,127 shares withholding authority to vote; Ehud
Houminer, by a vote of 23,157,401 shares in favor of and 900,757 shares
withholding authority to vote; David J. Mahoney, by a vote of 23,150,331 shares
in favor of and 907,827 shares withholding authority to vote; Gloria Messinger,
by a vote of 23,170,518 shares in favor of and 887,640 shares withholding
authority to vote; David P. Feldman, by a vote of 23,192,286 shares in favor of
and 865,872 shares withholding authority to vote, Jack R. Meyer, by a vote of
23,199,621 shares in favor of and 858,537 shares withholding authority to vote;
John Szarkowski, by a vote of 23,129,134 shares in favor of and 929,024 shares
withholding authority to vote; and Anne Wexler, by a vote of 23,161,016 shares
in favor of and 897,142 shares withholding authority to vote. The shareholders
also ratified the selection Coopers & Lybrand L.L.P. as independent auditors by
a vote of 22,776,119 shares in favor of, and 191,304 shares against the
selection, with 1,090,734 shares abstaining (including broker non-votes). Also
considered at the meeting was a change from fundamental policy to a
non-fundamental policy an investment restriction which prohibits the Fund from
purchasing securities of any company having less than three years continuous
operations if such purchase would cause the value of such investments in all
such companies to exceed 5% of the value of the Fund's total assets. The change
from fundamental to non-fundamental policy was proposed to afford the Fund the
investment flexibility to permit it to be competitive with other similar funds,
and was approved by shareholders by a vote of 19,870,738 shares with 1,183,650
shares voting against the change and 3,003,158 shares abstaining (including
broker non-votes).
61
